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Operator: Greetings, and welcome to the AMG Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Patricia Figueroa, Head of Investor Relations for AMG. Thank you. You may begin. Patricia Figueroa: Good morning, and thank you for joining us today to discuss AMG's results for the third quarter of 2025. Before we begin, I'd like to remind you that during this call, we may make a number of forward-looking statements, which could differ from our actual results materially and AMG assumes no obligation to update these statements. Also, please note that nothing on this call constitutes an offer of any products, investment vehicles, or services of any AMG affiliate. A replay of today's call will be available on the Investor Relations section of our website along with a copy of our earnings release and reconciliations of any non-GAAP financial measures, including any earnings guidance provided. In addition, we have posted an updated investor presentation to our website and encourage investors to consult our site regularly for updated information. With us today to discuss the company's results for the quarter are Jay Horgen, Chief Executive Officer; Tom Wojcik, President and Chief Operating Officer; and Dava Ritchea, Chief Financial Officer. With that, I'll turn the call over to Jay. Jay Horgen: Thanks, Patricia, and good morning, everyone. It has been a landmark year for AMG with record net inflows in alternative strategies and near record levels of capital deployed in growth investments across both new and existing affiliates. Our third quarter results reflect the building momentum in our business with a 17% year-over-year increase in EBITDA and a 27% growth rate in economic earnings per share. In addition, our organic growth profile continued to improve in the third quarter, driven by alternative strategies with $9 billion in firm-wide net inflows, bringing our year-to-date total net inflows to $17 billion which represents a 3% annualized organic growth rate. Through the third quarter across both organic growth and new affiliate investments, AMG has added approximately $76 billion in alternative assets under management, representing an increase of nearly 30% in our total alternative AUM. This increase includes $51 billion in net inflows into alternatives. Today, our affiliates manage $353 billion in alternative AUM contributing 55% of our EBITDA on a run rate basis and including sizable contributions from 2 of AMG's largest and longest-standing Affiliates, Pantheon and AQR. Both firms continue to capitalize on the tailwinds in their respective areas by leveraging their scale, innovative cultures and differentiated expertise which are collectively driving strong ongoing organic growth for AMG. These elements are continuing to have a meaningful impact on our business profile and earnings. And as you know, we expect each affiliate to be a double-digit contributor to AMG's earnings this year. Given the substantial increase in our alternative AUM, the significant growth and margin expansion at AQR and Pantheon, the positive contributions resulting from capital deployed in growth investments and the positive impact of our ongoing allocation of capital to share repurchases, we anticipate a meaningful increase in our full year economic earnings per share in 2026. Looking ahead, we have expanding opportunities to further invest in growth by investing in new and existing affiliates and by investing in AMG's strategic capabilities to magnify our affiliates success. Our new investment pipeline remains strong with active ongoing dialogue with prospective affiliates operating in both private markets and liquid alternatives. Our investment model continues to resonate with the highest quality partner-owned firms seeking a strategic partner that can enhance their long-term success while also supporting their independence. And our strategic capabilities, particularly in capital formation, increasingly differentiate AMG and our dialogue with prospective affiliate partners. We recently announced a strategic collaboration, which highlights the value of AMG's capital formation capabilities in the U.S. wealth channel. Brown Brothers Harriman, a globally recognized 200-year-old firm with considerable scale, chose to strategically collaborate with AMG to develop innovative products and deliver structured and alternative credit solutions to the wealth channel, a very strong statement on AMG's value proposition. Also in the third quarter, we announced the sale of AMG's minority stake in Comvest private credit business. AMG invested in Comvest to provide a combination of growth capital and strategic capabilities that accelerated the growth of its credit franchise. We were pleased that AMG's strategic engagement ultimately resulted in a positive outcome for all stakeholders, including AMG shareholders. The significant return of capital, nearly 3x our purchase price highlights the underlying value of our affiliates managing alternative strategies. Having committed more than $1 billion across 5 new growth investments so far in 2025. We continue to actively expand AMG's participation in areas of secular growth. We have an excellent capital position, which was further enhanced by the significant proceeds from the sale of our interest in [indiscernible] and Comvest. And given our ample financial flexibility and our distinct competitive advantages, we have an outstanding opportunity to further increase our earnings growth by continuing to make growth investments and return capital to shareholders. Finally, it has been an extraordinary year for AMG in terms of both organic growth and new affiliate investments, laying the groundwork for accelerating EBITDA and earnings growth in 2026. As we continue to execute our strategy, building upon more than 3 decades of successful partnerships, we are confident in our ability to continue to generate long-term earnings growth. And with that, I'll turn it over to Tom. Thomas Wojcik: Thank you, Jay, and good morning, everyone. AMG's activities over the course of this year illustrate our strategy in action. As we evolve our business mix more toward alternatives, our business is generating strong organic growth in both liquid alternatives and private markets. And we continue to invest in both our affiliates and in AMG's own capabilities to support future growth opportunities. This year, we have entered 4 new investment partnerships with alternative firms squarely aligned with long-term secular growth trends. We also announced a strategic collaboration to bring structured credit products to the U.S. wealth marketplace with BBH Credit Partners highlighting the strength of AMG's capital formation capabilities. And we engage strategically with our affiliates across a range of business initiatives, including new product launches, building out adjacent capabilities and supporting 2 of our private markets affiliates and their sales to consolidators. Taken together, these strategic actions and many other elements of our unique model drove significant earnings growth and cash flow generation, which we have invested and will continue to invest for growth. Fueling the execution of our strategy and the forward evolution of our business, while simultaneously returning capital through share repurchases and further delivering value to our shareholders. In the third quarter, AMG delivered $9 billion in net client cash inflows and $17 billion on a year-to-date basis, representing an annualized organic growth rate of 3% thus far in 2025. Our strong organic growth this year reflects rapidly growing client demand for liquid alternative strategies and ongoing momentum in private markets fundraising. In the quarter, our affiliates generated $18 billion in net inflows in alternatives, more than offsetting $9 billion in outflows in active equities and highlighting the advantages of AMG's business profile that is increasingly weighted toward high-growth alternative asset classes. In liquid alternatives, our affiliates value proposition continues to resonate with clients. With $14 billion in net inflows, AMG posted the strongest quarterly net flows in liquid alternatives in our history, driven primarily by tax aware solutions, and supported by positive contributions from a number of affiliates. Client demand for tax aware strategies remains substantial. And AMG's Affiliates offer highly attractive products. And more broadly, AMG's diverse group of affiliates managing liquid alternative strategies is well positioned to deliver excellent risk-adjusted returns for clients and attract new flows over time. Our private markets affiliates raised $4 billion in the quarter, mainly driven by another strong quarter at Pantheon and positive contributions from EIG and Abacus demonstrating the diversity of our affiliates offerings across private market solutions, credit, private equity, real estate and infrastructure. The ongoing fundraising momentum of our private markets affiliates reflects investors' conviction in their specialized investment strategies, along with the impact of ongoing secular growth trends. Looking ahead, the management and performance fee potential across our private markets affiliates, including some of our most recent new investment partnerships, which are not yet reflected in our results, represents a significant source of upside for the long-term earnings profile of our business. As we continue to form new partnerships with growing high-quality independent firms, such as our new investments in Northbridge, Verition, Montefiore and Qualitas Energy this year and our strategic collaboration with BBH Credit Partners, we are broadening our exposure to fast-growing specialty areas within alternatives and further diversifying our business. BBH's taxable fixed income franchise has delivered top quartile performance across strategies and market environments. Our strategic collaboration will bring the firm's industry-leading structured and alternative credit expertise into the U.S. wealth marketplace. As high net worth clients and their advisers continue to drive demand for alternative strategies, credit remains a core focus. And the return characteristics and scalability of structured credit make this area uniquely attractive. BBH is one of the industry's longest tenured and most active players with a differentiated structured credit investment track record across the full capital stack, and in combination with AMG's product development and distribution capabilities, we see significant opportunity to build unique investment solutions to meet growing demand. AMG provided excellent alignment with BBH's goals for a number of reasons. The complementary strengths of our respective businesses, access to significant seed capital, the permanent nature of our model and strong cultural connectivity across our firms. The strategic collaboration will accelerate the expansion of BBH structured credit franchise and will further enhance AMG's position as a leading sponsor of alternative strategies for the U.S. wealth market. The rapidly growing demand in U.S. wealth for distinctive alternative products is one of the most visible mega trends in the asset management industry today. And AMG is uniquely positioned to benefit. AQR has been a leader for more than a decade in developing and delivering excellent investment solutions to U.S. wealth clients and its innovation and tax aware strategies continues to drive rapid adoption. Pantheon was one of the earliest innovators in limited liquidity vehicles in private markets and product development and flows are accelerating across its product line. Our collaboration with BBH Credit Partners speaks to the success that AMG has seen thus far in driving growth in alternatives in the wealth channel, and we see significant opportunities ahead. As clients increasingly look to AMG as the industry's leading entry point to access the differentiated alternative investment capabilities of independent partner-owned firms, AMG's footprint in U.S. wealth is well positioned for rapid growth. Importantly, the success that we are having in the U.S. wealth channel is resonating not only with clients and existing AMG affiliates but also with new investment prospects as accessing this attractive market requires scale and is difficult, if not impossible, for many independent firms to do on their own. As we continue to invest in new partnerships with alternatives firms, we look forward to collaborating with additional affiliates to broaden their reach and expand their platforms. AMG's business has continued to evolve in 2025, driven by our focus on allocating our resources and capital to areas of secular growth. As we execute our strategy, we expect the contribution from alternative businesses to further increase, enhancing our long-term organic growth profile and earnings profile, and we are excited about the opportunities ahead. With that, I'll turn the call over to Dava to discuss our third quarter results and guidance. Dava Ritchea: Thank you, Tom, and good morning, everyone. It has been an exciting year for AMG. In 2025 to date, we have committed approximately $1.5 billion in capital across growth investments and share repurchases, and we continue to be in a strong position to execute on future growth opportunities and return capital to shareholders, given our significant cash generation and strong balance sheet. I will start by walking through the results for the quarter then will discuss the positive impact of recent capital activity on our forward earnings power and conclude with a discussion on our balance sheet. In the third quarter, we reported adjusted EBITDA of $251 million, which grew 17% year-over-year. This included $11 million in net performance fee earnings and reflected a full quarter contribution from Verition and Peppertree's final contribution. Fee-related earnings, which exclude net performance fees, grew 15% year-over-year driven by the positive impact of our investment performance and organic growth in our alternative strategies, partially offset by outflows from fundamental equity strategies. Economic earnings per share of $6.10 grew 27% year-over-year, additionally benefiting from share repurchases. Now moving to fourth quarter guidance. We expect adjusted EBITDA to be in the range of $325 million and $370 million based on current AUM levels, reflecting our market blend, which was up 1% quarter-to-date as of Friday and including net performance fees of $75 million to $120 million, bringing expected performance fees for this year to between $110 million and $155 million. This guidance includes a full quarter contribution from Montefiore, a full quarter contribution from Comvest's private credit business and no impact from our announced investments in Qualitas Energy and BBH Credit Partners, which are expected to close in Q4 and Q1 2026, respectively. We expect fourth quarter economic earnings per share to be between $8.10 and $9.26, assuming an adjusted weighted average share count of 28.9 million for the quarter. Looking further ahead, we anticipate a meaningful increase in our full year adjusted EBITDA and economic earnings per share in 2026, mainly driven by strong organic growth and our capital allocation strategy, and I'll describe each of these further. Organic growth in our existing business is having a meaningful impact on bottom line earnings. Strong organic growth in alternatives including record inflows and alternatives year-to-date is driving growth in AUM, having a positive impact on our aggregate fee rate relative to the prior year and incrementally expanding margins at some of our largest alternative affiliates. Furthermore, the approximately $1.5 billion committed to growth investments and share repurchases, combined with the sale of our stakes in 2 of our private market affiliates is expected to substantially increase our earnings in 2026. Additionally, we believe there is incremental upside to our earnings potential over time as we strategically engage with each of our 5 new partners in the next phase of their success. This combination of organic growth in our existing business and new investment activity has led to strong year-over-year earnings growth so far in 2025. And underpins our confidence in our 2026 earnings profile. Importantly, most of this earnings growth is in fee-related earnings delivered by products with longer expected duration. Finally, turning to the balance sheet and capital allocation. We repurchased approximately $77 million in shares in the third quarter, bringing year-to-date repurchases to approximately $350 million. We are increasing our full year guidance for repurchases and now expect to repurchase at least $500 million, subject to market conditions and capital allocation activity. Our balance sheet remains in a strong position with long-dated debt, significant capacity from ongoing cash generation and access to our revolver. Additionally, we received pre-tax proceeds of approximately $260 million from the sale of our stake in Peppertree, which closed in the third quarter and will receive approximately $285 million in proceeds from the sale of our stake in Comvest. Given our ample financial flexibility, which is further enhanced by the proceeds from these affiliate transactions, we are well positioned to continue to invest in growth opportunities and return capital to shareholders. We continue to employ a deliberate, strategic and disciplined approach to allocating our capital and investing in the ongoing growth of our business. We have a diverse, unique set of opportunities available to us, including investments in new affiliate partnerships and alongside existing affiliates, and in AMG capabilities. Through our capital allocation framework, we selectively engage in opportunities that align with our overall business strategy and that we believe will create significant long-term value. And looking ahead, we are confident in our ability to continue to generate substantial value for our shareholders. Now we are happy to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Bill Katz with TD Cowen. William Katz: Jay, maybe one for you. I think the theme coming out of today's call is just the franchise momentum both from a de novo perspective as well as incrementally through inorganic. A, maybe I was wondering if you could just maybe delve a little bit more into BBH, how that sort of rose? Did they seek you out? And then just as you look at the pipeline looking ahead, how should we be thinking about activity level into next year after a really strong 2025? Jay Horgen: Great. Bill, and thanks for your questions. I will -- let me take the first one just on the momentum. Tom, I'm going to ask you maybe to talk about BBH and then maybe you can send it back to me and we can talk about pipeline. So check them all off. So yes, thanks, Bill. I think I agree with your setup. It has been a landmark year for AMG, an output of our strategy, as you've heard us talk about it over the last 6 years, both inorganic and organic, our flow profile, which is driven by alternatives. It's been improving for some time now. This quarter is our second significantly positive quarter. It is building and we feel good about the continued strength of it. Our strategic engagement with affiliates, collaborating with them to magnify their long-term success is generated meaningful results at places like Pantheon, AQR, Artemis, Garda and many others where we're working on business development initiatives to enhance their value. It's been, as you've seen, one of the most active years for us in terms of new investment activity, near record levels of capital deployment. We've announced for new investments and a strategic collaboration with BBH, which Tom will talk about in a moment. We've had two stake sales from -- two consolidators in Peppertree and Comvest. So it's just been an extraordinarily active year for us. Maybe looking at where the business stands today, alternatives contribute 55% of our EBITDA on a run rate basis. We're working hard to increase that to more than 2/3 in just a few years from now. We think that will continue to sustain our organic growth and also we see good opportunities to make those new investments. And finally, as we have been committed to disciplined capital allocation, it has resulted in $350 million of repurchases this year. You heard Dava say that we've just updated our guidance to at least $500 million for 2025. So it has been an extraordinary year in terms of both new investments and organic growth. And that lays the groundwork for accelerating EBITDA and earnings growth in 2026. So maybe, Tom, if you would mind, give us a bit more detail on BBH. Thomas Wojcik: Yes, happy to. Thanks for your question, Bill, I think Jay provided a lot of very good context in terms of our strategy overall. And really, when we think about the BBH strategic collaboration, it aligns very well with a number of different elements of our strategy and key themes and areas that we're really focused on like alternatives and like the growing opportunity for alternatives in U.S. wealth. Over the course of the past couple of years, you've heard us on earnings calls and some of our meetings talk about this repositioning that we've gone through in our U.S. wealth business really to just focus that organization on the opportunity and alternatives. We've built a new affiliate product strategy team. We've channelized our sales force to address both RIAs and the wire house opportunity. And we're partnering very closely with affiliates like Pantheon to build, seed and distribute differentiated investment solutions to U.S. wealth clients. So in a lot of ways, the strategic collaboration with BBH is both a recognition of the success that we've had to date in going through that change to our U.S. wealth platform and the opportunity and the success that we're seeing, but also the next chapter in terms of opportunity to build on that success with a great partner like BBH. BBH is one of the most respected and trusted brands in financial services globally, and we're very excited to work closely together with them. You asked how this came together. And effectively, I would say we found each other. They had an opportunity that they were thinking about in terms of an excellent structured credit franchise. We had a strong view on structured credit as an opportunity in U.S. wealth and there was a real complementary opportunity for us to come together and try and build something together. We do think that BBH choosing AMG to be their strategic collaboration partner is a very strong statement on our value proposition in U.S. wealth. And I mentioned some of this in my prepared remarks, but we think AMG was the right partner for them for a number of reasons. As I mentioned, the complementary strengths of our respective businesses there in terms of underwriting, pricing, risk management around structured credit and on our side, product development and capital formation resources, access to significant seed capital that we underwrote as part of this collaboration. The permanent nature of our model and also, very importantly, really strong cultural connectivity across our firms. We spent a lot of time together, got to know one another very well. And I think we have a shared vision for where we can take this. So collectively, we're really excited about the collaboration. We think it will materially accelerate the expansion of BBH structured credit capabilities and also further enhance AMG's position as a leading sponsor of alternative strategies for the U.S. wealth market as we continue to build momentum in that area. So Jay, maybe back to you on the pipeline. Jay Horgen: Yes. Great. I'll just say one thing. It was very validating and rewarding that our capital formation capabilities, and that's an area, which, as Tom just mentioned, we've invested heavily in repositioning it. It was a centerpiece of this strategic collaboration with BBH and we do think it will allow us to drive more product in the wealth space around alternatives. So we're very excited about that. Turning to the pipeline, Bill. So I know you heard me say that already that it's been near record levels of deployment from our perspective. We continue to see opportunities to invest for growth in new and existing affiliates. Our pipeline reflects this opportunity set. And maybe just giving a bit of color at a high level, we stay -- we're staying focused on areas of secular growth, both within private markets and liquid alternatives. Importantly, we are interested in businesses where AMG's strategic capabilities can add value and firms that would like to have a strategic partner. So that has increasingly become a part of the dialogue and part of our differentiated area for success. We'd like to be able to magnify our affiliates business plans, their business initiatives, and we're doing so through our active engagement with affiliates. We've had a proven track record of providing capital and resources in these areas, business development, product development and distribution. So we're excited about continuing to add new affiliates in areas that we think we can help them grow. This unique sort of advantage that we have now in addition to just preserving independence, which we've always done very well, as you know, the ability to magnify the advantages of partner-owned firms has really added to our attractiveness in the market. The last thing I'd just say around our pipeline, in addition to, we continue to have a significant opportunity to invest our capital and growth initiatives. We will remain disciplined as always. The goal is to ensure that we deploy our capital at the highest -- in the highest quality opportunities with a target mid- to high-teens returns as we've said in the past. We have been successful in doing that over the past 6 years. But if we cannot find good investment opportunities, we will look to return capital through share repurchases, and we've done that also during this period, having reduced our share count by 40%. So maybe I'll just leave you with a summary of our new investment opportunity. We feel really good about it. We feel good about our ability to originate and invest in new affiliates in areas of secular growth and we're confident that we'll continue to meaningfully evolve our business through these growth investments and enhance shareholder value over time. So thanks, Bill, for your questions. Operator: Our next question comes from the line of Alex Blostein with Goldman Sachs. Alexander Blostein: So lots of enthusiasm from you guys in 2026. It feels like it's a little bit earlier than typical to give guidance in 2026, but I was wondering if you kind of could help contextualize what that could mean for next year given a number of moving pieces including you alluded to expansion in the margins at AQR and Pantheon, that sounds like it's an important part of the story here as well. So any way you can help us frame what sort of the growth expectations you might have so far into 2026, would be helpful. Jay Horgen: Yes. Thanks, Alex, and good morning to you. I'll let Dava do the meat of this. Maybe just to set it up. One of the reasons why we're so excited about 2026 is that, as you've seen in the past, when we do new investments, the year in which we do invest new investments is a partial year. And so the full year contribution from those new investments actually happens in the next year, in this case, 2026. We've also had the added benefit this year of having organic growth really come into the middle of the year and continues -- the momentum continues. And as you heard and you rightfully pointed out, there's an added benefit there because it's into businesses where we actually have margin expansion opportunity. So maybe I'll let Dava expand on what we're seeing in terms of mix and forward look. It is a little early to land on to 2026, but I think we can give you a sense for it. Dava Ritchea: That's right. Thanks, Jay, and thanks, Alex, for the question. At a high level, we expect the combination of new investments, share repurchases and the impact of net inflows from alternatives to be impactful to our 2026 EPS. Really, given the strategic evolution of our business profile over the last 6 years towards greater participation and alternatives, the EBITDA impact of the growth that we're seeing today is really meaningful. The largest driver of that has been a turnaround in our net flow profile as we've moved the business from what was shrinking organically around 10% annually to a business that today grew 3% annualized on a year-to-date basis and 5% annualized this quarter. And as we've experienced an even larger EBITDA contribution, the past 2 quarters from our net flows than our organic growth rate would indicate. So we're seeing some further expansion in EBITDA than you would expect in our net organic growth rate. This trend is occurring because of the bifurcation we've seen between strong organic growth on the alternative side, and the headwinds on the traditional side. The growth in alternatives is moving the business towards a higher fee and longer lock strategies that, in some cases, have future performance fee and carry potential while the outflows have been more isolated to lower fee open-ended equity funds. So even though we tend to own more of the firms where we're experiencing outflows, the higher fee rate from the alternative products have more than offset this impact. And we'll give some further guidance on the next earnings call in terms of our overall thoughts on 2026. Jay Horgen: Dava, you might just want to also talk about just the composition between NFRE and PRE just briefly. I think that's also something that's meaningful that's happening. Dava Ritchea: Sure. So what's exciting that we've seen to date, again, based on both the combination of the new investment profile that we've been -- that we've had this year and also in terms of organic growth, we've seen our year-over-year aggregate fee rate and real growth in fee-related earnings. So you've seen that up about 15% on a quarter year-over-year basis. And the shift mix of our business is moving towards a higher contribution from fee-related earnings. Operator: Our next question comes from the line of Dan Fannon with Jefferies. Ritwik Roy: This is Rick Roy on for Dan. So you reported another quarter of accelerating liquid alts flows, and it sounds like momentum in the tax were AQR strategies continues to be a big contributor towards that. So maybe on that, I was hoping you could add a little bit more color on the full diversity of flows coming from the AQR broader franchise and maybe perhaps also describing the performance fee potential of the broader set of AQR strategies that are gathering inflows? And then maybe separately, if you could note any notable private markets fund raises to be aware of in the near-term and into 2026, that would be helpful. Jay Horgen: Thanks, Rick. I'm going to let Tom just sort of give you an overview of flows, and I'm sure within that, he will drill down on some of the trends that we're seeing. Thomas Wojcik: Rick, thanks for the question and Jay, actually, maybe after I go through this, you can give a little bit more color on AQR specifically, but I'll give you the whole picture and then we can fill in from there. To put the whole thing in context, our flows are primarily a function of 3 key drivers. The first is the alignment between our affiliates' investment strategies and overall client demand trends. The second is the evolution of our business mix and Dava just talked about some of this as to Jay, over time through both organic growth rates, the relative organic growth rates of our different business lines, and the investments that AMG is making to form new partnerships and growth areas in line with our strategy. And then finally, the third driver is really the lift that we're able to provide at the AMG level to our affiliates through new product development and distribution. In terms of alignment with client demand trends, with approximately 55% of our EBITDA now coming from alternative asset classes and a growing portion coming from wealth clients our overall positioning is very well aligned with forward trends. In terms of where we go from here, as we look to continue to push that percentage of EBITDA from all closer to the 2/3 level over the course of time, all of our recent new investment partnerships have been focused on alternatives. And significantly more than 100% of our total net flows over the past few years have also been in alternatives. And over that same time frame, we've grown alternatives AUM on our U.S. wealth platform from about $1 billion to more than $7 billion. And you're seeing the cumulative impact of that business mix evolution on AUM on our fee rate, as Dava just talked about, and on the contribution of EBITDA that's coming from alternatives overall. So to go into the individual buckets in private markets, as I mentioned in my prepared remarks, our affiliates raised $4 billion in the quarter and that's really a continuation of momentum that we've been seeing over the course of the past several years. It was another very strong quarter for Pantheon, alongside positive contributions from EIG and Abacus. And I think importantly, that really demonstrates the diversity of our affiliate offerings across a variety of different areas, private market solutions, credit, private equity, real estate infrastructure, where our affiliates are real leaders in these specialized strategies in the market. Liquid alternatives was another record quarter for us, $14 billion in net inflows. And as you referenced in your question, driven primarily by solutions for the wealth channel focused on after-tax returns at AQR but importantly, with positive contributions from a number of our liquid alternative affiliates, we're seeing real breadth in that area as well. This is now the fifth consecutive quarter where we've seen positive flows in liquid alternatives. And over that time period, we've seen $38 billion in total net inflows. Equities, we continue to see headwinds, and that's in line with the overall industry. You saw that this quarter with about $9 billion in outflows that said, it's been another good year for beta, and beta continues to support AUM levels overall. And we're also seeing some pockets of strength, Jay mentioned earlier, Artemis, River Road. So there are some real bright spots that we're excited about there also. So when you put all those things together kind of back into that initial framework, better alignment with overall client demand trends as we continue to shift our business, continued investments in new affiliates, active collaboration with our affiliates to develop and create innovative new products that can help to drive client demand through our capital formation capabilities, together with our confidence in our ability to continue and maybe even enhance and accelerate the impact of these growth drivers going forward, we feel like we're in a really strong position from an overall franchise perspective in terms of forward organic growth opportunities. Jay Horgen: And Rick, let me address AQR specifically. Incrementally, it has been very helpful to our flow profile, but maybe I'll highlight a few key attributes about that business is a very diverse business. And the way I describe it is it's a liquid alts business, 1 of the top 3 in the world. It has a pretty significant tax-aware wealth business that has a different dynamic than just its overall institutional liquid alts business. And then it has a 40 Act long-only business as well. Because of its excellent performance, it's seeing inflows in each of these areas. And so I think we would be remiss without sort of stating the obvious, which is a very big, diverse business with lots of different strategies and lots of different opportunities within it. Maybe I'll highlight, though, as I did last quarter, sort of a paradigm shift that's occurring in the wealth channel. And AQR is leading -- or has a leading position in this paradigm shift. The basic strategies to harvest losses, they've been around for decades, but AQR, they brought in additional set of tools and capabilities to it. They've kind of unlocked the power of investing for after-tax outcomes with the use of liquid alternatives, specifically using long-short investing techniques, either to track market data or they have a goal of absolute return, and that has generated superior after-tax outcomes, and that's what's leading to the significant flows. The shift in focus by RIAs to after-tax outcomes from their historical convention of evaluating on pre-tax returns, we think this is just in the very early innings. So the AQR has quite an opportunity ahead of them. As you know, they've been an innovator in liquid alternatives for more than 20 years now, their ability to bring new strategies and products to the market is one of the best in the industries. They've been building this tax-aware business for some time. They've developed an entire suite of products inside of separate accounts, limited partnerships and now mutual funds. Their strategies generate for us, management fees and many of them have a potential for performance fees. As I've said in my prepared remarks, AQR has the potential to increase their fee rates here over some period of time as their flow mix changes. They also have an opportunity to increase their margins, and we feel that in our EBITDA contribution that Dava mentioned earlier. I gave most of this background on the prior call. So I thought I might just kind of update you bring you forward on our thoughts today. So we see AQR as having a first-mover advantage. It obviously has a differentiated culture and an operating environment that is advantageous compared to most competitors. On the first-mover advantage, it takes time to get on platforms to penetrate the largest RIAs in the country to integrate into systems at the wirehouses. AQR has a more than 2-year head start, Is now finishing the onboarding just now with several of the largest wealth platforms. So they haven't even gotten on all of the parts of the market where they could distribute their product. So we do expect continued momentum from AQR in this area. But I would be remiss if I didn't comment on the institutional business, again, with their great performance. They have a very nice pipeline building on the liquid alternative side. And through the lens of AQR, we're seeing increased interest in liquid alternatives more broadly on the institutional side. So maybe the last thing I'll say about AQR is that their assets have grown from approximately $100 billion at the beginning of 2024 to $166 billion as of September 30. And so you can see there's quite a bit of growth, and most of that came from organic flows. And thank you for your question. Appreciate it. Operator: Ladies and gentlemen, this concludes our Q&A session and will conclude our call today. We thank you for your interest and participation. You may now disconnect your lines.
Operator: Good morning. This is the conference call operator. Welcome and thank you for joining the GTT Third Quarter 2025 Activity Update Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Philippe Berterottiere, Chairman of the Board and CEO of GTT. Please go ahead, sir. Philippe Berterottière: Well, good morning, everybody. I'm very pleased to present to you the Q3 2025 activity update. I am with Thierry Hochoa, the CFO of the GTT Group and with the entire Investment Relations team. Well, year 2025 first 9 months have been quite impressive. First of all, the fundamentals are excellent with 84 million ton per annum already decided. The revenue are approaching EUR 600 million on the first 9 months, which represents an increase of 29% compared to last year. We obtained a fairly diverse orders with LNG carriers; ethane carriers; FLNG, LNG as a fuel. All that led us to upgrade our 2025 outlook when we include Danelec. On key highlights, we introduced a new technology for LNG as a fuel that we named CUBIQ. We obtained approval in principle from Bureau Veritas. We completed the acquisition of Danelec, and we obtained a quite large contract from the Chinese shipyard, Hudong-Zhonghua for 24 LNG carriers. We continue our innovation efforts with the new partnership with Bloom Energy and Ponant Exploration Group on a new system for zero-emission ships. And we obtained a contract for an electrolyzer in Slovakia for 1 megawatt. If we look at our order book, we've received orders, 19 orders in the first 6 -- 9 months. So not taking into account the order we received in October. So 267 LNG carriers, which are guaranteeing our activity in the next years, 22 ethane carriers, 3 FLNG and 3 FSRU. If we look at the market, we can see that the activity in terms of SPA, sales and purchase agreement, for LNG for the contracts path to liquefaction facilities have been very important in the second and third quarter of 2025, and that is very much supporting the decisions for further FIDs. In fact, in terms of FIDs, we can see that this year has been phenomenal. It's an all-time record with 84 million tons decided as of today. It's historic. And that means that the outlook for LNG demand for the next year is very strong. So it's the supportive trends for LNG and for energy carrier orders are very strong. But the geopolitical context remains quite complex. I would say we could talk about that at large. But I would say that the instability of regulations between the 2 sides of the Pacific Ocean are creating a kind of concern, still perplexing the decisions of shipowners. I do hope that the recent discussions are going to be able to clarify that. In any case, the LNG carrier order inflow is expected to increase, backed by a strong long-term fundamentals on which we talked just a moment ago. As far as LNG as a fuel is concerned, we can see that the adoption of this fuel structure is continuing to grow very significantly. It's a very good news, very good news for the planet, very good news for GTT, as this LNG at a certain point of time is going to be transported by LNG carriers and also very good news for LNG as an actor in LNG as a fuel. We can see our market share. We are trying to enlarge this market share in introducing new solutions. And we've introduced CUBIQ, which is a new tank design, which aims at enlarging the -- increasing the cargo space, the space left for the cargo, facilitating the installation, so reducing the cost of building the tank, reducing the boil-off and so improving the total cost of return of our solution for the owners. In our digital activity, we are scaling up our efforts in a EUR 1.25 billion market with the acquisition of Danelec that we've completed in end of July. We are in a fast-growing market, and we do expect to be able to benefit from this growth. We are in this market in -- our ambition is to benefit from recurring revenues, which will balance our other activities and to develop revenue synergies that we are targeting between EUR 25 million to EUR 30 million by 2030. So key achievements. Well, I would say that during these first 9 months, we've released a new generation of VDR. Well, that shows you that the innovation activity, constant innovation activity of Danelec is very much in phase with what we do at GTT. And it's why the integration is going to be very easy as we are on the same wavelength. We've obtained new contracts with a very significant contract obtained from Hudong-Zhonghua for 24 LNG carriers with our SloShield system developed for mitigating the sloshing risks and optimizing cargo operations. Now I hand the mic to Thierry Hochoa, the Group CFO, who is going to present to you the consolidated revenues. Thierry Hochoa: Thank you, Philippe. Good morning, everyone. Now regarding our revenues for first 9 months of 2025. Revenues at EUR 600 million are up plus 29%, a strong increase compared to EUR 465 million for the first 9 months of 2024. Two main drivers to explain our revenue performance. The first driver is revenue from new builds standing at EUR 558 million, was up plus 30%, benefiting from a higher number of LNG and ethane carriers under construction. The second driver is linked to the digital activities at EUR 20 million was up plus 83% and including EUR 6.5 million of revenues of Danelec, our recent acquisition. Excluding Danelec, the digital revenue growth was plus 24% compared to last year. One comment on revenues from LNG as fuel. They are down by 32% at EUR 16 million and mainly explained by the strong competition. Regarding electrolyzers activities, revenue are down and stands at EUR 3.7 million for the first 9 months of 2025 compared to EUR 6.6 million for the first 9 months of 2024. This evolution is mainly due to the absence of contract in 2024 and the continuation of transition and repositioning of Elogen. Finally, revenues from services slightly decreased by 3% at EUR 18 million due to a lower level of reengineering studies, which are nonrecurring by nature, but offset by a robust certification activities. All in all, the activity of the first 9 months of 2025 remains very solid. I now back to Philippe for the outlook. Philippe Berterottière: Yes. Thank you, Thierry. Well, on the back of a very strong core business performance and the integration of Danelec over 5 months period, we are upgrading our outlook, assuming no significant delays in ship construction schedules. For our revenues, instead of range between EUR 750 million to EUR 800 million, we have now an estimated range of EUR 790 million to EUR 820 million. For our EBITDA, instead of a range between EUR 490 million to EUR 540 million, we have a range now between EUR 530 million to EUR 550 million. And our payout ratio will be at least 80% of our consolidated net income. So now we are going to answer to your questions. So please. Operator: [Operator Instructions] The first question is from Richard Dawson of Berenberg. Richard Dawson: First one is just on the order outlook for new LNG carrier orders because clearly, very supportive trends with new LNG capacity being sanctioned this year, but we're still seeing a bit of hesitation from shipowners really to place those orders with shipyards. So just through your conversations with your customers, when do you expect an acceleration to start to come for those LNG carrier orders? And then maybe second question is just on shipyard capacity across Korea and China. Has this slowdown in LNG carrier orders this year put some of those -- some of that planned expansion on hold? Where are we sort of in total slots for this year? Philippe Berterottière: Okay. Well, thank you very much for this question. I do agree with you about these hesitations. It's a perfect word for characterizing the current situation. In fact, the owners are weighing whether they should take the decision now. They are very much perplexed due to the instability in regulations. We had taxes on Chinese-built ships in the U.S. We don't have them anymore. We have taxes in China on ships, American ships. So they would like a more stable environment before taking decisions. Energy carriers are the most expensive commercial ships, and that's important investment decisions. So they are weighing the risks before taking these decisions. I can say that we have a lot of discussions with shipowners. They would like to move. They would like to know whether they can go to China. They would like to know what kind of competition they can benefit from between China and Korea. So that's considerations that for the time being, they are weighing. So when is it going to change? I think we may have orders in the last 2 months of this year. And I think that year 2026 will be significant in terms of ordering. And it goes back to your -- the second part of your question about slots. I don't think that there are many slots still available for building ships in shipyards for delivery in 2028. And so then it's in 2029. And I'm feeling that these slots are fairly far away for the needs that owners have. So there is going to be a kind of acceleration in the market. And your last question is the shipyard capacity. Well, the current flow of orders is not reducing the capacity of the yards as they are building. So the capacity out there as they are very -- this capacity are very active. And it's important for the shipyards to maintain these capacities. And it's why we can see some pricing, some prices, which are more aggressive than what they used to be. And I think it's a factor, which is going to help the acceleration in the order flow I was speaking about. Operator: The next question is from Jean-Luc Romain of CIC Market Solutions. Jean-Luc Romain: I have 2 questions, please. The first is about LNG as a fuel orders. We have seen several shipowners like CMA CGM and I think Evergreen, in Taiwan, ordering dual fuel vessels recently in Korea and China, not sure. Should it translate into orders for you? That's the first question. Second question is, as we are seeing a slowdown in order this year in new LNG carriers, should we expect a slowdown or stabilization of your new build sales in the next couple of years? Or should we expect those to decline a little? I'm speaking about the new build sales. Philippe Berterottière: For LNG as a fuel, when we have not announced a contract, I cannot comment on the fact that the contract is going to be for us. We -- it's a market where we have a market share, where we are trying to enlarge our market share and where we are going to -- where we are improving our offering, our solutions in order to do so. So it's a market with high competition where we are fighting hard. On the slowdown of orders and the consequences it means for the years to come, well, I would say that we are giving you figures about our revenues for the next coming years. And I send you to your computations to your work for assuming what the turnover is going to be, what the results are going to be for the next years. I cannot further help you. We are giving you all the information about that. What I can say that we may -- we are not seeing any kind of cancellations in our order book nor we see particularly delays in delivery. Operator: [Operator Instructions] The next question is from Henri Patricot of UBS. Henri Patricot: Two questions from my side, please. The first one on the market. I was wondering if you can comment on what you see as the potential impact of the delay to the IMO net zero framework, both for the core business and maybe driving a slower replacement of the fleet. And secondly, in terms of the speed of adoption for LNG as fuel. And then secondly, on deliveries for this year, I believe, you targeted something close to 100 deliveries in the core business. Is that still the case? It implies quite an uptick in the fourth quarter. Philippe Berterottière: Well, on the market for IMO, I think I hinted that in our last communication at the end of July for the first 6 months of the year. I was feeling that it was going too far, too quickly. And this -- the delay in the implementation of this regulation is not going to change the fundamental trend of the market for shipping, which is that shipping is switching to LNG. LNG is reducing the CO2 emissions and LNG is cheaper than other fuels. So cleaner and cheaper, it's 2 significant improvements. And whatever -- in spite of the delay of the IMO regulation implementation, there will be -- this evolution will continue. It's not going to cause a kind of slowdown, well, in the LNG carrier decisions as that is very much driven by the need for ships for new plants and also for replacement market. And there is clearly a need for replacing old ships, which are generating twice more CO2 than modern ships. And there are large parts of the world to begin with Europe, which are taxing CO2 emissions, heavily taxing CO2 emissions. So all these points are in place and are positive for LNG at large and positive for LNG as a fuel. On your second question, we expect to have still a strong activity in 2025. With compared to 2024, we had 66 orders; and up to now, we had in 2025, 58 orders. And we are going to have still a significant 58 deliveries. And of course, we are going to have still at the end, in the fourth quarter of this year, a very significant number of deliveries. Operator: The next question is from Jamie Franklin of Jefferies. Jamie Franklin: So firstly, just on LNG carriers. At the 1Q '25 update, you spoke to around 40 to 65 vessels still required for projects under construction. I just wanted to get a sense of how many of the orders that you've received in the last 6 months are for those under construction projects? And how many are for the newly FID projects this year, please? And then second question, just on Danelec. So the integration seems to be going well. Are you still actively pursuing new M&A opportunities now? Or are you waiting for the integration of Danelec to complete? And then if you are considering new opportunities, could we assume a similar size to Danelec? Philippe Berterottière: Okay. On LNG carriers, we -- I have not noticed when we said 40 to 65, but it's a time ago. But definitely, the orders we received this year are for existing projects and so are decreasing this number of projects decided before year 2025. And we have not received orders for the 84 million ton per annum decided in 2025. These are for deliveries in 2029, 2030 and 2031. So it's this long-term perspective, which are going to be supported by these investment decisions. And still, we consider that there are ships, which are needed for the projects decided before 2025. On M&A and Danelec, yes, I confirm that the integration with Danelec is going well. We -- the priority for the time being is to continue very well this integration. It's the best guarantee that we are going to be able to obtain the synergies that we were talking about and also that we are going to be able to benefit from the growth of the sectors where we are operating. We are looking at M&A possibilities. Of course, we are not -- meanwhile, we are not becoming blind to what we could find on the market. But I will say that for the time being, there is no opportunities, which are making sense. But it's not because there is nothing that we are not looking at that, and it's not because we have a priority succeeding the integration that we are not looking at what could make sense, which is our priority #1. Operator: The next question is from Kevin Roger of Kepler Cheuvreux. Kevin Roger: Sorry for that one, but it's a kind of follow-up because you used to give us the net numbers in terms of how many vessels you were seeing for the project that were sanctioned or under construction. So just if you can follow up as a kind of magnitude, the 84 million tons of projects that have been sanctioned year-to-date in '25, how many vessels do you consider are needed to transport this LNG worldwide? Just a kind of magnitude with the data that you have provided before. And the second one on Elogen, it seems that the restructuring is almost completed. H1, you booked quite a large provision, almost EUR 50 million. Any sense on if you're going to use all those provisions or if a bit more is needed? So just a comment maybe on this provision and where you think you're going to end with the restructuring? Philippe Berterottière: Okay. On the number of ships, what we can say on the 84 million tons per annum is that 17 million are not from Gulf of Mexico or Gulf of America, so to speak, to the rest of the world, where you have a very important shipping intensity and, in particular, as the Panama Canal is quite congested and where the shipping intensity is something like 2.3. In fact, I consider 67 million tons are from Gulf of Mexico to the rest of the world and the shipping intensity can be 2.3 or, let's say, 2 ships for a million ton, to be cautious. For the rest, the 17 million tonnes, you are on Mozambique to the rest of the world and the shipping intensity is probably 0.9 or 1 ship per million ton. So altogether, it's a very, very large number of ships. Let's say, without going to be too specific, far more than 100 ships to be ordered and probably something close or close to 150 -- around 150 ships ordered. As far Elogen is concerned, I'm going to hand the mic to Thierry. Thierry Hochoa: Yes. Thank you, Philippe. Yes, you're right to mention that we booked at the end of H1 2025, EUR 40 million of cost to restructure this affiliate. It's -- you have all the costs here. We do not expect additional cost because in this cost, I remind you, we have the final [ halt ] of Vendôme Gigafactory and the write-off of this asset. And you have as well provision for the workforce reduction plan. So we do not expect additional cost at the end of this year for Elogen. Operator: The next question is from Jean-Francois Granjon of ODDO BHF. Jean-Francois Granjon: Two questions from my side. The first one, could you come back on the LNG as a fuel. You mentioned some more intensive competition. So could you give us more color about that? And what do you expect for you in terms of growth and trend for the development of this business? Do you expect some more delay or more time due to the more competition you mentioned? And the second question concern Danelec. You also mentioned some cross-selling and synergy -- synergies at EUR 25 million to EUR 30 million. So in which timing do you expect that? And could you give -- explain us more how we can -- you expect to reach such level of synergy -- revenue synergy in the coming years? Philippe Berterottière: Okay. Thank you. Well, on energy as a fuel, we have competition from different containment technologies, which are called Type B or Type C and which are using a thick plate of stainless steel, which has to be welded in terms of operation, it can -- it's something, which is a bit complicated. But this technology has the merit to be very easy to install inside the ship. It can be lifted and pushed inside the ship. We -- which is very much liked by shipyards whenever they are quite busy. We need an installation in the ship, which is taking time and workmanship even though materials are far less expensive. We are existing in this market, and it's a fast-growing market. We are keeping on improving our solutions to better exist in this market. And you're going to see how we progress in this market in the years to come. As far as Danelec is concerned, we are planning synergies between EUR 25 million and EUR 30 million by 2030. And it's mainly obtained through cross-selling between the various activities of the various pools of Danelec. We had VPS, we had Ascenz Marorka, we have Danelec. And these 3 companies have a different portfolio of customers where we are going to try to sell the solutions of the others. That's basically where the synergies that we are going to try to obtain. Operator: Mr. Berterottiere, this was the last question of over the phone. Thierry Hochoa: Okay. Thank you. We do have one question coming from online from Jean-Philippe Desmartin at Edmond de Rothschild Asset Management. Succession planning of the CEO position at GTT, do you have an update to give? Philippe Berterottière: Well, what I will say is that the Special Committee of the Board of Directors is working on that and a proper information will be given in due time. So if there is no other question, I would like to thank you for having attended this conference, and I hope to see you soon. Thank you very much. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good morning. This is the conference call operator. Welcome and thank you for joining the GTT Third Quarter 2025 Activity Update Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Mr. Philippe Berterottiere, Chairman of the Board and CEO of GTT. Please go ahead, sir. Philippe Berterottière: Well, good morning, everybody. I'm very pleased to present to you the Q3 2025 activity update. I am with Thierry Hochoa, the CFO of the GTT Group and with the entire Investment Relations team. Well, year 2025 first 9 months have been quite impressive. First of all, the fundamentals are excellent with 84 million ton per annum already decided. The revenue are approaching EUR 600 million on the first 9 months, which represents an increase of 29% compared to last year. We obtained a fairly diverse orders with LNG carriers; ethane carriers; FLNG, LNG as a fuel. All that led us to upgrade our 2025 outlook when we include Danelec. On key highlights, we introduced a new technology for LNG as a fuel that we named CUBIQ. We obtained approval in principle from Bureau Veritas. We completed the acquisition of Danelec, and we obtained a quite large contract from the Chinese shipyard, Hudong-Zhonghua for 24 LNG carriers. We continue our innovation efforts with the new partnership with Bloom Energy and Ponant Exploration Group on a new system for zero-emission ships. And we obtained a contract for an electrolyzer in Slovakia for 1 megawatt. If we look at our order book, we've received orders, 19 orders in the first 6 -- 9 months. So not taking into account the order we received in October. So 267 LNG carriers, which are guaranteeing our activity in the next years, 22 ethane carriers, 3 FLNG and 3 FSRU. If we look at the market, we can see that the activity in terms of SPA, sales and purchase agreement, for LNG for the contracts path to liquefaction facilities have been very important in the second and third quarter of 2025, and that is very much supporting the decisions for further FIDs. In fact, in terms of FIDs, we can see that this year has been phenomenal. It's an all-time record with 84 million tons decided as of today. It's historic. And that means that the outlook for LNG demand for the next year is very strong. So it's the supportive trends for LNG and for energy carrier orders are very strong. But the geopolitical context remains quite complex. I would say we could talk about that at large. But I would say that the instability of regulations between the 2 sides of the Pacific Ocean are creating a kind of concern, still perplexing the decisions of shipowners. I do hope that the recent discussions are going to be able to clarify that. In any case, the LNG carrier order inflow is expected to increase, backed by a strong long-term fundamentals on which we talked just a moment ago. As far as LNG as a fuel is concerned, we can see that the adoption of this fuel structure is continuing to grow very significantly. It's a very good news, very good news for the planet, very good news for GTT, as this LNG at a certain point of time is going to be transported by LNG carriers and also very good news for LNG as an actor in LNG as a fuel. We can see our market share. We are trying to enlarge this market share in introducing new solutions. And we've introduced CUBIQ, which is a new tank design, which aims at enlarging the -- increasing the cargo space, the space left for the cargo, facilitating the installation, so reducing the cost of building the tank, reducing the boil-off and so improving the total cost of return of our solution for the owners. In our digital activity, we are scaling up our efforts in a EUR 1.25 billion market with the acquisition of Danelec that we've completed in end of July. We are in a fast-growing market, and we do expect to be able to benefit from this growth. We are in this market in -- our ambition is to benefit from recurring revenues, which will balance our other activities and to develop revenue synergies that we are targeting between EUR 25 million to EUR 30 million by 2030. So key achievements. Well, I would say that during these first 9 months, we've released a new generation of VDR. Well, that shows you that the innovation activity, constant innovation activity of Danelec is very much in phase with what we do at GTT. And it's why the integration is going to be very easy as we are on the same wavelength. We've obtained new contracts with a very significant contract obtained from Hudong-Zhonghua for 24 LNG carriers with our SloShield system developed for mitigating the sloshing risks and optimizing cargo operations. Now I hand the mic to Thierry Hochoa, the Group CFO, who is going to present to you the consolidated revenues. Thierry Hochoa: Thank you, Philippe. Good morning, everyone. Now regarding our revenues for first 9 months of 2025. Revenues at EUR 600 million are up plus 29%, a strong increase compared to EUR 465 million for the first 9 months of 2024. Two main drivers to explain our revenue performance. The first driver is revenue from new builds standing at EUR 558 million, was up plus 30%, benefiting from a higher number of LNG and ethane carriers under construction. The second driver is linked to the digital activities at EUR 20 million was up plus 83% and including EUR 6.5 million of revenues of Danelec, our recent acquisition. Excluding Danelec, the digital revenue growth was plus 24% compared to last year. One comment on revenues from LNG as fuel. They are down by 32% at EUR 16 million and mainly explained by the strong competition. Regarding electrolyzers activities, revenue are down and stands at EUR 3.7 million for the first 9 months of 2025 compared to EUR 6.6 million for the first 9 months of 2024. This evolution is mainly due to the absence of contract in 2024 and the continuation of transition and repositioning of Elogen. Finally, revenues from services slightly decreased by 3% at EUR 18 million due to a lower level of reengineering studies, which are nonrecurring by nature, but offset by a robust certification activities. All in all, the activity of the first 9 months of 2025 remains very solid. I now back to Philippe for the outlook. Philippe Berterottière: Yes. Thank you, Thierry. Well, on the back of a very strong core business performance and the integration of Danelec over 5 months period, we are upgrading our outlook, assuming no significant delays in ship construction schedules. For our revenues, instead of range between EUR 750 million to EUR 800 million, we have now an estimated range of EUR 790 million to EUR 820 million. For our EBITDA, instead of a range between EUR 490 million to EUR 540 million, we have a range now between EUR 530 million to EUR 550 million. And our payout ratio will be at least 80% of our consolidated net income. So now we are going to answer to your questions. So please. Operator: [Operator Instructions] The first question is from Richard Dawson of Berenberg. Richard Dawson: First one is just on the order outlook for new LNG carrier orders because clearly, very supportive trends with new LNG capacity being sanctioned this year, but we're still seeing a bit of hesitation from shipowners really to place those orders with shipyards. So just through your conversations with your customers, when do you expect an acceleration to start to come for those LNG carrier orders? And then maybe second question is just on shipyard capacity across Korea and China. Has this slowdown in LNG carrier orders this year put some of those -- some of that planned expansion on hold? Where are we sort of in total slots for this year? Philippe Berterottière: Okay. Well, thank you very much for this question. I do agree with you about these hesitations. It's a perfect word for characterizing the current situation. In fact, the owners are weighing whether they should take the decision now. They are very much perplexed due to the instability in regulations. We had taxes on Chinese-built ships in the U.S. We don't have them anymore. We have taxes in China on ships, American ships. So they would like a more stable environment before taking decisions. Energy carriers are the most expensive commercial ships, and that's important investment decisions. So they are weighing the risks before taking these decisions. I can say that we have a lot of discussions with shipowners. They would like to move. They would like to know whether they can go to China. They would like to know what kind of competition they can benefit from between China and Korea. So that's considerations that for the time being, they are weighing. So when is it going to change? I think we may have orders in the last 2 months of this year. And I think that year 2026 will be significant in terms of ordering. And it goes back to your -- the second part of your question about slots. I don't think that there are many slots still available for building ships in shipyards for delivery in 2028. And so then it's in 2029. And I'm feeling that these slots are fairly far away for the needs that owners have. So there is going to be a kind of acceleration in the market. And your last question is the shipyard capacity. Well, the current flow of orders is not reducing the capacity of the yards as they are building. So the capacity out there as they are very -- this capacity are very active. And it's important for the shipyards to maintain these capacities. And it's why we can see some pricing, some prices, which are more aggressive than what they used to be. And I think it's a factor, which is going to help the acceleration in the order flow I was speaking about. Operator: The next question is from Jean-Luc Romain of CIC Market Solutions. Jean-Luc Romain: I have 2 questions, please. The first is about LNG as a fuel orders. We have seen several shipowners like CMA CGM and I think Evergreen, in Taiwan, ordering dual fuel vessels recently in Korea and China, not sure. Should it translate into orders for you? That's the first question. Second question is, as we are seeing a slowdown in order this year in new LNG carriers, should we expect a slowdown or stabilization of your new build sales in the next couple of years? Or should we expect those to decline a little? I'm speaking about the new build sales. Philippe Berterottière: For LNG as a fuel, when we have not announced a contract, I cannot comment on the fact that the contract is going to be for us. We -- it's a market where we have a market share, where we are trying to enlarge our market share and where we are going to -- where we are improving our offering, our solutions in order to do so. So it's a market with high competition where we are fighting hard. On the slowdown of orders and the consequences it means for the years to come, well, I would say that we are giving you figures about our revenues for the next coming years. And I send you to your computations to your work for assuming what the turnover is going to be, what the results are going to be for the next years. I cannot further help you. We are giving you all the information about that. What I can say that we may -- we are not seeing any kind of cancellations in our order book nor we see particularly delays in delivery. Operator: [Operator Instructions] The next question is from Henri Patricot of UBS. Henri Patricot: Two questions from my side, please. The first one on the market. I was wondering if you can comment on what you see as the potential impact of the delay to the IMO net zero framework, both for the core business and maybe driving a slower replacement of the fleet. And secondly, in terms of the speed of adoption for LNG as fuel. And then secondly, on deliveries for this year, I believe, you targeted something close to 100 deliveries in the core business. Is that still the case? It implies quite an uptick in the fourth quarter. Philippe Berterottière: Well, on the market for IMO, I think I hinted that in our last communication at the end of July for the first 6 months of the year. I was feeling that it was going too far, too quickly. And this -- the delay in the implementation of this regulation is not going to change the fundamental trend of the market for shipping, which is that shipping is switching to LNG. LNG is reducing the CO2 emissions and LNG is cheaper than other fuels. So cleaner and cheaper, it's 2 significant improvements. And whatever -- in spite of the delay of the IMO regulation implementation, there will be -- this evolution will continue. It's not going to cause a kind of slowdown, well, in the LNG carrier decisions as that is very much driven by the need for ships for new plants and also for replacement market. And there is clearly a need for replacing old ships, which are generating twice more CO2 than modern ships. And there are large parts of the world to begin with Europe, which are taxing CO2 emissions, heavily taxing CO2 emissions. So all these points are in place and are positive for LNG at large and positive for LNG as a fuel. On your second question, we expect to have still a strong activity in 2025. With compared to 2024, we had 66 orders; and up to now, we had in 2025, 58 orders. And we are going to have still a significant 58 deliveries. And of course, we are going to have still at the end, in the fourth quarter of this year, a very significant number of deliveries. Operator: The next question is from Jamie Franklin of Jefferies. Jamie Franklin: So firstly, just on LNG carriers. At the 1Q '25 update, you spoke to around 40 to 65 vessels still required for projects under construction. I just wanted to get a sense of how many of the orders that you've received in the last 6 months are for those under construction projects? And how many are for the newly FID projects this year, please? And then second question, just on Danelec. So the integration seems to be going well. Are you still actively pursuing new M&A opportunities now? Or are you waiting for the integration of Danelec to complete? And then if you are considering new opportunities, could we assume a similar size to Danelec? Philippe Berterottière: Okay. On LNG carriers, we -- I have not noticed when we said 40 to 65, but it's a time ago. But definitely, the orders we received this year are for existing projects and so are decreasing this number of projects decided before year 2025. And we have not received orders for the 84 million ton per annum decided in 2025. These are for deliveries in 2029, 2030 and 2031. So it's this long-term perspective, which are going to be supported by these investment decisions. And still, we consider that there are ships, which are needed for the projects decided before 2025. On M&A and Danelec, yes, I confirm that the integration with Danelec is going well. We -- the priority for the time being is to continue very well this integration. It's the best guarantee that we are going to be able to obtain the synergies that we were talking about and also that we are going to be able to benefit from the growth of the sectors where we are operating. We are looking at M&A possibilities. Of course, we are not -- meanwhile, we are not becoming blind to what we could find on the market. But I will say that for the time being, there is no opportunities, which are making sense. But it's not because there is nothing that we are not looking at that, and it's not because we have a priority succeeding the integration that we are not looking at what could make sense, which is our priority #1. Operator: The next question is from Kevin Roger of Kepler Cheuvreux. Kevin Roger: Sorry for that one, but it's a kind of follow-up because you used to give us the net numbers in terms of how many vessels you were seeing for the project that were sanctioned or under construction. So just if you can follow up as a kind of magnitude, the 84 million tons of projects that have been sanctioned year-to-date in '25, how many vessels do you consider are needed to transport this LNG worldwide? Just a kind of magnitude with the data that you have provided before. And the second one on Elogen, it seems that the restructuring is almost completed. H1, you booked quite a large provision, almost EUR 50 million. Any sense on if you're going to use all those provisions or if a bit more is needed? So just a comment maybe on this provision and where you think you're going to end with the restructuring? Philippe Berterottière: Okay. On the number of ships, what we can say on the 84 million tons per annum is that 17 million are not from Gulf of Mexico or Gulf of America, so to speak, to the rest of the world, where you have a very important shipping intensity and, in particular, as the Panama Canal is quite congested and where the shipping intensity is something like 2.3. In fact, I consider 67 million tons are from Gulf of Mexico to the rest of the world and the shipping intensity can be 2.3 or, let's say, 2 ships for a million ton, to be cautious. For the rest, the 17 million tonnes, you are on Mozambique to the rest of the world and the shipping intensity is probably 0.9 or 1 ship per million ton. So altogether, it's a very, very large number of ships. Let's say, without going to be too specific, far more than 100 ships to be ordered and probably something close or close to 150 -- around 150 ships ordered. As far Elogen is concerned, I'm going to hand the mic to Thierry. Thierry Hochoa: Yes. Thank you, Philippe. Yes, you're right to mention that we booked at the end of H1 2025, EUR 40 million of cost to restructure this affiliate. It's -- you have all the costs here. We do not expect additional cost because in this cost, I remind you, we have the final [ halt ] of Vendôme Gigafactory and the write-off of this asset. And you have as well provision for the workforce reduction plan. So we do not expect additional cost at the end of this year for Elogen. Operator: The next question is from Jean-Francois Granjon of ODDO BHF. Jean-Francois Granjon: Two questions from my side. The first one, could you come back on the LNG as a fuel. You mentioned some more intensive competition. So could you give us more color about that? And what do you expect for you in terms of growth and trend for the development of this business? Do you expect some more delay or more time due to the more competition you mentioned? And the second question concern Danelec. You also mentioned some cross-selling and synergy -- synergies at EUR 25 million to EUR 30 million. So in which timing do you expect that? And could you give -- explain us more how we can -- you expect to reach such level of synergy -- revenue synergy in the coming years? Philippe Berterottière: Okay. Thank you. Well, on energy as a fuel, we have competition from different containment technologies, which are called Type B or Type C and which are using a thick plate of stainless steel, which has to be welded in terms of operation, it can -- it's something, which is a bit complicated. But this technology has the merit to be very easy to install inside the ship. It can be lifted and pushed inside the ship. We -- which is very much liked by shipyards whenever they are quite busy. We need an installation in the ship, which is taking time and workmanship even though materials are far less expensive. We are existing in this market, and it's a fast-growing market. We are keeping on improving our solutions to better exist in this market. And you're going to see how we progress in this market in the years to come. As far as Danelec is concerned, we are planning synergies between EUR 25 million and EUR 30 million by 2030. And it's mainly obtained through cross-selling between the various activities of the various pools of Danelec. We had VPS, we had Ascenz Marorka, we have Danelec. And these 3 companies have a different portfolio of customers where we are going to try to sell the solutions of the others. That's basically where the synergies that we are going to try to obtain. Operator: Mr. Berterottiere, this was the last question of over the phone. Thierry Hochoa: Okay. Thank you. We do have one question coming from online from Jean-Philippe Desmartin at Edmond de Rothschild Asset Management. Succession planning of the CEO position at GTT, do you have an update to give? Philippe Berterottière: Well, what I will say is that the Special Committee of the Board of Directors is working on that and a proper information will be given in due time. So if there is no other question, I would like to thank you for having attended this conference, and I hope to see you soon. Thank you very much. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones. Thank you.
Operator: Good morning, and welcome to the Liquidia Corporation Third Quarter 2025 Financial Results and Corporate Update Conference Call. My name is Carmen, and I will be your operator today [Operator Instructions] Please note that today's call is being recorded. I now turn the call over to Jason Adair, Chief Business Officer. Jason Adair: Thank you, Carmen, and good morning, everyone. It's my pleasure to welcome you to Liquidia's Third Quarter 2025 Financial Results and Corporate Update Conference Call. Joining me today are Dr. Roger Jeffs, Chief Executive Officer; Michael Kaseta, Chief Operating Officer and Chief Financial Officer; Dr. Rajeev Saggar, Chief Medical Officer; Scott Moomaw, Chief Commercial Officer; and Rusty Schundler, General Counsel. Before we begin, please note that today's discussion will include forward-looking statements, including statements regarding future results, product performance and ongoing clinical or commercial activities. These statements are subject to risks and uncertainties that may cause actual results to differ materially. For further information, please refer to our filings with the SEC available on our website. Please note that our earnings release, our commentary and our slide deck accompanying this call include non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most comparable GAAP measures can be found in our earnings release and the slide deck accompanying this call. With that, I'll turn the call over to Roger Jeffs, our Chief Executive Officer. Roger? Roger Jeffs: Thanks, Jason, and good morning, everyone. This morning, I want to begin by expressing just how proud we are in what Liquidia has accomplished in a remarkably short period of time. Over the last 5 months, we've not only brought a new and meaningful medicine in YUTREPIA to patients living with PAH and PH-ILD, but we've also begun to influence the way physicians consider how to best introduce a prostacyclin into various treatment regimens. Every day, we hear stories from physicians and patients who are thankful to now have an inhaled prostacyclin that fits their lives, one that's simple and well tolerated. For too long, patients face limited and difficult choices. YUTREPIA is offering them an attractive alternative. The results speak for themselves. In the third quarter, YUTREPIA continued to exceed expectations on every front. As of October 30, we've received more than 2,000 unique prescriptions, initiated therapy for over 1,500 patients and have over 600 health care practitioners who have prescribed YUTREPIA across the U.S. In fact, October is our highest month yet for referrals. Through the third quarter, the vast majority of prescriptions are converting to active patient starts with the referral-to-start ratio hovering around 85%, an incredible figure for a new-to-market therapy and a true testament to the strength of our commercial and market access infrastructure. We've seen broad application of YUTREPIA and I'd like to share some details on usage patterns. PAH has accounted for a majority of total prescriptions with the use in PH-ILD growing steadily. Approximately 3 out of 4 patients starting YUTREPIA are new to treprostinil, while about 1 in 4 are transitioning from other prostacyclin therapies typically inhaled. Switches from Tyvaso products are similar for both indications at roughly 25% of prescriptions. Notably, around 10% of PAH prescriptions represent switches from oral therapies, a meaningful indicator that physicians may be starting to view YUTREPIA as a viable option to improve exposure and tolerability for patients who are struggling with systemic side effects from their oral prostacyclin therapy. This balance of naive and transition patients demonstrates the flexibility of YUTREPIA across real-world settings in specialized centers and community practices. The feedback we're hearing has been consistent. Many physicians find YUTREPIA easy to initiate, faster to titrate and better tolerated than other available options while patients appreciate the convenience and confidence that come with a palm-sized low-effort device. YUTREPIA isn't just gaining traction. It's redefining expectations for inhaled delivery of treprostinil where exposure drives efficacy, tolerability drives durability and convenience drives compliance. We intend to translate this early commercial success into long-term sustainable growth. As Mike will explain, Liquidia achieved profitability in its first full quarter following launch, and we are well positioned to reinvest in innovation without compromising our financial discipline. Our clinical strategy in the near term intends to broaden YUTREPIA's clinical utility. We are actively planning niche open-label studies to further strengthen the product profile. For example, to help inform what we are already seeing in the field, we will initiate a study in PAH patients transitioning from oral prostacyclins to YUTREPIA. And considering the recent interest in ILD indications, we are evaluating the feasibility of proof-of-concept studies with YUTREPIA in IPF and PPF. We will also explore how YUTREPIA may be used to treat other diseases where patients have unmet needs and smart trial design can expand the value of well-tolerated inhaled treprostinil with opportunities in PH-COPD and Raynaud's phenomenon as examples. And as you heard during our R&D Day, we will further optimize inhaled treprostinil with L606, our sustained release formulation that is rapidly delivered twice daily with a palm-sized nebulizer. We believe that the week 48 data from our U.S. clinical study already demonstrates that L606 may be the most tolerable inhaled treprostinil developed with clear signals of efficacy in PAH and PH-ILD patients, whether transitioning from Tyvaso or naive to prostacyclin. Our global pivotal study called RESPIRE will initiate later this year and planned enrollment to start in the first half of '26. Now let me hand the call over to Mike to explain how we can maintain our trajectory for increasing the overall value of the company. Mike? Michael Kaseta: Thank you, Roger, and good morning, everyone. The third quarter of 2025 was truly a breakthrough quarter for Liquidia, both operationally and financially. During the quarter, our first full quarter of launch, we delivered $51.7 million in net product sales of YUTREPIA. We accomplished this while total R&D and SG&A expenses remained relatively flat compared to second quarter 2025. For the quarter, the company recorded a net loss of $3.6 million. However, when viewed on a non-GAAP basis, we generated positive adjusted EBITDA of $10.1 million in the first full quarter of YUTREPIA sales, much sooner than our previous guidance of profitability within 3 to 4 quarters post launch. Cash on hand at the end of the quarter totaled $157.5 million. Of particular note, I'm especially pleased to say that September marked our first month of positive net cash flow, a major operational milestone that highlights both our rapid success and disciplined approach to cash management. During September, we added $5 million in net cash, and we've continued to build on that momentum with additional gains in October. Looking ahead, we expect this positive trend to extend into 2026 as we stay focused on driving profitability while reinvesting in R&D to support sustained long-term growth. Roger, back over to you. Roger Jeffs: Thanks, Mike. And as we close out this quarter, I want to emphasize the 3 key foundational elements that are truly defining the success of Liquidia both now and into the future. One, we have a product in YUTREPIA that is rapidly influencing the standard of care. Two, we have quickly established strong profitable operating foundation; and three, we have a disciplined growth strategy focused on expanding indications and value for YUTREPIA while also advancing our next-generation product, L606. These pillars, innovation, execution and reinvestment are what will guide us as we end this year and enter 2026. Above all, I want to thank our team, our clinical partners and the patients who trust us. They are the reason we continue to deliver with both passion and precision. With that, operator, please open the line for questions. Operator: [Operator Instructions] Comes from the line of Amy Li with Jefferies. Amy Li: Congrats on the incredible launch. Based on our back-of-the-envelope math, we're getting to around 1,000 patient adds this quarter, which is doubling what Tyvaso, Tyvaso DPI reported in their 500 quarter-over-quarter adds earlier in their launch. Can you give us a sense of what's driving this uptake? And in particular, the breakdown between PAH and PH-ILD? And then finally, how are you thinking about the trajectory of patient adds going forward? Roger Jeffs: Amy, thanks for the question. So again, we won't really comment more specifically than what we already have in the earnings release on numbers. But I think what you're seeing is very strong demand in the first 5 months of launch, completely driven by the product profile of YUTREPIA, which is unique and certainly is well on its way to becoming the established prostacyclin of first choice not only in the inhaled market, but as we alluded to, we're starting to see oral transition so we can offset some of the GI toxicities with the oral. And then what we're also seeing somewhat is in the patients that have added sotatercept and maybe "normalizing" as they deescalate the parenteral therapy, they're replacing that with YUTREPIA so that they can keep the prostacyclin pathway addressed. So there's a lot of, I would say, growing opportunity. I think if you look at the first 5 months, we've obviously seen very strong demand based on the profile. October, as we said, has had a slight uptick versus the previous month. So we're still on an attractive runway. And while we can't predict growth in the future, and certainly, there will be some seasonality and I think some ordering choppiness at the early phase of launch, I think we'll continue to execute well, and we feel very good about our future prospects. Maybe, Scott, if I could ask you to maybe highlight some of the things that you think as Chief Commercial Officer that have highlighted the quarter and address more specifically some of Amy's questions. Scott Moomaw: Yes. I think that the things that we're focused on right now is, one is we're continuing to increase breadth. So we're still in launch phase. We're still out there getting awareness and trial. We feel like we have an amazing opportunity still to drive to new prescribers. At the same time, we're still looking at depth from the current prescribers. We have -- each day, we have new prescribers that are over the 5 prescription mark, which shows, I think, an amazing amount of investment at those centers. So we think there's a lot of opportunity left out there. I think, Amy, I think you asked about the PAH, PH-ILD split. One thing we will comment on there is we have seen that PAH is a majority of the prescriptions. However, PH-ILD is definitely growing steadily, which is kind of what you would expect. I think PAH was probably a little bit more the, if you will, the lower-hanging fruit and PH-ILD is a growing market, as we all know, and the sky is the limit as far as that goes. Operator: One moment for our next question that comes from Cory Jubinville with LifeSci Capital. Cory Jubinville: Congrats on this really exciting update. I guess, can you just speak to what percentage of revenues might be associated with contracted versus noncontracted reimbursement? I mean, at this point, are you on the formularies for the 3 major PBMs? I'd say the script volume and the prescriber count is strong, of course. But I think the revenues being recognized to this magnitude this early definitely far exceeds expectations. So just trying to get a sense of what some of those key drivers were in order for you to convert volume to revenues this quickly. Roger Jeffs: Great question. And we've certainly spent a lot of effort and energy on the market access initiatives. Mike, if I could ask you to comment on the specific question. Michael Kaseta: Yes. Thanks, Roger, and thanks for your question, Cory. Specifically around payers, I think it is also a testament of where we are right now on our pull-through. And as we said, we've pulled through approximately 85% of referrals have converted into a script. And that's a testament to the -- what we had talked about the launch of building these patient support services that will enable that smooth transition, and we're very proud of what we've done there. Now as it relates to payers, as we've previously stated, we signed contracts with the 3 major commercial payers. We are -- the new-to-market blocks that we referred to previously have or will be removed here in the coming weeks. So as it relates to what is contracted and what is not contracted, to date, as you know, there is no contracting in Medicare Part D. So we are even footing there. In commercial, we are -- have started -- have contracted and started to receive -- start to pay rebates there. But as we move forward, as we've always said, we wanted to make sure that patients had an ability to make a choice, and we feel that we have achieved that now and look forward to the future where if a patient wants to choose YUTREPIA that they will not be blocked by virtue of a contracting issue. Operator: Our next question is from Julian Harrison with BTIG. Julian Harrison: Congrats on the quarter. Of the 1,500 patients on YUTREPIA at end of last week, are you able to say how many were in the 28-day voucher period at that time? And also average time from prescription written to YUTREPIA being shipped to a patient, what is that currently looking like? Roger Jeffs: Yes. Julian, it was good to see you last week at the R&D Day. Mike, if you could answer the question, please? Michael Kaseta: Yes. So thanks, Julian. In terms of average time from time prescription is written to when it's filled, what we're seeing is it's usually within a few weeks, which is pretty customary for SPs. We have a cross-functional focus on pulling through every prescription from market access to field reimbursement managers with the SPs, which is in constant coordination with the HCP office. Now as it relates to our voucher program, again, the voucher program that we offer patients to give them an opportunity to try YUTREPIA with a free 28-day first shipment. That has ticked up a bit. We are now a bit over 50% of our new patients are using the voucher program, which was slightly higher from where we were when we had our call in August. But we feel it's a great opportunity for patients and doctors to trial YUTREPIA. And if it works for them, then that they can continue on their journey. But for now, the expectation and where we are is slightly over 50% are using the voucher program. Julian Harrison: Excellent. And just to clarify, 50% have utilized the voucher program or were using it as of the end of last week. Michael Kaseta: So from launch to date, we were slightly over 50% Yes. Operator: [Operator Instructions] Our next question is from Ryan Deschner with Raymond James. Ryan Deschner: Congrats on the quarter. In second quarter, you reported an elevated level of channel loading and I just wanted to ask how this metric is trending in third quarter and into October. And then I may have missed it at the beginning, if you could comment again on naive versus treprostinil experienced patients. Roger Jeffs: Yes. Ryan, so I'm not sure specifically what you're asking about channel loading because I don't think we commented on that specifically in the prior quarter. In terms of naive versus transition patients, it's been about 75% have been new to prostacyclin therapies and 25% have been transitions typically from inhaled, although you can see in PAH, where the orals are only approved and not in PH-ILD, we are seeing 10% transitions there. I think one thing that question is related is kind of are we growing the market versus just taking share. And I think the correct answer is, yes, we are -- I think the market is growing now with a second company in there driving awareness. And I think -- but when you look at things sequentially, I'd say, quarter -- second quarter to third quarter, I think we're capturing the lion's share of this new opportunity. For example, I think it was reported last week that Tyvaso increased in aggregate across the nebulized and Tyvaso DPI franchise, $14.8 million, whereas we're now from Q2 to Q3, we've grown by $45.2 million. So that represents the revenue growth. And of that revenue growth, we've captured 75% of that, which we're very, very pleased about. So a lot of opportunity here to grow the market. And I think with the product profile, the commercial acumen and the ability that we've had to drive immediate awareness around the value of YUTREPIA, you're seeing that the uptake is leaning in a one-sided manner towards YUTREPIA. So again, I don't think we've commented on channel loading, but we can get back to you on that later, if that's helpful. Operator: Our next question is from Serge Belanger with Needham. Serge Belanger: Congrats on the first quarter of launch. First question regarding payer coverage. Can you kind of give us an update on now on when you expect to be at a steady state of coverage? And I believe your competitor had entered some contracts with some commercial plans. Just curious if that has led to some headwinds for coverage of YUTREPIA. And then lastly, maybe just expand a little bit on your plans to explore YUTREPIA usage in IPF and PPF. Roger Jeffs: Great. Mike handles payer access question. you'll handle the first question. And then, Rajeev, if you wouldn't mind speaking to our explorations in IPF. Michael Kaseta: Yes, Serge, great to hear from you, and thanks for the question. As it relates to payers, and you referenced United's comments that they had contracted in the commercial space, which we've spoken previously about that they contracted at a parity level. As I said earlier, we have signed commercial contracts with the 3 largest payers. New-to-market blocks have been removed or in the process of being removed. So as a result of that, we feel that we will be on equal footing with United as it relates to that. So we feel very confident in our strategy, very confident in where we sit right now that will enable us to have future growth. One other point I just want to go back to is around the channel loading. Obviously, at launch, the channel loading prior to launch, SPs are making an assumption of what's needed. What I would say is we have settled into where I believe is a normal level of inventory. If you want to say that SPs hold somewhere between 3 and 4 weeks of inventory. We have leveled off there. We have great relationships with the SPs to understand where ordering patterns are. So we're very confident in -- as we move forward that can be managed appropriately and feel that we are in line with what our expectations would be. Roger Jeffs: Great. Rajeev, if you'll speak to the clinical question. Rajeev Saggar: Yes. Thanks, Serge, for the question. So I think there's a few lessons coming out of TETON-2 that highlight that inhaled treprostinil appears to slow the progression of forced vital capacity in patients with -- specifically with IPF over a course of 52 weeks. I think the other thing that continues to be something that we, as a company and with YUTREPIA are in full agreement is that dose matters. And once again, that will [ be on ] hold, it strongly suggests in TETON-2 that if you can dose the patient as high as up to 12 breaths, these patients did much better than if you cannot -- the patient cannot get to at least a minimum of 9 breaths. I think, obviously, our ASCENT study strongly suggests that if we can even dose even higher to that, we actually and earlier, we potentially can even improve overall patients in regards to exercise capacity at least in PH-ILD. So if you take the entirety of that situation, and of course, the PPF study is not read out yet, but this suggests that I think YUTREPIA has a very strong product profile that may have some significant advantages over nebulized Tyvaso in regards to potentially ease of use, dosing and titratability and overall tolerability effect. So I think as an organization, we're extremely interested in evaluating and considering this pathway as we move forward. Roger Jeffs: Thank you, Rajeev. As you stated, this is a real period of renaissance for inhaled treprostinil. And I think the value that YUTREPIA brings and the market opportunity expansion is immense. And that with L606, we have a next-generation opportunity to really complete this paradigm shift over time. Operator: Our next question is from Andrew Fan with H.C. Wainwright. Andrew Fein: Congratulations. I guess, the strong sales are always a great thing and patient demand is always a great thing. Maybe you can speak to the heightened importance of it in the context of the ongoing litigation with United Therapeutics and the read-through of the strength of sales and strength of patient demand and clear perceived differentiation in the products as we think... Roger Jeffs: Yes, Andrew, it was a little bit difficult to hear the question specifically. I could hear that you were asking about the litigation and how that's... Andrew Fein: Read to the robust commercial environment to the [ litigation ]. Roger Jeffs: Yes. I think the simple answer to that is physicians and prescribers in general don't -- aren't that aware of the litigation. And their only concern is patient benefit. So I think when our goal has been to expose the centers to the value of YUTREPIA, get them to try it, particularly within the centers of excellence and then drive further demand. I think that's their concern. What happens in a court of law is outside of their jurisdiction, so they don't technically pay any attention to it. So to me, there's not a lot of read-through in terms of how that litigation has impacted the uptake. And as you can see, we have been robust... Andrew Fein: How does it impact the landscape of thought processes Judge Young might go through in deciding is outcome of the litigation. So more of the commercial impact that Judge Young... Roger Jeffs: Yes. Yes. Understood. Okay. Maybe, Rusty, you can count on the sort of balance of equities and harm. Russell Schundler: Yes. So we don't -- again, it's hard to predict how a judge is going to consider or even whether he consider commercial results, if that's the question. I think the judge is going to be thorough in thinking through the evidence that was presented to him and evaluate and come up with a decision. So again, I don't think he's going to be taking into account what's happening in the marketplace sort of post trial and coming up with his decision. That was the question. Roger Jeffs: Yes. I would maybe just take this opportunity to just remind listeners today that the value of the opportunity in PAH alone. I think the oral therapies are doing around $2 billion currently. The inhaled -- if you just split the Tyvaso revenue in half, you'd say it's close to $1 billion and then orals are around -- I mean, parenterals is around $500 million. So you can easily get to a $3.5 billion current day revenue opportunity with -- in PAH alone. And as you can see, we think the attractiveness that YUTREPIA offers can lead to a leading position across all 3 of those segments, the oral inhaled and the steel of parenteral share. So again, I know there's some concern around what may or may not happen with 327, but I think even if you took it in isolation, this is a tremendous opportunity that we have in front of us. Operator: Our question is from Ben Burnett with Wells Fargo. Benjamin Burnett: Congrats on the quarter. I just want to follow up on that last question. I guess I think we were maybe anticipating an update from a legal update. I'm just curious if the timing from what you're hearing on your end is any change? And I guess maybe could you also just remind us as to what exactly we'll get? Like should we get an understanding of any sort of ramifications? Or is this just purely a decision around this patent that you mentioned? Roger Jeffs: Yes. Thanks, Ben. Rusty? Russell Schundler: Yes. Thanks, Ben. So I mean, as far as timing goes, let me address that first. Obviously, there's no deadline for judges to rule in cases. I think the judge -- the case load in Delaware is pretty high. I think the judge is going to be thorough in his opinion, but we don't have visibility as to when that decision will come. I think if you look at the time it took him to render a decision in the first Hatch-Waxman case a few years ago, I'd say we're in the window of when we'd expect an opinion, but the window is a pretty wide window. I think any time between now and sometime in the first quarter even wouldn't be unexpected. Then as far as sort of what we would hear from the judge, I think, again, if you look at the last case as a proxy, I think what we expect here first is just a decision essentially as to who won. And then typically, there's then a second step where the parties then put in front of the judge what they propose the consequence of that decision is one way or the other. And then if there's a disagreement between the parties, there's potentially additional hearings or whatever the judge wants to do to work through that. So at least as far as the initial step is, our expectation is just going to be an opinion as to who won, who lost. Operator: Our last question comes from the line of Jason Gerberry with Bank of America. Jason Gerberry: One litigation follow-up. Do you have a sense whether a royalty is a possible remedy depending on outcomes of the case as opposed to -- I think there's a lot of, I guess, thought that perhaps like an outcome if there was patent infringement would just be removing ILD from the label. So I just kind of would love to get your perspective on that. And then as we look to 2026, why wouldn't it be reasonable to assume there's at least 2,000 patients on paid drug next year, just given the trends and what we're seeing? Just love to get your perspective on that. Roger Jeffs: Yes. Rusty, you'll answer the litigation question, please. Russell Schundler: Yes. Jason, thanks for the question. I think there's a wide range of possible remedies here. It just is very dependent on exactly what the judge rules. I think the decides to put in arguments the consequence ranges from YUTREPIA being removed from the market to a royalty and those are all in sort of the downside scenarios. So again, it's just highly dependent on exactly how the judge rules. I think depending on which claims he finds are infringed the basis for the infringement, the consequences could be different. So I think it's hard to comment on that now. I mean, obviously, once we have the opinion, we'll have a more informed take on what we think the likely outcomes are. But at this point, I think as we've said consistently in our 10-Qs and other releases, I think we have a wide range of potential outcomes. We're just waiting to see what the judge says. Roger Jeffs: Great. And on the last question, obviously, we're not going to forecast patient numbers. I think what we have highlighted is that we've driven brand awareness very quickly. There's been significant uptake of YUTREPIA in our early launch phase and that our pull-through rate is very, very high at 85%. And we don't see any further impediments to that. So we're going to continue to try to position YUTREPIA as the best-in-class and first in choice prostacyclin and do what we need to do to benefit every patient that we can possibly benefit. So with that, I think we'll end the call. I'd like to thank everyone for joining us today. We're really proud of the progress we've made in just a few short months and even more excited about what lies ahead. I hope everyone has a great day. Thank you. Operator: Thank you for participating in today's conference. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Rob, and I'm your event operator today. I'd like to welcome everyone to today's conference, Public Service Enterprise Group's Third Quarter 2025 Earnings Conference Call webcast. [Operator Instructions] As a reminder, this conference is being record today, November 3, 2025, and will be available for replay as an audio webcast on PSEG's Investor Relations website https://investor.pseg.com. I would now like to turn the conference call over to Carlotta Chan. Please go ahead. Carlotta Chan: Good morning, and we welcome to PSEG's Third Quarter Earnings Presentation. On today's call are Ralph LaRossa, Chair, President and CEO; and Dan Cregg, Executive Vice President and CFO. The press release, attachments and slides for today's discussion are posted on our IR website at investor.pseg.com, and our 10-Q will be filed later today. PSEG's earnings release and other matters discussed during today's call contain forward-looking statements and estimate that are subject to various risks and uncertainties. We will also discuss on non-GAAP operating earnings, which differs from net income as reported in accordance with generally accepted accounting principles, or GAAP, in the United States. We include reconciliations of our non-GAAP financial measures and a disclaimer regarding forward-looking statements on our IR website and in today's materials. Following our prepared remarks, we will conduct a 30-minute question-and-answer session. I will now turn the call over to Ralph LaRossa. Ralph LaRossa: Thank you, Carlotta, and thank you all of you for joining us to review the results we announced this morning and to discuss our outlook for the business over the remainder of the year. PSEG reported solid third quarter and year-to-date operating and financial results, reflecting the expected positive impact of new rates from the October 2024 distribution rate case settlement that benefited the full third quarter. Our results through the first 9 months enabled us to narrow our 2025 non-GAAP operating earnings guidance to the upper half of the range at $4 to $4.06 per share from prior guidance of $3.94 to $4.06 per share. At PSE&G, we invested approximately $1 billion in the quarter and $2.7 billion over the first 9 months of 2025, all part of our planned full year $3.8 billion regulated capital spending program. This program is focused on replacing and modernizing New Jersey's energy infrastructure, meeting load growth and expanding energy efficiency programs that lower energy demand and customer bills. During the quarter, PSEG Nuclear supplied the grid with 7.9 terawatt hours of reliable, carbon-free baseload energy, while providing PSEG with the financial flexibility to fund our regulated investments. Our 100%-owned Hope Creek unit completed a 499-day continuous run since its last refueling outage, and we recently completed work to extend its fuel cycle from 18 to 24 months, positioning the unit to produce more megawatt hours going forward. Also during the past quarter, the Board of Trustees of the Long Island Power Authority approved a 5-year contract extension for us to continue as the operations service provider for the electric service on Long Island and in the Rockaways through 2030. We are executing on PSEG's growth plan with a focus on operational excellence and rigorous cost discipline to maintain reliability and provide value for our customers. The need for our investment in leadership has never been more evident than now with the significant and growing supply-demand imbalance in New Jersey and the entire PJM region. To address this resource adequacy imbalance, which will adversely impact both reliability and affordability for customers in the future if it's not addressed, we are actively collaborating with current and potential future policymakers to develop real solutions in New Jersey and ensure we can affordably meet our customers' energy needs. The next governor of New Jersey will be faced with addressing a broad set of rising costs and implementing practical solutions to get to the root cause of these cost pressures will be a focus. These cost pressures have many sources. For example, the latest Rutgers-Eagleton Poll showed that 36% of likely voters cited taxes as the top problem facing New Jersey, while 21% said it was affordability. Other topics trail these 2 leading concerns with 6% pointed specifically to housing affordability and 5% saw utility costs as the top problem in the state. We stand ready to work with the incoming administration to do our part to keep rates as low as possible in the short term and work on longer-term solutions to add supply. While the supply-demand imbalance remains a significant and growing problem, we expect the capacity market impact on customer bills next June will be limited by 2 factors. First, the FERC-approved price collar that will extend to at least the upcoming capacity auction in December; and two, the gradualism of the basic generation supply mechanism that feathers in changes over a 3-year period here in New Jersey. This assumes other supply-related costs remain the same, preserving the reduction from other charges expected to come off the bill. One energy topic where there is broad common ground is that New Jersey needs to add generation supply to reduce its over reliance on the PJM capacity market and ensuring continuing reliability and affordability for customers with imports having grown to over 40% of our generation consumption. Legislation has been introduced that allows electric distribution companies to compete to participate in offering supply solutions. We are supportive of legislation that would increase competition for generation of supply should New Jersey decide to pursue new in-state generation. In addition, we have sites with grid connection capability and pipeline supplies as well as the in-house expertise to build new supply here in New Jersey with prevailing wage labor. Now turning to PSEG Nuclear. We continue to implement projects designed to optimize our plants and increase megawatt production. In addition to the Hope Creek fuel cycle extension I mentioned earlier, our Salem uprate project will bring an incremental 200 megawatts to the grid during the 2027 to 2029 time frame as this kind of baseload carbon-free dispatchable power continues to increase in scarcity value. We also note the potential significance of the recent Department of Energy notice, which has now become a FERC rulemaking, seeking to accelerate interconnection of large loads in a way that is timely, fair and affordable for customers. The notice is requesting that FERC take final action by April 30, 2026. There are many positive elements to this proposal, but it will take a while before we see the ultimate impact of the rulemaking. So to summarize, we delivered a solid operating quarter for our customers, and our financial results through the first 9 months enable us to narrow our full year 2025 non-GAAP operating earnings guidance to the upper half of the range at $4 to $4.06 per share from our prior guidance of $3.94 to $4.06 per share. We are also reaffirming PSEG's 5-year non-GAAP operating earnings growth outlook of 5% to 7% through 2029 as we continue to pursue incremental opportunities to our long-term forecast, including the potential to contract our nuclear output under multiyear agreements and potential utility investments to address near-term need for additional supply due to the growing customer demand. Notably, our balance sheet continues to enable us to fund PSEG's 5-year capital investment program of $22.5 billion to $26 billion without the need to issue new equity or sell assets and provides the opportunity for consistent and sustainable dividend growth. Before I conclude, I would like to recognize the outstanding performance of both our transmission and distribution system as well as our nuclear business over the last quarter. Both demonstrated exceptional reliability and resiliency for our customers. This collective achievement reflects the hard work, dedication and technical expertise of everyone at PSEG. Now as you know, tomorrow is election day in New Jersey. Let me say this clearly, PSEG has been around for over a century, and we have worked successfully with every New Jersey administration on both sides of the aisle with aligned objectives for the state's advancement. Based on our meetings with both candidates for governor, I have every confidence that we will do so again with the new incoming administration. I'll now turn the call over to Dan, who will walk you through our financial results and the outlook for the remainder of 2025 and then rejoin the call for Q&A. Daniel Cregg: Thanks, Ralph, and good morning to everybody. For the third quarter, PSEG reported net income of $1.24 per share in 2025 compared with $1.04 per share in 2024 and non-GAAP operating earnings were $1.13 per share in 2025 compared with $0.90 per share in 2024. We've provided you with information on Slide 7 and 9 regarding the contribution to net income and non-GAAP operating earnings by business for the third quarter and 9 months ended September 30, 2025. Slides 8 and 10 contain waterfall charts that take you through the net changes for the quarter and year-to-date periods over the prior year and non-GAAP operating earnings per share also by major business. Let's start with PSE&G, which reported third quarter net income and non-GAAP operating earnings of $515 million for 2025 compared to $379 million in 2024. Utilities results were driven by the implementation of new electric and gas base distribution rates that took effect in October 2024 to recover a return of and on previous capital investments totaling more than $3 billion and higher working capital recovery. Beginning on Slide 8 with the PSE&G column. Our distribution margin increased by $0.30 per share compared to the year ago period, largely reflecting the impact of the rate case plus recovery of and return on PSE&G's capital investments. On the expense side, distribution O&M costs were $0.02 per share higher compared to the third quarter of 2024. And depreciation and interest expense rose by $0.01 per share and $0.02 per share, respectively, compared to the third quarter of 2024, reflecting higher levels of depreciable plant investment and long-term debt at higher interest rates. Lastly, the timing of taxes recorded through an annual effective tax rate, which nets to zero over a full year, had a net favorable impact of $0.02 per share in the third quarter compared to the prior year period. Following severe heat storms in June when PSE&G hit its electric system peak for the year, weather conditions during the third quarter, as measured by the temperature-humidity index, were 3% cooler than normal and 7% cooler than the third quarter of 2024. As a reminder, the Conservation Incentive Program, or CIP program mechanism, decouples weather and other economic sales variances from a significant portion of our distribution margin, while helping PSE&G promote the widespread adoption of energy conservation, including energy efficiency and solar programs. Under the CIP, the number of electric and gas customers is the primary driver of distribution margin, and each segment grew by approximately 1% over the past year. On the capital front, as Ralph mentioned earlier, PSE&G invested approximately $1 billion during the third quarter, totaling $2.7 billion for the first 9 months. Our plan for the full year of 2025 regulated capital investment remains approximately $3.8 billion, and our 5-year regulated capital investment plan of $21 billion to $24 billion through 2029 is unchanged. In the first quarter of 2025, PSE&G began deploying the new energy efficiency programs. We anticipate investing up to $2.9 billion over a 6-year period under that program. This program total includes approximately $1 billion of on-bill repayment options to help our customers finance their energy efficiency equipment and appliances and provides customers with energy information and options to manage their energy use and lower their bills. Now moving on to PSEG Power & Other. For the third quarter, PSEG Power & Other reported net income of $107 million in 2025 compared to $141 million in 2024 and non-GAAP operating earnings were $50 million in 2025 compared to $69 million in 2024. Referring again to the third quarter waterfall on Slide 8, net energy margin rose by $0.01 per share compared to the prior year quarter. While generation was down in the quarter due to the Hope Creek refueling outage, overall power pricing and market revenues were higher than in the third quarter of 2024. O&M was $0.05 per share unfavorable compared to the third quarter of 2024, mostly driven by the scheduled refueling of our 100%-owned Hope Creek nuclear unit. As Ralph mentioned, our Hope Creek unit has successfully transitioned from an 18- to 24-month refueling cycle going forward, which is expected to yield additional megawatt hours as well as O&M savings over the long term. Depreciation expense was $0.01 per share favorable and interest expense rose by $0.02 per share, reflecting incremental debt at higher interest rates. And taxes and other were $0.01 per share favorable compared to the third quarter of 2024. On the operating side, the nuclear fleet produced approximately 7.9 terawatt hours during the third quarter compared to approximately 8.1 terawatt hours in the third quarter of 2024. For the 9 months ended September 30, 2025, nuclear generation was approximately 23.8 terawatt hours, up slightly from 23.3 terawatt hours for the same period of 2024. Capacity factors for the nuclear fleet were 92.4% and 93.7% for the quarter and 9-month period ended September 30, 2025, respectively. In July, PSEG Nuclear declared approximately 3,500 megawatts of its eligible nuclear capacity in PJM's base residual auction at the market clearing price of $329 per megawatt day for the energy year June 1, 2026, through May 31, 2027. Touching on some recent financing activity. As of the end of September, PSEG had total available liquidity of $3.6 billion, including approximately $330 million of cash on hand. And on the financing front, in August, PSE&G issued $450 million of 4.9% secured medium-term notes due August 2035. And later in August, PSEG redeemed at maturity $550 million of notes that carried a coupon of 0.8%. Overall, PSEG had significant liquidity at the end of the third quarter, which remained relatively unchanged from the end of the second quarter. PSEG's variable rate debt at the end of September consisted of a 364-day term loan at PSEG Power for $400 million, which matures in December of 2025, and commercial paper. As of September 30, our level of variable rate that represents approximately 4% of our total debt. And in October, Moody's published updated credit opinions on PSEG and PSE&G with no change to either credit ratings or outlook. Looking ahead, our solid balance sheet supports the execution of PSEG's 5-year capital spending plan dominated by regulated CapEx without the need to sell new equity or assets and provides for the opportunity for consistent and sustainable dividend growth. In closing, we are narrowing PSEG's full year 2025 non-GAAP operating earnings guidance to 4$ to $4.06 per share from $3.94 to $4.06 per share. This updates PSEG's solid results through the first 9 months of 2025. And we are also reaffirming our long-term 5% to 7% compound annual growth and non-GAAP operating earnings through 2029, supported by our capital investment programs and the nuclear PTC threshold. We expect to introduce PSEG's 2026 non-GAAP operating earnings guidance, roll forward our capital investment plans, update our rate base on long-term earnings CAGRs and discuss this outlook call during our year-end call in February of 2026. This concludes our formal remarks. And operator, we are now ready to begin the question-and-answer session. Operator: [Operator Instructions] First question is from Shar Pourreza with Wells Fargo. Ralph LaRossa: Who's that? Welcome back, Shar. And just like we did with many of your peers over the last 12 months, welcome back to hear you. Shahriar Pourreza: I appreciate. You almost had me tongue tied and that never happened. So I appreciate that. So Ralph, just obviously, the elections could be kind of this key threshold for data center deals in the state. We've seen data center customers walk away from local politics issues in kind of both the regulated and even deregulated markets. Artificial Island is obviously -- it's a great asset. So kind of curious if there's any pressure points forming there? And then, obviously, one of your favorite questions is any updates on potential time lines? Ralph LaRossa: Yes. Thanks, Shar. I'll let Dan, as we have been doing over the last couple of calls here, answer the time line conversation. But look, I would say this, and it's more of a generic answer to you on the election and what we can expect post Tuesday. And that is, we will see. But as I said in my -- kind of my closing comments, we fully expect to be able to work with both sides of the aisle. We've done it in the past. It's a proven track record by this company, and we feel really, really confident that, that's going to continue as we move forward here in 2026. Specific to data center opportunities in New Jersey, they really haven't slowed down. We have some information in the deck about how that has continued, and we expect it to continue. A few of those jobs have moved a little bit further along in the queue, depending upon whether you look at our queue or PJM's queue as an example. And I'll just point you to one that showed up today, it's public information. There's a TEAC meeting that's taking place tomorrow at PJM, and there is some additional load that's been identified for a job in Kenilworth that is our supplement -- one of our supplemental projects. So they continue to arrive here in New Jersey. We haven't seen it at the hyperscale level. And we have talked about that for many times, and we expect these to be smaller, not ones that we're making big announcements about, and we don't expect those smaller, less in size announcements to be something that we're talking about, whether it's at the utility or at Power. Dan, do you want to talk more about the time line? Daniel Cregg: No, I mean, I think Ralph covered it. I think we'll get a little bit more color from both of the candidates. There's been a whole bunch of stuff they've talked about during the campaign. This hasn't been the highest topic with respect to data centers as much as with respect to affordability generally on things that have touched us. But we'll get more color as the election ends and we find out where they're going to go. But in the meantime, I think it's everything that Ralph said, and we're continuing to move forward. Shahriar Pourreza: Okay. Great. And then just lastly -- that's helpful. And then just on the 11 gigawatts, the large load pipeline that's obviously growing. Just -- I know I don't want to front run the CapEx update on the roll forward, but let me attempt anyway. But just on the grid capacity, just Dan, talk about -- Ralph, just the grid capacity that's there to convert into signed agreements versus how much transmission and distribution needs you're going to have as you start to convert? Ralph LaRossa: Well, again, I think a little bit of that is front-running some policy that will exist here in New Jersey, right? So the first -- and I talk a lot about the fact that the new governor will need to make some policy decisions that will help us plan the grid for the long term. Right now, we have capacity on our grid. That's based upon the current topology. If we see new generation come in, large-scale 1,000-megawatt plants that are showing up, that may change the grid topology a little bit. If we see more solar and more batteries, that may change the topology a little bit. So I'd be front-running to say that I could tell you that, which is why we're going to give you that full -- roll forward in February. Operator: Our next question is from the line of Jeremy Tonet with JPMorgan. Jeremy Tonet: Just wanted to pick up on the conversation with regard to potential data center contracting here. And wondering if you might be able to comment, I guess, on the flavor of conversations between your New Jersey versus Pennsylvania assets. Is there any discernible difference, I guess, in the tone of those conversations? Daniel Cregg: I wouldn't say difference in the tone of conversations, Jeremy, but I think that you're seeing different types of entities being involved between the 2 states. I think you have more of a forward-leaning appetite in Pennsylvania, which is enabling more to happen and more to happen on a bigger scale. And I think in New Jersey, I have not seen that as much with respect to the incentives. And so what you're seeing is still some interest in the state and some sizable interest in the state, but at a smaller scale. So I think that's probably the biggest differentiation between the 2 locations. Jeremy Tonet: Got it. That's helpful. And as it relates to, I guess, supply additions and working with stakeholders in the state, just wondering if you might be able to expand a little bit more beyond that, I guess, as far as what type of constructs Pega be interest in, be it regulated generation, unregulated generation or just any other color in general on this topic? Ralph LaRossa: Yes. So Jeremy, it's a great question. Look, we have said for many months, and we have indicated in public settings that we are more than willing to help the state achieve its goals in a regulated capacity, right? We absolutely think that we could provide some solutions for gas generation that's in a regulated manner. We also think we can continue. We've done large-scale solar on some brownfield sites, some landfill sites in the past. So we could do more on the solar front. We think there's an appetite now for some regulated storage and we're looking forward to taking part in that, see how that plays out over the next few months. And we know that many -- both candidates have been talking a lot about new nuclear. Now on new nuclear, we have also been very, very pointed in our responses in saying that we're not looking to put our own capital to work, but we want to enable solutions for the state. And that's where our site comes in. And we think that long term, that will provide us with some revenue opportunities, whether it be for our operating and maintenance activities or security activities, spent fuel storage. There's many, many things that we can do on that front without putting our own capital to work. And so that's the way we've been approaching it, and that's the way we'd like to see things play out. More opportunities for us in baseload generation from a gas standpoint that would be regulated. And certainly, more we can do on a solar and the battery fronts as well. And I think if you look at both candidates and their platforms, you really see one -- they all -- they're both talking about everything, right, that they're looking at all these options that are out there. The real question is to what degree. And I think you will see one -- with one candidate that might be leaning a little more towards the gas-fired units and another candidate that leans a little more towards solar and batteries. But both candidates are talking about all of the above strategies, which we support and we will be part of. Operator: The next question is from the line of Nick Campanella with Barclays. Nicholas Campanella: So look, just the contracting discussion, we did see the multistate kind of proposal advocating for Bring Your Own Generation and the need to kind of fast track and permit -- fast track the permitting for some of these data centers, but there just seems to be an overall stress on Bring Your Own Generation across the states in PJM. And how is that causing the conversation around the nukes to evolve? And is it fair to say that any deal at this point would now have to come with additionality commitments, whether that's upgrades, new gas, batteries or otherwise? Just maybe you can kind of talk to that a little bit if that's the right take? Ralph LaRossa: Yes. Are you talking about the DOE, Nick, in that the DOE -- the letter from DOE? Nicholas Campanella: I'm just -- I think there's been various calls by whether it's been Pennsylvania, New Jersey or Maryland on just the need to -- for data centers to bring their own generation now. And I'm just wondering how that impacts incumbent generators that were interested in potentially signing front-of-the-meter deals. Daniel Cregg: Yes. Nick, I would say that, if I'm capturing your question right, that there has been more dialogue around it. There has not been anything from the standpoint of requirements related to what must happen. And so I think from that perspective, I think it almost does tie in a little bit to what Ralph is talking about with respect to the DOE letter, which is trying to set some standards and trying to, I'm going to say, fast-track things, but get things moving where there is a little bit of a logjam. There's been a discussion about a whole host of topics. BYOG is one of them. But there's nothing that's mandatory from that perspective. And there's nothing about additionality that's mandatory from that perspective and different counterparties have different environmental profiles that are important to them, but not against the backdrop of anything that is required either. And so I think what you're seeing is continued dialogue around some topics that are of interest, but are not precluding anything from happen one way or another. Nicholas Campanella: Okay. All right. I appreciate that. And then there's been a lot of EPS CAGR updates this quarter. And I guess maybe you can kind of help position to the Street, you're doing 9.5% year-over-year growth, '25 through -- off of '24. I see that on Slide 5. I noticed the [past] 5% to 7% CAGR, that's not linear. But just from our perspective, we know where the capacity auctions have cleared at, we know where prices have gone. Just what are some of the negatives that we should be thinking about that kind of put you back within the 5% to 7% range as we kind of think through what you can deliver on in '26? Daniel Cregg: Yes. Nick, what I would tell you is our update is coming in February, and we're not going to piecemeal elements of it before we get there. So we'll give you a fulsome update when we give you the update. Operator: The next question is from the line of David Arcaro with Morgan Stanley. David Arcaro: One quick clarification or maybe an additional piece of data. I was just wondering what the level of mature applications would be in that data center activity that you've quoted in the past. Ralph LaRossa: Yes. So I think we moved that from 2,600 to 2,800. I think that's the information that is in the deck. But that's the right number, 2,600 to 2,800. David Arcaro: Great. Okay. Perfect. And then as you sketch out the utility growth outlook and roll forward, I was just curious if you could give your perspective now on how do you manage the affordability concerns maybe outside of just the generation front as you're planning the next iterations of your utility CapEx programs and looking at the T&D rate outlook. How are you weaving in just considerations around affordability? Ralph LaRossa: Well, look, we always think about affordability, no matter what we do here from a company standpoint, whether it's -- I could point you to our O&M slides that are in the deck and how we held O&M relatively flat over a longer period of time. I could talk to you about the way we're implementing our AMI system right now and how we've done that, not only from a standpoint of cost and keeping rates down, but also from the impact on employees and the just transition of those folks into different positions. So affordability is not something new to us. I appreciate it's a hotter topic in different circles, but it's the way we've operated. And you've heard us many times talk about the fact that we're not making any big announcements about expense savings. We normally just operate in that manner, and we'll continue to do that. That said, we've also, in the past, worked through different mechanisms with the regulator to spread costs out differently, and I'll go back 20 years when the decision was made to change the depreciable life of our gas assets. And those -- that cost was recovered in a different way from customers. So there are things that we can do working with the regulator to come up with solutions to keep T&D rates flat. We've done that recently. We'll continue to look at options for that. But this is not just an affordability issue, right? This is quickly becoming a reliability issue and the resource adequacy is going to drive us to solutions that are going to increase supply as the demand comes online. We have to find supply. David, I don't know any other way to say it. And I think both of the candidates for governor in New Jersey recognize that. They've both said that. Again, their solutions might be a little bit different, but how we get there is the only question. It's not if we're going to get there. We need more supply in the state. Operator: The next question is from the line of Bill Appicelli with UBS. William Appicelli: Just following up on some of those comments you just made about finding supply. I mean there would be a sense of urgency I think, behind that, right? So is there an opportunity here in the veto session to push for some legislation that could support this? Or do you think this is more likely something has to be dealt with under a new administration? Ralph LaRossa: Look, there's been a lot of things that have happened in the state in the past, not just from an energy standpoint, but other topics that have been handled in lame duck. And so I'm not sure whether or not that will be the approach that's taken here or it will be one that's taken in '26. But I do know it's going to be a hot topic one way or the other. And so I personally would like to see us move faster from a state standpoint. I think it would help us both from an affordability standpoint, but also from an economic development standpoint. We -- as I mentioned earlier, we've been -- we've got some headroom in the system today, and we've been using that up. But if we're going to continue to grow the state and again, both candidates would like to see us continue to grow the state, then one of the fundamental things we'll need is enough supply. And that's where I put my economic development hat on, and I say, "Let's get moving sooner than later. And boy, if we could have those discussions starting on Wednesday, it couldn't be soon enough." William Appicelli: Right. And then just along those same lines, I mean, how do you evaluate the framework for that, right? Would this be in terms of evaluating how much generation you potentially would need from a regulated basis? Would there be sort of an RFP approach that you could then bid on? I mean I'm not sure if you guys could sort of describe how you would envision such a mechanism coming out? Ralph LaRossa: Yes. Look, I think that the BPU could hold some sort of an auction. I think we could go to some sort of an FRR. I think, again, I don't want to front-run anybody. I think it would be rude to do that, so I won't. But I will tell you, what it all starts with the same four questions that we've been banging the table about, right? One, we've got to figure out what load we're going to supply, right? Two, we got to figure out what the reliability targets are going to be. Three, it's going to be emissions, right? And what are the emissions profiles we're willing to accept both if we're in a -- build our own generation or import it from our neighbors. Both of those have different impacts and how that plays out. And then the last thing is the definition of affordability. We talk about affordability, but we rarely define it, whether it's at the state level or at the federal level, to be honest. Is it going to be CPI? Is it going to be regional CPIs? Is it going to be state CPI? What is it going to be? And I think as we move forward, answering those four questions is fundamental to putting together an integrated resource plan. William Appicelli: And then just lastly on the outlook for the forward curves. I mean can you maybe just speak to where you see those relative to maybe your fundamental view or at least relative to where the PTC floor is that's embedded in your outlook? Ralph LaRossa: Yes. I'm going to let Dan answer that one. He sees that a little bit more, but I mean -- we look out 4 years the way others do. So I'll give it to you, Dan. Daniel Cregg: Yes, Bill, I think you've seen some recent strength within the market, and we've been saying for some time that if you just think about all the fundamentals that are going on and the discussions that everybody is having, it's been pretty tough to try to land the plane on exactly what's going to happen from a load perspective, but the numbers are a little bit staggering. And so even a lower end of the range would imply a need for incremental supply. And then if you think about the supply discussions, those have always moved towards the concept of we need to move quickly because at the end of the day, it generally isn't going to come out all that fast. You just think about time for turbines and everything else. And so all of that leads you to a little bit of a more bullish place. And if you look at the forward curve, you haven't seen quite as much bullishness. So we've seen some of that come up. And so I think that feels a little bit more like a fundamental move than just some interim period of time, although we do end up having some of those, too. It seems like every time we go into winter and we get a cold day, you see a little bit of movement out the curve. But I do think fundamentals should support a stronger price as we go forward, but the forwards are the forwards. Operator: The next question is from the line of Nick Amicucci with Evercore ISI. Ralph LaRossa: I think you'll get a welcome as well. I think this is our first quarterly call with you asking a question. Nicholas Amicucci: I appreciate that. I just wanted to dig in to a little bit on Hope Creek, just kind of the extension of the fuel cycle there. Kind of what undertakings were done? I mean, was that kind of an enhanced fuel offering? Or how should we kind of think about that? Is there opportunities to kind of extend that even further? Ralph LaRossa: Yes. No, Nick, it really is a lot simpler than people might make it out to be. It's just shuffling of the fuel, some different changes in the fuel design. But we didn't change to a new fuel supplier as a result, right? So this is something that's been done in the industry quite a bit. And we joked a lot about it. We had a CFO that always gave us a hard time about doing upgrades at a plant that we only had a visibility for 3 years of a life for, but he did the right thing and held us accountable a little longer-term life before we make long-term investments. So while Dan did that, we were getting smart about the changes that we could make there, and we're following what the rest of the industry has done. I will tell you, though, we also, at the same time, did a lot of other things at that plant to continue to reinforce both the asset itself, but also some efficiencies. And I talk about things that you might not pay attention to, but we changed out some of the insulation in the cooling tower, which just changes the efficiency of that -- of the cooling tower, and it just allows us the draft that the cooling tower is going to increase, which allows you to keep the megawatts up in the middle of the summer when at other times, the heat and humidity might reduce the draft flow through that stack. So we were looking all the time for it. And in that case, no big announcements, but I know we're running more efficiently in the summer months, which, by the way, is at the same time that we have the higher prices, right? So lots of different things that we're doing down there and the team is doing a nice job for us in identifying those opportunities. But specific to your question, on the fuel, not a big change compared to what others have done in the industry and no real opportunity at Hope Creek to make an additional change. But maybe at Salem, and I know there are some operators that are looking at moving from a 12- to 18-year cycle at PWRs. The PWR -- I'm sorry, 18 to 24 months. The BWR is what we just did at Hope Creek. Operator: The next question is from the line of Paul Zimbardo with Jefferies. Paul Zimbardo: Dan, just to follow up on the conversation on the forward curve. Obviously, there's been a pretty big move even as of late. Could you share some light on kind of what the hedging profile looks like at Power for the next few years? And just if there's been any changes? I know we had the nuclear PTC a little bit ago. Just any overall thoughts you could give on the positioning would be great. Daniel Cregg: Yes. And Paul, it isn't much and it's not very different from the characterization that we've provided in the past. I mean we said we were historically -- this goes back pre-PTC to fairly ratable 3-year hedging cycle. The PTC changed that because if you're taking a look at an overall hedging portfolio that you're trying to manage risk with, you have a risk protection from the PTC. So we said we varied from that a little bit because of the PTC. But the way we've described it is just not radically different from that ratable method. And I think if you think about it generally in those terms, you'll be in the ballpark of where we are. And that's how we've been describing it, and I think that's still a good way to describe it for you. Paul Zimbardo: Okay. That makes sense. And then on the capital refresh, just to make sure I understood correctly, it sounds like you will have kind of a bigger capital refresh when we do that fourth quarter roll forward. Is that a fair interpretation? Or do you need some of that political and regulatory clarity and just it's not a fourth quarter event, but sometime later in 2026? Daniel Cregg: No. We will be doing a normal roll forward of everything on our fourth quarter call. I think that's the simple way to think about the messaging. Operator: The next question is from the line of Carly Davenport with Goldman Sachs. Carly Davenport: Just one quick one for me on the utility side. Just as you get towards kind of the end of the GSMP II extension period, can you just share sort of the latest there in discussions about refreshing that program as we near 2026? Ralph LaRossa: Yes. We're continuing to have those discussions, Carly. And I wouldn't -- again, I wouldn't want to front run any of that, that's taking place right now. But we're in continuous negotiations that are ongoing with the BPU. Operator: The next question is from the line of Anthony Crowdell with Mizuho. Anthony Crowdell: Thanks for squeezing me in with all the welcome greetings. Ralph LaRossa: Anthony, my only question was, am I welcoming you to the Devil's bandwagon? It's a big question. But we'll talk about it... Anthony Crowdell: I'm on it. I agree. I'm on it. Much better than my Rangers. I guess two questions. One is, I'm sure you guys have met with both candidates. When they talk about affordability, do you think they're focused on the supplier generation side or the wire side? Do they understand the differences in the PJM impact versus just investing in the grid infrastructure? And then I have a follow-up. Ralph LaRossa: Yes. No, Anthony, great question. They absolutely understand the difference. They also understand that the customer gets one bill. And so what we need to work together with whoever is successful is working on that one bill. And so that's why we keep talking about supply. It's not our traditional lane. We're here to help on that. But we are really pounding the table about the integrated resource plan no matter what happens going forward because without that, we'll just continue to flounder. We lived on the backs of some excess capacity in the area for quite some time. And now we have this challenge here. But I don't want to at all give anybody an indication that either candidate doesn't understand the issue. They absolutely understand the issue, and they know where it is. Anthony Crowdell: And then the follow-up, kind of the same topic. Your company is the only company with both PJM wires exposure, but also merchant generation PJM. And as we're all looking for, whether it's a data center contract or a large load customer contract, is it possible that both segments of your business, the wires company and the generation, given the backdrop of affordability and everything else, that they actually both could win or outperform at the same time? The worry is when you see this election going on and a very high attractive price on a generation if something came about on the data center or any type of large contract would actually hurt the wires business or vice versa. I'll just leave it there. Ralph LaRossa: No, it's a very fair question, Anthony, but it's one that we think about every day because we're -- at the end of the day, we're hired by the shareholders, and that's where our head's at. And we do think that there continues to be an opportunity to benefit from having both of the assets. I'll say it in that term from a generation standpoint and from a utility standpoint. I think it showed up in the way we've been able to finance the utility. That was the reason we originally talked about holding on to nuclear. It helps us in the state in conversations. It helps us with our unions, having a common union there. So just to remind everybody of that is key. But we are laser-focused on adding value for the shareholder, and we're trying to look at that balance every day to get that optimization. So I think there is a win-win. And how it plays out will be based upon a lot of different factors over the next couple of years here. Operator: Our last question is from the line of Andrew Weisel with Scotiabank. Andrew Weisel: First question is on the balance sheet. You've obviously long touted the strength of that and the lack of need for external equity. But I am expecting in a few months, we'll see a pretty sizable increase to the capital plan. Maybe how are you thinking about that at this point? I don't expect specifics, but are you thinking that you'll be able to continue to stay no equity? Ralph LaRossa: Look, I think I'm going to start off and give it to Dan. The way I've talked about this quite a bit, both Dan and his predecessors have handled our balance sheet extremely well, and I don't think any of that's going to change as we have more opportunities in front of us. But Dan can give you any more he wants to there. Daniel Cregg: And there's not a lot without going into what we would be saying in the fourth quarter. I think we've been able to manage the business pretty well and manage the needs that we've had pretty well. And I think we're going to continue to be able to do that. We'll provide the fulsome roll forward in the fourth quarter, which will include capital rate base and overall earnings growth. Andrew Weisel: Okay. Great. Next, on affordability. Obviously, it's been talked a lot about today, and I can't watch a World Series or football game without being reminded about it. But one different approach I want to maybe think about is, obviously, no one likes seeing their bills go up, and it's been a real hard slog to get new supply added. But New Jersey is a pretty wealthy state overall. How are you thinking about it in terms of not only overall affordability, but focusing on low and lower customers? There's a lot of existing programs and talk about expanding or adding new programs. Is that maybe a different strategy that maybe could be pursued both by you and the state overall? Ralph LaRossa: Yes. No, it's -- again, a very good question. It is absolutely something I think it will depend upon who is successful and how this plays out. But both candidates talk about how they have to look at things a little bit differently dependent upon the customer or in their case, the taxpayer that they've -- that they're taking care of. So we have done that in the past, Andrew, and I'm going to give you one example here where Kim Hanemann and her team at the utility reaches that all the time. And we are doing analysis over the past week, just to try to see where things might play out from a SNAP standpoint and the impact on our customer base. And we identified about 500,000 customers that could be impacted in how we could think about those customers and making sure that we take that into account as we are in a shut-off period now for collections and how that's all handled. So our team looks at that level of detail on a regular basis and very proud of them for doing that. And I think that, that, at the end of the day, brings us a lot of goodwill in the state, not only from our customer base, but also from our policymakers. Do you want to add anything, Dan? Daniel Cregg: Andrew, the only other thing I would add is we show a percent of wallet slide in our deck that we have for a long time. And if you take a look at that slide, there's actually 2 lines on that. One of them is for the average customer. One of them is for a lower income customer. And given the lower income and given the share of wallet, you would think that it would be a higher percent of their income given the fact that the denominator is lower. And in fact, it's not. And that, I think, is a credit to the programs that are in place and the things that are done throughout the state and that we do ourselves to help some of those that are most in need. So that is always a focus and will continue to be as we go forward. Andrew Weisel: Great. Yes. I appreciate how much you guys have been proactive on that front. One last one, if I could, just on the large load inquiries, a pretty significant pickup there to 11.5 gigawatt. Can you detail how much of that is data centers versus manufacturers? And then just very roughly the timing of the ramp-up schedules? How much of that is kind of '26, '27 versus the outer years like '29, '30 or beyond? Ralph LaRossa: Yes. No, I don't have the level of detail on each of the years for you. So I wouldn't have that. It is mostly data centers. I would say, almost exclusively data centers in that number. There were some electric vehicle loads that were coming on. It has not stayed up at the same level. So everything -- but it's also edge computing more than it is hyperscalers, again, just to reinforce that point. And I think the other thing that's really telling about the load and the interest that's coming in, it's all sticking to around that 20% number that's actually coming to fruition, which we had talked about 3 or 4 calls ago. We thought that was going to be the way this would play out and it's shown itself in the numbers as the total inquiries come in, those that are actually moving to new business are staying around 20%. So again, proud of the team and the forecast that has been done there and give you a little bit of more flavor than maybe just looking at the due numbers. Operator: Ladies and gentlemen, I'd like to turn the floor back over to Mr. LaRossa for closing comments. Ralph LaRossa: Well, thanks. I got -- I have a planned comment. I'm going to add another one. I was told by Carlotta today that this Dan's tenth year as CFO, and so your 40th call, Dan. So congratulations on getting there. Daniel Cregg: I must be exhausted. Ralph LaRossa: You must be. But listen, all joking aside, we said a lot of thank yous and good luck to people moving into new roles and no place is that more important in Trenton as we go through the next week. It's been a heck of a campaign. All the polls are saying it's close. We'll see how this plays out. But what will not be close is our ability to work with whoever is successful. We stand ready, talk about rolling up our sleeves. We'll roll up our sleeves, our trousers, whatever else we need to do to make sure that we are here to help out and we're ready to work. So good luck to both candidates as they enter the last 24 hours of the campaign. And I look forward to seeing you all in Hollywood, Florida in the next 7 days or so. Take care. Operator: Ladies and gentlemen, this concludes today's teleconference. You may disconnect your lines at this time, and thank you for your participation.
Operator: " Inge Laudy: " Linde Jansen: " Michiel Declercq: " KBC Securities NV, Research Division Marco Limite: " Barclays Bank PLC, Research Division Marc Zwartsenburg: " ING Groep N.V., Research Division Unknown Analyst: " Operator: Good morning, ladies and gentlemen. Welcome to the PostNL Q3 2025 results. [Operator Instructions]. [Audio Gap]. [Break] Inge Laudy: Good morning, and welcome to you all. We have published our Q3 '25 results earlier this morning. Unfortunately, CEO, Pim Berendsen, cannot join in this meeting due to personal circumstances today. So Linde will do the presentation. And after that, we will open up for Q&A. With that, Linde, I hand over to you. Linde Jansen: Thank you, Inge, and welcome to you all. Let me start with what highlights for this quarter. Let me start with our Capital Markets Day, which we held on 17th of September. There, we presented our new strategy and transition program, Breakthrough 2028, with the related ambitions. We launched our new purpose, connected to deliver what drives us all forward. And we launched our new strategic intent, being to grow our business, create sustainable value, lead through innovation, and make impact that matters. This is based on 4 pillars: Growth, Value, Innovation, And Impact. I will repeat our 2028 ambitions on the next slide, but let me first share the key takeaways for this quarter. The Q3 results came in as anticipated and landed below last year's results. At Parcels, volumes were up 1%. And this quarter, again, volume growth from international customers outpaced domestic growth. The Mail volumes declined by almost 5%, mainly due to ongoing regular substitution, but this quarter was supported by the first batch of the election mail and some other one-off names. The decline in normalized EBIT at Mail led to a year-to-date normalized EBIT of minus EUR 43 million, and this reinforces the urgent need for adjustments in the postal regulation. Good to mention that our cost savings are well executed and bring savings according to plan, both at Parcels and for Mail in the Netherlands. Furthermore, additional efficiency improvements at Parcels contributed to our performance. And emission-free last-mile delivery increased to 33%, which is 5 percentage points better than last year. The last thing to mention on this slide is the reiteration of our outlook for 2025. Before moving on to more details on this Q3 performance, let's do a quick recap of our Breakthrough 2028 program. Our strategy aims at delivering sustainable returns for our shareholders and value for customers, employees, and society as a whole. We truly launched a strategic turning point with our new transformation program, Breakthrough 2028, that drives our financial ambition. A short summary of the strategic objectives of our 3 business segments, which we will create as of 2026: First, E-commerce, where we will grow from volume to value through a differentiated approach and smart network utilization; secondly, platforms, where we capture international growth through asset-light models; and lastly, our Mail segment, where we want to transform to a future-proof postal service. Driven by the e-commerce market growth and our commercial initiatives, we aim to achieve GDP plus revenue growth, targeting at over EUR 4 billion in 2028 with a step-up in normalized EBIT to over EUR 175 million in 2028. A disciplined investment approach will drive incremental return on invested capital with an increase in Return On Invested Capital (ROIC) from 3.4% in 2024 towards our ambition of over 12% by 2028. And our approach towards dividends remains the same, in line with business performance, with 70% to 90% payout ratio while holding on to our aim to be properly financed. That's about a short recap of our Breakthrough 2028 program. Let's now move to the strategic attention points for Mail and Parcels, before I will explain the detailed Q3 financial results. Let me start with Mail. Early October, a next step towards a viable and future-proof postal service in the Netherlands was proposed by the minister. The following adjustments for the USO were proposed: D+2 at 90% quality as of 1 July 2026 D+3 at 92% quality as of July 2027 The consultation period closed last Friday. Without doubt, these adjustments are much appreciated. But at the same time, this proposal is still insufficient to cover the net cost. And therefore, it remains necessary to find a solution, therefore. And we have to keep in mind that the uncertainty in the timelines of the political process persists. In the coming weeks, we are expecting a decision on our appeal on the rejection of our request for financial contribution for 2025 and 2026, and also a reaction of the minister on our request for withdrawal of the USO designation. Together, these will determine our next steps towards a sustainable future of postal service on its path to reach the ambition as set out in our Breakthrough 2028 program. We will continue to make every possible effort to maintain reliable service and remain committed to accessible and financially viable postal service. Then to Parcels. As announced during the Capital Markets Day, that segment will be split in e-commerce and platforms as of 2026. And we will focus on the respective strategies as announced on the Capital Markets Day. The strategic initiatives already started and are progressing according to plan. In Q3, we see for Parcels a continuation of the trends as we have seen in the first half of this year. The price/mix effect was positive. Strong price increases were delivered according to plan. These are largely offset by less favorable mix effects that are more negative than we had anticipated. And that is mainly explained by the increased client concentration within our domestic volumes. With regard to the targeted yield measures, it is important to emphasize that these will come into effect gradually and confirm the strategic validity of our focus on consumer value, while also resulting in a slight loss in market share as anticipated. What is also important to mention that to date, we have been able to mitigate the adverse development in mix effect by own actions. Our flexible operational setup proved our agility and enabled additional efficiency improvements in our network and supply chain that contributes to our performance, on top of the ongoing planned cost savings program. Another focus area is our international expansion, especially in intra-European activities, where we are investing to capture future growth. In Q3, this resulted in the continuation of revenue growth at Spring, with some impact on the performance following our strategic investments. We are ready for the ramp-up in our operations for the peak season that is about to come. Together with our customers, we are putting all efforts in striking the optimal balance between volume, value and capacity utilization. Over to our key metrics. Let's start with the financial KPIs. Revenue in the quarter amounted to EUR 762 million, which is slightly above last year. And we see normalized EBIT at minus EUR 21 million, in line with our expectations. Looking at free cash flow, we see minus EUR 18 million in this quarter, bringing the year-to-date at EUR 98 million comparable with last year. And normalized comprehensive income that includes, for example, tax effects amounted to EUR 23 million minus. I will discuss these results of Parcels and Mail in a bit more detail in a bit. Then the nonfinancial highlights for this quarter. The share of emission-free last mile delivery improved by 5 percentage points to 33%. We have recently started the rollout of over 40 electrical vans in our transport services, so in the first and middle mile. Looking at NPS, we keep our average #1 position in relevant markets and see an improving NPS for the important ‘I receive journey’. And to evidence our innovative power, we have recently concluded successful experiments to explore how robotics can contribute to future parcel delivery, building on the knowledge and experience about the way we have implemented robotics in our sorting centers. Then our out-of-home strategy. That is continuing to gain momentum and the utilization rate being defined as the total amount of parcels, both to consumers and returns, during the week as a function of locker capacity is increasing and is now at 50%, while NPS scores for APL services remain high. Let's move to the financial details of Parcels. Revenue amounted to EUR 581 million, which is EUR 6 million above last year, following volume growth, price increases and mix effects. Overall, our volumes grew by 1%. Volumes from international customers continued its growth and were up 5% compared to last year and domestic volumes were flat. Overall, market share was slightly down as anticipated following our yield measures. We do see further client concentration with increasing share of volume from large players, domestic as well as international, but also platforms and marketplaces. In this quarter, the top 20 accounted for 57% of volume. With that in mind, it's good to see that the total price/mix impact was positive this quarter. Average price per parcel was up by $0.02, supported by targeted yield measures and regular price increases. Price increases have been implemented according to plan. But definitely, the mix effects are more negative than anticipated, driven by client concentration, predominantly within our domestic customer base. Furthermore, it is positive that our cross-border activities continued the trend. We have been seeing for several quarters with revenues at Spring up this quarter, most strongly in our intra-European activities, a promising development as international expansion is one of our strategic initiatives. When looking at costs, it should not be a surprise that in this quarter, we saw a significant organic cost increase. This is mainly labor related. However, we also see EUR 9 million in cost savings in Q3, and they were delivered according to plan. To be more specific, they came from ongoing adaptive measures like, for example, rationalization of services because we stopped parcel delivery on Sunday. Next to that, our flexible operational setup proved our agility and made us achieve additional efficiency improvements in our network, so in depots, supply chain and transport, to mitigate the adverse mix effects. In Spring, revenue growth was more than offset by the mix effects and the planned investments in international expansion. In the quarter, the financial impact from the implementation of U.S. trade barriers was limited, though we do expect some adverse effects in Q4. This brings us to the Parcels bridge, showing the reconciliation of the normalized EBIT from EUR 6 million in Q3 last year to EUR 4 million in Q3 this year. The volume growth contributed to our results, though was more than fully offset by the less favorable product customer mix effects, mainly within domestic. Organic cost increases amounted to EUR 70 million, following wage increases according to PostNL and sector collective labor agreements and indexation for delivery partners. As you can see, the impact from our price increases was EUR 30 million and came in according to plan. Other costs were EUR 11 million better, mainly as a result of the combination of cost savings and additional efficiency improvements in depots, supply chain, and transport, which we managed to deliver to mitigate the negative mix effects. In other results, I want to highlight that this is mainly applicable to Spring, where we see revenue growth being offset by mix effects. Furthermore, we again invested in international expansion, one of our strategic initiatives, which was approximately EUR 1 million this quarter for the expansion of the intra-European activities in Spring. Also good to note is that we continue to focus on further growth in Belgium. There, we also invested further. We invested in our distribution network, also amounting to EUR 1 million this quarter. Moving over to the results of our segment Mail in the Netherlands. There, the revenue amounted to EUR 289 million, exactly the same as last year. The volume decline of 5% this quarter was mainly related to substitution, a structural trend which you are seeing for a long time now but supported by the first batch of election mail and other one-off mailings. Furthermore, revenue was supported by 2 stamp price increases in January and in July of this year. Looking at costs, labor costs were up following the CLAs for PostNL and mail deliverers. However, when looking at sick leave rates, we see a first improvement compared to last year. These cost increases were mitigated by cost savings of EUR 10 million according to plan, coming from further adjustments in our current business model, such as the transition of business mail towards a standard service framework of delivery within 2 days. Altogether, this resulted in normalized EBIT of minus EUR 23 million and year-to-date minus EUR 43 million, as mentioned earlier, evidencing that the current business model for Mail is not sustainable. That brings me to the bridge of Mail in the Netherlands. Here, you see the elements of Mail I just discussed. Starting at the top, you see the stamp prices I referred to added EUR 9 million to revenue. The organic cost increases of EUR 10 million due to wage increases and other inflationary pressures are also visible. And finally, the cost savings of EUR 10 million and a bit lower labor costs related to sick leave were partly offset by lower bilateral results. Let's move over to the free cash flow. Free cash flow was minus EUR 18 million in this quarter compared to minus EUR 68 million in the same quarter last year and in line with our expectations. The delta versus last year is mainly explained by the working capital development coming from anticipated phasing effects and a nonrecurring tax settlement for prior years, including interest, which we paid in the third quarter of previous year. This brings us to the next slide, where you find our balance sheet and development of the adjusted net debt position. Of course, here you see the impact from the impairment in Q2 on our financial position, which in the end is impacting our equity. In the short and long-term debt, you see the EUR 100 million from the Schuldschein placed in June. So that was already the case in Q2, but obviously, you still see there. Movements in Q3 were limited. We ended the quarter at an adjusted net debt position of EUR 572 million. Recently, we launched a new bond with face value of EUR 300 million, a term of 5 years, and an annual coupon of 4%, and we tendered on the outstanding 0.625 percentage notes due September 26. EUR 195 million was accepted for repurchase. Please note that these related recordings and cash flows will materialize in Q4. We continue to manage our cash flow, balance sheet, and net position carefully following our aim to be properly financed. And as a reminder, we reclassified in Q2 part of cash and cash equivalents to short-term investments and adjusted comparatives. It has no impact on adjusted net debt or any other key metric. Then over to the split of normalized EBIT over the quarters. As mentioned before, in 2025, normalized EBIT has to be earned in Q4 even more than in 2024. We are ready for our peak season. Please keep in mind that the impact of pricing will be larger in Q4 than in the other quarters, which also implies that in Q4, pricing will exceed the impact from organic cost increases. When looking at year-to-date results, overall results came in, in line with expectation. For the remainder of the year, for Parcels, you should take into account that announced yield measures are expected to come into effect gradually. And for Mail in the Netherlands, we will see the majority of the election mail coming in, in Q4. In the right graph, you can see the indicative phasing for the savings is not fully divided evenly over the year, with a larger part of savings expected in Q4. Obviously, that is related to timing of some of the underlying measures. Please note that some of the savings are a bit more tied to the absolute volumes, which also explains why the amount of savings is, as usual, expected to be slightly higher in Q4. Then over to the outlook. Of course, we have to acknowledge that the external environment remains challenging and volatile. And as said before, the pace of client concentration due to changing consumer behavior is difficult to predict. We reiterate our outlook for 2025. We expect normalized EBIT to be in line with 2024 performance. Free cash flow is expected to be negative as, for example, CapEx will be above the level of 2024, including around EUR 15 million cash outflows related to the strategic initiatives. I repeat our intention to pay a dividend over 2025. We hold on to our aim to be properly financed, taking into consideration the anticipated improvement in the performance going forward and the progress towards a future-proof postal service. And good to add that normalized comprehensive income, which is, of course, the base for the amount of dividend is expected to follow a pattern that is more or less in line with 2023. In 2024, this includes some incidental positive effects. Well, this concludes my explanation of the Q3 results, and I would now like to hand back to Inge. Inge Laudy: Thank you, Linde, for your presentation. We will now open up for Q&A, and I ask you to limit your questions to two questions per person to set. So, operator, could you please explain the procedure for questions via the lines. Operator: [Operator Instructions] Your first question comes from the line of Michiel Declercq from KBC Securities. Michiel Declercq: I have two, please. The first one would be on the impact of the trade barriers. You mentioned that you expect a bit more impact of that in Q4. Can you give some color on this? Or can, is there some quantification that you can give to this? And the second question would be on Parcels on the price/mix effect. How I understood it at the beginning of the year was that the impact from the yield measures should gradually step in. Now if we look at the first three quarters, we actually see that the average pricing has actually come down. You're quite confident in the fourth quarter that you will see the biggest impact from the pricing. Can you maybe elaborate a bit on why the impact here should be the largest? Is there a big difference compared to last year in terms of surcharges or maybe penalties to your customers if their predicted volumes don't match with the actual volumes? Just why the impact of the pricing should be that much higher in Q4? And if you can quantify what you're looking at? Linde Jansen: Sure. And thanks, Michiel, for your questions. Let me take them one by one. Starting with trade barriers. Well, as I mentioned, so this quarter, we had limited impact. Of course, we do see more uncertainty and increasing volatility in the context of the U.S. trade policy and the responses from the counterparties. Well, it's not a surprise that tariff changes increase volatility and could slow down GDP growth, but could also generate opportunities on the other side, looking, for instance, at our knowledge with regard to customs. But it's, of course, too soon to tell and to say what is the exact impact for Q4. But what we see is that from a materiality point of view, we do not expect the impact to be material. It will be limited also in Q4. And to give some context on it, the direct exposure will be less than, is expected to be less than 1% of our revenue. Then that's on the first question. Then on your second question with regards to pricing for Parcels. I would not say the pricing, what you mentioned, pricing has come down year-to-date. That's actually not the case. What we see is that we, that our pricing has passed as we anticipated. What you see overall is that with the yield measures which we are taking, so we say, and we see that, that's gradually coming in. Obviously, that depends also on when new contracts are being renewed. Not every contract has the same starting date or duration of the contract where we can change that. But clearly, looking at the fourth quarter, also, of course, depending on volumes, when you see when you have made price increases, that obviously has a larger effect in the Q4 with peak periods. And there, wherever we have been introducing higher prices, yes, that obviously then also will have a higher effect, larger effect in Q4 than we have seen in the past quarters, because we have started with that gradually as of Q2. So that is why we expect the Q4 price increases for PostNL to be larger than the organic cost increases for the year. I hope that provides an answer to both your questions. Operator: Your next question comes from the line of Marco Limite from Barclays. Marco Limite: My first question is on the USO. Clearly, you set some scenarios back at the CMD in September, but we have had some more news in October. So, you're increasing prices by a lot as of 1st of Jan '26 on a year-over-year basis. And you're now implementing D+2 from early Jan '26. So my question to you is, do we think that this is enough for you to be breakeven in 2026? Linde Jansen: Yes, to start with, first of all, on the start day of D+2, that's not the 1st of January 2026, but 1 July 2026. And on your question on the developments of the breakeven point, what we highlighted in during the Capital Markets Day is that we had, we would lead to breakeven as of 2028 because that is the point where we move to D+3. At that time, the proposal from the minister was the 1st of January 2028 if a certain quality measure was achieved. That was the point of breakeven, so not 2026. So to respond to your question, we still will not be breakeven in 2026 for the Mail division given the developments, which we've had in the beginning of October because the main change over there was regarding the timing of the move to D+3, which was from 1st of January '28, he moved it more to the front 1 July 2027. And secondly, there were, he proposed reliefs on the quality levels, which were in the earlier proposal 95%. However, it's good to mention that this are just proposals from the minister and really uncertainty around the time lines and the political process really persists. Well, as you know, we've had the recent elections last week. So as I said, these are just proposals from the minister and not yet law, so to say. Marco Limite: Okay. And what is the time line for a possible response on the cash compensation? Linde Jansen: For the cash compensation, well, as you know, is that this proposal from the minister, it is a solution on the, it is a move or a first step towards a more future-proof situation. However, it does not serve or a solution yet for our net cost compensation. And as you may know or remember, we are, of course, still in proceedings on our financial contribution for 2025 and 2026. And there, we have appealed. And yes, we are waiting for the outcome of that. And as I said, on top of that, in the proposal from the minister, we also are looking still for a solution of our net costs in general. Yes. That is now not in our control, but we are awaiting a response on that from our appeal as well as the next steps from the minister. Marco Limite: Okay. And second question very quickly. So, once you achieve breakeven first half '27, sorry, 1st July '27 or '28. But then I mean, if we think about more longer term, once you achieve the breakeven, you raised the bar to the breakeven situation, but then we are once again in a situation where we will be, we have cost inflation, let the volume decline. So on the long-term, let's say, over the next 10 years, once you move to D+3, how can you make sure that the USO is, let's say, forever breakeven at least? Linde Jansen: Well, I think that is, of course, ongoing, what we are doing in Mail is trying to get an optimal network to ensure we are, well, let's say, organized as efficient as possible. I mean we don't have a glass ball, but we will make sure that we will do everything, put all our efforts to make it a future-proof situation. And as I said before, the, let's say, regulation or a solution for net costs is in the end, fundamental for a future viable situation. And that's why these first steps are welcome, but it's not yet enough to cover the full problem. Operator: We will take our next question. Your next question comes from the line of Marc Zwartsenburg from ING. Marc Zwartsenburg: First question is just a check because I think can you remind us on when the D+3 would kick in? Was it on the 1st of July '27? Or is it 1st of January '27? Linde Jansen: Yes. The proposal from the minister, which was done in the beginning of October was for the 1st of July 2027. So that is six months earlier than in the previous proposal from the minister. Marc Zwartsenburg: Yes. And then the quality has moved from 95% to 92%. That’s correct? Linde Jansen: Yes, correct. Yes. Marc Zwartsenburg: Then your Mail volumes, the minus 5% in Q3, there was a little bit of election in there. But as I remind from the earnings call, it was only a few days and not so much volumes. Most of it would be in Q4. So, if you exclude, let's say, the slight tailwind from the election in Q3, but what would have been then the underlying mail volume decline in Q3 would have been something like minus 5%, or minus 6% something like that? Linde Jansen: 5.6%, Marc. Marc Zwartsenburg: Sorry, I didn't get that. Linde Jansen: 5.6%, it would have been. So, looking at the impact from election mail, you see that in quarter three, the impact was EUR 2 million of pieces for this quarter and the remainder of it for the fourth quarter. Marc Zwartsenburg: And why is it only minus 5.6%? Is that just seasonality? Or is it just quite different from the normal trend of minus 8% to minus 10%? Linde Jansen: Yes. I think it's indeed seasonality phasing that is playing part. Marc Zwartsenburg: Okay. So in Q4, we should just assume the normalized, let's say, minus 8%, minus 10% and then add the support from the election. Is that correct? Or is there something seasonal there as well? Linde Jansen: Yes, more or less, yes, that's correct. Marc Zwartsenburg: Okay. And a question on the Amazon news last week for the investments in the Netherlands. Can you share your view on what they're saying because they want to tie their volumes in with what they have when this world wake ups. I know it's sizable client, but the other ones are bigger clients for you. So if volume shifts from your biggest client to your smaller clients and they also have a bit of a policy to do it themselves for a part. Can you show us your view what will be the impact on your Parcel volumes? Linde Jansen: Well, obviously, we are closely monitoring these developments in the market. And well, at this point in time, it's too soon to give some color on the exact implications. But what we see more and more increasingly is we see online stores expanding and getting more and more, which is also happening now with Amazon or they are testing new services and investing in the e-commerce market. And that's obviously also what we are doing. We continue to innovate in e-commerce and expanding our delivery preferences and really carefully look at consumer preferences, for instance, what we do with our out-of-home network. And with that, yes, okay, this is, of course, an event and a news which we closely monitor. And on the other side, it is still volume in the market, and we are just making sure that we continue our strategic intent and moves, which we mentioned during the Capital Markets Day to also reflect on any new or extended customers and platforms. But too soon to tell, too soon to give exact implications for that. Marc Zwartsenburg: Maybe a bit more detail on Amazon, how big is that client for you at the moment in terms of volumes? Linde Jansen: Well, I cannot give their exact color, but it's, as you say, not the largest client. Marc Zwartsenburg: It's a top 5 client, I believe. Linde Jansen: No, no, no. No. Marc Zwartsenburg: Okay. Okay. And then my last question, if I may. You mentioned that there will be more positive impact from price in Q4. You have taken some additional efficiency measures. Is it correct that the efficiency measures, the extra, if I take the flow chart, the now from the original plan and then the bridge to the EUR 11 million, which is showing there as other cost as a positive then the EUR 2 million is then from the efficiency improvements? Is that the additional ones you mentioned? Is that the correct one? Linde Jansen: Well, of course, it consists of pluses and minus. So that's not the, you cannot simply subtract the 11% from the 9% because there are, of course, pluses and minus in there. But what we see is that we have been or are able to put additional efficiency measures in our depots, transport. And there, we see that to counter our mix effects. And that is also something which we will obviously continue for our fourth quarter, which will come on top of the ongoing adaptive measures. Marc Zwartsenburg: Because if I compare the mix effect and the price effect, basically, they are a bit similar to what we've seen in Q2. Yes, shift yet feeding through while it was supposed to yield higher price and a better price/mix on balance, and that's not showing. So I'm just curious how you see that for Q4 because if it only, if the mix effect becomes bigger and the price becomes a little bit bigger, then you still have only a very mild positive price/mix effect, then you should have quite some additional efficiency improvements in Q4 to make your outlook. That's a bit where I'm puzzled. Yes. Linde Jansen: No. Well, yes. Maybe to explain is, as said, so our price increases and yield measures, they are, we are delivering them according to plan. So that is basically what we have, let's say, in control. Looking at the mix effect, where you see that's really depending on consumer behavior, that effect, that mix effect is bigger than we, more negative than we anticipated and to counter that and mitigate that. And obviously, also inherently in yield measures is also part of moving to efficient operations. There, we see the counter effect where we can control or can mitigate that negative mix effect. So yes, correct, the mix effect we anticipated is more. So larger clients getting faster big, so to say, than we had anticipated. And to counter that, we are ensuring that we put additional efficiency measures in place to mitigate that. And to your point on the yield measures coming in, that's really gradually. It's not that from one day to the other, it all hits in. That takes a bit of time. And clearly, also this quarter is, let's say, a mild quarter in the sense that not a lot is happening. So that also is, therefore, the effect of yield measures is gradually coming in and then also, of course, more heavily as such in Q4. Operator: [Operator Instructions] We will take our next question, and the question comes from the line of, please stand by, [Indiscernible] Unknown Analyst: I have a couple of questions. And I'm afraid the first one is a bit of a long one because I think it's important to understand the right context. Last year, around this time last year, you warned us for the fact that Black Friday and Cyber Monday were so close to Sinterklaas . I think you've learned a lot from last year or you got to mention it, but I'm sure that this year it plays as well because Black Friday is on the 28th of November. Cyber Monday is on the 1st of December. Sinterklaas is on the 5th of December. With the improving consumer confidence data we've seen in recent months, this could really be a challenge. How are you dealing with it? Do you see any prebuying that as we saw last year that people try to avoid Black Friday and Cyber Monday and that sort of thing. So my key question is, how do you manage it? And are you seeing prebuying already? For example, what can you share with us in relation to the volumes in Parcels you've seen in October? Linde Jansen: Well, of course, on October, I cannot comment. That's too soon to tell. But on your question with the, let's say, the density of those Black Friday and Sinterklaas , et cetera. Well, I think that's not something new. We have been, we have had this for more years where we experienced this type of density in the holiday or in the peak season, sorry. And so, what you see is that overall, those peaks get more peaky, so to say. So that is not just something for PostNL but is a general market trend. And we are in very close contact with our customers to ensure that we really optimize knowing that these days will be in the way these days will be; that we optimize volume, value and capacity utilization for this peak period, and also take into account, of course, our experiences, which we've had previous year to ensure that we streamline that peak period as good as we can. And clearly, we are very well on time with preparing for that and are really in close contact because with our customers because it's not just PostNL who needs to have that optimal utilization in the peak period, but it's actually for the whole ecosystem. So, all players in the ecosystem benefit from that. And that's why we are in close contact with them and also clearly communicate also to consumers around this. So yes, I can't say anything different that we are fully prepared for it and ready to have this organized in the most optimal way. Unknown Analyst: Have you seen any prebuying activity? Anything noteworthy that the trend was different at the end of the third quarter, for example? Linde Jansen: No, no, I haven't seen that. No. Unknown Analyst: My second question is around international volumes. If I look at the first quarter of this year, then we saw plus 15%, second quarter, plus 10% year-on-year. Now we see plus 5% I can interpret it in 2 different ways. One is that indeed, the value over volume strategy is beginning to show. But I've also heard that new parties have come to the market like Cainiao and Dragonfly, which are especially aiming cheap Chinese volumes as long as well, they are a party in the market. One of your competitors even described them as gold diggers. What is happening there? What is it exactly? Are you indeed more cautious taking on more volume from China? Or is it the competitive environment that is changing? Linde Jansen: Well, I would say, first of all, it's good to note that I think comparing by heart versus the growth of previous year, we already had a higher base. So, the first 2 quarters are not your starting point is different. Secondly, yes, our volume value strategy is clearly something which is what we aim for, and that is also for both domestic and international playing out there. So yes, that is, I think, the combination. Unknown Analyst: Okay. And then connected to that, there have been talks about implementing handling fees on Chinese Parcels. France was the first to announce that they were considering imposing a EUR 2 per item handling fee. And I recently read something that the Dutch are intending to do the same thing, if the French do it as of the 1st of January. Any news there? And how could it impact your business because [Schiphol] is one of the main hubs? Linde Jansen: Yes. Well, let me start. It's too early to provide you with a concrete statement on the impact. But in general, PostNL is supportive of a level playing field in the different European countries. However, well, as you already mentioned, the 1st of January, such a potential additional tax would really result for us in an operational challenge. It's not feasible to implement this well, we are talking about already the busiest period in the year, and it's a very short time frame to implement such a system. And it also can be, of course, disruptive, I should say. So, like with the U.S. trade barriers, where also international postal traffic to the U.S. was on hold for a bit. So that's why we are in conversations with the government on that as well. And so, we would really plea, if it's being implemented for a careful implementation, so to involve all parties and with equal timing for all the EU countries and not to diversify between the different European countries. So that being said, too soon to give a statement on that, and we are actively in conversation to align on the best approach to make this work. Unknown Analyst: And then my final question, that's an easy one, sorry for making your life so hard, nothing personal. But on the APMs, I understood that you're currently at around 1,250 APMs, APLs, you call. Linde Jansen: Yes, that's correct. Unknown Analyst: You were at around 1,100 at year-end last year. When I look back in the annual report, the intention was to increase that number by 500 to 600 a year. I can't imagine that during the peak period, all of a sudden, you're placing 400, 500 or so of the APLs. You have better things to do, I guess. What is the time path going forward? Because at the Capital Markets Day, also you highlighted the importance of APLs just the background of efficiency and that sort of things. Why am I not seeing a stronger pickup? The DHL, for example, is north of 2,000 already. It will be more and more difficult to find the right locations at the longer you wait. Linde Jansen: Yes. Well, we indeed clearly have our ambition towards over 3,000 in 2028. And what we see is that it's also about the size of the lockers which you place. So, amount of lockers is one thing, but size, how many of these lockers are in one APL is we are placing bigger sizes than initially planned. And yes, we are progressing on that. And clearly, you have to deal as well with all the governmental regulations with that, and we are clearly on top of it to deliver towards our ambition for the long term. And as said, we see positive developments in the utilization of the lockers which we place and as said, which are bigger lockers than we initially placed. So yes, that is basically where we stand. Unknown Analyst: So basically, what you're saying is there will be a catch-up in the years ahead. Linde Jansen: Yes. Yes. Operator: Okay. Then we have one last one, a follow-up from Mark, if I'm correct. So that will be then the last one for today. Marc Zwartsenburg: Yes, that's correct. A quick one. You issued a press release on the 5th of September that is asking the minister to withdraw the obligation of the USO. That's 2 days away that the 2 months are done. Should we expect some news flow in the next few days? Or can you help me with the timelines? Linde Jansen: Well, indeed, correct, we asked for within 2 months. But obviously, that is not in our control. So yes, I would say expecting it this month, but depending obviously on the time lines on the side of the government, and that is not something we can control. Marc Zwartsenburg: So could be any 6 months basically or without a date that's how. Linde Jansen: Yes, exactly, exactly. they don't confirm by then and then you get the answer. That's not how it works. Marc Zwartsenburg: And on the appeal of the cost compensation, is there. Linde Jansen: It's the same. It's also depending on there. So yes, you are just basically depending on their side and also on the legal system. So yes. Marc Zwartsenburg: Yes, I thought it was more like a court case thing that at some point, you need an outcome or is it not the case? Linde Jansen: No, no, we haven't received any guidance on when we can expect it. No, not at this point in time. Inge Laudy: Well, then we conclude our Q3 '25 results for now. Thank you all for participating and speak to you soon. Thank you all.
Operator: Good day, and welcome to the Bruker Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Joe Kostka, Director of Bruker Investor Relations. Please go ahead. Joe Kostka: Good morning. I would like to welcome everyone to Bruker Corporation's Third Quarter 2025 Earnings Conference Call. My name is Joe Kostka, and I am the Director of Bruker Investor Relations. Joining me on today's call are our President and CEO, Frank Laukien; and our EVP and CFO, Gerald Herman. In addition to the earnings release we issued earlier today, during today's conference call, we will be referencing a slide presentation that can be downloaded from the Events and Presentations section of Bruker's Investor Relations website. During today's call, we will be highlighting non-GAAP financial information. Reconciliations of our non-GAAP to GAAP financial measures are included in our earnings release and are posted on our website at ir.bruker.com. Before we begin, I would like to reference Bruker's safe harbor statement, which is shown on Slide 2 of the presentation. During this conference call, we will make forward-looking statements regarding future events and the financial and operational performance of the company that involve risks and uncertainties, including those related to acquisitions, geopolitical risks, tariffs, foreign currency, market demand or supply chains. The company's actual results may differ materially from such statements. Factors that might cause such differences include, but are not limited to, those discussed in today's earnings release and in our Form 10-K for the period ending December 31, 2024, as updated by our other SEC filings, which are available on our website and on the SEC's website. Also, please note that the following information is based on current business conditions and on our outlook as of today, November 3, 2025. We do not intend to update our forward-looking statements based on new information, future events or for other reasons, except as may be required by law, prior to the release of our fourth quarter and full year 2025 financial results expected in February 2026. You should not rely on these forward-looking statements as necessarily representing our views or outlook as of any date after today. We will begin today's call with Frank providing an overview of our business progress. Gerald will then cover the financials for the third quarter of 2025 in more detail and share our updated full year 2025 financial outlook. Now I'd like to turn the call over to Bruker's CEO, Frank Laukien. Frank Laukien: Thank you, Joe. Good morning, everyone, and thank you for joining us on today's third quarter 2025 earnings call. As forecasted, our third quarter revenues and earnings were down year-over-year, primarily due to weaker academic and research instruments demand in the first half of 2025. However, our Q3 '25 performance was quite a bit better than expected and represents a meaningful sequential step-up from our Q2 performance. In this third quarter, we were encouraged by our mid-single-digit percentage organic bookings growth. For the first time this year, we saw strength in bookings in the academic government market segment as well as improving biopharma and applied market orders. Interestingly, in Q3 of '25, we saw the stark contrast of a double-digit percentage organic revenue decline in the ACA/GOV markets year-over-year compared to a double-digit percentage organic improvement in ACA/GOV bookings year-over-year. In fact, our ACA/GOV orders grew in the high teens percentage in Q3 '25 as very robust order growth outside of the United States more than offset a continued year-over-year softness in the U.S., a lot of moving pieces. Anyway, notably, our innovative spatial biology, proteomics and multiomics solutions launched at AGBT, AACR and ASMS earlier this year are being very well received by our biopharma and academic customers and enhance our leadership in enabling tools for drug discovery and disease biology research in the post-genomic era. Biopharma and applied also saw organic bookings growth in Q3 with biopharma having the strongest organic order growth of all of our end markets, both in Q3 and year-to-date. Organic scientific instruments orders in China increased by double-digit percentage in the third quarter year-over-year, and we saw what may be green shoots of stimulus funding in China beginning to be dispersed. So this stronger Q3 '25 order performance drove our Scientific Instruments segment book-to-bill ratio to greater than 1.0x -- greater than 1.0 for the first time in several quarters. While one quarter of improved orders is too early to call a trend, we are encouraged that our two divisions most directly tied to macroeconomic factors, which happens to be Bruker Optics and AXS, also saw strong bookings in Q3 of '25. These two divisions often serve as a leading indicator within Bruker for changing macro market trends. However, due to the late timing of Q3 orders and certain customer site delays, we are reducing our organic revenue growth expectations for the fourth quarter and our guidance for the full year. This also derisks our implied fourth quarter forecast to levels that we are very confident we can achieve. Finally, our major cost -- finally, on this slide, our major cost savings initiatives announced last quarter are progressing very well towards the high end of our $100 million to $120 million cost down targets for 2026, and they are expected to deliver significant margin expansion and double-digit EPS growth in 2026. All right. Turning to Slide 4 now. In Q3 ' 25, continued softness in ACA/GOV revenues led to year-over-year declines throughout the P&L. However, we noted sequential improvements in biopharma, microbiology and diagnostic revenues, which led to both top and bottom line coming in better than our expectations in early August. Bruker's Q3 ' 25 reported revenues decreased 0.5% to $860.5 million, which included a currency tailwind of 2.9%. On an organic basis, revenues decreased 4.5%, which included a 5.4% organic decline in Scientific Instruments and 6.9% organic growth at BEST, net of intercompany eliminations. Revenue growth from acquisitions added 1.1%. Our third quarter '25 non-GAAP operating margin was 12.3%, a decrease of 260 bps year-over-year as lower revenue absorption, additional tariff costs and currency headwinds were only partially mitigated in Q3 by our earlier cost and pricing actions. Our third quarter ' 25 non-GAAP operating margin of 12.3% represented a meaningful sequential improvement over the 9.0% we reported in the second quarter. Our third quarter diluted non-GAAP EPS was $0.45, down 25% from $0.60 in Q3 of '24, but up sequentially compared to the $0.32 we reported in the second quarter of '25. Gerald will obviously discuss the drivers for margin and EPS later in more detail. Moving to Slide 5. Our year-to-date Q3 revenue increased by 3.0% to $2.5 billion. Organic revenue declined 3.1% with a 2.9% organic decline in Scientific Instruments and a 5.5% organic decline at BEST net of intercompany eliminations. Our first 9 months 2025 non-GAAP gross and operating margin and GAAP and non-GAAP EPS performance are all summarized on Slide 5. So please turn to Slide 6 and 7, where we highlight the year-to-date third quarter performance of our 3 Scientific Instruments group and of our BEST segment, all on a constant currency and year-over-year basis. Year-to-date 2025, BioSpin Group CER revenue of $612 million was shown -- excuse me, was down mid-single-digits percentage. BioSpin saw growth in lab automation and services, offset by a tough comparison with 2 GigaHertz class NMR systems in Q3 '24 revenue versus none in Q3 of '25. BioSpin saw weakness in ACA/GOV and biopharma revenues, but improved order growth in both end markets in the third quarter of '25. Year-to-date 2025, CALID Group revenue of $879 million increased in the low double-digit percentage, driven by microbiology and infectious disease diagnostics with strength in both the MALDI Biotyper and the ELITech molecular diagnostics franchises. Life science mass spectrometry is seeing early traction for recently launched products, including the new timsOmni and the new timsMetabo, both from launched at ASMS, while our molecular spectroscopy revenues remained stable, but with strong applied markets orders in Q3 '25, as was mentioned earlier. Right. Turn to Slide 7 now, please. Year-to-date 2025, Bruker Nano revenue of $775 million declined in the low single-digit percentage. Revenues from advanced X-ray and Nano analysis tools were down year-over-year, partially offset by growth in spatial biology. Strength in biopharma year-to-date revenues was offset by weakness in ACA/GOV and softer industrial research and semi markets. Finally, year-to-date 2025, BEST revenues declined in the mid-single-digit percentage net of intercompany eliminations. The clinical MRI superconducting wire market improved in Q3 and is now flat year-to-date, while our BEST research instruments business has been weaker due to a very strong prior year comparison. So moving on to Slide 8. You may have seen our press release that we had some recent NIH and NSF funded orders for advanced NMR instruments. I won't go through all of them, but here are several very unique enabling and breakthrough tools listed on this page with the respective customers that are really very important for fundamental scientific research and very much -- very much so also for drug discovery and disease biology research. The aggregate value of these orders was disclosed previously, it's about $10 million. It's expected -- they're all expected to be installed and in revenue next year, not in Q4, and maybe the bigger message here is in that last bullet on Slide 8 that our scientific instrument ACA/GOV orders, as I mentioned earlier, we were pleased, were up mid-teens percentage organically year-over-year in Q3, and this was despite lingering U.S. weakness. There have been some improvements in the U.S., but primarily, there are significant improvements outside of the U.S., Europe, Japan and in China. Right. Another press release, if you go to Slide 9, that we stressed yet recently. There are some new, if you like, applied markets. This is not food testing. This is security and defense and homeland security. And in this case, we have a very, very nice product line that's sort of growing rapidly, 30% year-over-year. And we were highlighting some recent orders from explosive trace detectors that you will find at a lot of European airports and an increasing number of those, but also in South Korea and the Middle East. They have particularly performance and usability advantages. This, by the way, isn't just an instrument sale. This is then 5 or 7 years of consumables and service sales. So it's a nice steady business, and we have been gaining market share and are pleased with those orders. And because of tensions and rearming in Europe, we also got some significant defense detection orders from a Central European Ministry of Defense, this was not for Ukraine, but others are worried as well and are obviously there's a smaller part of Bruker that, if you like, is part of Applied markets that's growing very nicely. We thought we'd highlight that for you because, obviously, ACA/GOV was weaker this year. So to wrap up, our third quarter P&L was still impacted by the various headwinds we've seen across the industry earlier this year. However, the results came in ahead of our expectations. Our improved bookings in Q3 '25 and Scientific Instruments book-to-bill ratio above 1.0 make us optimistic that we may be past the trough in demand. We look to build on this performance in Q4, and we are increasingly confident in a fiscal year '26 partial recovery. We expect significant improvements in our organic revenue performance compared to our meaningful decline -- organic decline in '25. Importantly, we are taking up to $120 million in cost out of our business in fiscal year '26 in order to drive significant margin expansion and strong double-digit EPS growth. So in perspective, our transform Project Accelerate 2.0 portfolio is fundamentally very strong. In post-genomic drug discovery and disease biology research, leveraging both proteomics and multiomics as well as spatial biology, in innovative diagnostic solutions for microbiology, molecular diagnostics and now also therapeutic drug monitoring, and finally, emerging -- really an emerging $100 million area for us is now the fast growth area of automated, digitized or digital labs ready for AI or perhaps even driven by AI, the automated AI labs, if you like. These are 4 major profitable growth opportunities, and they are complemented by our healthy diversification in industrial research, UC market, semiconductor metrology and as you've seen, applied and security markets. Combining this outstanding portfolio with operational excellence and strong execution, I am confident that by 2027, we can outgrow our markets again by 200 to 300 bps per year on average and continue our rapid margin expansion and double-digit EPS growth after overcoming the multiple ACA/GOV demand, new tariffs and strong currency headwinds in 2025 with a partial recovery in 2026. So with all of that, let me turn the call over now to our CFO, Gerald Herman, who will review things in more detail. Gerald? Gerald Herman: Thank you, Frank, and thank you, everyone, for joining us today. I'm pleased to provide some more detail on Bruker's third quarter and year-to-date 2025 financial performance, starting on Slide 11. In the third quarter of 2025, our results came in above our expectations on both the top and bottom lines. In the third quarter of '25, Bruker's reported revenue decreased 0.5% to $860.5 million, which reflects an organic revenue decrease of 4.5% year-over-year. Acquisitions contributed 1.1% to our top line, while foreign exchange was a 2.9% tailwind. Geographically and on a year-over-year organic basis, in the third quarter of '25, our Americas revenue declined in the low single-digit percentage. European revenue was roughly flat, while Asia Pacific revenue declined in the mid-single-digit percentage, including flat performance in China. For our EMEA region, revenue declined by over 20%. Scientific Instruments organic revenue group segment declined 5.4% in the third quarter of '25 as mid-single-digit organic growth in CALID was more than offset by a double-digit organic decline in BioSpin and a high single-digit organic decline in Bruker Nano. BSI systems revenue declined roughly 10%, while BSI aftermarket revenue increased mid-single-digit percentage organically year-over-year. As Frank mentioned earlier, our order bookings performance in the BSI segment was up organically in the mid-single-digit percentage year-over-year, and our BSI book-to-bill ratio for the third quarter was above 1.0. Non-GAAP gross margin decreased 110 basis points to 50.1%. Q3 2025 non-GAAP operating margin was 12.3%, impacted by tariffs, foreign exchange and the headwind from the prior year comparison of 2 GigaHertz class NMRs in our third quarter '24 revenue. On a non-GAAP basis, Q3 '25 diluted EPS was $0.45, down 25% from the $0.60 we posted in the third quarter of '24, but improved sequentially and well ahead of our expectations. Our EPS in the third quarter of '25 includes a $0.01 dilution from the mandatory convertible preferred offering we completed in September and benefited from a lower non-GAAP effective tax rate of 24.4%. On a GAAP basis, we reported diluted loss per share of $0.41, reflecting noncash goodwill and intangibles impairment charges of $119.4 million and restructuring charges in the third quarter of $34.5 million. Non-GAAP weighted average diluted shares outstanding in the third quarter of 2025 were 152 million, flat compared to the third quarter of 2024. Slide 12 shows Bruker's performance on a year-to-date basis for 2025, which has similar drivers to those in the third quarter. Turning now to Slide 13. In the first 9 months of 2025, we had operating cash outflow of $95.7 million, driven by lower profitability, timing of tax and key vendor payments and restructuring expenses. We expect to see improved cash flow in the fourth quarter, our largest and most profitable quarter of the year and always our strongest cash flow quarter. Turning now to Slide 15. We are updating our full year 2025 forecast and outlook to reflect Q3 results, order timing and the impact of our September mandatory convertible preferred offering. Our outlook for the full year of 2025 now assumes revenue in a range of $3.41 billion to $3.44 billion, reflecting an organic revenue decline of 4% to 5%. Late order bookings in the third quarter as well as certain customer site readiness issues are expected to push a portion of revenue we previously expected in the fourth quarter into fiscal year 2026. The full year '25 revenue growth contribution from acquisitions is expected to be approximately 3.5%, and we expect a foreign currency tailwind of about 2.5%. This leads to updated reported revenue growth guidance of 1% to 2%. For operating margins in 2025, we now expect approximately 250 basis point decline in operating margins year-over-year. This consists of headwinds of 60 basis points from M&A, 60 basis points from tariffs, 65 basis points from foreign exchange as well as a 65 basis point decline in organic operating margin. On the bottom line, our updated full year 2025 guide now reflects non-GAAP EPS in a range of $1.85 to $1.90. This includes a $0.07 dilution from our mandatory convertible preferred offering we completed in September. For your modeling, we expect the MCP offering to have a roughly $0.20 dilutive impact on our fiscal year 2026 EPS. Despite this dilution, we continue to expect double-digit non-GAAP EPS growth in fiscal year '26 due to the significant cost savings initiatives we're implementing this year. Other guidance assumptions are listed on the slide. Our full year 2025 ranges have been updated for foreign currency rates as of September 30, 2025. With respect to the fourth quarter of '25, we still expect relatively soft organic revenue performance with a mid- to high single-digit percentage decline year-over-year due to lingering effects of weaker orders earlier in the year. We expect non-GAAP EPS for the fourth quarter to show significant sequential improvement, but still be down meaningfully year-over-year as implied by our guidance. To wrap up, the first half 2025 market headwinds adversely impacted our financial performance in the full year 2025. However, we're encouraged by our solid order performance in the third quarter of '25 and expect to drive improved P&L performance in full year '26 and beyond. With our cost savings plans well on track, we're fully committed to significant margin expansion and double-digit EPS growth in fiscal year '26. With that, I'd like to turn the call back over to Joe. Thanks very much. Joe Kostka: Thanks, Gerald. We will now begin the Q&A portion of the call. [Operator Instructions] Operator? Operator: [Operator Instructions] Our first question comes from Puneet Souda with Leerink Partners. Puneet Souda: First one on the book-to-bill, good to see more than 1, and congrats on the quarter, just given the order momentum you're seeing here. But just wondering how has that trended in the fourth quarter? Are you continuing to see the mid-teens organic order growth here? And maybe could you elaborate a bit just a number of moving parts here. How is the international momentum continued? Is it more ACA/GOV versus pharma? And maybe tell us a bit more on the academic side of the U.S. Are you starting to see some recovery there given the points you mentioned, DNP and a couple of other points you mentioned in the slide. Frank Laukien: Yes. Thank you very much, Puneet. So we really don't have Q4 data yet. It's too early. So I just can't comment on Q4. There's no meaningful data available yet. Moving parts, ACA/GOV, the strength in ACA/GOV orders was primarily outside of the United States. but the United States were less weak, all right, less soft, is that a word. Anyway. So Q3 was better in the United States for ACA/GOV orders than Q2, and we saw some orders come through. I gave you some NMR examples. But of course, it was more -- it was broader than that, also included TIMS stuff and microscopes and other stuff. They're hard to say what's the trend in the U.S. because there clearly in the U.S., there was a little bit of catch-up in Q3 compared to Q2 and maybe even Q1 in ACA/GOV orders in Europe and Japan and a little bit in China also. That's why there might be green shoots were quite encouraging, and that's why our ACA/GOV orders year-over-year were up considerably in Q3. Don't think that we're now in a high teens growth trend all of a sudden. That's just a quarter and Q3 '24 was not the strongest. But anyway, it was very encouraging. And we hope that will continue in Q4, but I wouldn't -- and yes, the activity and opportunities are great and are encouraging, but I wouldn't read anything into that yet. Just too early to comment on Q4. We do need Q4 to then give more meaningful growth and margin numbers for 2026. We're not going to do that today. We're not able to do that today until we really see how Q4 comes in, particularly the orders, obviously. To the other moving pieces, Puneet, yes, biopharma has been reasonable in -- or okay, not great, but okay in the first half of the year, much better in the third half of the year in terms of orders, a particular strength there in the U.S., but also outside of the U.S., but ACA/GOV -- sorry, biopharma, particularly in the U.S. And the applied market strength, which is a good sign of macroeconomic trends, that was pretty -- that had a pretty broad international distribution. I don't know that I would highlight any geography there. So that may add some color to the admittedly multiple moving pieces and the effect of Bruker that prior order weakness now shows up in the P&L, whereas the new order improvements and encouragement and maybe this momentum if Q4 goes well, is more likely to -- will show up all in 2026. I hope that helps. Puneet Souda: Got it. That's very helpful. And anything on the ultra-high frequency GigaHertz NMRs, how are you thinking about those? Obviously, the tougher comp in the third quarter. But as you go into '26, how is the momentum there? I know we've been waiting for U.S. to acquire more of those instruments. Frank Laukien: Yes, the U.S. is the enigma there. But obviously, there's also other geographies. And I still can't call the U.S. trends. Obviously, nothing has come through so far. So we'll see. We're expecting at least one order for the GigaHertz class in Q4, not in the U.S. And there's a number of cases brewing around the world and including in the U.S. But today, it's too early to do that. So when we gave guidance for '26 in presumably in early February of '26, we can also comment on what has come in or where we have clear line of sight for ultra-high field for the GigaHertz class. So yes, nothing in revenue in Q3. We expect hopefully one order in Q4. Sometimes these things get delayed by a quarter. Anyway, it's just not such a big part of our business anymore. I know they're easier to count. And indeed, in Q3, a lot of our organic decline had to do with these 2 GigaHertz class systems in Q3 '24 revenue, which accounted for more than EUR 25 million of our revenue and comes with nice operating profits and margins. So it did have an effect on Q3. And anyway, that's the color I can give you. More to come when we give guidance in early February. Operator: And the next question comes from Michael Ryskin with Bank of America. Avantika Dhabaria: This is Avantika on for Mike. Could you give us the impact of the government shutdown that you're seeing in 4Q? And is that baked into the updated outlook? Frank Laukien: Well, that's a good question, and it's not formally baked into our outlook. So far, we have assumed that the effect will be relatively minor. But indeed, if this were to continue for a full second month or so, then this may delay some new grants, some orders. It could also delay some installations. So far, we haven't become aware of anything that gets -- we think that our Q4 guidance is now appropriately conservative to absorb some of that and maybe what we've seen so far, but know if there was a further multi-week or multi-month shutdown that could have additional impacts that are not presently in our guidance. Avantika Dhabaria: Understood. And then I know that you're not formally guiding on 2026 today, but you called out meaningful improvement versus the minus 4% to 5% organic in '25. Is it fair to assume that you can grow revenues in 2026? Or are we looking at flat year-over-year? Frank Laukien: We're not making that assumption yet. It's a fair question, of course. We really do want to see our Q4 '25 bookings in order then to give hopefully reliable guidance in February of '26. So yes, I mean, this year, '25, we're coming down organically quite a bit, right? We undoubtedly can do much better than that next year, but we're not presently -- I don't want to state any assumptions because then you will take them as guidance and they're not. But we just want to make sure that with the significant cost cutting that we're doing, even without growth, which isn't our assumption, but even without growth, we can expand our operating profit margins very significantly, say, 250 to 300 bps or something like that. And yes, we expect -- we continue to expect double-digit EPS growth even after absorbing the roughly $0.20 dilution that Gerald mentioned during his prepared remarks for the additional dilution from the mandatory convert that we did in September. So we still expect to do double-digit non-GAAP EPS growth next year. And that's without -- that's simply for mathematically, that's simply we're not -- this is without growth. Without growth is not our preliminary guidance period. But that's what we're looking at right now. We can -- preliminary guidance for us right now on growth does not make sense until we've seen our Q4 orders for Bruker. That's going to be very important for next year. Operator: And the next question comes from Tycho Peterson with Jefferies. Tycho Peterson: Frank, I want to pick up on that margin point. So it sounds like you are committing to the 300 basis points of margin expansion even if the top line is flat. I guess, given that you're running at the high end of the $100 million to $120 million cost savings target in the near term, should we interpret the upper end of savings is simply kind of increasing confidence in hitting that margin target next year? Or could you think you could potentially do better? Frank Laukien: Okay. So nice question, Tycho. I wasn't confirming a number. I know you've mentioned one. I'm not saying take that number out of your model, but I'm not confirming it either. We are -- I think the second part of your question, I think it's fair to say we hope to have increased confidence in getting to very significant margin expansion and double-digit EPS growth all in, including the MCP, and that's exactly why we're driving towards the high end of our cost-cutting target. So you're spot on with that one. Tycho Peterson: Okay. And then just probing a little bit on your assumptions. We're not talking numbers for '26, but just ANG, the outlook there, assuming flattish NIH budget. I mean, just talk a little bit about some of the gives and takes around multiyear grants. I assume you're not expecting any budget flush here in the near term. But then as we think about next year, do you think ANG orders will grow? And then can you flesh out your comments on China stimulus? How material was that? And how do you think about that for next year? Frank Laukien: Yes. These are all very important questions, right? So there was a little bit of a budget flush for the fiscal year '25 and orders -- sorry, and funding coming out of NIH, you all report that very well, did improve in the third quarter and particularly in September. I'm aware of a cancer center that had fantastic NIH funding and cash coming in the door to where they even were flat or higher than the previous year. So there was a mini budget flush. It went into a lot of multiyear grants. It went into things that they could fund readily. It went into a few instruments, too. We sold some NMRs and some TIMS stuff and some other stuff. It wasn't very strong yet, which is why the strength in academic bookings for us in Q3 came from outside the U.S., but the U.S. did improve a little bit sequentially. It just wasn't a growth driver yet year-over-year. So that was that. NIH budget for '26 and NSF budget, while we're at it, we are not necessarily assuming that it's flat. We'd be delighted that it's flat. If we have to take 10% or 15% down, I think that will work for us, too. I just want to be -- it's hard to predict these things. So we're not necessarily baking in an NIH budget flat. Again, delighted if it happens, but we can also work with it being down 10% or 15%. As you know, it's then actually more important whether the stuff actually gets dispersed regularly or gets held up for the majority of the year. But we are -- along with Q4 bookings, we're also looking forward to clarity on NIH and NSF and DOE budgets for research for fiscal year '26. Hopefully, that all comes in, in calendar Q4 to give us more visibility. China, yes, some green shoots, yes. So they were less than $10 million in -- clearly -- well, in orders anyway, but in clearly, it seemingly stimulus-related orders where customers said, yes, this is stimulus money being released. So less than $10 million, not -- and again, I think that's a green shoot, and we'll need to again see how that continues in Q4. But I think in Q2, there was none of that. So it's a little bit better, right? So China contributed, but Japan and quite honestly, Europe were really strong in ACA/GOV orders in Q3. So that's the color around the world. Tycho Peterson: Okay. And then lastly, you just mentioned an order pushout. Can you quantify how large that was in the one you mentioned in your prepared comments? Frank Laukien: You mean revenue pushout? Yes, there's a few sites that have -- that want delivery in Q1 rather than in Q4. So that also added to some of the more conservative guidance that we now have for the full year, but really implied for Q4 because that's all that's left. And I think I mentioned a lot -- it is true that -- I mean, it's always true that we get more than half the orders in a quarter and the third month of every quarter. But yes, a lot of the orders in the order improvement really became clear in September. So if all of these orders had come in, in July, maybe some of them would have made it into Q4. But now there -- I mean, there's some small stuff will go into Q4 and always does, but most of the large orders go into next year. most of the larger orders that came in, in September will be revenue in next year, I should be precise. Operator: The next question comes from Luke Sergott with Barclays. Luke Sergott: I just want to talk on China. You're coming in flat here, things kind of improved sequentially. Just talk about what you're seeing there more broadly. pull forward, you talked a little bit about the stimulus, the matter drove key questions. But how are you guys thinking about 4Q and the exit rate? And ultimately, are we kind of seeing some type of stabilization here? Or is this just kind of like a one-off? Frank Laukien: Well, good questions. I wouldn't read too much into -- starting backwards, Luke, I wouldn't read too much into the Q4 '25 exit rate. That's just Q3 and Q4 are relatively weak on the P&L is pretty much the result of weak orders. And yes, and some new currency and tariff challenges early in the year. We can work our way through those and offset them and more than offset them by next year, but only partially this year. So I wouldn't -- I would hesitate to take any given quarter this year as modeling something for next year. On China, yes, China was a little bit better, right, sequentially, not only in academic, not only some of the less than $10 million, I think it was closer to $6 million or something like that in stimulus green shoots. China felt a little better in Q3 perhaps all around than in Q2 when they were probably staring down a trade war barrel and maybe now maybe that gets -- that seems to have -- even before the meeting that just happened recently that maybe the whole world is getting a little bit more optimistic that, well, we know the new tariff set up and there are not likely to be major trade wars, but hard to say, right? So China was a little better in Q3 than in Q2. Luke Sergott: All right. And then turning to the spatial and the demand that you guys are seeing there, can you talk a little bit about the cadence for the instruments versus the consumables? And then the push here and ability to use your existing scale as this kind of hits the core to push further with academic government customers or deeper into pharma? Frank Laukien: Yes. Good question. Yes, spatial biology was right, slightly better orders or somewhat better orders in Q3, including international, I believe, as well. That's both consumables and instruments. Remember, some of the new workflows like the whole transcriptome on the CosMx, of course, also will run on existing systems. They may need some upgrades, but you don't always need a new system for that. But I think there was also strength in CosMx and CellScape orders. PainScape is still very new. So a lot of that is sort of -- will take a little while and have a number of labs that are going to have placements of the PainScape, do this new spatial genomics and look at dysfunction in cancer and infectious disease before that turns into papers, before that turns into revenue. That's super interesting, but it's not going to be a big contributor yet, whereas CosMx and CellScape are doing well, also including some of the consumables. So yes, spatial biology is doing better. Of course, we could use more U.S. academic funding. It was quite dependent well, 2/3 of that is academic government and 1/3 is biopharma. And -- so that strengthening in biopharma also is good for spatial biology. And as you know, that so far in the U.S., that's stronger than the ACA/GOV growth. Operator: And the next question comes from Subbu Nambi with Guggenheim. Subhalaxmi Nambi: Frank, some of the niche end markets in 2026, like diagnostics and maybe semis, what do those look like next year? Can ELITech be a low double-digit grower in your mind? Frank Laukien: Yes. I mean diagnostics is very important for us, right? It's well above $500 million. They both are -- they've done well in '25, both the clinical microbiology and the molecular diagnostics that are both in that infectious disease division. MALDI Biotyper good growth, very good growth in consumables and software and so on. Now in that business, I think it's 60% aftermarket, which is service consumables, but also database subscriptions. So very healthy there. The diagnostics business, the ELITech business primarily is a delight this year. It's growing nicely. It's expanding its, this year, 25%. So it's growing its margins. It's growing, which is nice this year. It's actually -- I don't know the exact growth rate. It's growing somewhere in the single digits, maybe even high single digits, which is lovely. Its placements have really outperformed significantly. I know you can't take placements to the bank, but next year, you will be. So they had a lot of placements of their InGenius and BeGenius stations. The commercial synergies with Bruker are really working, and they're getting into countries and into labs they previously couldn't get. So I think their placements are something like 20% or more ahead of their business plan, which isn't revenue this year. And when these things systems are placement under reagent rentals, then it takes 6 months until you really have the revenue ramp. But hopefully, then you have 5 to 7 years of really solid revenue and consumables pull-through. So that's going really well. Semi is, you have to look at it on an annual basis. I think we had -- this year, we'll have 2 quarters of fantastic orders and 2 quarters of not so fantastic orders. Over the year, it's all right. I think it's flattish this year. I don't think there's anything structural there. And revenue-wise, it's been a little weaker, and we expect that to improve next year. So semi one really has to look at on an annual level, and it's a very nice margin contributor. Semi now all is approaching or is around $300 million in annual revenue. So it's also pretty meaningful for us and has very -- along with the diagnostics business has some of the best incremental margins. So those are very core to us. These are not niches for us, even though we love the post-genomic era, both of those are just really important core businesses. Subhalaxmi Nambi: Just a follow-up. Can you unpack where you saw orders incrementally positive from a product perspective? Is it the lower-priced equipment? And then how have consumables being impacted? Any color you could share there? Frank Laukien: So for diagnostics, for molecular diagnostics and the ELITech, remember, they're primarily active in Europe, in selected countries in Asia, like not in China, for instance, in parts of Africa, parts of Latin America. And the strength there has been particularly in Europe, the placement strength that I mentioned. Subhalaxmi Nambi: No, I mean the overall business. Frank Laukien: Can you repeat the question, Subbu, I'm sorry. What was -- I thought you were referring to diagnostics, but... Subhalaxmi Nambi: Sorry, backing up. In general, the order strength that you saw this quarter, where did you see the strength coming from, from a product perspective, either diagnostics or outside of diagnostics? Gerald Herman: I think -- Subbu, it's Gerald. I'd say the orders strength in the third quarter was coming from larger ASP-based instruments. We did have some volume, particularly coming out of our optics and AXS businesses, which tend to have lower ASPs, but I'd say the bulk of the performance in the orders was particularly coming out of the European markets as well, just to clarify that. I mean we saw considerable strength in the European markets, both in the ACA/GOV side, particularly. Frank Laukien: So I think I can answer it now. Sorry, it took me a second. The strength in orders in Q3 of '25 had very little to do with diagnostics. Diagnostics is just coming along and it's fine. But the more discrete items were strength in ACA/GOV outside of the U.S., biopharma and applied. Gerald Herman: That's right. Frank Laukien: And so that is -- none of those include diagnostics. Operator: And the next question comes from Casey Woodring with JPMorgan. Casey Woodring: On orders, historically, orders improved sequentially in 4Q in your business, but you've talked here today about some catch-up in academic and government in 3Q. So can you just maybe walk through what the range of outcomes looks like in 4Q from an order exit rate perspective? How safe is it to assume orders step up sequentially? Or are there scenarios wherein orders could be flat to down in 4Q? Then I have a follow-up. Frank Laukien: Sure, Casey. Okay. So the -- in ACA/GOV, where we observed a little bit of catch-up was in the U.S. I don't think there wasn't any hold back -- well, actually in the U.S. and in China, a little bit. In the rest of the world, I think that catch up. I'm not aware of that. But China and the U.S. on ACA/GOV have been holding back, and that's why Q2 orders, for instance, in both of those geographies were weak. So to your second part of your question, Q4 is always strong. So there's -- the question for Q4 will not be, will it be up sequentially over Q3. That's pretty much a given. But whether -- what the trend will be year-over-year compared to Q4 of last year. Casey Woodring: Got it. Frank Laukien: I hope that helps. Casey Woodring: Yes, no, that definitely helps. And then my second one, just quickly on backlog. I think last quarter, you noted you had 6.5 months, and you talked about that going down to 5 months in a normalized environment. Maybe just walk through kind of how you're seeing that play out over the course of '26. Gerald Herman: Well, what I can -- this is Gerald. What I can comment on is that we currently have about 7 months of backlog through the third quarter of 2025, which is actually up now from the 6.5 months we quoted at the end of the second quarter. I mean, I guess, to a large extent, it really depends on our '26 performance is really going to depend on how we -- how it looks like for the fourth quarter in terms of revenue performance. Based on our guide, it looks like we will still carry considerable backlog into the 2026 period. Operator: And the next question comes from Brandon Couillard with Wells Fargo. Brandon Couillard: Just a couple of housekeeping items. Can you give us an updated interest expense number for the year? What's the run rate for the fourth quarter? And is that a good figure to assume for '26? And is the impact of the share count from the MCP offering about 13 million shares? Gerald Herman: Yes. To answer your last question first, the answer is yes, roughly, and then on the first part, we'll go through, Brandon, a little more modeling on the interest because it gets a little complicated, partly because we -- you may know we had some gains, some foreign exchange gains that get covered in that line as well. So somewhere in that range that you're quoting on interest is correct, but we'll talk more about that in our modeling discussions. Operator: And the next question comes from Josh Waldman with Cleveland Research. Joshua Waldman: Two for you. First, I wondered if you could talk a bit more about what you're seeing in Europe. Was it primarily ACA/GOV accounts that improved there? Or did you also see pharma and applied accounts improve as well? And then I guess, at this point, what's your confidence level on the sustainability and strong orders? I mean, were there any one-off funding programs or anything like that, that released in the third quarter that leave you, I guess, nervous about the durability of stronger orders there? Gerald Herman: Yes. I guess I'd say, generally speaking, Europe was stronger. We did see strength in both ACA/GOV as well as applied and biopharma. So those are good signs, and I don't think there were specific one-offs related to those trends. So I think we're more confident, but I would say we need to see -- as Frank has repeated a couple of times here, we need to see the fourth quarter order performance in order to confirm that specifically. But all of those markets, in particular, on the ACA/GOV side, European were not being driven by one-off improvements or orders. Joshua Waldman: Got it. Okay. And then a follow-up. I wondered if you could provide more color on what you're seeing out of pharma. I mean it sounds like you saw a sequential improvement in bookings. I forget if you commented what orders look like year-over-year. And does it seem like accounts are trying to push orders through by year-end? Or does this seem like maybe a change in how they're viewing medium-term investment in research tools? Frank Laukien: Good questions. Josh, this is Frank. not aware of any particular drive to get orders in placed in before the end of the calendar year. So I would take this as biopharma having invested less now for -- so there was a kind of a COVID or post -- immediate post-COVID boom. Well, then there was a hangover, right, this was -- and then some concerns about most favored nations pricing and how much CapEx did they need to move things in production to the U.S. and many of them have now committed to do that over, it doesn't happen overnight. So maybe that has cleared the decks a little bit to where they are investing in tools that will make drug discovery more efficient and give them better insights. And those tools, that's exactly what we provide. Yes, you need sequencers, but you need a hell of a lot more than that to really have deeper disease biology and then drug target, drug mechanism of action insights so that hopefully, the still very poor yield and enormous expense and length of bringing a successful drug to market will improve, and that requires -- they are the biggest integrated fans of this hypothesis or thesis or facts. I would say that we are in the post-genomic era, and we need to understand the disease biology and the drug mechanisms a lot better to get better -- to get less attrition and more yield and better drug discovery. So they completely agree with that. They may not use the same terminology, but that's how they're investing. Gerald Herman: And I would just add that the third quarter performance on revenue was good, okay? And the order performance from biopharma across the globe was strong in the third quarter from an order perspective. Operator: And the next question comes from Doug Schenkel with Wolfe Research. Douglas Schenkel: Gerald, how do we balance what you've talked about in terms of on the cost savings initiatives? And like you sound as good as ever on those. You've exhibited some confidence about what you can do in 2026 from a margin expansion standpoint, seemingly in any growth environment. I mean at one point, I think last quarter, you talked about getting 300 basis points of margin expansion next year even in a flat growth environment. On the other hand, I think you increased your assumption for organic operating margin headwinds by 45 basis points for the year, which is pretty material with one quarter to go. So I'm just trying to figure out like how do we balance these things? And is there some risk that the benefits that you expect to occur over time are going to take a little bit longer to show up in the P&L just because of maybe the environment we're in and the fact that I think a lot of these changes that you're making are being done outside the U.S. where regulations can work against you. Again, I'm just trying to think about this as we try to set you guys up to succeed with realistic targets for 2026. Gerald Herman: Yes. Sure. Nice to hear from you, Doug. So here's what I'd say. First, our cost-saving initiatives will be, and we expect them to be at the high end of the range we quoted this $100 million to $120 million for fiscal year 2026. And we're fully committed to that. And actually, we're well on track with that. 95% of the actions that needed to be taken to realize that are already underway or have been fully implemented. So very confident with respect to that. And I think more generally, our expectation around margin expansion of closer to $300 million is where we are even under relatively weaker revenue conditions for '26. That's the position we've taken, and I think we're holding to that. I think the issue for us, as you already know, I think, Doug, is some of these activities around cost savings do take a bit of time just because we have to go through a process, particularly in Europe and a lot of our cost-saving actions are driven around Europe because of our footprint. So there's going to be a likely delay in some of this as we're going to see more of it hitting in the second quarter of 2026 as opposed to in the first. So -- but that doesn't take us off the target. Frank Laukien: And let me also -- I mean -- so we did get -- Europe, there are other economic problems and layoffs by other companies. So we got very good cooperation, for instance, in Germany and France, which can be difficult from our workers' councils and committed enterprise ,they've agreed, they've approved that what we're doing is reasonable and protects the core and all of that. So good cooperation. When Gerald said that, yes, Q1 will have -- so the $120 million for the year, we're very committed to that. And Q1 will have, I don't know, 90% or 95% of the run rate cost savings implemented. A few things, just the way they're timed will come in, in Q2, but it's not going to be a big modeling difference, Doug, or anybody else. But yes, that's how it flows. And the $120 million is not some sort of a Q4 run rate. That's for the full year. Gerald Herman: Exactly -- and just to your earlier part of your question, I mean, we did have -- with respect to the fourth quarter of '25, we do have some mix challenges in the fourth quarter for '25 that we didn't see in the previous year as well. So I think you're going to see some -- you did see a change in the overall guide from an organic operating margin impact with respect to the fourth quarter. So that's the explanation for that, Doug. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Joe Kostka for any closing remarks. Joe Kostka: Thank you for joining us today. Bruker's leadership team looks forward to meeting with you at an event or speaking with you directly during the fourth quarter. Feel free to reach out to me to arrange any follow-up. Have a good day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and thank you for attending the Oxford Lane Capital Corp. announces net asset value and selected financial results for the second fiscal quarter and declaration of distributions on common stock. My name is Braca, and I will be your moderator for today. [Operator Instructions] I would now like to pass the conference over to your host, Jonathan Cohen, Chief Executive Officer at Oxford Lane Capital Corp. Thank you. You may proceed, Jonathan. Jonathan Cohen: Good morning, everyone, and welcome to the Oxford Lane Capital Corp.'s Second Fiscal Quarter 2026 Earnings Conference Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our CFO; and Joe Kupka, our Managing Director. Bruce, could you open the call with the disclosure regarding forward-looking statements? Bruce Rubin: Thank you, Jonathan. Today's conference call is being recorded. An audio replay of the call will be available for 30 days. Replay information is included in our press release that was issued earlier this morning. Please note that this call is the property of Oxford Lane Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in this morning's press release regarding forward-looking information. Today's conference call, including forward-looking statements and projections that reflect the company's current views with respect to, among other things, future events and financial performance. We ask that you refer to our most recent filings with the SEC for important factors that can cause actual results to differ materially from those indicated in these projections. We do not undertake to update our forward-looking statements unless required to do so by law. During this call, we will use terms defined in the earnings release and also refer to non-GAAP measures. For definitions and reconciliations to GAAP, please refer to our earnings release posted on our website at www.oxfordlanecapital.com. With that, I'll turn the presentation back over to Jonathan. Jonathan Cohen: Thank you, Bruce. On September 30, our net asset value per share stood at $19.19 compared to a net asset value per share of $20.60 as of the prior quarter. All prior quarter per share amounts being discussed during this call have been adjusted to reflect the 1-for-5 reverse stock split of our common stock, which became effective on September 5. For the quarter ended September, we reported GAAP total investment income of approximately $128.3 million, representing an increase of approximately $4.3 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $124.6 million from our CLO equity and CLO warehouse investments and approximately $3.7 million from our CLO debt investments and from other income. Oxford Lane recorded GAAP net investment income of approximately $81.4 million or $0.84 per share for the quarter ended September compared to approximately $75.1 million or $0.80 per share for the quarter ended June. Our core net investment income was approximately $120 million or $1.24 per share for the quarter ended September compared with approximately $112.4 million or $1.19 per share for the quarter ended June. As of September 30, we held approximately $366 million in newly issued or newly acquired CLO equity investments that had not yet made their initial distributions to Oxford Lane. For the quarter ended September, we recorded net unrealized depreciation on investments of approximately $68.5 million and net realized losses of approximately $18.1 million. We had a net decrease in net assets resulting from operations of approximately $5.3 million or $0.05 per share for the second fiscal quarter. As of September 30, the following metrics applied. We note that none of these metrics necessarily represented a total return to shareholders. The weighted average yield of our CLO debt investments at current cost was 17.4%, up from 16.9% as of June 30. The weighted average effective yield of our CLO equity investments at current cost was 14.6%, down from 14.7% as of June 30. The weighted average cash distribution yield of our CLO equity investments at current cost was 19.4% down from 21.6% as of June 30. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended September, we issued a total of approximately 700,000 shares of our common stock pursuant to an at-the-market offering, resulting in net proceeds of approximately $14.5 million. During the quarter ended September, we repurchased a total of approximately 1.2 million shares of our common stock pursuant to our share repurchase program for approximately $20.5 million. During the quarter ended September, we made additional CLO and equity -- CLO investments of approximately $145.2 million, and we received approximately $173.5 million from sales and from repayments. On October 24, our Board of Directors declared monthly common stock distributions of $0.40 per share for each of the months ending January, February and March of 2026. With that, I'll turn the call over to our Managing Director, Joe Kupka. Joe? Joseph Kupka: Thanks, Jonathan. During the quarter ended September 30, 2025, U.S. loan market performance remained steady versus the prior quarter. U.S. loan price index decreased from 97.07% as of June to 97.06% as of September 30. Against this backdrop, median U.S. CLO equity net asset values rose approximately 20 basis points. Additionally, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 318 basis points compared to 327 basis points last quarter. The 12-month trailing default rate for the loan index increased to 1.47% by principal amount at the end of the quarter from 1.11% at the end of June 2025. We note that out-of-court restructurings, exchanges and subpar buybacks, which are not captured in the cited default rate remain elevated. CLO new issuance for the quarter totaled approximately $53 billion, reflecting an approximate $2 billion increase from the previous quarter. Additionally, the U.S. CLO market saw approximately $105 billion in reset and refinancing activity in Q3 2025 compared to approximately $53 billion in the previous quarter. Oxford Lane remained active this quarter, investing over $145 million in CLO equity debt and warehouses. During the quarter, we also directed or participated in more than 25 resets and refinancings taking advantage of tightening liability spreads to lower the cost of funding and lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio from January 2029 to May 2029. We continue to evaluate existing investments for opportunities to improve the economics of our CLO equity positions. Our primary investment strategy during the quarter was to engage in relative value trading and seek to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio. In the current market environment, we intend to continue to utilize our opportunistic and unconstrained CLO investment strategy across U.S. CLO equity debt and warehouses as we look to maximize our long-term total return. And as a permanent capital vehicle, we have historically been able to take a longer-term view towards our investment strategy. With that, I'll turn the call back over to Jonathan. Jonathan Cohen: Thank you, Joe. Additional information about Oxford Lane's second fiscal quarter performance has been uploaded to our website at www.oxfordlanecapital.com. And with that, operator, we're happy to open the call up for any questions. Operator: [Operator Instructions] And the first question we have comes from Mickey Schleien with Clear Street. Mickey Schleien: Jonathan, how would you characterize trends in loan spreads in October relative to September? Joseph Kupka: So I think year-to-date, the year was dominated by this repricing wave. Through October, we've definitely seen a softness in the loan market with the LSTA selling off a bit. So that had put a bit of a pause on the repricing wave. With that said, now the loan market is now about over 40% trading above par. So I don't expect the repricing wave we've seen year-to-date to continue at this pace, but I think there's still a bit of repricing activity to come. Mickey Schleien: Okay. My next question relates to cash yield. What drove the decrease in the CLO equity portfolio's cash yield quarter-to-quarter? And how do we reconcile that against an increase in your core NII? Joseph Kupka: So the decrease in the cash yields was driven by two factors. One, we performed a lot of these resets and refinancings, which in the short term take a bit of a hit to the cash yield just because of the expenses coming out. And -- but the main driver was just this repricing wave that kind of compressed the ARB across all CLO equity vehicles and across the whole market. In terms of the core NII, that number tends to move around a bit due to first-time payers, which we've had a significant amount of these past several quarters and also repayments in terms of liquidated CLOs. Mickey Schleien: That's helpful, Joe. First Brands filed for bankruptcy at the very end of the quarter, and as we know, it was widely held among many CLOs with some having over a 1% allocation to it. So I'd like to understand what was the impact of its bankruptcy on your portfolio's value? Joseph Kupka: I would say it was pretty muted overall, even though there were some CLOs that had 1% positions. Overall, the average position was somewhere between 20 to 30 basis points. So there wasn't a significant impact, I would say, just given the diversified nature of CLOs in general. We also didn't see a huge impact to OC ratios, especially considering the robust OC ratios we've had in our portfolio. In fact, we saw a decrease quarter-over-quarter. Mickey Schleien: Yes, that was actually my next question, and -- I'm sorry. Joseph Kupka: No, sorry. Go ahead. Mickey Schleien: No, I was going to ask about the OC cushion, which, as you said, held up. And do you expect it to have a modest impact on portfolio yields going forward? I'm referring to First Brands. Jonathan Cohen: We don't really make those sorts of public pronouncements, Mickey, but I think Joe's comments sort of frame the issue from our point of view. Mickey Schleien: Okay. And Jonathan, if First Brands wasn't a big driver, what -- apart from loan spread compression, what drove this quarter's realized and unrealized losses? Jonathan Cohen: It was primarily loan spread compression, Mickey. I don't really think there was a secondary or tertiary element that was nearly as pronounced as that fact. Mickey Schleien: And within the realized losses, Jonathan, could you give us a sense of -- you're obviously trading and looking for some value plays. What's appealing to you? And what are you trading out of? And what are you trading into that's driving those realized losses? Jonathan Cohen: With about 300 line items, Mickey, you can appreciate, of course, that we're not really pursuing thematic trading strategies. We're typically selling things we think we can sell well, and we're buying things that we think we can buy better. Mickey Schleien: And a couple more questions, if I might. What would you say is the current level of AAA CLO debt, Jonathan, in the market? And could you quantify the remaining opportunity in your portfolio to refinance or reset liabilities? Joseph Kupka: Sure. So currently, the for Tier 1 AAAs, they just broke 120, so like 119, the best level currently. In terms of resets, that number is a bit back, call it, low 120s in terms of our go-forward opportunities. We were very active this quarter, resetting and refinancing any of our in-the-money positions. I don't expect that to be repeated this quarter. But starting next quarter, we see several more CLOs come out of their non-call period, which we see a lot of opportunity for continued resetting refinancing starting next year. Jonathan Cohen: And portfolio rotation. Mickey Schleien: Right, right. And I see that your average AAA spread is 133. So there has to be at least a handful that are in the money, right, Joe? Joseph Kupka: Yes, exactly. Jonathan Cohen: We would, yes, I think so. Mickey Schleien: Okay. And lastly, and I appreciate your patience. Could you give us a sense of your target balance sheet leverage ratio under these current market conditions? I mean it's pretty low right now. Jonathan Cohen: Sure, Mickey. We don't publish or announce a target leverage ratio by virtue of the fact that there are so many variables for us to consider, principally amongst them, the overall level of leverage on our balance sheet, which, as you referenced, I think, is on the relatively low side at the moment. But most profoundly, the cost of capital and ultimately, the use of proceeds. So we don't have a target that's specifically higher than where we're sitting right now. But as you can imagine, we're looking at that cost of capital, and we're looking at those uses of proceeds, essentially on a real-time basis. Mickey Schleien: Let me ask it a different way, Jonathan. Are you open to operating at a little bit higher leverage to take advantage of all the opportunities in the market, given how much volatility we're seeing? Jonathan Cohen: Yes, we are open to that possibility. Operator: Your next question comes from Steven Bavaria with Inside the Income Factory. Steven Bavaria: Jonathan, Steve Bavaria here. You guys obviously were the first ones to bring CLOs, previously an institutional asset class, obviously, to the retail market. And while you -- it was a while ago, I'd say we're all -- certainly my readers, we're all still scrambling to kind of catch up with what -- it's a complex asset class and how to analyze it, especially within a closed-end fund wrapper, so to speak. And one of the things that comes up a lot, and I'm not sure I even have it right, but you could help me. It seems because you're required to pay out 90% or so of your pretax income to your -- as a distribution and I guess an even higher percentage of any capital gains, you're not in a position like a regular bank. CLOs unlike regular banks can't and you certainly can't set up reserves for future loan losses, the way JPMorgan and others normally do. So it would seem if I'm right, that a lot of the losses in CLOs kind of appear at the end when the CLOs are winding down, that you're often forced to pay out distributions that in fact, are not going to be necessarily fully earned once a particular CLO winds down. If that's correct, then you're always going to have a certain amount of NAV erosion that's normal. In judging you, we should be looking at your total return, your total distribution, say minus any NAV erosion. And if that number is still an attractive number, then that's fine. Am I -- are we looking -- am I looking at that right? Is that essentially the proper lens to be evaluating your performance in? Jonathan Cohen: We believe so, Steve. I mean that's certainly how we view our mandate and how we run the portfolio within Oxford Lane. So we are a total return-focused investor. And the manifestation of that return can appear through the income that we receive from our CLO equity and junior debt investments. It can appear in the form of capital gains, potentially. It can appear to the investor through the distributions they receive and changes in the NAV, which can be positive or negative for any period. Certainly, we've had years, individual years where the total return has greatly exceeded the amount of the distribution. And we've had years where the total return has not equaled the amount of distribution, and therefore, there's been mathematically a diminishment to the NAV in those periods. But I think from a philosophical point of view, Steve, you're certainly thinking of it in a manner that's aligned with our own. Steven Bavaria: And there will -- because of that requirement that you pay out all of your -- or most of your pretax income, even though later on post -- once you absorb some of those, the losses that are normal, normal default credit losses are normal even in healthy CLOs, healthy loan portfolios, that there will always be a certain amount of over time NAV erosion that we should kind of expect that. And it's then a question of determining what NAV erosion is normal and what is abnormal? Is that essentially correct? Jonathan Cohen: Well, I mean, it's an opinion. So it's hard to say if it's correct or incorrect, but I think it's a logically consistent opinion, and it's one that we generally share in those markets. I mean -- but the reason, Steve, that -- or I should say, the result of the way that you've just described it, is that we have pursued for the last -- since 2011 when Oxford Lane Capital Corp. came public, we have pursued an active portfolio management strategy. In other words, we've basically committed ourselves to reviewing the body of our portfolio, essentially on a daily or real-time basis and making determinations and decisions based on relative value and absolute value in pursuit of this total return mandate. And the result of that is that you will see and you have seen historically that we've had relatively high levels of trading volumes, by virtue of the fact that, as Joe referenced earlier, we're looking to push out our maturity windows. We're looking to push out our reinvestment periods. We're looking essentially to actively manage this portfolio very much in view of the dynamic you've just described. Operator: We now have the next question from -- we have Erik Zwick with Lucid Capital Markets. Erik Zwick: I wanted to start just Jonathan, maybe get your view. Your spreads remain very tight in the primary market, yet there's still a great deal of uncertainty with regard to the macroeconomic outlook. There's been noted weakness in lower end consumer. The impact of higher tariffs are still unknown. You got the government shutdown, which could have primary as well as secondary impact. So just kind of curious, putting that together, do you think lenders and CLO buyers are being appropriately compensated for the level of risk in the economy today? Jonathan Cohen: I wouldn't make, Erik, that blanket statement. What I would say instead is that in the primary market, in new CLOs that we are involved with and purchasing. And in the secondary market, in terms of the trading opportunities that we see, we have and continue to see opportunities that we believe are compelling and are providing us with an adequate level of risk-adjusted return. But in terms of the market overall, there are certainly CLO transactions in the primary market and CLO transactions in the secondary market that we would not participate in because we don't think they're sufficiently compelling like every other market. I think to go into this asset class and to essentially buy the market has never been something that we've embraced. We've always been, I'd like to think anyways, and I believe more discerning and selective than that. Erik Zwick: Yes, that makes sense. And I guess kind of given that commentary, if you look at your pipeline, today are -- has the size of the pipeline changed relative to maybe 9, 12 months ago? Are you seeing fewer kind of attractive risk-adjusted opportunities given some of the macroeconomic overlay? Or is it still fairly robust? And maybe kind of part 2 to that question would be, in your view, are the more attractive opportunities today in the primary or the secondary market? Jonathan Cohen: Sure. Well, keeping in mind, Erik, that a forward pipeline really only refers to the primary market. We don't know what's going to be available to us at what price in 1 or 2 or 3 months in the secondary market. But Joe, why don't you speak a little bit to what we're seeing in the primary market right now? Joseph Kupka: Yes. I think to your question, things have definitely changed with what we're focusing on. Earlier this year and last year, we were very heavily investing in the primary market. Now to your point, that has changed a bit. We're very focused on the secondary market, while we're a little more patiently ramping in the primary and kind of waiting for the right moment to term out some of the CLOs. So I would say we're still seeing a large number of relatively attractive opportunities, but the type of those opportunities has and continues to change very rapidly given the tightening liability and the repricing wave we've seen. Jonathan Cohen: And the macroeconomic factors, Erik, that you referenced earlier. Erik Zwick: Yes. Great. And in terms of the net unrealized depreciation in the most recent quarter, curious, was that more reflective of individual security fair value changes or more due to broad market factors? Just curious what the drivers there were. Jonathan Cohen: I think it was more broadly based, Erik, principally predicated on the U.S. syndicated corporate loan spread compression dynamic that Joe was referencing earlier. Erik Zwick: Yes. And then if so, I guess, if we were to see spreads widen a little bit, you could certainly see some recapture of that unrealized depreciation in future periods if we were to see that. . Jonathan Cohen: Ceteris paribus, yes. Erik Zwick: Yes, yes. Okay. And then curious if I might have missed it if you said it earlier, quantity of new investments that have yet to make their first payments. Do you have that number handy? Joseph Kupka: I believe it was $366 million as of 9/30. Jonathan Cohen: $366 million, Erik. Erik Zwick: Okay. And you would expect most of those to make their first payments here in calendar 4Q? Joseph Kupka: About half to make next quarter and then the other half, the following quarter. Operator: I can confirm that does conclude the question-and-answer session. I'd like to hand it back to Jonathan Cohen for some final closing comments. Jonathan Cohen: I'd like to thank everybody on the call and listening in the replay for their interest and their participation, and we look forward to speaking to you again soon. Thanks very much. Operator: Thank you. I can confirm that does conclude today's conference call with Oxford Lane Capital Corp. Thank you all for your participation, and you may now disconnect.
Operator: Welcome to the IRADIMED CORPORATION Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded today, November 3, 2025, and contains time-sensitive accurate information that is valid only for today. IRADIMED released its financial results for the third quarter of 2025. A copy of this press release announcing the company's earnings is available under the heading News on their website at iradimed.com. A copy of the press release was also furnished to the Securities and Exchange Commission on Form 8-K and can be found at sec.gov. This call is being broadcast live on the company's website at iradimed.com, and a replay will be available for the next 90 days. Some of the information in today's session will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements focus on future performance, results, plans and events that may include the company's expected future results. IRADIMED reminds you that future results may differ materially from those forward-looking statements due to several risk factors. For a description of the relevant risks and uncertainties that may affect the company's business, please see the Risk Factors section in the company's most recent reports filed with the Securities and Exchange Commission, which may be obtained free from the SEC's website at sec.gov. I would now like to turn the call over to Roger Susi, President and Chief Executive Officer of IRADIMED Corporation. Mr. Susi? Roger Susi: Thank you, operator. Good morning, and thank you all for joining us on today's call. I am indeed very proud to report that IRADIMED achieved its 17th consecutive quarter of record revenue with the recent third quarter surpassing the 2024 third quarter by 16%. In the third quarter of 2025, we achieved revenue of $21.2 million. Our gross profit came in at 78% and earnings remained strong with GAAP diluted earnings per share increasing 8% from Q3 of '24. Pump shipments again led performance in the quarter as our 3860 MRI IV pump grew another 20% year-over-year in Q3. Our MR monitor sales have also continued to impress. I am also pleased to report that shipments of our MRI patient monitor grew by 16%, clearly showing that our emphasis on monitoring sales for 2025 is proving successful. Next, I want to touch on the planned rollout and commercial launch of the new 3870 MRI IV pump system, which was cleared in Q2. Let's recap what I have been saying about the #1 growth driver for the new 3870 pump. But first, yes, we anticipate a price increase of 10% to 14%. And yes, the 3870 design is such that we fully expect to penetrate the greenfield opportunity more effectively and also drive increased utilization among some of the existing customers who only use their older pumps rather sporadically. But most significant increases come from the large replacement opportunity, which is the #1 driver we see step changing the pump revenue and will continue to be our key growth driver in pump area for several years to come. It is very telling that even the old 3860 model delivered 20% growth in the third quarter. This is driven mainly by limiting, again, our extended maintenance offering to pumps under 7 years old -- to 2 pumps rather under 7 years old, which has brought in replacement orders for about 1/3 of the pumps in that 7 and up age group. With the new state-of-the-art 3870 pump having 20 years of technological advancement over the aging 3860, we anticipate a significant demand to replace the very large pool of older 3860 model pumps starting now at the 5-year and older level. Consider that in the U.S. market alone, there are approximately 6,300 5-plus year old or older 3860, [ 61 ] pump channels up for replacement. And we currently sell approximately 1,000 such channels annually in the domestic market. We will target adding another 1,000 channels per year in sales through replacement sales out of that existing 6,300 units that are over 5 years -- that are over 5 years old. This will be our target starting in Q2 and throughout the rest of 2026. And as you can see, replacing 1,000 channels per year leaves many thousands more to replace in the years to come. To put numbers to this opportunity for our domestic business only, selling north of 2,000 3870 pump channels annually at a slightly higher anticipated ASP, we would be approaching nearly a $50 million revenue run rate for pumps. Adding disposables and maintenance, international sales and the MR monitoring business, one can understand our confidence in breaking into the $100-plus million revenue range. I'd like to provide our thoughts as to timing on the rollout of the 3870. In December, we will deliver an initial order of 23 3870 systems, for which we will provide an extraordinarily level -- extraordinary high level of clinical support and monitoring of the use of the pumps through January and February to review and adjust planning based on user input. The full sales team rollout in the U.S. will begin after the national sales meeting in the third week of January. Given the time required for our hospital customers to be sold, approve funding and issue orders, we expect bookings to build beginning in Q2 and ramp significantly in the second half of the year. We expect to maintain quarterly revenue in the first half of 2026 through the increasing MRI monitoring business and our 3860 pump backlog. Now let's discuss our updated financial guidance. For the fourth quarter of 2025, we expect revenue now of $21.4 million to $22.4 million and anticipate GAAP diluted earnings per share of $0.43 to $0.47 and non-GAAP diluted EPS of $0.47 to $0.50. For the full year 2025, we are raising our guidance to $82.5 million to $83.5 million, up from our prior range of $80 million to $82.5 million. GAAP diluted earnings per share is now expected to be $1.68 to $1.72, up from $1.60 to $1.70. And non-GAAP diluted earnings per share is expected is $1.84 to $1.88, up from $1.76 to $1.86. We also remain committed to delivering value through our $0.17 per share quarterly dividend declared for Q4 and payable on November 25. I'll turn over the call to Jack Glenn, our CFO, now, to review the quarter's financial results. Jack? John Glenn: Thank you, Roger, and good morning, everyone. As in the past, our results are reported on a GAAP basis and non-GAAP basis. You can find a description of our non-GAAP operating measures in this morning's earnings release and a reconciliation of these non-GAAP measures to GAAP measure on the last page of today's release. For the 3 months ended September 30, 2025, we reported revenue of $21.2 million, a 16% increase from $18.3 million in the third quarter of 2024. This growth was driven by strong performance across our product lines with MRI compatible IV infusion pump systems contributing $8.3 million, up 20% year-over-year and patient vital signs monitoring systems contributing $6.9 million, up 16%. Disposable revenue grew 12% to $4.1 million, reflecting increased utilization of our devices, while ferromagnetic detection systems also saw solid gains. Domestic sales increased 19% to $18.1 million and international sales remained consistent at $3.1 million. Overall, domestic revenue accounted for 85% of total revenue for Q3 2025 compared to 83% for Q3 2024. Gross profit was $16.4 million, up 16% from $14.1 million in Q3 2024, with a gross margin of 78% compared to 77% in Q3 of 2024. The strong margin performance was especially noteworthy as we moved manufacturing operations into the new facility at the beginning of the quarter and stayed on track with our shipment and cost of goods sold targets. Operating expenses for the quarter were $9.7 million, up 15% from $8.4 million in Q3 of 2024, driven by higher sales and marketing expenses to support our growth and modest increases in general and administrative costs and research and development expenses. The increase in sales and marketing expenses was primarily due to higher sales commissions for our direct sales force in the U.S. as they exceeded their bookings plan in the quarter. Income from operations grew 17% to $6.8 million from $5.8 million in Q3 of 2024. Tax expense for the quarter was $1.7 million, resulting in an effective tax rate of 23.6%. The increase in the effective tax rate was primarily due to a catch-up in the quarter with our projected effective tax rate for the year now estimated at 22%. Net income was $5.6 million or $0.43 per diluted share, a 12% increase from $5 million or $0.40 per diluted share in Q3 of 2024. On a non-GAAP basis, net income was $6.1 million or $0.47 per diluted share, up 9% from $0.43, excluding $0.5 million of stock-based compensation expense net of tax. Now turning to our balance sheet. We ended the quarter with cash and cash equivalents of $56.5 million, up from $52.2 million at year-end 2024. Cash flow from operations was a strong $7 million for the quarter and $19 million year-to-date. Free cash flow, on non-GAAP measure, was $5.7 million for the quarter and $11 million year-to-date, reflecting capital expenditures of $8 million year-to-date, primarily related to the new facility. Final payments totaling approximately $1.3 million for the facility were made in the third quarter, bringing the total construction cost to approximately $13.3 million. And with that, I will now turn the call over for questions. Operator? Operator: [Operator Instructions] Our first question is going to come from the line of Frank Takkinen with Lake Street Capital Markets. Frank Takkinen: Congrats on the solid quarter and all the progress. I was hoping we could start with some more color around the kind of bridge to $50 million run rate in pumps. I appreciate the timing you laid out related to sales meeting, launching after that in January and then ramping the backlog in Q2 through mid-2026. When should we expect that to flow through to kind of revenue to that $50 million run rate? Can we see that in late '26? Or is that more of a 2027 event? Roger Susi: We should -- yes, Frank, it's Roger. Maybe I'll pick it up first and let Jack jump in if he has some more color for you. As I said, most of that -- given that we start pounding the pavement shall we say, to sell 3870 here in me mid-January, the early part. But by the time they get out there, you're basically half of Q1. And as I mentioned, orders don't just immediately get turned around even from people that are -- we think are pretty well pent up with desire to get a new pump now after at least 20 years of 3860. So yes, the story is in the back half of 2026 for revenue. We anticipate bookings and so forth, that we'll be able to report on in the first half, certainly. But the real revenue will start to ramp up in the third and fourth quarter. And so yes, by that fourth quarter, we think it will be pretty clear that we're doubling the number of pump channels that we're booking certainly and the revenues should start to reflect that as well. Frank Takkinen: Got it. That's helpful. And then I wanted to follow up on one comment in the press release. I think it was along the lines of despite some inefficiencies with the transition, we maintained a 78% gross margin. Quite honestly, I figured that would be followed with our gross margin was negatively impacted and below expectations, but that was still above expectations. Is it may be kind of hinting at the fact that you can get even better gross margins out of this product potentially into the 80%? Or how should we kind of read through on that inefficiencies and how that impacted the quarter? Roger Susi: Well, I think it shows that we did a great job. transition, moving the entire operation across Orlando essentially and getting it plugged in and running again, that we didn't have any glitch negatively impacting revenues and subsequently cost of goods. And -- but I think the real impact there is that the revenue -- the stuff that we didn't ship out by and large, in Q3 was heavily domestic. And so that is probably what accounts for that 1% boost in the gross margin. So can it be sustained? Well, as we get quarters where domestic business is a little bit on the lesser side from international business, that will fluctuate probably by that point. Operator: Our next question comes from the line of Kyle Bauser with ROTH Capital Partners. Kyle Bauser: Congrats on the great results. Maybe we can talk a little bit about inventory levels for 3860 and 3870. Maybe first on 3860. Obviously, demand is still very strong here. It doesn't sound like any air pockets, which is impressive. Is pricing stable on that? Or are you planning on maybe sort of providing any sort of discounted levels there as you kind of roll out that inventory and move into 3870? Roger Susi: Kyle, nice to have you on board here with us. By the way, and hope to meet face-to-face soon. But to answer your question, the question is simple, no. No. We haven't -- it's surprising maybe, but yes, that boost -- that gift that keeps on giving from these old 3860 pump orders is straight at the ASPs we've always enjoyed, no discounting, no, haven't done that. Kyle Bauser: Great. Great to hear. And maybe on -- how are you thinking about inventory levels for 3870 ahead of the launch? And what are current levels? Or do you expect -- how do you expect to manage that, et cetera? Roger Susi: Well, there's lots of money going there. I'll let Jack pick that one up. John Glenn: Sure. So good to hear from you, Kyle. So yes, as far as the inventory levels of 3860, certainly, we have the inventories and we'll plan the inventories for the backlog that we have currently with the 3860, which will be shipping throughout Q1 of next year and end of Q2, it looks like. As far as the 3870, we are beginning those buys now. And so you'll see in Q4, there certainly -- we're building up inventory for those 3870s and now will be appropriate build for Q1 and beyond. And so certainly, we have the working capital from that perspective, no issues there. Kyle Bauser: Okay. Appreciate that. And I don't want to get ahead of myself here since you're just kind of beginning the rollout into the U.S. But can you remind me plans eventually to secure entry into international markets for 3870 and how you're kind of thinking about that? Roger Susi: Yes. It's primarily a regulatory issue. There's the new MDR requirements to maintain your CE Mark for European community business. That's a heavy lift, but our regulatory folks, they came off of a long battle with FDA, as you know, to clear the 3870, but that was back in May. They took a breather, but they're hot and heavy on obtaining that MDR, let's call it a clearance, but it's a registration where the CE Mark. And that will -- that's what we're targeting to be done in Q4. So international business will switch over to the 3870 next year, 2027, I should say, not in 2026. We'll just be getting the MDR towards the latter part of 2026. Likewise, our other large market for pumps is Japan. And I'll be speaking with them. I'm in Japan calling on this call right now. I'm speaking to them here in the next day or 2 and working with the Japanese to clear the product here in Japan. We're going to do that simultaneously. But it probably still will be somewhere in the fourth quarter by the time we get that cleared. And then we'll switch Japan over. So both those largest international markets will be a 2027 kicked in. Kyle Bauser: Okay. Great. Appreciate that. And maybe just one more quick one. Glad to hear you're fully moved into the new facility. I think it's 2.5x the size of the previous facility. Correct me if I'm wrong. But any sense as to kind of what level of sales this could support or capacity, however you want to frame it? Roger Susi: Well, it is 2.5x the size. That's right. And we were doing $20 million a quarter out of that 2.5x smaller space. So the math of it's pretty equal. We don't see any reason why we can't get to $50 million a quarter in the new facility. And so yes, 2.5x. But unlike the old facility, we're not landlocked where we are. As you might recall, Jack mentioned the cost of construction of the building that we did pay cash and we built it with our cash flow. But we also purchased the 26 acres. The building sits on about 5 of it, 5 or 6 of that. So there's lots of space around us that's ours to -- and the way we constructed the building was so it could easily be expanded into that adjacent space that we own. So we have plenty of space without spending another nickel on any construction or buying more land. And to expand the production side of the building into the land that we already own is not that heavy of a lift. So we have, I guess, paid forward quite a ways these plenty capacity physically. Operator: Thank you. And this will conclude today's question-and-answer session. And I would now like to turn the conference back over to Roger Susi for closing remarks. Roger Susi: Thank you, operator, and I thank you all once again for joining today's call and look forward to displaying IRADIMED's ability to execute once again as we introduce our new MRI IV pump and capitalize on the huge replacement opportunity throughout 2026 and beyond. Thank you. Operator: Thank you. This concludes the call. You may now disconnect. Everyone, have a great day.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to onsemi Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would like now to turn the conference over to Parag Agarwal, Vice President of Investor Relations and Corporate Development. Please go ahead. Parag Agarwal: Thank you, Michelle. Good morning, and thank you for joining onsemi's Third Quarter of 2025 Results Conference Call. I am joined today by Hassane El-Khoury, our President and CEO; and Thad Trent, our CFO. This call is being webcast on the Investor Relations section of our website at www.onsemi.com. A replay of this webcast, along with our third quarter earnings release, will be available on our website approximately 1 hour following this conference call, and the recorded webcast will be available for approximately 30 days following this conference call. Additional information is posted on the Investor Relations section of our website. Our earnings release and this presentation include certain non-GAAP financial measures. Reconciliation of these non-GAAP financial measures to the most directly comparable GAAP financial measures and a discussion of certain limitations when using non-GAAP financial measures are included in our earnings release which is posted separately on our website in the Investor Relations section. During the course of this conference call, we will make projections or other forward-looking statements regarding future events or the future financial performance of the company. We wish to caution that such statements are subject to risks and uncertainties that could cause actual events or results to differ materially from projections. Important factors that can affect our business, including factors that can cause actual results to differ materially from our forward-looking statements are described in our most recent form 10-K, form 10-Qs and other filings with the Securities and Exchange Commission and in our earnings release for the third quarter. Our estimates or other forward-looking statements might change, and the company assumes no obligation to update forward-looking statements to reflect actual results, changed assumptions or other events that may occur except as required by law. Now let me turn it over to Hassane. Hassane? Hassane El-Khoury: Thank you, Parag. Good morning, and thank you all for joining us. We are pleased with our third quarter results, which reflect the strength of our strategy and the resilience of our business model. Our third quarter results exceeded the midpoint of our guidance with revenue of $1.55 billion, non-GAAP gross margin of 38% and earnings per share towards the high-end of our range at $0.63. We have been positioning the company for a market recovery, and we believe we are well aligned to benefit as demand normalizes. We're already seeing stabilization in Automotive and Industrial while continuing to grow in AI. Our Treo platform continues to scale across our core markets, and our recent acquisitions are expanding our portfolio and accelerating our road map. We are delivering solutions that help customers scale performance while improving energy efficiency and system cost. The growing demand for high-efficiency power delivery across our end markets of Automotive, Industrial and AI positions us for long-term growth. We remain committed to our gross margin expansion strategy through innovation with both organic and inorganic investments in differentiation and have achieved four significant milestones that I'd like to highlight. First is our Treo platform. Our new products continue to scale, and our design funnel now exceeds $1 billion, driven by strong customer engagement across Automotive, Industrial and AI infrastructure. We remain on track to double the number of products sampling this year. Teledyne Technologies selected our Treo platform to develop next-generation products for infrared imaging systems. Treo's process technology combines precision analog, advanced digital and low-voltage power features to meet the demands of infrared focal plane array systems used in aerospace, defense and security applications. Second is our vertical GaN or vGaN. Last quarter, I highlighted our strategic investment in our generation wide band gap semiconductors. Last week, we announced our vGaN platform developed on proprietary GaN-on-GaN architecture in our Syracuse fab in New York. vGaN conducts current vertically through the chip, enabling higher operating voltages versus lateral GaN and faster switching and record power density. It reduces energy loss by up to 50%, making it ideal for AI data centers, EVs, renewable energy and aerospace, defense and security. Sampling is already underway with lead customers in automotive and AI. This launch expands our leadership beyond silicon and silicon carbide, giving customers a future-ready toolkit to meet rising performance and efficiency demands. Third, our SiC JFET continues to proliferate, and we have been ramping revenue in AI data center for high current workloads. We're also seeing traction in aerospace, defense and security, where our SiC JFETs are now deployed in low-orbit satellite platforms, delivering industry-leading radiation ruggedness and power density. And fourth is our Vcore acquisition. In Q3, we expanded our analog and mixed-signal portfolio with the acquisition of Vcore Power Technology and IP assets from Aura Semiconductor. This transaction accelerates our road map for advanced multiphase controllers and monolithic smart power stages, enabling us to close key gaps in our offering and deliver comprehensive solutions for the next-generation AI data centers and compute platforms. These new products will be integrated into our Treo platform, enhancing performance, reliability and energy efficiency at the point of load and support x86 and ARM-based architectures. Sampling begins this quarter with production release expected in early 2026. Shifting to the demand environment. We are seeing stabilization in the near term with Automotive, which grew 7%; and Industrial, which grew 5% sequentially. And our design wins in both markets continue to reflect a broad global engagement. For example, our industrial image sensor funnel is up 55% year-over-year with traction in factory automation and inspection. We continue to ramp our AI revenue, which again approximately doubled year-over-year in Q3 and is now becoming material with almost $250 million expected in 2025. Regionally, our revenue in the Americas grew 22% sequentially from momentum in automotive and aerospace, defense and security. Japan was up 38% quarter-over-quarter, driven by traction in automotive and image sensing. Europe was down 4% as macro softness persisted, while China was down 7% sequentially. In China, we secured strategic wins in high-voltage traction inverters with a leading Tier 1 for multiple local OEMs. We also expanded our position at NIO with SiC for their traction inverter across their newest brand and with our 8-megapixel image sensor for their ADAS applications. AI is shaping -- is reshaping the power landscape, both inside and outside the data center. The International Energy Agency projects that electricity demand from AI optimized data centers will quadruple by 2030, making power efficiency and density critical differentiators, an area where onsemi leads. Onsemi's intelligent power technologies span the full power tree from solar and storage systems to UPS and rack-level PSUs, optimizing every watt before it reaches the processor. In Q3, we secured strategic wins in solar and energy storage platforms that are foundational to hyperscale AI deployments. Our latest generation of IGBTs and SiC in the most advanced hybrid modules were selected for high-efficiency solar inverters and energy storage systems or ESS, including wins with two of the leading utility solar inverter suppliers in China. We also secured the next-generation large-scale stationary storage with a large OEM in the U.S. as microgrid deployments are rapidly emerging as a key growth vector across our end markets. This business is reported under our Industrial segment, and we expect our latest generation Field Stop 7 IGBT revenue to increase in 2025 over 2024 with continued double-digit growth expected in 2026. Turning to the AI data center itself. At the UPS level, a leading industrial OEM has integrated onsemi SiC MOSFET into their latest 3-phase UPS platform, where superior efficiency and power density were key differentiators. At the rack level, we secured multiple design wins across high-efficiency PSUs with our SiC FETs, T10, Trench MOSFET and SiC JFET into 5.5-kilowatt AI server PSUs, with top global PSU providers delivering best-in-class thermal performance, supply assurance and switching efficiency for hyperscale deployment. At the compute board level, we have introduced high-efficiency smart power stages and secured design wins on multiple platforms with leading XPU providers. The acquisition of IP from Aura Semiconductor further strengthened our SPS and controller offerings for power to the core applications. Our collaboration with NVIDIA is also accelerating the industry's transition to 800-volt DC power architecture critical for next-generation AI data center. These technology achievements and customer engagements reflect the strength of our differentiated power and sensing portfolios and our ability to deliver system-level value in the high-growth segments of our core markets. Let me now turn it over to Thad to give you more detail on our results and guidance for the fourth quarter. Thad Trent: Thanks, Hassane. Our third quarter results were driven by disciplined execution and prudent management of the business. We have made structural changes across our portfolio and our manufacturing footprint that will enable margin expansion at scale and position us for a market recovery. These initiatives will continue in future quarters, and we are committed to extracting value through our Fab Right activities. Our investments in next-generation technologies, including Treo, Vcore, silicon carbide JFET and vertical GaN are reshaping our mix and strengthening our competitive advantage to further our leadership position. In addition, we continue to return capital to our shareholders. Year-to-date, we have repurchased $925 million of shares, returning approximately 100% of our free cash flow to shareholders. Turning to the third quarter results. We exceeded the midpoint of our guidance with revenue of $1.55 billion, increasing 6% over Q2. Automotive revenue was $787 million, which increased 7% sequentially, driven by increases in Americas, China and Japan. Revenue for Industrial was $426 million, up 5% sequentially, primarily driven by aerospace, defense and security. Outside of Auto and Industrial, our Other business increased 2% quarter-over-quarter with continued momentum in AI data center. Looking at the third quarter results between the business units, we saw sequential revenue growth in all three business units. Revenue for the Power Solutions Group, or PSG, was $738 million, an increase of 6% quarter-over-quarter and a decrease of 11% year-over-year. Revenue for the Analog and Mixed-Signal Group, or AMG, was $583 million, an increase of 5% quarter-over-quarter and a decrease of 11% year-over-year. Revenue for the Intelligent Sensing Group, or ISG, was $230 million, a 7% increase quarter-over-quarter and a decline of 18% over the same quarter last year as we strategically refocused this business. Turning to gross margin in the third quarter. GAAP gross margin was 37.9%, and non-GAAP gross margin was 38%, above the midpoint of our guidance due to favorable mix within the quarter. Manufacturing utilization was up compared to Q2 at 74% as we started to build die bank inventory to support the mass market. We expect utilization to be flat to down slightly in the fourth quarter as we complete these builds. GAAP operating expenses were $323 million, and non-GAAP operating expenses were $291 million. GAAP operating margin for the quarter was 17% and non-GAAP operating margin was 19.2%. Our GAAP tax rate was 6.5% and non-GAAP tax rate was approximately 16%. Diluted GAAP earnings per share was $0.63 and non-GAAP earnings per share was also $0.63. GAAP and non-GAAP diluted share count was 408 million shares, and we repurchased $325 million of shares in the third quarter. Since launching our share repurchase program in February 2023, we have repurchased $2.1 billion and had approximately $861 million remaining on our authorization at the end of the quarter. Turning to the balance sheet. Cash and short-term investments was approximately $2.9 billion with total liquidity of $4 billion, including $1.1 billion undrawn on our revolver. Cash from operations was $419 million and free cash flow was $372 million. Our year-to-date free cash flow is 21% of revenue, and we remain on track to deliver strong free cash flow margin for the full year. Capital expenditures were $46 million or 3% of revenue. Inventory decreased by $39 million to 194 days from 208 days in Q2. This includes 82 days of bridge inventory to support fab transitions and silicon carbide, down from 87 days in Q2. Excluding the strategic builds, our base inventory is healthy at 112 days. Distribution inventory declined to 10.5 weeks from 10.8 weeks in Q2 and within our target range of 9 to 11 weeks. Looking forward, let me provide you the key elements of our non-GAAP guidance for the fourth quarter. As a reminder, today's press release contains a table detailing our GAAP and non-GAAP guidance. Our guidance is inclusive of our current expectation that there is no material direct impact of tariffs announced as of today. We anticipate Q4 revenue will be in the range of $1.48 billion to $1.58 billion. Our non-GAAP gross margin is expected to be between 37% and 39%, which includes share-based compensation of $8 million. Non-GAAP operating expenses are expected to be between $282 million and $297 million, which includes share-based compensation of $32 million. We anticipate our non-GAAP other income to be a net benefit of $7 million with our interest income exceeding interest expense. We expect our non-GAAP tax rate to be approximately 16%, and our non-GAAP diluted share count is expected to be approximately 405 million shares. This results in non-GAAP earnings per share in the range of $0.57 to $0.67. We expect capital expenditures in the range of $20 million to $40 million. To close, we remain focused on disciplined execution and financial leverage. The structural changes we have made across our portfolio, operations and manufacturing footprint are driving margin expansion and positioning onsemi for long-term earnings power. With over 100% of our year-to-date free cash flow returned to shareholders, we continue to prioritize capital efficiency and shareholder value while investing in innovation and differentiation. As the market stabilizes, we are well aligned to scale with demand and deliver sustainable growth. With that, I'd like to turn the call back over to Michelle to open it up for Q&A. Operator: [Operator Instructions] And our first question comes from Ross Seymore with Deutsche Bank. Ross Seymore: First one, I want to ask about the automotive side of things. Upside in the quarter nicely versus the low single-digit guide that you had. So Hassane, I just wanted to get an update on what you're seeing in that end market, what caused the upside, and perhaps what's the sustainability of that sort of growth as you look into the fourth quarter and then 2026 as well. Hassane El-Khoury: Yes. So nothing really out of the ordinary. It's -- you can think about the Q3 and Q4 as I do, which what I've been talking about, I look at the second half versus first half of the year. The quarter-on-quarter lumpiness as customers try, as new designs ramp, I wouldn't read any much into it. What we're seeing in automotive is really stabilization, which is a positive from where we were. So the quarter-on-quarter, I don't think I read anything into it. It's purely between seasonality and ramps. As far as 2026, look, we'll let you know as we get closer, a lot of things going on out in the world. So we're not guiding specifically by market into 2026. But what I can tell you is demand is stabilizing, we're starting to see a seasonal trend. But one thing I would highlight is we haven't seen a restocking cycle yet. So that's still out there. Ross Seymore: I guess as my second question, perhaps a little bit of a longer-term one. You, for the first time, I believe, sized the AI business at about $250 million, I think, for this year as a whole. So what is it, roughly 4% of sales. Can you just talk about how ON differentiates in that? You mentioned the collaboration list on the 800-volt with NVIDIA, and that's great to be on that list, but there's 13 other folks on the list as well. So as you look at that market, how do you believe that $250 million will grow? And what's the differentiation ON delivers to drive that growth? Hassane El-Khoury: Yes. So that's a very good question. So overall, we expect the AI data center for us to continue to grow. We look at ourselves as really the share gainer from some of the companies that have been in that market longer than we have. So being able to post $250 million or about $250 million of revenue is pretty stellar. You can see our investments accelerating in that across the whole power tree. So from a customer perspective, to answer your question more directly, if you take that "crowded space" of 13 or however many companies and you look at who can go from wall to core, there's only 2. And we will -- we are the share gainer, we're of the two. So the way we differentiate is we're one of the only companies that are able to support the power delivery from the high voltage all the way to the core, all with the product portfolio that we have that we've grown organically or even inorganically with the Vcore acquisition. So that's how we differentiate. We have proven that differentiation through our JFET silicon carbide, through our AMG with the products that they have been delivering and the revenue growth that has doubled year-on-year every quarter in the first 3 quarters to deliver that number I gave in 2025 is really the proof of that. Operator: And our next question will come from Vivek Arya with Bank of America. Vivek Arya: So Hassane, I know it's a little early, and I'm not asking for a quantitative guidance. But I'm curious how you are thinking about seasonality in Q1 and just growth in '26 overall versus how you thought about it 3 months ago. Hassane El-Khoury: No change from where we were 3 months ago. So still with the same outlook, same expectation. Vivek Arya: Okay. For my follow-up, maybe on utilization and gross margins. Thad, I think you said something about utilization perhaps flat to slightly down. Anything more to read into it? And if you could just remind us what is your seasonal pattern in Q1? And if there is some utilization headwind from Q4, how does that kind of reflect in gross margins in Q1 just based on historical seasonal trends? Thad Trent: Yes. So our utilization increased to 74% in Q3. As I said in the prepared remarks, we've been building die bank inventory for the mass market. This is a market that we've talked about for probably well over a year about we need to seed that market. We've been doing it through the distribution channel. Now we've got to hold inventory in die bank for kind of quick turn on that mass market that we need to invest in. I expect it to be down, the utilization to be down in Q4 because we expect those builds to be completed. So going back to kind of a normalized utilization rate from that point forward. You can think about utilization, the impact on utilization is having a couple of quarter impact on the P&L. There's always a delay on that, right? So if you think about going into the next year, and obviously, we're not providing any guidance at this point, but we think between Q4 and kind of the next couple of quarters, we're looking at seasonal patterns. If you take the midpoint of our guidance for Q4, it's directly in line with normal seasonality, which is typically flat to down 2%. I think the midpoint of our guidance is down about 1.3%. And to answer your question about kind of what's the normal seasonality in Q1, it's typically down 2% to 3%. Vivek Arya: So does that mean slightly lower gross margin in Q1 time? Or just how should we be prepared based on if that kind of seasonality is what actually emerges? Thad Trent: Look, we're not guiding that far out, Vivek, but there's tailwinds as the utilization improves over time. Operator: And our next question is going to come from Chris Danely with Citi. Christopher Danely: I'm sure you've seen this ongoing Soap Opera at Nexperia. Have you seen any impact to your business either directly or indirectly? Or do you anticipate any impact longer term from all this stuff going on over there? Hassane El-Khoury: Look, as you said, there's a big impact. It's too soon to call anything. We're focusing really on the business that I've really outlined. But what I can say about that, obviously, is we have a lot of the same customers, and we are supporting our customers to the extent we can, and we'll continue to do that with the complete portfolio, not just the parts that may be impacted. So what I can say is I'm not redirecting any changes from where we are, but we are supporting customers as they request it. Christopher Danely: Okay. And for my follow-up, so it seems like the Auto market is starting to do a little better than the Industrial end market. We've seen this trend at several of your peers. Going forward, would you expect Auto to keep outgrowing Industrial for the next few/several quarters? Hassane El-Khoury: I wouldn't put the two kind of -- I guess I wouldn't compare the two and read anything into a difference in growth quarter-on-quarter. Both of them have growth vectors that we are participating in. But the lumpiness that you see between the two is purely a market timing or a build-out timing. Some of the industrial was from some of the slowdown in the solar deployment in China. That's temporary. As you go from a tariff to a market pricing, there's a shift in there. We see that kind of a temporary and will continue to grow. We talked about some of the industrial growing because of the AI data center power requirements that I highlighted like energy storage system driven by AI, but we called those out in our Industrial market. So that's some of the growth vectors in Industrial. And Automotive, obviously, it's our major market. We -- you know about the growth vectors that we have there. So both are growing, but the delta is purely market-driven and macro driven. So I wouldn't read anything into kind of the deltas in the few quarters here short term. Operator: The next question will come from Blayne Curtis with Jefferies. Blayne Curtis: I just want to ask about normal seasonal for December. Obviously, your company has gone through a lot of changes. But I think in the past, particularly auto has been up in December. So I'm just kind of curious how you're thinking about this guide, which is down 1%. Do you feel like that is a more normal range for you? Or do you think you're undershipping the market? Thad Trent: Yes. So as I mentioned, our normal seasonal pattern for Q4 is flat to down 2%. I think it's very positive that we've gone from the stabilization to now seeing seasonal patterns. I think that's the step -- the first step to recovery. As we think about the guidance there in Q4, both Auto and Industrial, we think will be down low single digits. The Other bucket will be up kind of mid- to high single digits. Hassane mentioned it, right? I don't think you should kind of read into the lumpiness of the autos just because of the ramping of programs and timing, but that's how we kind of think about Q4 as it laying out right now. Blayne Curtis: Perfect. And then I wanted to ask you about that AI. I'm assuming straddles, Industrial and this Other bucket you have. So I'm just kind of curious, is there a way to think about as we try to layer on that growth, how it impacts those two buckets? Thad Trent: Yes. So the AI data center is reported in the Other bucket. Everything prior to the data center wall is in Industrial. So think about all the energy storage, energy infrastructure, that's sitting in Industrial. But AI data center specifically inside the four walls of the data center is in the Other bucket. Operator: And our next question comes from Gary Mobley with Loop Capital. Gary Mobley: I think last quarter, it was communicated the specifics to the revenue headwind as you exit noncore businesses. If I recall correctly, it was assumed to be a $200 million revenue headwind for this fiscal year, $300 million for next year. Is there any change from that outlook? Thad Trent: No change. For Q3, we exited about $45 million of noncore exits. That leaves about $55 million here for Q4. That's right in line with our expectations. And then you nailed it going into '26, there's about 5% of the 2025 revenue that doesn't repeat. So no change from what we're talking about last quarter. Gary Mobley: Great. And I guess there's been some news, maybe it's a few months old now about the big analog player raising prices. How do you think that impacts sort of a pricing reset as we transition to the next calendar year? Hassane El-Khoury: I think we're expecting normal pricing behavior. I don't know if the other company you're talking about is something specific to them or not. But obviously, things can change. We're monitoring the situation always. As you can imagine, it's very dynamic out there. But right now, we're not expecting any of that in 2026. So you can think about it as if anything does happen, it will be upside. Operator: And the next question will come from Quinn Bolton with Needham & Company. Quinn Bolton: I'm wondering if you could give us a little bit more detail on the Vcore Power, exactly what comes into the business with that acquisition. I think in the script, you mentioned Vcore for x86 and ARM processors. Obviously, there's a huge number of voltage regulators on the XPU side. Does Vcore help you on that? Or does that come from the existing ON product portfolio? And then I've got a follow-up. Hassane El-Khoury: You can think about it as a combination of both. So the way we look at the acquisition is it complements the product offering that we're already offering with Treo. It provides products also in the short term. I talked about revenue generation coming here in 2026. So that gives you time to market while we integrate those architectural and product function into our base Treo platform. So it's a very synergistic approach that gives us the acquisition itself, time to market. And in long term, it gives us an architectural advantage from a performance perspective once we leverage the performance of Treo from a technology base. Quinn Bolton: So reading between the lines, are you taking those Aura products as they are today into the market for '26, but longer term, you'll redesign them using the Treo platform to get better performance? Hassane El-Khoury: Yes, yes. Quinn Bolton: Got it. And then just you guys mentioned the entry into the vertical GaN market. GaN to date hasn't been used that much in the high-power segments of the market, I think, because of reliability issues. Can you just address how do you feel the vertical GaN technology compares with lateral GaN on reliability? And can you give us any sense on when you think that might start to go into production? Hassane El-Khoury: Yes. So it's -- so I'll tell you, vertical GaN is better on the reliability side. It has all the inherent features from the lateral GaN, but better on reliability from a die size perspective. The one thing you need to understand the barrier for lateral GaN to be used in high-voltage application has really been the fact that lateral GaN to get it to high voltage, you have to go laterally, which makes the die size not competitive versus other similar functions. When you look at the vertical GaN, the current goes vertically, which means that we can go higher and higher voltage without increasing the die size. So not just from a performance perspective, but also from a commercial competitiveness perspective, not just the reliability. So we believe we've solved those. We're sampling. We have lead customers in our -- both in AI and automotive. So we're excited about that, that we crack that code. It is a breakthrough technology. I don't believe anybody is able to sample such technology outside. So it gives our customers the optionality to have really a broad portfolio of high voltage, high-efficiency products. So anytime you need high voltage and high switching frequency, vertical GaN is the solution, the answer. Operator: And our next question will come from Joe Quatrochi with Wells Fargo. Joseph Quatrochi: I was wondering with a quarter to go, any sort of color you could provide on your expectations for silicon carbide revenue growth this year? Hassane El-Khoury: We didn't provide any guidance on silicon carbide, but I'll tell you silicon carbide is coming in exactly where we expected. We continue to gain share in our end customers. And our position in China remains unchanged as new products are ramping. I mentioned a couple of examples here. One is the NIO launching a new brand where we were designed into that new brand with silicon carbide. And a broader deployment now in China EVs through a leading Tier 1 in China that gives us really exposure to beyond just the top 10 OEMs that we've been engaged to. So that gives you a little bit of an outlook or a feel into our penetration of silicon carbide will continue to increase, and we will continue to gain share. Joseph Quatrochi: And as a follow-up, I was wondering if you could talk about the rate of short lead time orders that you're seeing and how that compares in the third quarter relative to prior quarter? And if you're seeing any increased visibility? Thad Trent: So our lead times actually pushed out slightly. We're kind of in the mid-teen weeks. We're up around 20 weeks or so now. I don't think there's been a significant change to the short lead time orders at this point. Customers are layering in backlog as they have visibility. We probably have seen order patterns that continue to improve, which gives us that confidence in the stabilization right now. Operator: And our next question will come from Josh Buchalter with TD Cowen. Joshua Buchalter: I was hoping you could provide a little bit more color on the revenue by geography. It seemed like there was a lot of volatility this quarter with Americas up so strongly and in particular, China down. Could you maybe elaborate on some of the drivers there? Was the Americas strength led by your lead customer? And what's going on in China? Thad Trent: Yes. So there's -- I think in our prepared remarks, we laid out the quarter-over-quarter changes on each of the markets. Now there is some kind of movement of orders between some geographies as well. A large customer is now placing orders out of Japan versus Europe. So I think if you normalize for that, the Japan comes down slightly, Europe goes up a little bit. The rest of it, I think, is just kind of what we're seeing as a normal pattern at this point. So not a lot to read into those bigger swings. Joshua Buchalter: Okay. And then I was also hoping you could elaborate on why -- what you're seeing now and why it's the right time to start building up die bank inventory and taking utilization rates up, especially ahead of a couple of down seasonal quarters. Maybe how we should be thinking big picture about your capacity planning with those utilization rates? Hassane El-Khoury: Yes. Look, we've been -- I think we've been very disciplined on utilization versus inventory versus outlook and demand. I think we've proven that the formula works. We're not sitting here on a ton of inventory. Our inventory -- our base inventory is actually closer to the low-end of our target, about -- which is 110 to 120 days. I think we're sitting at like 112. So I think Thad mentioned that the die bank inventory we're building is really for the mass market. For the last kind of 2 to 3 quarters, we have been consistently talking about how we are going to be growing. Our customer count increased almost 20% year-on-year just in the mass market. Therefore, the demand is there for that, and we will make sure that we have it in die bank internally so we can respond to changes in demand that usually come from the mass market. So I think we do see the business justification for it, but that doesn't mean that we're going to be building blind. We will maintain our targets. We will maintain inventory and all of our metrics within the range that we've previously outlined. So I don't -- I see this as business as usual, really. Thad Trent: Yes. And just to point out also that even with that die bank increase, our inventory actually declined quarter-on-quarter, $39 million. So it's a mix shift within our base inventory. So to get a better profile of inventory for that mass market. Operator: And the next question will come from Tore Svanberg with Stifel. Tore Svanberg: Hassane, with the recent acquisitions, I know you have a slide that talks about power delivery from grid to processors, and the content per rack going from maybe a few thousand dollars today to maybe as much as $50,000 by '27 or so. I mean, do you have all the IP and all the building blocks right now to get there? Or is this sort of more of an opportunity and you still need to build out a few more things before you get to those types of numbers? Hassane El-Khoury: I think with whatever we need, call it, in the next couple of years, we either have it or are working on it, both organically and inorganically. Obviously, the ecosystem is evolving. Things that are needed 3, 4 years from now are slightly different. We believe we have a very full portfolio of the IP that we need, and we will be creating products very quickly based on that IP. So we have -- you can think about it as we have built a toolbox with all the IP and technology, and we are quickly deploying products. I mean you've seen us double the number of products in Treo overall year-on-year, which we remain on track to do. You're going to see kind of that same mindset on AI data center along with Automotive and so on. So we do have the toolbox. We do have the IP. We developed it internally and/or acquired it. And we will be deploying it to win in these markets to capture a lot of that share from the dollars you mentioned on the rack. Tore Svanberg: Great. And as my follow-up, and I want to just take a step back on vGaN. So could you just give us a little bit of history here? I mean I know it's obviously in your own Syracuse fab, but how many years has this been in development? Maybe back to Quinn's question, when do you start to expect some revenues here? Because obviously, this is a very unique approach to GaN. So any sort of historical context and future revenue contribution milestones would be great to know. Hassane El-Khoury: Sure. So we started working on it through acquisition of IP and assets back in 2024. Since then, we've "turned on" the fab, launched the first products, first products from a, call it, electrically speaking or yielding or functioning. Therefore, we were very aggressive in our deployment with samples to customers. We have lead customers in our major markets of Automotive and AI data centers that are currently evaluating the first-generation samples, and we're already working on the second generation. We expect revenue, you can think about it in the '27 time frame. Operator: And the next question will come from Christopher Rolland with Susquehanna. Christopher Rolland: So yes, my questions are really around AI as well and this what seems like a bigger push over the last few quarters. Just some of these applications that you mentioned, I wanted to know if you could address, could you do things like solid-state transformers? It sounds like you're in the PSU 48-volt bus converters. I guess the last one would be hot swaps as well. Do you address these? Or do you plan on addressing these over the next few years? Hassane El-Khoury: So we addressed every single one of them already. So when I refer to -- and we have it online, too, when we refer to our ability to address the power tree, that was my answer before as far as how do we differentiate. Our ability to address already today the whole power tree, including all of the IP and functionality required that you have mentioned some of them is the differentiation we bring. So the answer is yes to all. We do that today, and we will continue to expand that portfolio as we gain share. Christopher Rolland: Excellent. And Hassane, secondly on silicon carbide. As we kind of digest that growth outlook, perhaps you can talk about some of the moving parts like geographically or even across industries. And lastly, do you have the ability to convert to 300-millimeter wafers? We're hearing about the potential for new applications on 300. Hassane El-Khoury: Yes. So well, first off, there's a lot of changes in the silicon carbide as new opportunities open up. For example, a few years ago, silicon carbide in AI data centers was not even a conversation point. Today, it is, and we are gaining share and really design into the PSUs with our JFET and even our silicon carbide MOSFETs. So those are new applications that our legacy with silicon carbide in automotive allowed us to really tackle very quickly and gain share with products we already have. In Automotive specifically, the silicon carbide approach was for battery electric vehicles or BEVs. As now you see a resurgence of a mix into plug-in hybrids or range extender EVs, silicon carbide is now getting designed in even in plug-in hybrids, which historically has been assumed to remain on IGBT. That's not the case, and we are gaining share in the plug-in hybrid market with our silicon carbide. So within the market itself, there's new opportunities and really breadth of opportunities that just a few years ago, when we started on this journey, was not part of even our addressable market because it wasn't there. As far as geographical, I would say I don't expect a change in the geographical outlook for silicon carbide specifically because to a first order, it's going to match where the electrification, whether it's full electric vehicles or plug-in hybrids is going to come from and where the AI data center deployment is going to come from. And that puts it strong in China and the U.S. And following behind that is Europe and Japan. Christopher Rolland: Excellent. And 300-millimeter? Hassane El-Khoury: 300-millimeter, we've seen it, but my point is it's too far from now. I don't think 300-millimeter opens up new applications. It just -- it's a different, call it, throughput, just like 6 to 8. I've always said 6 to 8-inch provides us an additional capacity from the number of die per wafer. We see the 300-millimeter the same, but it's very, very early in development today. I wouldn't put that in any short-term models or anything. But today, we have been -- just I'll use the opportunity to give you an update on our 8-inch. Our 8-inch is in production. We're running 8-inch in our fab at 350-micron thickness, so best-in-class, and we will be shipping production on track in '26. So the 8-inch is full on, and then we're always looking at what's next to come both from a device like the SiC JFET or MOSFET, but also from a technology. Operator: And the next question will come from Harlan Sur with JPMorgan. Harlan Sur: Back to the mass market strategy, your long tail of small- to medium-sized customers, this has been a bright spot for the team, right, solid customer count improvements. It serves through distribution, rich gross margins. How big is this segment as a percent of your total distribution revenues? And how did this subsegment do in the September quarter relative to your overall disty business? Thad Trent: So let me give you a breakdown of the distribution revenue that may help you get there. So roughly about 58% of our business goes through distribution. About half of that is fulfillment, half is demand creation, right? So if you think about that half, not all of that's mass market. When we think about mass market, we're thinking small customers, right? We at onsemi, maybe don't know their names, right? They are emerging customers. The distributors do a good job of identifying the opportunity. So you can think about it as being a subset of that half. Maybe it's 25% of the total distribution revenue, somewhere in that kind of camp if you think about it. If they're a medium or large customer of that distributor, we still have -- we still track that. I wouldn't put that in the mass market. Harlan Sur: Got it. Okay. And it was good to see the technology and portfolio expansion on the wideband gap with your vertical vGAN technology. As you mentioned, I think, Hassane, looks like this was the technology that you acquired through the acquisition of NexGen late last year. Did the acquisition also include the DeWitt Syracuse fab facility? Or was that already a part of ON? And then it looks like they were able to develop this very differentiated technology, but not able to commercialize it. So what has the onsemi team done to take the technology beyond proof of concept to commercialization? Hassane El-Khoury: Great question. So yes, the fab was not part of our base fab. You can think about it as a fab that came with the technology given the differentiation of the technology. You're absolutely right on -- it's such a breakthrough and differentiated technology, very difficult to make. What the onsemi team has brought is our ability to manufacture wideband gap and the team's capability to be able to scale new technologies very quickly and reach maturity very quickly than, call it, a start-up. By the way, I will mirror this to what we've done with GTAT and silicon carbide. If you recall, same questioning, same conversations, can you guys pull it off? Why would you pull it, the others didn't? And look where we are today. You can think about it, our capability has already been proven with the GTAT acquisition and building a franchise in a couple of years that gives us leadership. You can imagine that same muscle, that same knowledge and that same team is going to do exactly that with vGaN. Operator: And the next question will come from Jim Schneider with Goldman Sachs. James Schneider: Hassane, you talked about the fact that customers are not willing to restock at this point or you're not seeing that effect. Can you maybe talk a little bit about when you speak to OEMs, what they would need to see to get more confidence to restock? And is that broadly applicable to the distributor side as well? Hassane El-Khoury: Yes. Look, well, first, I'll answer the distributor. I think distributors are -- from a mass market, Thad said it, we are increasing our die bank internally because we want to be able to make sure we see the, call it, the shelves as customers pull on the mass market. The OEM is slightly different. The OEMs, what they need to see, one is a credible demand signal. Think about it consumer level confidence, consumer level demand signal that people are going to buy cars or people are going to buy power tools or whatever the market is. That has to be seen. And the biggest thing that they want to see, which we do also is stabilization in the geopolitical aspect of it. As they're working on shuffling and changing logistical models and manufacturing sites and so on, they're not going to be replenishing given the changes that they're going through. So what I would say is consumer confidence and geopolitical stabilization will start adding more and more confidence for OEMs to restock. James Schneider: And then maybe as a follow-up, give us a little more visibility on what's happening with your Other segment for a minute. It sounds like data center is doing very, very well for you. Maybe talk about what some of the offsets are that might be headwinds you saw in this quarter and then maybe what you're seeing going forward? Thad Trent: So for Q4, I mentioned that we think that Other segment is going to be up mid- to high single digits. Now there's some normal seasonality in our noncore markets there that helps that you have AI data center that's growing as well in that market. I think those are the big drivers if you sum it up. Hassane El-Khoury: And then, of course, we have the exits that a lot of it lands into the Others bucket that's offsetting the growth. So net-net, growing is actually means the strategic market like AI, data center and so on within that is growing very, very nicely. Operator: And the next question will come from Joe Moore with Morgan Stanley. Joseph Moore: I wonder if you could give us some sense of the Automotive market by region. Any sort of different behaviors that you're seeing? And I guess, particularly on China EV, there's been sort of a lot of noise in both directions. Can you just talk to the health of that market? Hassane El-Khoury: Yes. Look, I think from a market, of course, we've always expected adjustments in that market. I've always said there's over 100 brands. So between consolidation, between success and not success, the only strategy we have, which we've been executing to and it's worked very well for us is customer diversification. So you've heard us always adding new and new customers, leading customers in the top 10, which drive a lot of volume. And then secondary is trying to reach into that tail of OEMs. So we're not sitting here picking winners or not winners in China. We want to have the majority market share across the market. And as shares shift between them, our customer diversification strategy will work to our advantage. We've proven that very well over the last few years. We're gaining share consistently across a broad range of OEMs and brands have worked for us to really derisk the lumpiness that you're referring. But I don't see that as any change from the headlines. So our strategy is working, and we'll continue to execute to that while we kind of fine-tune it as things change because things do change rapidly. Joseph Moore: Great. That's helpful. And then you addressed the Nexperia's situation. But I guess I'm just trying to figure out why that isn't a bigger deal. We've listened to some of the Tier 1 auto suppliers, and they seem quite anxious about the situation. Like shouldn't that be the catalyst for them to start building up inventory to sort of deal with the geopolitics of the situation? Or just why isn't that something that's a bigger deal for you guys in the next quarter or 2? Hassane El-Khoury: Well, we're here to support, but I'll make a comment on the Tier 1s panicking. I've been saying that inventory is low for the last 2 years, and we're draining inventory below critical levels. Whether Nexperia or not, any trip in the supply chain is going to cause a chain reaction, and this is the proof. The only way out of this is place the backlog with visibility and we will start planning and shipping. So we are seeing it. We are responding to it, and we will keep supporting it. But regardless of how the next few quarters go, we need the replenishment cycle. We need to make sure that the Tier 1s and the OEM have safety stock in order to buffer any disruption. That's the only solution. We've learned a hard lesson in COVID, and here we are again. Operator: And the next question will come from Harsh Kumar with Piper Sandler. Harsh Kumar: Hassane, if I can dare say that you seem somewhat, somewhat cautiously excited about your end markets for the first time in a long time. So if I can ask you a question on Auto, it's a two-parter. Could you give us a hint of maybe what backlog or bookings were? I'm trying to gauge that relative to your stabilization comment. And if you are talking about stabilization in Auto, then I'm looking at your 6% odd growth that you put up in the September quarter, is that seasonal growth? Or is that better than seasonal growth? And if it's better, then, of course, what drove that? Hassane El-Khoury: Yes. Look, I think I'll go back to the prior answer that I gave earlier. I don't look at the quarter-on-quarter. I would recommend you shouldn't either. I got to look at it first half, second half. And we've always said the second half of the year is going to outgrow the first half of the year in our end markets. Remember, Auto, we said the bottom was going to be in Q2. So that has been the case, and we're going to grow from there. Grow meaning closer to demand, but no restocking yet. So that's coming in exactly as we expected. So that quarter-on-quarter, I wouldn't talk about seasonality within markets and so on. I would talk about the lumpiness in project ramps, some projects ramped in Q3 versus ramping in Q4. Those, I don't think, are a read on how the market is doing. Visibility, however, with stabilization, we get better visibility. Not where we would like to see it, but it improved and we're getting better visibility. But again, there's more work to do to get the visibility. So that's what I can tell you about where we are in Automotive. I'm cautious, but I am also looking at the data in order to sound like I do. Our work is not done. It's not all behind us. But I think what you've seen from us is we will manage to what we see, and we will deliver the results that we promise. That's the consistency. Of course, we all wish it were different. We all wish it was way better than sometimes it is. Some of my peers did, but we've been very consistent, and we're going to continue to manage the company with discipline, whether in inventory, cash flow or really R&D investments in differentiated technologies. Harsh Kumar: Fair enough. Maybe one for you, Thad. As sort of you look at stabilization, I understand you'll need to ramp up your factories and fabs to be able to get to that 40% level. But is there a revenue number that I can think of where you start to get close to that 40% number? Or is it just purely a function of utilization and it ebbs and flows depending on how much die bank inventory you're building? Thad Trent: Yes, it's utilization driven, right? So we talked about every point of utilization is 25 basis points to 30 basis points of gross margin improvement. That math still holds. So as we look into the '26, utilization is going to drive the margin. Operator: This will conclude today's question-and-answer session. I would now like to turn the call back over to Hassane for closing remarks. Hassane El-Khoury: Thank you all again for joining us today. Before we conclude the call, I want to recognize the outstanding efforts of our global teams. Their focus and execution continue to drive our results and help us deliver for our customers and shareholders. We're encouraged by the signs of stabilization across our core markets and remain focused on delivering differentiated solutions and operational excellence for our customers. We are committed to being a reliable and trusted partner and continue to raise the bar on how we support their success through technology leadership, responsiveness and a deep understanding of their evolving needs. We appreciate your continued support and look forward to updating you next quarter. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Third Quarter 2025 Hess Midstream Conference Call. My name is Gigi, and I'll be your operator for today. [Operator Instructions]. Please be advised that today's conference is being recorded for replay purposes. I would now like to turn the conference over to Jennifer Gordon, Vice President of Investor Relations. Please proceed. Jennifer Gordon: Thank you, Gigi. Good morning, everyone, and thank you for participating in our third quarter earnings conference call. Our earnings release was issued this morning and appears on our website, hessmidstream.com. Today's conference call contains projections and other forward-looking statements within the meaning of the federal securities laws. These statements are subject to known and unknown risks and uncertainties that may cause actual results to differ from those expressed or implied in such statements. These risks include those set forth in the Risk Factors section of Hess Midstream's filings with the SEC. Also on today's conference call, we may discuss certain GAAP financial measures. A reconciliation of the differences between these non-GAAP financial measures and the most directly comparable GAAP financial measures can be found in the earnings release. With me today are Jonathan Stein, Chief Executive Officer; and Mike Chadwick, Chief Financial Officer. I'll now turn the call over to Jonathan Stein. Jonathan Stein: Thanks, Jennifer. Welcome, everyone, to our third quarter 2025 earnings call. Today, I have some brief opening comments and will review our operations, and then I'll hand the call over to Mike to review our financials. In the third quarter, we continued to execute our operational priorities and deliver our financial strategy that prioritizes return of capital to shareholders. We delivered strong operational performance, with gas throughputs increasing from the second quarter despite the impact of localized flooding in August. Third quarter results benefited from an increase in third-party volumes as our customers navigated Northern Border pipeline maintenance towards the end of the quarter. This provides upside to our results and is a good reminder of the strategic nature of our midstream assets in the Bakken, we also executed a $100 million share and unit repurchase in the third quarter and increased our distribution by 2.4% and or approximately 10% on an annualized basis for Class A share. That included our targeted 5% annual increase for Class A share and a distribution level increase following repurchase that we obtained our total distributed cash on a lower share and unit count. During the quarter, throughput volumes averaged 462 million cubic feet per day of gas processing, 130,000 barrels of oil per day for crude terminaling and 137,000 barrels of water per day for water gathering. Throughput increased approximately 3% in gas gathering and processing compared with the second quarter. We expect fourth quarter volumes to be relatively flat with the third quarter on lower expected third-party volumes as announced in our September guidance update into law for winter weather contingency and planned maintenance at the Little Missouri 4 gas plant. Turning to Hess Midstream's capital program. In the third quarter, we safely completed and brought online the first of 2 new compressor stations for the year and expect completion of the second compressor station in the fourth quarter. As announced in September, we have suspended activities on the Capa gas plant and we move the projects from our forward plans. As a result, full year 2025 capital expenditures are now expected to total approximately $270 million. We remain committed to our ongoing strategy, which prioritizes ongoing return of capital to our shareholders, but both excess free cash flow after distribution and leverage capacity relative to our long-term leverage target of 3x adjusted EBITDA. As we noted in our recent guidance update with the removal of the Capa gas plant from our forward plan, we expect significantly lower capital going forward providing additional free cash flow to support our return on capital framework. Looking forward, we will release guidance for 2026 and our 2028 MVCs after our budget process concludes in December. With that, I'll hand the call over to Mike to review our financial performance for the third quarter and guidance for the fourth quarter. Michael Chadwick: Thanks, Jonathan, and good morning, everyone. Today, I'm going to review our results for the third quarter and our financial guidance, and then we will open the call for questions. For the third quarter of 2025, net income was $176 million compared to $180 million for the second quarter. Adjusted EBITDA for the third quarter of 2025 was $321 million compared to $316 million for the second quarter. The increase in adjusted EBITDA relative to the second quarter was primarily attributable to the following: Total revenues, excluding pass-through revenues, increased by approximately $7 million, driven by higher third-party gas gathering and processing throughput volumes, resulting in segment revenue changes as follows: Gathering revenues increased by approximately $4 million; processing revenues increased by approximately $3 million; total cost and expenses, excluding depreciation and amortization; pass-through costs and net of our proportional share of Little Missouri 4 earnings increased by approximately $2 million, primarily from higher seasonal maintenance and employee costs. That resulted in adjusted EBITDA for the third quarter of 2025 of $321 million. Our gross adjusted EBITDA margin for the third quarter was maintained at approximately 80%, above our 75% target highlighting our continued strong operating leverage. Third quarter capital expenditures were approximately $80 million and net interest, excluding amortization of deferred finance costs, was approximately $54 million, resulting in adjusted free cash flow of approximately $187 million. We had a drawn balance of $356 million on our revolving credit facility at quarter end. In January, we announced we are targeting annual distribution per Class A share growth of at least 5% through 2027, which is supported by our existing MVCs. Last week, we announced our third quarter distribution that included our targeted 5% annual growth per Class A share and an additional increase utilizing the excess adjusted free cash flow available for distributions following the $100 million share repurchase completed in the third quarter. Turning to guidance. For the fourth quarter of we expect net income to be approximately $170 million to $180 million and adjusted EBITDA to be approximately $315 million to $325 million, reflecting scheduled maintenance and lower third-party volumes as discussed in our September guidance release. We are narrowing our full year guidance for net income to $685 million to $695 million and for adjusted EBITDA to $1.245 billion to $1.255 billion, implying EBITDA growth of approximately 10% year-on-year at the midpoint of the guidance range. Consistent with the suspension of the Kappa gas plants and the removal of the project from our forward plans, we now expect capital expenditures of approximately $270 million and adjusted free cash flow of approximately $760 million to $770 million. With distributions per Class A share targeted to grow at least 5% annually from the higher distribution level, we now expect excess adjusted free cash flow of approximately $140 million after fully funding our targeted growing distributions. We expect continued adjusted free cash flow growth through 2027 to support our targeted annual distribution per Class A share growth of at least 5% through 2027. And financial flexibility for incremental return of capital, including potential share repurchases. As Jonathan mentioned, we will release guidance for 2026 and our 2028 MVCs after completing our budget process in December. We remain committed to our ongoing strategy, which prioritizes return of capital to shareholders. This concludes my remarks. We will be happy to answer any questions. I'll now turn the call over to the operator. Operator: [Operator Instructions]. Our first question comes from the line of Jeremy Tonet from JPMorgan Securities LLC. Jeremy Tonet: Hi. Good morning. Just wanted to dive in a little bit more on, I guess, Bakken trends here. And just wondering if you could talk a bit on how GORs are trending over time and how you think that projects going forward at this point impacting your business? Jonathan Stein: Okay, sure. As you know, in historically, has not had increasing GORs because they've had a very active program Chevron now operating 3 rigs, certainly, as an active program that tends to keep lower than in the program where you have less rigs and less activity. But in general, as we've talked about, our expectation is based on the new guidance that we gave out 3 rigs that Chevron is running, we expect to maintain oil to plateau and then gas to increase over time, and that basically is driven by GORs. Because at this point, we're really at almost full gas capture. So really the trend in gas is really going to be GR driven. So with that, that will really continue to drive growth for Hess Midstream over the long term as gas represents 75% of our revenues. Jeremy Tonet: Got it. That's helpful. And then given that backdrop and not to get too far ahead of ourselves here, I was just wondering if you could provide any thoughts into 2020 beyond how MVCs might be shaping up expectations there, given Chevron moving to 3 rigs as you described there. Jonathan Stein: Yes. I'd say, look, we're going to finish our development planning here with Chevron, will approve our budget in December, and then we'll give our guidance, including 2026 guidance, but also our 2020 MVC. So we'll just wait until then, it's not too far away. Jeremy Tonet: Got it. Just the last one for me. We've seen some volatility in the share price here. Just wondering if you could provide any thoughts, I guess, on the cadence or approach to buybacks in the future? Michael Chadwick: Yes, I can talk to that one. And I think as we can see at the moment, our leverage is at 3x. And we guided in September that we would have flat EBITDA in 2026 and then we'd return to growth in 2027. However, we would have significantly lower CapEx, as Jonathan mentioned, that will be an assist to our free cash flow. And then we'll also be able to have our 5% growth on distributions continue. And so we feel very comfortable that we'll have the financial flexibility through 2027 and to continue with our capital repurchase or capital returns policy and any share -- potential share repurchases. Operator: Our next question comes from the line of Doug Irwin from Citi. Douglas Irwin: Maybe to start on the CapEx outlook. You've talked about kind of expecting significantly lower CapEx over the next couple of years, and I know we're about to get guidance in a month or I think in the past, you've put out $125 million is kind of what you view as more of a base level they'll connect to run rate going forward. Is that kind of the right way to think about the starting point for '26? Or are there maybe still some additional discrete growth projects in the backlog that we should be looking at next year as well. Jonathan Stein: Sure. Let me start, and then I'll hand over to Mike. I mean, I think in general, as we said, historically, $125 million is our expected ongoing capital. That includes well connects, as you mentioned as well as maintaining third parties at about 10% of our volumes. I think certainly, we said we're going to be significantly lower than the original guidance we had of $250 million to $300 million for '26 and '27. I think we do have some small growth projects, so it might be slightly above that 125, but somewhere between that $125 million and significantly below the $250 million to $300 million, again, we'll give guidance coming up here. once we complete the business plan, but that gives you at least some kind of a range to think about. Let me turn it over to Mike. Just anything you want to add there? Michael Chadwick: Yes. Thanks, Jonathan. And just like I said, just now, I'd just say that the lower capital expenditure that we're expecting that will drive continued growth in our free cash flow will support financial flexibility for incremental return of capital and that includes any potential buybacks. Jonathan Stein: And just to underline that, that already starts next year, right? So we had expected, as I said, $250 million to $300 million previously in 2026. So next year already, we'll already see the benefit of that lower capital. And so while we had talked about EBITDA being flat, relatively flat next year, and again, we'll give more details in the upcoming guidance but do you expect next year to see growth in free cash flow, and that will provide the flexibility for return on capital as early as next year. Douglas Irwin: Got it. That's helpful. And then maybe just a higher level one, given some of the changes that the sponsor here. And I realize you can't speak to Chevron, but just wondering if you could comment on how that relationship has evolved now that you've had a few quarters under your belt working with them as your sponsor. And more specifically, just any updated thoughts on how Hess Midstream kind of fits with them their broader strategy here moving forward and how that maybe feeds into your growth outlook and capital allocation from here. Jonathan Stein: Sure. I'll leave the last part to Chevron. But in terms of how is it going, we're working our way through now integration and it's gone very well. The board -- new board with the new Chevron Board Directors has met obviously several times, and we've approved 2 distribution increases. I think both our base targeted 5% annual increase as well as 2 distribution level increases, 1 this week following repurchase we also approved the share repurchase that we did there in the third quarter. So going really well, really at the Board level, continuing to execute on plan. We're focused on running Hess safely and efficiently focused on capital discipline and continue to execute our capital framework for our shareholders. So also I would say that as we announced the May were underway for the search for a fourth independent Board member. So going very well, working very well with Chevron. It's a natural fit for us and looking forward to continuing. Operator: One moment for our next question. Our next question comes from the line of Praneeth Satish from Wells Fargo. Praneeth Satish: Maybe just first, starting on 2026. So you kind of mentioned that it's going to be flat with 2026 EBITDA is going to be flat with 2025. So I guess the first question is, why would it be flat if we're seeing rising gas volumes? Is there something there kind of offsetting that. And then as a follow-up to that, Chevron is reducing the rig count, but I think potentially moving towards longer laterals than what Hess did. So is that kind of baked into that outlook for '26 and '27 kind of moving to longer laterals? Or would you consider that upside? Jonathan Stein: Sure. I can -- I'll kind of answer both those together. Really early guidance that we gave out recently was really designed to provide a shape for our guidance based on our current expectations after we complete the business plan process in December, we'll provide more detailed guidance for 2026, and that's going to include, of course, a range for volumes as well as EBITDA and other financial metrics as we always do. Of course, that final EBITDA range is going to be a combination of oil and gas volumes rates, including our inflation escalator, OpEx expectations. And of course, the business plan -- development plan that we get from Chevron will incorporate their expectations in terms of increased efficiencies and productivities, including things like longer laterals, as you said. I think critically, I think I just want to reemphasize what I just said earlier there that we expect continued growth in free cash flow as a capital plan reduces with the removal of the gas plant. So still under any scenario, expecting that continued growth in free cash flow. And again, we'll give more details in a range of outcomes when we give out our EBITDA guidance and our annual guidance after the budget is completed and we finished Board approval in December. Mike, anything you want to add on to that? Michael Chadwick: No, I think you summarized it well, Jonathan. And I think we will obviously provide the updated guidance after the finalization of the plan in December. But I think, no, we've got a good runway with financial flexibility towards 2027 at the very least, and we'll update when we get the 2028 MVCs. Praneeth Satish: Got you. No, that's helpful. And then I guess based on your discussions, recent discussions here with Chevron, they move to a 3-rig program. Are there any indications that they might further reduce the rig activity and go to 2-rigs? Is that kind of in some of the conversations you're having? And then just conceptually, if that were to happen, should we roughly think about oil maybe declining a bit and gas volumes to be flat with rising GORs? I understand maybe that's not your base case, but just trying to frame downside risk. Jonathan Stein: Sure. I mean I think let's just start with the base case. As you said, currently, shares running 4 rigs as they said they expect to release the rig in the fourth quarter. As we've said, 3 rigs, again, oil plateau in 2026 and gas will continue to grow at least 2027 and then we'll give again more update when we give out our guidance for 2016 and then through I think it's important to note, Chevron, just last week, you announced and said in the call that their goal is to maintain a plateau at 200,000 barrels of oil equivalent per day for the foreseeable future. That model works really well for the Hess Midstream model where we're focused on long-term execution. And at that level, 200,000 barrels oil per day that provides ongoing free cash flow generation and ongoing financial flexibility. Also would highlight, of course, as we've always said, the 5% dividend growth can be delivered even at MVC levels. So in terms of our return of capital program, that's always kind of at the base and that's well protected. And above and beyond that, we at 200,000 barrels of oil equivalent per day, we expect ongoing free cash flow that can generate incremental financial flexibility on that. So I don't want to speculate beyond that. And -- but again, we'll give more details on our current plan and expectations when we finish our budget and development plan here in December. Operator: One moment for our next question. Our next question comes from the line of John McKay from Goldman Sachs. John Mackay: I want to pick up on that last question a little bit. Can you just -- I know you guys go through this every year, but can you just remind us how the 2028 MVCs will be set again effectively what kind of plan does Chevron kind of need to walk you through and it's just interesting because it's going to be our first time doing it with them. Just curious if that's going to differ at all from the Hess process before. Jonathan Stein: Yes. There's no change to the process. The process is really baked into the commercial agreements that we have now with Chevron. And the process is essentially they deliver to us their development plan through the end of the term of the contract. We develop a system plan, which is really the infrastructure required to develop that plan. And then essentially, the MVC is set at 80% of the third year of that development plan. So that's really no change. It's a very mechanical type process. Obviously, we work together to put together that development plan and system plan together with the goal of optimizing the Bakken, that's a win-win and in everyone's best interest. But in terms of the process of the mechanics of a MVC, that's really the process that's defined in the commercial agreements, and that hasn't changed at all. John Mackay: That's helpful. And then maybe just one clarification. I think if we go through what you guys have been talking about before, you guys are pretty comfortable, I think, arguing that the 200 a day run rate that Chevron wants to flow. That can be hit on the 3-rig program. So the 4 would have put you, I guess, decently about that. Is that the implication? Jonathan Stein: Yes. I think what I would say is, and you could see that in our previous guidance before we updated it. That was based on a 4-rig program, and we had growth in both oil and gas and the gas being a function of the oil growth and obviously associated gas you're going to have growth in gas plus then just GOR is increasing as well. So then now under the current plan, you're really seeing oil plateau and gas continue to grow. So yes, the implication there is that previously in 4 rigs because of the efficiencies and productivities that has now, Chevron has been able to achieve, they were able to achieve what they're able to get historically at 4-rigs, they were able to now get a 3-rig and continuing to run at 4-rigs would have really taken you above that goal of plateauing a 200,000 BOE per day. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to Knorr-Bremse's conference call for the Financial Results of the Third Quarter 2025. [Operator Instructions] Let me now turn the floor over to your host, Andreas Spitzauer, Head of Investor Relations. Andreas Spitzauer: Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzauer, Head of Investor Relations. I want to welcome you to Knorr-Bremse's presentation for the third quarter results of 2025. Today, Marc Llistosella, our CEO; and Frank Weber, our CFO, will present the results of Knorr-Bremse, followed by a Q&A session. Once again, the conference call will be recorded and is available on our homepage, www.knorr-bremse.com in the Investor Relations section. It is now my pleasure to hand over to Marc Llistosella. Please go ahead. Marc Llistosella Y Bischoff: Thank you, Andreas. Ladies and gentlemen, welcome to our Capital Market call for the third quarter '25. Let's start with the key takeaways for today on Page 2. We are reporting a strong quarter today. In uncertain times, we continue to focus on our earnings by using our financial flexibility, keeping strict cost control, plus staying close to customers and driving our service business. Knorr-Bremse benefits from dominant market position in both divisions, a diversified revenue generation and ongoing stringent execution. RVS is in strong shape. It posted strong organic growth and continuously increased its profitability quarter-over-quarter by the implementation of BOOST. In addition, RVS performance underlines the great potential of the rail industry in total. As a consequence, we are expanding this successful division with the acquisition of duagon. Coming to CVS, one thing is clear. The development of profitability is the most important indicator of our success and our truck colleagues delivered. Despite an extremely challenging North American truck market, CVS managed a slight margin expansion, an extraordinary achievement, which is based on the benefits of our cost and efficiency measures, well supported by a more resilient aftermarket business. The BOOST program overall remains the centerpiece of our strategy and is fully on track. Regarding our BROWNFIELD measures, we are well on track of the sale of the last assets we have in the SELL-IT program. These assets within rail generates roughly EUR 300 million in revenues and is clearly dilutive. Looking at Greenfield, our clear path of additional growth and accretive business expansion for Knorr-Bremse. In the field of subscription-based and data-driven services, we recently acquired Travis Road Services. Together with Cojali’s highly attractive services, we want to strengthen the less cyclical activities in the Truck segment, striving for a leading position in Europe and later beyond. Last but least, we confirm our operating guidance for 2025. Let's now have a closer look at our Duagon acquisition on Chart 3. Duagon itself, a Swiss-based company, is a leading supplier of electronics and software solutions for safety-related applications in rail being active in Europe, North America, China and India. We are convinced that Duagon is an excellent strategic fit for Knorr-Bremse's existing portfolio. Beyond strengthening the RVS segment, the acquisition also unlocks substantial synergies in electronics. For example, in braking and door systems where we are already global experts. Furthermore, the products will enhance the global operations of 2 key KB business units, Selectron and KB Signaling. As trains and rail world networks become increasingly digitalized, the acquisition enables both the Railway Electronics and Signaling technology units to fully capitalize on the rapidly growing market. For KB Signaling, which is expanding its North American business globally, Duagon offers additional opportunities for international growth. The accretive transaction reinforces KB2's Boost strategy and marks another milestone on its transformation journey. By integrating Duagon, Knorr-Bremse strengthened its position in high-growth digital markets and increases the revenue share of the RVS segment overall currently from 55% to even beyond, driving sustainable value creation. The acquisition fulfills all of the M&A guardrails, which were given by ourselves, which we set more than 2 years ago and follow for the time being. We welcome all new colleagues to the team and look forward to a successful future. Let's now have a look at the market situation for trail and rail and truck. Overall, the demand in rail is our least problem within the KB Group. Underlying demand remains robust across all regions as evidenced by a strong order intake and record order books for RVS and its customers. We expect this momentum to continue in the coming quarters, resulting in a full year book-to-bill ratio well above 1. The only exception in this is the freight market, which continues to face some challenges. Also here, we see a low concentration on the North American market. The market development in China itself remains pleasing on a high level this year, which is quite supportive for our profitability as well. Truck markets show a mixed picture. As you're all aware of and as you have already heard from our customers and peers, truck production rate in Europe moved higher in the past quarter, but currently, we are observing a slight softening in market momentum, including some postponement into next year, which also corresponds to the perceptions of our truck OEMs. The North American market is in a very challenging time. Truck production rates declined significantly in the third quarter and a near time recovery appears unlikely. Therefore, we lowered our expectations regarding truck production rate for the second half of this year as the usual autumn recovery has also been significantly weaker this year compared to the previous years. Our North American customers are still taking single days off and slowing down production lines in their factories so far. They are acting rationally and only adjusting their workforce as they know that markets can catch up quickly, especially in North America once a recovery starts. As a result, we have reduced our North American workforce by around 15-plus percent in the recent months, help yourself, then helps you got. At the same time, we are using the current situation to consistently implement our structural measures. The better than originally expected development in Europe cannot compensate fully the weaker-than-expected development in North America. Nevertheless, every crisis presents opportunities. We should benefit via operating leverage from a lower fixed cost base when the crisis in North America comes to an end, which it will happen. With that, I will hand over to Frank, who will give you -- walk through the financials in detail. Frank Weber: Yes. Thanks, Mark, and hello, everybody. Thanks for joining us today. Please turn to Slide 5, and let's have a look at the good financials of the third quarter. Order intake achieved a strong result at almost EUR 2 billion. The market-driven decline in truck was overcompensated by the strong rail order intake and led to a more than 5% organic growth. Knorr-Bremse generated revenues of EUR 1.9 billion organically with nearly 3%, a slightly higher figure year-over-year. Our operating EBIT margin was positively impacted by both divisions, driven in particular by our portfolio adjustment, the strong aftermarket performance, our operating leverage and the respective cost measures and of course, by KB Signaling. As a result, the operating EBIT margin improved by 100 basis points year-over-year. With a 13.3% operating EBIT margin, we delivered the best profitability within the last 16 quarters for Knorr-Bremse. Our free cash flow in quarter 3 amounted to EUR 159 million and converted once again into more than 100%. We are proud of our global teams maneuvering KB so successfully through a rather challenging '25. Let's move to Slide 6. CapEx amounted to EUR 78 million, which represents in relation to revenues 4.2%. Spending in absolute numbers decreased by EUR 2 million. This development is fully in line with our strategy to optimize CapEx spending following our lowered target range of CapEx to revenues of 4% to 5%. We expect some higher CapEx spending in the running quarter as usual. A pleasing development saw once again our net working capital, which decreased significantly year-over-year, respectively, by 7 days versus prior year. Including KB Signaling, we are at the level of EUR 1.6 billion and 72 days of efficiency. The continuous improvement in net working capital is based on the ongoing success of our Collect program, including improvement basically in all major net working capital ingredients, especially the lower level of inventory supported the improvement of working capital by more than EUR 160 million year-over-year. Free cash flow amounted to EUR 159 million. This is only a slightly lower figure compared to the prior year, driven by the unfavorable development of FX. On a 9-month view, free cash flow even increased by more than EUR 70 million. Quarter 4 will be the strongest quarter, as always, following our usual seasonal pattern. Cash conversion rate in the third quarter amounted to a strong 104%. Despite the acquisition-driven higher capital employed, our ROCE nicely increased from 18.6% to 21%, which is an increase of 240 basis points. ROCE remains a high key priority for us, and we expect to further grow it in the future, primarily driven by a higher profitability. Let's take a closer look at the RVS performance on Slide 7. RVS once again delivered a very strong quarter in terms of order intake, reaching nearly EUR 1.2 billion. This corresponds to an organic growth of 6%, driven by solid operations and contributions from KB Signaling. Global Rain demand overall remains strong. For the current quarter, we expect that RVS should be able to post an order intake between EUR 1 billion to EUR 1.1 billion. Our book-to-bill ratio stood at 1.12, which means RVS book-to-bill ratio at or above 1 for 16 quarters in a row. As a consequence, order backlog increased by around 8% and 12% even organically, reaching again a new record level with almost EUR 5.7 billion. The high order backlog and the good quality of it provides a strong basis for the rest of the year as well as beyond. Let's move to Slide 8. Revenues in quarter 3 amounted to EUR 1.05 billion, an increase of almost 6% year-over-year following a bit of a weaker organic growth in quarter 1 and quarter 2 and even despite significant FX headwinds. Our aftermarket business developed also very nicely in Europe, North America and APAC. From a regional point of view, revenue growth was fueled by Europe and North America. In Europe, both OE and aftermarket business grew nicely. In North America, it increased aftermarket and OE business despite FX headwinds. The APAC region saw a very stable aftermarket development, while OE slightly declined. China only slightly decreased year-over-year in both OE and aftermarket. We are pleased about that stable development in China, especially in high-speed local business and the aftermarket. There are still no signs of a better metro market. We improved our operating EBIT margin by 100 basis points to 17.0%, which is already beyond our midterm guidance for next year. This superb improvement is driven by the positive aftermarket development, operating leverage, our BOOST measures as well as the positive contribution of the Signaling business. In the current quarter, we expect a book-to-bill ratio of around 1. The EBIT margin of RVS should be flat quarter-over-quarter. On a full year level, the operating margin is expected to be at around 16.5%. Let's continue with the Truck division on Chart 9. Order intake in CVS amounted to EUR 783 million below our initial expectations at the beginning of the quarter due to the missing pickup in the North American truck market after the summer break. On the other side, organically, orders increased by 4%. On a year-over-year organic level, this growth was driven by Europe and the APAC region, which recorded slight organic growth, while North America was significantly down, hit by the sharp downturn in the U.S. market. Order intake in the current quarter should be rather flat quarter-over-quarter, supported by Europe and the APAC region. The North American market remains very difficult to fully assess at this point in time, but we expect no improvement of the market dynamics until year-end. Book-to-bill reached 0.94 in the past quarter. Our order book of more than EUR 1.7 billion at the end of September is 7% below the previous year's level, but at the same time, it is only 2% organically lower. Let's move on to our CVS division on Chart 10. Revenues declined to EUR 833 million, which represents minus 9% year-over-year. This development is solely driven by the divestments of GT and Sheppard as well as the negative translationary FX impact from the U.S. dollar and the renminbi, especially. In organic terms, the development was stable, which represents a solid performance in such a challenging environment. OE business in CVS decreased as expected in North America and South America, predominantly driven by lower truck production rates and FX. Europe recorded good and the APAC region even significant growth. Our aftermarket business performed much better than OE in the past quarter. The OE business grew in Europe and China, but the strong market decrease in North America could not be compensated by aftermarket growth. In addition to the sale of Sheppard and the strong euro exchange rate compared to the U.S. dollar, the low truck production rate had a particular negative impact on our performance, especially in the U.S. In the current quarter, we expect that CVS total revenues should be flat to very slightly increasing compared to the third quarter. Coming to the bottom line. Operating EBIT of CVS amounted to EUR 87 million in the past quarter, down around 4% year-over-year. Given the massive market headwinds and unfavorable FX, a very resilient number. The profitability was impacted by lower OE volumes and an unfavorable regional mix, which could be more than compensated by benefits from our Boost measures, a higher aftermarket revenue share, solid contributions from our portfolio adjustments as well as a recovery from tariff burdens. As a result, we were able to increase our operating EBIT margin by 50 basis points year-over-year to 10.5% in such a tough environment. For quarter 4, profitability should slightly improve quarter-over-quarter, well supported by cost measures and a good aftermarket development with a foundation of stable markets in Europe and North America. Overall, we are confident to further fight ongoing market challenges with our long-term BOOST program as well as our short-term measures in North America, our robust pricing and our resilient aftermarket business. On a full year basis, CVS should be able to reach an operating EBIT margin around the same level as last year. With that, I hand over to Marc again. Marc Llistosella Y Bischoff: Thank you, Frank. So let's have a look on our guidance for 2025 on Slide 11. To make it very short and crisp, basically confirm all KPIs of our guidance shown on the chart, just another 3 months to go. Please bear in mind, however, that due to the stronger euro and the weaker truck market in North America, the lower end of our revenue guidance is more likely to be achieved. Our countermeasures are having a positive effect on the other side on the EBIT margin outlook, meaning that the midpoint represents a very, very realistic expectation. Free cash flow is also being affected by the stronger euro, but we are also comfortable to reach the midpoint at least of the guidance. Having said so, we are ready for the next year to go. We had a very, very busy year 2025. And we are very confident that with our self-healing activities, which had impact -- an impact of a reduction of workforce, for example, only in trucks from 15,000 over the last 18 months to now 12,000 people, we are ready for the lift of next year. And the 10% to 10.5%, which we are aiming for the year 2025 compared to the results of the years in '23 and '24 have a much higher value because we are ready to go for the next year based on a much better fixed cost base. Thank you very much. Operator: [Operator Instructions] And the first question comes from Sven Weier, UBS. Sven Weier: It's Sven from UBS. The first question is around -- in the past couple of years, you've always given kind of indications for the year ahead. You didn't do this time. Is the reason because you feel quite happy with where consensus sits? Or do you refer that simply to lack of visibility that you have, especially on the truck side? That's the first question. Frank Weber: Thank you very much, Sven. So in the past years, there have been mixed feedbacks to us giving an outlook already in October for the next year. Some were saying, why are they doing this? And others have been highly appreciating it. So this time around, we decided not to do it. Why? Because as you rightfully said, we are totally fine with where the consensus currently sits for next year, I would say. This is it. And of course, markets are also a bit of less predictable these days, especially when it comes to the truck market, I would say, and especially the region of North America. But that's the answer to it, Sven. Sven Weier: Yes. And it's fair to say that when I look at current consensus, probably the risk is more on the downside on truck, but maybe on the upside on rail. So that could be a bit of a wash from today's point of view at least Andreas Spitzauer: Yes. Nothing to add, Sven. Sven Weier: The follow-up, if I may, is just on truck margins, right? I mean you will be around 10.5%. And I guess it's probably fair to say that reaching the 13.5% next year is really tough to say the least, but we know that, of course. I just wonder, I mean, how prepared and how far are you ready to go to reach that target within the foreseeable future, let's say, in terms of additional measures that you take? I mean, you talked about this in the past, right, where I think there are still some very obvious areas such as R&D, but still seems extremely high for the truck business and the way it performs at the moment. But at the same time, it also seems a bit of a no-go zone for me. So are there any sacred cows in terms of your willingness to achieve the target? Frank Weber: Yeah, thanks, Sven. Let me put this a bit into a broader perspective. When we gave the midterm guidance some 3 years ago, obviously the market assumptions, even though we were not at all anyhow aggressive looking at the market, because we always wanted to make it kind of a self-help story at all, were significantly different, especially when it comes to the U.S., but also when it comes to Europe. The market expectations back then were based on 22 levels. And so that was the starting point to it. We feel totally fine with a long-term view on truck that the margin of 13.5% is definitely not out of reach and is a targeted number that we have on the plate if the market turns out to be more favorable than it is today. Given the current situation, look at the quarter 3 alone, U.S. is minus 28% in truck production rate. We only declined 13% in revenues. I think a great sign of resilience. And with all those measures that also Marc mentioned With our adjustment of the current fixed cost structure that we are doing under BOOST plus the footprint reallocation going into the strategic future, where we are also touching quite a lot of global footprint facilities, we are right on track, I think, with a weaker market to achieve around 12% of return. So as a first step, I would see us moving up from this 10.5% levels with a disastrous market, with better fixed cost structure into a world of the 12-ish, and then strategically into above 13% return level. I also mentioned to you many times, Sven, that maybe the 15% that we had in the all-time high, one or two years at CVS is maybe not achievable anymore, but the 13.5% is strategically a perfect fit for the profitability target of this company. And R&D, let me remind us all, is not a no-touch area for us. We had a certain range of products that hit the market recently and are still going to hit the market, so we have a certain time where we have high R&D spendings, but we have also told you that going into the future we see our 6% to 7% range of R&D for the group, rather to go down to the lower end of that range towards the 6-ish number over time. So we're heavily working on prioritizing our R&D, but we will not be penny-wise pound-foolish, and spoil our future by cutting some of the R&D costs in innovation and customization for our customers. Sven Weier: And did I understand this correctly, Frank, that with the measures that you have put in place now and even without the market really recovering, you could go from 10.5% to 12% and then the rest will come from a market recovery? That's the fair summary? Frank Weber: This is, in a nutshell, a fair summary. Operator: The next question is from Akash Gupta, JPMorgan. Akash Gupta: Thanks for your time. I have a couple of questions on M&A that you announced in the last couple of quarters. The first one is on this Travis Road Services, which is quite an exciting area to expand into. The question I have is that can you talk about the synergies with the rest of the portfolio, and can this allow you to accelerate your aftermarket spare parts revenue or directionally to acquire this company was purely based on an ecosystem that you have within you with expertise that may help growing this business? So that's the first one. Marc Llistosella Y Bischoff: Going into the services in a stagnating market, as the truck industry is, is also following the digitalization of the industry. And the more we are setting up now a platform, which is now fulfilling most of the end customers' requirements, is for us a massive access point to future and current profit sources. This market is completely different in their business ecologic and also in the logic. Here, managing mobility as a service is more and more in the up run to do. So the insurance of making assets working and the truck is an asset nothing more, nothing less. That is something where we are more investigating in the future. With our first step in 2022 with Cojali, we stepped into this business. Why did we do that? It was one part of that was, of course, to ensure that our parts will be then delivered to the customer. But this is a multi-brand. In fact, the brand is not relevant. It's a service to end customers. And that makes us a much, much wider scope and gives us a wider access to profit sources, which currently were not reachable. So to make it very short, whether this is going to break path from Knorr-Bremse or not, for this kind of businesses and services, it's not that relevant. It's a side effect. The more effect is, as you know, in platforms, the more you can cover with a platform, especially if it is directed to the customer, the more you have a control, the more you have access to profit sources, which so far were not reachable for us. What I mean with that, we are now currently having, with this acquisition, a real decisive part in our chain of pearls. The chain of pearls is 12 to 14 buckets. And now we are covering, with this acquisition, 12 of the 14 buckets. There's one more to come, and that's exactly what we are now targeting in the next 2 months to come. And then we would be the only one in the market who is covering it from A to Z, from number #1 to number #14, which is extremely exciting because that gives us a completely different picture on the Truck business. Akash Gupta: And my follow-up is on acquisition of Duagon's electronics business. I think one thing which caught my eye was that you are giving 2026 revenues and margin. Normally, either we get this year's expectation or previous year reported. So maybe if you can talk about what sort of growth we are expecting in this business, and if the business doesn't reach to EUR 175 million revenues next year, would there be an implication on selling prices? And the background of this question is that in Knorr, we have seen in the past that the company bought assets with some projection that didn't materialize. So just what sort of safety net do you have this time around? Marc Llistosella Y Bischoff: I would ask you for one thing in terms of fairness, Mr. Gupta. You take the acquisitions before 2022 and you take the acquisitions after 2022. So when you give me any evidence of failing on our predictions in any form of acquisition which we have done after 2022, I'm very happy to discuss it with you. For the acquisitions before 2022, I cannot take any form of responsibility. Of course, I can explain to you endlessly that a lot of these investments were not leading anywhere but to, I would say, dilutive business. In Cojali, we bought a company which is completely exceeding. We bought it to a company value of roughly EUR 400 million. Now we have an estimate of over EUR 1 billion. That is a fact, and then we can give you the numbers for that. The next acquisition, which we did one KB Signaling in the rail business, and this business was coming out so far extremely positive. It came out extremely positive in EBIT margin, and it came out also extremely positive in terms of revenue. So all our predictions were even overrun. Now the last acquisition was Duagon and also the Travis. And in the Duagon, we are very, very comfortable that we are not -- we are targeting the 16% because this business is also very, how you say, taking into place what we are already having with Selectron and also KB Signaling, it's a perfect fit. It's additional. It's not a new adventure. In fact, it's like a mosaic that we are parting now putting the -- all the pieces together to a one picture. So having said so, we are very, very absolutely convinced that with Duagon, we have another asset in the class of KB signaling, what we did last year. And we are very confident that the numbers which we have foreseen are absolutely realistic. I would even say they are conservative. You can see the business is already generating a very, very reasonable, very healthy profit line. And then coming to your question, which was a little bit provocative, when you compare it with all the acquisitions done before 2022, none of these businesses had a real profitability proven in the past. In Duagon, we have a profitability record, and we have also a return record, which is proven. Now it is on us to make it and to lift it. And a growth record... Frank Weber: And they also have a growth record, which we expect to be close to double digit. Marc Llistosella Y Bischoff: I think for Akash, it's more important the profitability than only the growth. Growth without profit is meaning this. And that, I think, is the main difference. The past was very, very much driven by growth, growth, growth. And the question of profitability was like it will come. This is completely different to 2022. We are first ensuring that every form of acquisition has to be accretive, either immediately like KB signaling or very short-term minded. That means within 12 to 24 months. Anything else is not touched. Operator: And the next question is from Vivek Midha of Citi. Vivek Midha: Hope you can hear me well. My first question is on CVS. It's in a similar vein to Sven's question, but just looking to better understand the mechanics. You mentioned 15% reduction in the North American CVS workforce and also broadly lowering the fixed cost base in that division. So should we think about these layoffs as permanent layoffs? I'm interested in understanding how much impact there's been from structural cost savings versus more temporary measures such as furloughs. In order to understand how the margins can improve when the volumes come back. Frank Weber: Yes. Of course, there's always a flexibility that we keep in the plants, looking at the normal market times of around, I would say, around 10% in some countries, even more kind of flex workers, temp workers, what have you, basically in the field of blue collar, not so much on the white collar side, but on the blue collar side, of course, in order to breathe through certain market conditions, that's clear. So the 15% that also Marc mentioned does include, to some extent, also the blue collars, of course, directly affected and indirect workers in the plant areas. But the thing is that also on the white collar side, we did more than 10% of cost reductions, and that's directly impacting the fixed cost, and that's why this is sustainable and is lowering the breakeven point quite significantly for that business going into the future. So it's a mixture of both, but it has a sustainable effect because the white collar had -- white collar reduction had a similar dimension like the blue collar reductions. Marc Llistosella Y Bischoff: I would like to add to Frank's comments. The company is always quoted to have 32,500 people employed. This is not the case. We have currently 30,520 people employed. The target is very clear. Whatever happens to the revenues, whatever happens to anything else, this number has to go down because what -- for the last 22 years, the revenue per employee was not moving up. I have never seen this in my life, and this is exactly why we're addressing it. It has to move up in terms of truck above EUR 300,000, and it has to move up to EUR 250,000 to EUR 260,000 for RVS. There is a difference in the structure. This is explaining why there is a difference. So far, we are below these numbers. And that means as long as we have not reached these numbers, there will be no longer substantial buildup of workforce, whatever the revenue is bringing or not. So we have a very clear target and very clear line. We want to reduce, number one, the breakeven. This is very clear. This is not for discussion, whether the market is up or down, the breakeven has to be target, number one. In the last years, we had a breakeven in derailment, I would say, for the last 24 months, we are really pressurizing down this kind of breakeven. What is the most part of this breakeven by 60% to 70% is the personnel expenses. The personnel expenses were highest in 2024. Even the numbers were fine, but this was not even noticed by others. We have noticed it. So we have to bring down the personnel expenses significantly in truck. We had reached a number which was close to 22%. Now by the last month, we're in the reach of 19%. And the target is to be below 20%. In terms of RVS, we have reached a number of exceeding 27.5% personnel expenses cost, and that has to be brought down to 25%. With that, we will improve significantly our breakeven. And with that, we will be more and more independent from the ups and downs of the market. And as you rightly described it, the self-healing has to be done and has to be proceeded. So to your question, do we have to then expect when the market is going up to see significant upscaling of workforce? The answer is a clear no way. Number two on this is we are now starting an AI campaign and initiative where exactly the white collars are addressed yes, and we want to do repetitive work more and more by digital AI agents. And that's exactly what we started with our initiative where we have now settled the first start in Chennai, where we are focusing AI experts to bring us substantial and also long-term lasting solutions to make sure that for repetitive work, we are not hiring people. So in short words, no, we are not estimating to have higher people. Second, we are breaking down absolutely our breakeven, and we have very clear targets and very clear KPIs how to lead that. Vivek Midha: Fully understood. My second question is a bit of a mid to long-term question around RVS. So you've done a 17% margin in the third quarter and guiding for a similar margin in the fourth quarter. That's above your midterm target for the division. So my question very broad is where next do you see for the division over the midterm and long term? I appreciate you maybe want to give a fuller answer to this at some point in the future, but interested in some early thoughts. Frank Weber: Yes. Thanks, Vivek. I mean I refer a bit, of course, to the question or the answer to the question of Sven. We are totally fine with the consensus as it stands for next year. There, the margin is on that level or even slightly above the 17%. This is, I think, a number that's totally fine for the Rail division. This is, as we also said quite a few times, not the end. We have plenty of measures in place, some already started to implement with also strategic, as I said before, footprint reorganizations so that margin beyond the 17% -- 17%, 18% is reachable for the Rail division, we are aiming strategically to go towards 19%. Somehow, this is the idea of the business, and that should post a very great profitable growth for this business. Now it's out. You also said so before, I think, last year. Operator: The next question comes from William Mackie from Kepler Cheuvreux. William Mackie: So my first question, Marc, to you really is to go back to the M&A that you've undertaken around service and the efforts to expand specifically in CVS. I just wonder if you can talk a little to how the development of competitive tension evolves as you push into the aftermarket in the heavy truck industry, that's somewhere, I guess, many of the OEMs, as you well know from your past lives, are also looking to expand and capture value. So how does that balance evolve in your mind between the existing installed base, supporting it, capturing the data and leveraging that for your benefit rather than -- and avoiding too much competition with your OEMs? And then the more simple question is that you have an exceptionally strong balance sheet and great cash performance. Looking forward, you've talked to capital allocation and guardrails, but just a little bit more flavor on how you see the pipeline evolving and where you can enhance your string of pearls to strengthen the business? Marc Llistosella Y Bischoff: Okay. I'll come with number 2 first. because it's not limited to CVS when I speak about potential acquisition candidates in the near future. As you can imagine, we started with Brownfields, yes, Boost was mainly Brownfield, help yourself, then you will be helped. That's what we have done. We are on our way. By the way, Boost is not finished by next year. Boost is a continuous improvement process and program now, which will last for years to come. And this is why I made so much emphasize on the breakeven on the personnel expenses on the ratios. This has to go through now with everybody. So coming to the Pearls, the platform business itself has one very important criteria. It has to be brand independent. The more you are captive, the more you limit your brand, you limit also your platform and your reach. And what we do now together with Cojali and Travis and also with the other things to come, by the way, all of them will not exceed the range what you have seen so far. So there will be midsized to small size cap, but there it is more to capture and to occupy the place than to say, "Oh, I have already the biggest in this area. And here, the problem or the competition for the captives like our customers, they are very, very centered about and around their brand. For them, it is nearly impossible to have a multi-brand approach. The multi-brand approach makes us independent. And this is why I said it's not important only to sell our pets and our brake disks via this channel. For us, it's more important to see the movement of everything what is going in this domain. And here, we have an access now where we are, especially for the second life cycle of trucks. After 3 years, the warranty is over. And then 70% to 75% of our customers are leaving the captive service facilities. And this is not only in Europe, this is also in America. So they are going to independent dealerships. And these independent dealerships have one big strength. Their strength is they are flexible, they are agile and especially they're not brand dependent. And this is where we are stepping in. So we are not really going into competition with our customers and clients in the first 3 years, we are going more for the last 7 years, which the trucks normally last in Europe or in America, it's 8 years more. So together, it's between 11 and 12 years before it will be getting to markets which eventually are a little bit different. So this kind of span we are then addressing -- this kind of span we are addressing. And there we know by ourselves that the use take, the take quota for original parts, spare parts is getting significantly lower than in the first 3 years. And this market is highly interesting, highly competitive. But what we're aiming here is to be like a spider in the net. Whatever you move, we notice and hopefully, we will participate. And I must say it's a very good -- I'm very proud of the team because they came up with that over the last 2.5 years, and they have now formed something like ally a platform strategy, which could make us very, very, very profitable in this regard because in this kind of services and platform, you have completely different propositions on profitability. William Mackie: My follow-up relates to the CVS business. Congratulations on the continual evidence of the strong muscle memory and cutting costs at Knorr-Bremse in CVS in the face of weaker markets. I noticed the gross margins were relatively flat year-on-year actually. My question goes to the general pricing environment for CVS, perhaps specifically in North America. In a market where you've seen falling volumes, how effective have the teams been in passing through prices to mitigate cost-related headwinds from tariffs or other factors or just to be able to maintain the underlying gross profitability? Marc Llistosella Y Bischoff: So the American team is very close to the market. The American team is, by the way, even more agile when it comes to swing so to lay off people is much, much faster. It's much more efficient than we see it in Europe, especially in Germany. They are closer to the customer, much closer. And in America, we have a customer which is also very, very much involved into aftersales business and that is in this regard specifically per car. So what we see is that we are very close in cooperation with our customers here. They understand when we have to increase the prices, and they understand also the pressure we are running through and going through. One thing is for sure, the American, North American truck market is by far the most profitable market in the world. Yes. The American market is a protected market that has to be very clearly mentioned. You don't see there a lot of Asians really coming in. And the market itself is very settled, saturated and also allocated. So you have players, you don't have new players. So here, it's very clear that it is a very mature market with extremely interesting margins. The European market is more competitive with much lower margins to have, yes. The margins here are roughly in average below 400 basis points below, not only for the OES, but also for the OEMs. The truck market in Asia is completely different, highly competitive, very low margin and very difficult to have a leading position to be defended because there's always a new player who is attacking you. So our focus in terms of profitability is very, very clear in the North American market. It's very, very clear also the European market. And for expansion in terms of growth and also in technology and trying out, that is the Asian market itself. You know it also by the content per vehicle, which is a fraction in China to North America, it's a fraction. So everything what in America and Europe is coming up with digitalization and any form of redundant systems, safety systems, that is the market where we are in. So it is playing in our favor because here, we can't be replaced quite easily. Here, we are not just a commodity. Here, we are a differentiating factor. So that is what plays in our cards in these 2 markets and which makes us very, very learning in the Asian market. So long story short, the team is very ready to go with that. They're very qualified. We are very technical, instrumented and technical-based salespeople. So that means they're not just salespeople on the commercial side, but mainly also on the technical side. We have a good differentiation to our competitors, and we are seen also as a leading force here when it comes to marketable market innovations. Operator: And the next question is from Ben Uglow of Oxcap. Benedict Uglow: I had a couple. First of all, on the RVS margin improvement, the 1 percentage point. I mean, historically, that is a very big number, a big gain. And I guess my question is, Frank, maybe could you give us a bit more detail of what's in that 1 percentage point? How much of this is simply just due to OE and aftermarket type mix? And is there any significant regional variation in there, i.e., have we seen one region doing better? And the reason, obviously, why I mentioned this is in the past, your China margins were higher, et cetera. So I just wanted to understand the basis of that improvement. Frank Weber: Good to hear you again, Ben. Thank you. I missed the beginning, maybe 100 basis points you talk about rail, right? The quality of... Benedict Uglow: Yes. Frank Weber: Clear, I mean, I would say regional difference is China is stable as expected, rather a bit of operating leverage, so to say, with a bit of headwinds on the FX side. So it's not China driving it. Europe has gained growth and operating leverage and North America supported by signaling. So this is from a regional view it. So all that in Europe and North America basically being a bit of a weakness on the rail freight side in North America, which goes hand-in-hand with what we see in the truck market in North America. So that's it, I would -- how I see it from a regional point of view. Of course, aftermarket share, which is the big when it comes to the sales channel mix has supported us in that improvement of profitability. We are now running at a level of around 55% of aftermarket share globally, which is an improvement compared to last year. So that is a good driver. And the third element is the continuous boost measures that we are implementing more and more. Those 3 drivers are basically the bit of positive America, Europe, aftermarket and the cost measures. Benedict Uglow: Understood. That's helpful. And then -- and I guess a question for Marc. Trying to sort of understand what's going on in the North American truck market at the moment is extremely difficult. And a lot of companies are making all kinds of different statements, I would say. In terms of your customer conversations, in terms of your kind of day-to-day dialogue with truck OEMs, how would you characterize those conversations over the last sort of couple of months? Is it just getting better -- sorry, is it just getting worse? Or are things even changing at the margin? The reason why I ask this is different companies are talking about a better line of sight on tariffs. Some companies even talking about EPA 2027. So I wanted to know from your point of view, how are those conversations? Marc Llistosella Y Bischoff: What we see is a normalization. Most of our customers are very conservative, as you can imagine. They supported the current government massively. Some of them even paid. And there -- then after the enthusiastic in the first 4 months of this year, there came a certain form of irritation for another 4 months till August. And now we are in a phase of frustration and frustration in the sense of standby. Nobody wants to move, nobody wants to make a mistake. For example, this morning, we have been informed that Mr. Xi Jinping and Mr. Trump came to conclusion when it comes to rare earth. This came for all of us a little bit by surprise. The markets developed already this week based on that. On Saturday, we had the first signals that they come. Exactly 10 days before, we had in the press and also the Capital Markets was predicting a massive friction between the superpowers. And this kind of erratic or nonpredictable movements lead in truck industry to stand by. They won't cut, they won't increase. They will just wait. The consumer confidence will be for them eventually more important. The container traffic will be -- freight movement will be more important. Currently, we see not only the trucks hammered by that, but also the freight trains. We see that it is -- this is an impact on both industries, not only on the one industry. And we would say the worst is behind us because uncertainty is even worse than bad news. You know this better than me. The uncertainty is now, I would say, the fork is clearing up. And with that, we could imagine, but we are not paying on that. Don't get me wrong. We are prepared for it, but we're not paying on that, that we can eventually see in the next quarters to come a massive release and a massive improvement on the sentiment. And we are very confident to see this message because someone wants to be in the midterms. We know the midterms next year in November, and we know it's -- the economy is stupid, and we know this has to run and everybody will do everything to make it run in America. And now we are a little bit more confident than we have been eventually in August. Frank Weber: Just a minor addition from my side, Ben, also looking at the interest rates, I think the light signals currently being set, talking to the fleet customers directly, our sales guys, of course, on a daily basis. They are also saying, okay, whatever the kind of fleet age might be, and whatever the right theoretical point towards a new buy of a truck would be, if I don't have the money, it's too costly for me to borrow money. And I think this is also the right signals that the Fed is maybe currently sending towards any recovery. Operator: The next question is from Gael de-Bray, Deutsche Bank. Gael de-Bray: I have two questions, please, two of them relating to RVS. The first one is on the share of aftermarket, which apparently dropped in Q3 pretty substantially compared to H1, 50% or so in Q3 versus 57% in the first half. So it appears that there's been a big sequential decrease in aftermarket revenues for RVS in Q3. So I guess my question is what's been driving this? And then the second question is around the growth dynamics in broader terms for RVS. I mean RVS has enjoyed very strong commercial dynamics with orders continuously surprising on the upside over the past few quarters, even over the past couple of years now. However, at the same time, RVS revenue growth has come a bit short of expectations this year with Q3 -- I mean, this was again the case this quarter. So could you elaborate on the lead times and whether one could expect to see finally some acceleration in organic revenue growth next year? Frank Weber: Yes, you're welcome. So first, let me start with the aftermarket. I mean the bigger chunk was there in the first and second quarter, driven by also some signaling replacements and aftermarket growth momentum that we have seen. And if I'm not mistaken, it was you, Gael, who asked me the questions at the quarter 2 call, why the signaling business is so strong in profitability. So it was rather a bit of exceptionally high in quarter 1 and quarter 2, that aftermarket share driven by the signaling business and where I said already in July, it will come down quite naturally, not sustainably, but naturally come down in the second half of the year '25. That is the reason. So number one question, KB Signaling, major driver to it with exceptional situation quarter 1, quarter 2. Second question, rail demand going forward, as Marc also said right in the beginning, is the least issue that we are currently seeing. We have in plenty of jurisdictions support programs out there, fueling the demand quite sustainably. EUR 1 trillion package in the U.S. the bipartisan infrastructure law. We have the German stimulus program. We have Brazil investing EUR 15 billion; Italy, EUR 25 billion over the years to come, Egypt, Turkey, what have you. So all these, so to say, programs leading to a fueling of the market growth that we kind of see between 2% to 3% as a basis should be going up with all those programs above those numbers. And we are totally fine, so to say, to reach our 5% to 7%, let me put it this way, CAGR of organic growth for the rail business over the years to come. And by the way, this is not a different number from what we said some 3 years ago as the situation in rail is noncyclical. We said back then it's 6% to 7% over several years. One year, it's 10%. The next, it's maybe 4%, then it's 7%. So something around that is what we see the lead time. Second element of your second question is very different. I mean, it depends on the product itself that we are selling ultimately a brake system, you would have at least when the design phase is finalized, you have a lead time of 12 to 18 months for more sophisticated product like a brake system, brake control unit. When it comes to a door system, it's after the design phase kind of 6 to 9, maybe 12 months, 6 to 12, let's put it this way. And towards a more simple product, HVAC system, it's 3 to 6 months. So it takes always the design phase of the train, then add these additional lead times, this is what we are looking at on a regular basis. Sometimes you have also project pushouts from one of the other customers. This is then a bit of irregularity in the market. But in a normal market, I would say those are the lead times. And with that order book that we are having, we're so pleased, so to say that we couldn't even afford much more order intake in order to get them all, so to say, produced within the next 12 months. We are, I would say, fully booked basically. Operator: And the last question is from Tore Fangmann from Bank of America. Tore Fangmann: Just one last from my side. When we look into the truck market, I think a few of the OEMs have now opened the books for '26 from September onwards. Could you just give us any indication on how your discussions with the truck OEMs are going right now? And any first idea of how this could mean into like the start of Q1 and the Q2 of '26? Frank Weber: Thanks, Tore. Nothing spectacular, I would say, sometimes it's what I recall since quite some time that after summer break, internal news in big corporations flow a bit hesitant at first and then towards October, November, basically, the sales guys come up with a good or with a rather bad news, so to say, towards their supervisors. This is what we usually say. That's why we also said a bit, we see a bit of a softening in Europe because some orders in the EDI system, then you just -- if you only have 2 more months to go, you rather shift into the new year into January and February, you realize you can't get them done in December anymore. So Christmas is coming like a surprise kind of and then you shift a bit orders into January, February, but that's the usual thing that happens basically each and every year. We don't see anything special this time around. I think we have to, in North America, see what -- how many days around Thanksgiving, the plants on the customer side will be closed down and what they do with the Christmas break. But as we also said, we expect a rather flattish market quarter 4 compared to quarter 3, maybe tiny little bit less truck production rate there. But nothing spectacular in the discussions with our customers. And what we see is what Paccar and Volvo announced, I think, is pretty straightforward. Nothing more to add on our side. Marc Llistosella Y Bischoff: Yes. Just to add from my -- for the Capital Markets, relevant whether we perform or not. And we are performing exactly to what we predicted. We performed in '24 to our predictions and announcements. We perform now to our predictions and announcement in '25. And now give me a reason why should you not believe that we are performing exactly as we planned it for 2026 with 14-plus percent EBIT margin. I wouldn't see it because the pattern certainly gives my words more gravity than anything else. So I don't see the doubt. Whether the truck is with currently 44% of revenue share, whether this is now coming up or not, as I said at the beginning, I don't believe independence of market. I believe in your own abilities to play with the market. So that it's more important whether your costs are under control than whether the market is going up by 2% or going down by 3%. It is our absolute obligation that for next year, the 14% has to be achieved. And we are doing everything on the cost situation and our -- what we can address. What we can't address, we can't address, we can hope. For markets, you can only hope. For costs, you can do. And what we do is we do what we do. And for the last, whatever it was, 16 months, we did it and we did it as predicted. We did it as announced and now you can say, yes, what makes us think that in the next 11 quarters or 12 quarters, you will do what you announced. Sorry to say, I can only offer you the past. For the last 12 quarters, we did always and overfulfilled what we announced. And I can give you absolutely our understanding and our obligation is to do the same in the next year and the same is in the fourth quarter. Whether the market is bad or good, sorry to say, with this, we will not have an excuse, then we have to overcompensate. If left is going wrong and right is going right, we have to overcompensate it because overall, the result is 13% we wanted to reach in 2025. This is what to go for, 14% plus. That is the target for '26. That's what to go for. Whether the market is good or bad, no excuse, we have to reach it. Thank you. Andreas Spitzauer: Okay. Thank you very much for your time. If you have further questions, please reach out. And yes, we wish you a great afternoon. Thanks a lot. Marc Llistosella Y Bischoff: Thank you colleagues.
Justin McCarthy: Good morning, and welcome to Westpac's Full Year 2025 Results Briefing. I'm Justin McCarthy, the General Manager of Investor Relations. Before we commence, I acknowledge the traditional custodians of the land in which we meet today. For us in Barangaroo, that's the Gadigal people of the Eora Nation. I pay my respects to elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people. I'm pleased today to be joined by our CEO, Anthony Miller; and CFO, Nathan Goonan. After the presentation, we'll move to Q&A. [Operator Instructions] With that, over to you, Anthony. Anthony Miller: Thanks, Justin, and good morning, everyone. I'm pleased to present Westpac's full year results to outline the value we're creating for customers, shareholders and the communities we serve. We began the year with a robust balance sheet and capital position. This provided us the capacity and flexibility to pursue our growth and transformation agendas. We are driving operational and business momentum supported by 5 priorities. To ensure we are there for our customers at the time and place that suits them, we've adopted a whole of bank to customer approach. Our refreshed leadership team is guiding our 35,000 people who are energized, engaged and turning our priorities into outcomes. It's not just what we deliver, but how, and that is why our focus on execution is key for Westpac. Disciplined execution is how we will achieve our goals. As Australia's first bank, we recognize the vital role we play in supporting economic prosperity. We're proud of our contribution as Australia's sixth largest taxpayer, helping to fund essential services and improve people's lives. Our employees bring this to life by volunteering their time and making pretax donations to more than 500 charities. Through our Rugby League and Cricket partnerships, we promote sport participation from grassroot clubs, including programs for schools, women and First Nations talent through to elite competition. We also offer free financial literacy programs across Australia, New Zealand and the Pacific to help educate thousands of people and small business owners every year. We're improving banking access in regional areas and investing in ag scholarships and technology to drive innovation. These initiatives create more prosperous communities while fostering trust and brand advocacy. Turning to financial performance. The result reflects our strategy of balancing growth with returns, while making necessary investments in people, innovation and transformation to support our future. Net profit, excluding notables, decreased 2% to $7 billion. Statutory net profit fell 1% to $6.9 billion. This led to a slight contraction in our key return metric, return on tangible equity. The impact was cushioned by the reduction in share count through the buyback. As we execute our transformation agenda, expenses are higher, lifting our cost to income to 53%. We're addressing the cost structure through our Fit for Growth program, which will help offset expense growth in FY '26. Our performance reinforces the need for us to focus on execution while managing RoTE and CTI. The steady financial performance and strong capital position saw the Board declared a second half dividend of $0.77, equating to a full year dividend of $1.53 per share fully franked. This equates to a payout ratio of 75% of profit after tax, excluding notable items. This is the slide I use to track our progress against our FY '29 targets. We put customers at the center of everything we do. To be Australia's best bank, more work is needed to lift customer and brand advocacy. In the past 2 years, we've gradually improved consumer NPS. We're currently ranked equal second and the gap to first place has narrowed. In business, we have established clear leadership in SME and commercial. However, our overall position shows work is needed to lift small business. For institutional customers, we aim to be #1 in our target markets by investing in our people's expertise and building stronger customer relationships. We are now executing UNITE. We will be open and transparent as we drive to complete this program. On performance, our decisions and approach are guided by delivering improvements to cost to income and RoTE. Our strategy supports our ambition to be our customers' #1 bank and partner through life. For our customers, we aim to win the whole relationship by delivering the whole bank. To meet more customer needs, we're offering the full range of products and services we have in a more timely and personalized way. For our people, we are investing in their development and leader capability while driving a high-performance culture where employees can perform at their best. On risk, we have completed the final transition of the customer outcomes and risk excellence program known as CORE. In response, APRA released the remaining $500 million of operational risk capital overlay, marking 5 years of meaningful change. Our commitment to ongoing risk improvements will continue, and our priorities for risk management to be recognized is our differentiator. Our transformation agenda is focused on delivering UNITE and 2 flagship digital innovations, Biz Edge and Westpac One. Ultimately, our performance will be reflected in how we execute on these priorities. Our service proposition is foundational to earning trust and becoming the bank of choice for our customers. Despite economic uncertainty in recent years, our customers remain resilient. We supported customers with 46,000 hardship packages with 3/4 of them back on their feet. Service quality is improving. For example, our financial market clients time to trade in the Commercial division is down by 30%. Our new brand positioning, It Takes a Little Westpac, along with our award-winning banking app and rewards program is strengthening engagement and loyalty. For businesses, we doubled our women in business commitment to $1 billion. We are growing our regional presence through new service centers. Our first location in Moree was well received by the community. Our latest Australian-first innovations, Westpac SafeCall and SafeBlock, supported a further 21% decline in reported customer scam losses. This is just a snapshot of the ways we're improving our service proposition to become #1. With a refreshed executive leadership team, we're placing a stronger focus on how we lead and support our people to perform at their best. Professional development programs, including the Business Performance Academy as well as skills training in data and AI are just some of the ways we are investing in our people. We've strengthened our employee value proposition to attract, retain and develop top talent while expanding benefits. We're also building the presence of our bankers where it matters most for our customers. Employee engagement remains strong, and we continue to invest to improve. Pleasingly, our consumer deposits grew by 10%, including offsets. This is a testament to the quality of our business and our customer base. It also reflects the effectiveness of our award-winning banking app and the competitive product suite, which we have, which provide reliable everyday banking solutions. We have expanded our capability in migrate banking. Prospective customers from several key markets can now apply for a transaction account before arriving in Australia. Our recent sponsorship with Cricket Australia will also present new opportunities in this target segment. Transaction banking is at the heart of our business strategy. New account openings of 130,000, supported transaction account growth of 13% this year. We also launched a new online payment solution, OnlinePay. With simple onboarding, it has attracted 1,000 customers within 3 months of launch. In Institutional Banking, we continue to maintain our lead in public sector deposits with growth of 11%. Financial institutions is also a target area where we are now seeing real momentum. Our goal of deepening relationships and supporting more customer needs is reflected in loan growth across business and institutional, where existing customers make up approximately 3/4 of new lending. Business lending increased by 15% with even stronger growth across target sectors of health, professional services and agriculture. Institutional lending grew by 17%. The portfolio is diversified, and we remain the country's largest lender to renewables. Growth in both areas has been accretive to RoTE. I'm very pleased that the average risk grades across the business and institutional lending books have remained stable, while absorbing this attractive level of growth. Looking more closely at mortgages. Our focus has been on getting the service proposition right, making it consistent, attractive and most importantly, easy for our customers. We've made progress. Time to decision has improved with most proprietary home loans now processed in under 5 days. In a highly competitive environment, we must get the service proposition right and then balance growth with return. Overall, I think we've managed this well. Returns have improved, supported by operating efficiency and disciplined execution. We've been more efficient in how we deploy capital with balances up and RWA down. Today's announced sale of the RAMS portfolio will further improve the operating efficiency of our mortgage business. We've targeted high-returning segments, including investors, where flows increased by around 4 percentage points to just under 40%. This was a deliberate move with our pricing competitive. In contrast, we positioned ourselves above market in owner-occupied. Momentum in early FY '26 has picked up and is tracking slightly above system. Looking further out, we see a clear opportunity to improve proprietary lending, which currently makes up just under 1/3 of new flow. We know what to do. However, progress will take time. It will be measured in years, not months. To support this, we're adding more home finance managers. We're enhancing banker incentives, and we're investing in the brand. Additionally, we're capturing insights and generating leads and opportunities by leveraging data, analytics and AI across the company to drive proprietary lending. UNITE is up and running. We finalized the scope, we have a plan, and we are now into execution. Some initiatives are progressing faster than expected, which is encouraging, while others are proving more challenging. This is typical for a project of this scale. Moving to a single deposit ledger meant we had to revisit about 1/3 of the initiatives to make sure we addressed all impacts and all interdependencies. This additional planning delayed our time line. We expect completion where we are accruing all target benefits to extend from the end of FY '28 into FY '29. To drive execution, we formed a centralized delivery team of 1,600 people focused solely on UNITE. We've also grouped the initiatives into 10 work packages to ensure we manage interdependencies and challenges effectively. In FY '26, we expect to invest between $850 million and $950 million in UNITE as we go flat out on execution. The program is expected to account for approximately 40% of annual investment spend in FY '27 and '28 before reducing in FY '29. Our progress is starting to deliver improvements that are making banking simpler and more connected for our employees and our customers. We've put some of those outcomes in front of you. Two things I want to call out. Westpac home loan customers can now set up multiple offset accounts with no additional fee. This is a key feature requested by our customers. Since February, we've opened more than 35,000 additional accounts. We've also completed the migration of private bank customers to Westpac with minimal attrition. The validation that we've done this well is shown in recent positive brand NPS. We've completed 8 initiatives and 51 are now underway. Most initiatives are green, a few are red, and we're prioritizing getting those back on track. We will provide updates on progress and continue to refine our disclosure to improve transparency. We invested $660 million in UNITE during FY '25, and this was slightly above our guidance. This was because we saw an opportunity to get additional work done now, and so we prioritized the resources to make that happen. Alongside UNITE, we're also modernizing technology through capabilities like Westpac One and Biz Edge for better customer and employee experiences. Biz Edge is our new lending origination platform, accelerating digital capabilities for bankers with AI-powered tools that support faster, more confident decision-making. This is dramatically improving how we lend to businesses by guiding applicants and bankers through the best pathway. Since launching in March, Biz Edge has processed nearly $5 billion in business lending applications. So far, time to decision has improved by 45%. More benefits are on the way for customers and bankers. For Institutional clients, Westpac One will be the new platform that brings together real-time treasury management, FX, trade and lending with powerful data insights. In December, we'll pilot the first Westpac One initiative with real-time transaction banking and a new modern digital experience for corporate clients. Advanced transaction banking capabilities like liquidity management, including multicurrency and cross-border capabilities, will be progressively dropped over the next 36 months. Once complete, the platform will deliver end-to-end liquidity and cash management, helping clients run and fund their businesses more efficiently. This capability will be market-leading and a differentiator in supporting our corporate, large commercial and institutional clients. AI represents a significant opportunity to improve the way our people work as well as the quality of their work to help us provide better, more consistent service to our customers. We're embracing new gen and agentic AI capabilities while also continuing to use traditional AI tools, like machine learning and advanced analytics. These are helping us automate tasks and modernize our technology. It's also giving our people more time back and providing bankers with more insights to serve customers better. The key is making sure we scale proven solutions. Examples with tangible benefits include strengthening defenses against fraud and scams, supporting faster approvals for mortgages and business loans, helping employees quickly answer process and policy questions and automating coding and testing. However, to realize its full potential, we must approach AI with an enterprise-wide mindset. We've appointed a global leader reporting directly to me to drive this across the entire company. We're moving at pace and recently launched the Westpac Intelligence layer, which draws on the enormous data and insights across the company to drive faster, safer and more proactive decisions. We have prioritized using the layer in consumer to support our focus on growing proprietary lending. It is already giving our home finance managers better insights to deliver faster, more personalized service. I'm really excited about what we will achieve as we broaden this intelligence layer and roll it out across the bank in the next 12 months. Nathan will now take us through the performance in more detail. Nathan Goonan: Thanks, Anthony, and good morning, everyone. It's a privilege to present my first result for Westpac. I recently took over from Michael as CFO, and I want to begin by acknowledging Michael's contribution over the past 5 years and wish him all the best for the future. I'm excited to be joining Westpac at an important time in the company's history. I look forward to doing my best to help our people deliver consistently for our customers. As foreshadowed, we've adjusted our disclosures to make peer comparison easier, now reporting net profit, excluding notable items as an equivalent measure to cash earnings among peers. Starting with the financial performance over the year before talking in detail about the half year trends. Excluding notable items, which related solely to hedging items, net profit was down 2% with higher expenses more than offsetting growth in operating income and lower credit impairment charges. EPS was flat, reflecting reduced share count from the on-market share buyback. Revenue was up 3%, comprising a 3% increase in net interest income, driven by an increase in average interest-earning assets and a 1 basis point decline in net interest margin and a 5% increase in noninterest income. Operating expenses were 9% higher, including the restructuring charge of $273 million. Excluding the charge, expenses rose 6%. These revenue and expense outcomes resulted in a decline in pre-provision profit of 3%. Credit impairment charges remained low at 5 basis points of average gross loans compared with 7 basis points the prior year. Half-on-half, we saw improving underlying trends, offset by increased investment. Pleasingly, pre-provision profit increased in Institutional, New Zealand and Consumer, while business and wealth held flat. Net profit was up 2% in the half and comprised of the following: Net interest income rose $335 million. Core net interest income was up 3%, a 2 basis point increase in core net interest margin and a 1% growth in average interest-earning assets. Noninterest income was up $143 million, mainly reflecting an increase in markets income, a combination of both client activity and market conditions. Expenses were up 9% or $520 million, including the restructuring charge. Overall, pre-provision profit was down 1%. Excluding the restructuring charge, pre-provision profit increased 4%. Asset quality metrics continued to improve, resulting in lower credit impairment charges. The charge of 4 basis points to average loans was down from 6 basis points in the prior period. The effective tax rate was 30.6%, down from 31.3%. As Anthony outlined, sustainably growing customer deposits over time underpins our ambition to improve returns. The growth of 4% in the half was pleasing and highlights the inherent strength of our customer segments. Mix improved with the reliance on term deposit decreasing from 29% to 27% of the book, while savings and transaction balances grew. We expect strong deposit growth to continue in FY '26 with our economics team forecasting system growth of 7%, reflecting continued improvement in household conditions. Strong deposit growth has supported lending growth in chosen segments. Gross loans increased 3% with growth across all customer segments. Australian Mortgages, excluding RAMS, grew by 3%, slightly below system as we balance growth and return in a competitive market. Australian business lending continues to show good momentum, growing at 8%. The larger commercial subsegment performed well, and we also saw growth in both SME and small business, which grew 9% and 5%, respectively. Prior to this half, small business had contracted or been flat in the preceding 4 halves. Institutional lending grew by 10%. The portfolio is well diversified with infrastructure, renewable energy and industrials underpinning growth. Lending grew 3% in New Zealand, where demand for credit remains subdued in a more challenging economic environment. The RAMS portfolio continued to run off. The balance at 30 September was $22 billion. The sale announced today is expected to complete in the second half of 2026. Until completion, these balances will continue to run off. Please bear with me as I spend a bit of time talking to net interest margin given the importance and likely focus. Core net interest margin increased 2 basis points to 1.82%. This follows a decline of 3 basis points in the prior half. We've seen a reduction in the amplitude of the components of NIM with all drivers having a modest impact. The lending margin was stable with an improvement in New Zealand due to fixed rate repricing, offset by a decline from auto finance, which was sold in March. Lending margins in business contributed less than 1 basis point. In Mortgages, the market remains competitive, but relatively stable, and we saw several factors play out. The cumulative impact of these was less than 1 basis point. These include the benefits from the initial timing impact from rate cuts. Deposits were also stable as benefits from the replicating portfolio and the repricing of the behavioral savings product was offset by the initial impact of rate cuts, customers switching to higher-yielding accounts and more behavioral saving customers qualifying for the bonus rate as well as the compression in TD spreads from prior period. Liquid assets contributed 3 basis points, reflecting reductions in trading securities. Whilst a positive to NIM, this is neutral to earnings. Lower earnings on capital detracted 1 basis point. The benefit from the higher replicating portfolio rate was more than offset by the impact of lower rates on unhedged largely surplus capital and the averaging impact of the share buyback. The contribution from Treasury and Markets rose from 12 to 13 basis points. Looking to first half 2026, we've included some key trends we expect to impact margin. We expect lending margins, excluding the timing impacts from rate cuts, to edge lower. Pressure on deposit spreads from the average impact of rate cuts and prior period switching to saving products is likely to continue. The replicating portfolio is expected to be a net benefit of 1 basis point. This includes a 4 basis point benefit from the total replicating portfolio, offset by a 3 basis point reduction in unhedged deposits. This reflects the decision to increase the deposit hedge by $10 billion. This was executed in September and October to provide further earnings stability through the cycle. The benefit from improved term wholesale funding markets is expected to be a slight tailwind. While mortgage margins appear relatively stable, lending competition remains difficult to predict, along with short-term funding costs and RBA rate cuts. To this end, we've provided 2 sensitivities to help understand the potential impact. The next 25 basis point rate cut, RBA rate cut, leads to an approximate 1 basis point contraction over the first 12 months, reflecting the impact on unhedged deposits and capital. Based on September balances, a 5 basis point move in the 3 months BBSW OIS spread equates to approximately 1 basis point of NIM. Quickly touching on noninterest income, which increased 10% for the half. Fee income was up 5%. Higher card fees reflected increased spending and fee changes, which are being phased in. Business and institutional lending fees increased due to strong balance sheet growth. Wealth income was up 3% with higher funds under administration. Trading and other income increased 27% from higher sales and risk management income, including foreign rates and foreign exchange and favorable DVA. Moving to investment spend, which increased 9% over the year. UNITE investment was $660 million as the project continued to step up through the period. The proportion of investment spend that was expensed increased to 60%. UNITE was the main driver with this work expensed at 74%. Notwithstanding the acceleration of UNITE, spend on growth and productivity initiatives was in line with that of FY '24. This includes Biz Edge and Westpac One. Risk and regulatory spend declined substantially after the completion of several projects, including the CORE program. Into FY '26, investment spend is expected to be approximately $2 billion, with UNITE accounting for just under half the total spend at $850 million to $950 million. This is in line with the fourth quarter run rate where UNITE spend was $225 million. Both risk and regulatory and growth and productivity investment will decline to allow the UNITE investment to accelerate within the expected $2 billion total investment spend. Moving to expenses. This slide is changed in presentation to better reflect the underlying drivers. My comments relate to movements over the year, which we believe provides a better guide to key trends. Staff costs increased $397 million as the new EBA began, superannuation rates increased, and we invested in more bankers in business, wealth and consumer. Technology costs increased $146 million, reflecting vendor inflation, increased demand to support growth and more cyber protection. Volume and other rose $199 million. Drivers include the important investment in our brand and marketing and higher operations-related expenses to support customers and prevent fraud and scams. This was offset by $402 million of structural productivity savings. This included the benefit of a simpler operating model, more automation and reductions in branch space. The ramp-up in UNITE added $399 million over the year. Looking to FY '26, staff costs will rise as we continue to invest in bankers and eligible employees receive a 3% to 4% pay rise under the EBA. The averaging impact of bankers hired from this year and higher superannuation rates will also flow through. Technology expenses are expected to remain a headwind. The expense contribution from investments will be driven by the mix shift towards UNITE with the increased cash spend expensed at approximately 75%. Assuming the midpoint of our guidance, this will translate to $190 million increase in operating expenses. This will be partially offset by the decrease in other investment. Amortization expense will continue to be a headwind in FY '26, although to a much lower extent. We remain focused on closing the cost-to-income ratio gap to peers over the medium term, and we need to structurally lower our expense base. Total productivity is expected to be at least $500 million in FY '26. This revised view of productivity will give us a consistent way to demonstrate the benefits from both UNITE and Fit for Growth initiatives. Overall, credit quality remains sound and with consumers and business portfolios performing well. Stressed exposures to total committed exposures decreased 8 basis points. This reflects a decline in mortgage arrears and reduced stress across most of our business segments. This half, we've continued to see improvement in 90-day plus Australian mortgage arrears. These have reduced from a peak of 112 basis points in September last year to 73 basis points, reflecting a combination of customer resilience and an adjustment to the reporting of loans when customers complete their hardship period. In New Zealand, mortgage arrears fell by 8 basis points to 46 basis points as rate relief began to feed through to customers rolling off higher rate fixed mortgages. We have provided the chart by industry for our non-retail portfolio. As you can see, business customers are managing conditions well with stress reducing across most sectors. Our portfolio remains well diversified across sectors and geographies. Looking forward, the 2 key drivers of asset quality outcomes are likely to remain the unemployment rate and asset prices. Total credit provisions were 2% lower at almost $5 billion. This reflects a $72 million decrease in individually assessed provisions and a reduction in model collectively assessed provisions driven by improvements in underlying credit metrics and the economic outlook. Offsetting the model-driven outcomes were 2 main items of management judgment. The weighting to the downside scenario was increased by 2.5 percentage points to 47.5% at the third quarter. The base case reduced by the same amount. In addition, we increased overlays by $108 million with overlays as a percentage of total provisions increasing from 3% to 5% in the period. As a result, overall coverage reduced by 1 basis point with total provisions now $1.9 billion above our base case. An improvement in the composition and funding and liquidity adds to our competitive positioning and helps provide medium-term earnings stability. The deposit-to-loan ratio has reached an all-time high of just under 85%. A more stable source of funds from household and business transaction accounts has reduced the reliance on term funding with issuance in FY '25, the lowest in 10 years. Our liquidity and funding metrics are above our normal operating ranges, which we believe is appropriate given the market backdrop. The strength of the capital position is a key feature of this result and provides us with flexibility and opportunities over the medium term. The CET1 capital ratio ended the half at 12.5%. Net profit added 80 basis points, while the payment of the half year dividend reduced capital by 58 basis points. Risk-weighted assets detracted 7 basis points with higher lending balances more than offsetting data refinements, improvements in delinquencies and a reduction in IRRBB risk-weighted assets. Other movements added 16 basis points, largely reflecting lower capitalized software balances and movements in reserves. There are several adjustments to consider for first half '26. These include the removal of the $500 million operational risk overlay in October added 17 basis points of CET1 capital. The new IRRBB standard came into effect on 1 October, and the extension of our non-rate sensitive deposit hedge has now been allowed for regulatory purposes. These 2 items add 39 basis points of capital. Offsetting this, the remaining $1 billion of the previously announced share buyback will reduce CET1 by 23 basis points. Following these adjustments, the standardized capital floor was met in October. Importantly, there are opportunities for us to manage the standardized floor, and we expect the impact on the CET1 ratio at the half to be modest. We've implemented a new capital target of 11.25% following APRA's changes to AT1. We have approximately $3.1 billion of capital above the new target after the payment of the second half dividend. The payout ratio, excluding notable items, was 75%, which is at the top end of our target range of 65% to 75%. This balances our strong financial and capital position while maintaining capacity to both invest and support customers. We have $1 billion of the previously announced buyback outstanding. We see value in the flexibility provided by this form of capital management. With that, I'll hand back to Anthony. Anthony Miller: The Australian economy is showing signs of improvement following a sustained period of below-trend growth. Household purchasing power is rising as real disposable incomes grow. Businesses are emerging from a period of subdued activity, partially supported by lower rates, easing input costs and some productivity gains. Westpac DataX Insights highlights an improvement in card spend growth at 6.5%, the strongest we've seen since April 2023. For business, commercial customers are feeling better, but it's still challenging for our SME customers. However, we've just started to see an improvement in cash flows off the back of firmer household spending. Underlying inflation is at the top of the RBA's target range. This will put pressure on the RBA to hold rates tomorrow. We are starting to see more growth driven by private rather than public investment. However, this transition has been slower than anyone expected. A smarter balance calls for bold, coordinated action across government, regulators and the private sector. It has been pleasing to see the focus on the productivity agenda in the national debate. Targeted action is key to unlocking Australia's long-term prosperity and resilience. An area we are focused on is addressing the housing affordability challenge. We need to tackle the structural undersupply of housing and efficiently deliver more houses in the $500,000 price range. More broadly, the global outlook is not without risk, with ongoing trade and geopolitical tensions a constant threat. Our strong financial position helps us navigate that uncertainty while being there to support our customers. It's pleasing to see business credit is expected to grow 7%, driving private investment. We're building on the strong foundations, and it is all now about execution. We have 13 million customers. However, to realize the advantage of that scale, we must drive more efficiency. We must complete our transformation agenda, and we must enhance our service proposition. Each business has a clear direction, has the right leadership team in place and must now deliver. I'm pleased with our progress and energized by the opportunities ahead. With disciplined execution driving momentum, we're deepening customer relationships and investing in our businesses to support sustainable returns for shareholders. Thank you. Justin McCarthy: Thanks, Anthony. We'll move to Q&A now. Our first question comes from Tom Strong from Citi. Thomas Strong: Just first question around the productivity benefits into '26. I mean you took $400-odd million in this year, and you've guided to $500 million in '26, but you've got the benefit of, I guess, incrementally $270 million from the Fit for Growth, which you took the restructuring charge for. So is that $500 million conservative, you think, in terms of the FY '26 opportunity? Nathan Goonan: Yes, why don't I start. Thanks for that. I think you've sort of read it the right way. That's a line item in terms of just showing on a consistent basis where we think the benefits of the restructuring charge, and then in the future, as UNITE becomes a more material piece of it, we'll continue to show our productivity benefits on a like-for-like basis through that line. As it relates to the greater than $500 million, I think that's the guidance that we've given. The benefits from the $273 million, we actually had a little bit in this year. So there's probably about -- we had $402 million productivity for FY '25. There's about $40 million of that will be benefits from the restructuring charge this year. And I think when we made the pre-release, we just made comments that we thought the rest of that will be phased reasonably evenly during FY '25 -- FY '26, and then there will be a little bit of benefit to flow into FY '27. So yes, look, we're expecting to do $500 million. We've got to wake up every day and strive to do better than that, but our guidance today is in excess of $500 million. Thomas Strong: Okay. That's very clear. And just the second question around UNITE. It was 35% to 40% of the investment envelope and you've clarified that, say, at 40%. You have kept the $2 billion per annum consistent over the next few years. Just given the reallocation towards UNITE and I guess, the decline in purchasing power over that time, do you think that $2 billion per annum is still appropriate as a view out to FY '28, FY '29? Anthony Miller: Look, I mean, that's a very good question. And you're right, we'll continue to ask ourselves, have we got that right. I mean in framing up $2 billion per year, it's really anchored around what can we do effectively and deliver, if you will, cost effectively and substantially. So it's really about the capacity of the company to deliver the change we need to undertake. If it's the case that we can prove certainly in what we deliver over the next 12 months that we can do more, then we'll remain open-minded about that. But at the same time, it's about balancing the capacity of the company to execute the change of cost effectively and also balancing -- making sure we deliver return to shareholders. So it's a balance that we'll have to navigate over the next 36 months. Justin McCarthy: Next question comes from Andrew Lyons from Jefferies. Andrew Lyons: Maybe Nathan, a question for you. I just want to try and flesh out how everything you've mentioned on expenses will ultimately impact growth in FY '26. So perhaps just referencing the various FY '26 considerations that you have provided us, can you perhaps talk in a bit more detail as to how you expect this to translate to the various moving parts that you have in your expense waterfall slide on Slide 27, please? Nathan Goonan: Thanks, Andrew. Good to hear from you. I guess I'm just going to try and find the slide, just give me 2 seconds. It's up on the screen now. So I guess a deep walk through these and maybe just happy just to go through them again and try and give a little bit more flavor as we go. I think we've looked at it on a -- the first thing is just to sort of look at it on an annual basis, Andrew, and that's what we've tried to do. I think on people costs, we do continue to think that, that will be an increase in expenses next year. We probably expect if you break that down a little bit, we've got some pull-through of things like the investment in bankers that we had this year. There's a pull-through of the superannuation guarantee coming through. So there's a few of those things. We probably expect that we'll have lower absolute wage growth. The EBA is into its second year. So it's a lower number year-on-year. But we do expect to continue to invest in bankers. So I think that number will continue to be a big feature as we look at FY '26. On tech, I guess my comment was just similar that we continue to think that, that will be a headwind. And then on volume and other, maybe just to break that one down a little bit and try and give a little flavor. Probably the one thing that's a little bit of feature of FY '25 was a reasonably material investment in the brand, which we're really pleased about and is important in investing in the business. And that was about $60 million in the year, $45 million in the half. So we'll have some of that flow through into next year, but maybe not as much. We gave the disclosure on UNITE. Clearly, that investment bucket is just going to be determined by how much skews towards UNITE and then it's expensed at a higher ratio than the other. So we tried to give a bit of guidance there. And then amortization was about $100 million for the year, and we expect that to be a significantly lower number. And then we've had the conversation about productivity. So they're the moving parts, Andrew. Happy to try and sort of be helpful or answer a follow-up on any one of those. But hopefully, in sort of laying it out that way, you get a picture of the moving buckets. Andrew Lyons: No, that's great. I appreciate that detail. I might just move on to my second one, just around volumes. You mentioned that mortgage growth ex RAMS was 0.8x system over the year, and you put that down to being a function of just focusing more on returns. But like to be honest, when we continue to speak to mortgage brokers and the like, we do still hear that even though the gap between the 2 bookends have closed, Westpac is still pretty aggressive on front book discounting. So I'm just keen to sort of understand how you recognize those or reconcile those two opposing views around pricing for growth versus still being pretty competitive from the perspective of brokers. Anthony Miller: Andrew, it's Anthony here. Definitely, we have to be competitive. And this product that is a mortgage today is a highly commoditized and very price-sensitive offering. So we just need to acknowledge that. The second thing is, yes, in certain areas where we felt it made real sense for us and the returns were right and reflected the customer base we have and want to get more of, such as investor loans, we were sharp on price. And we deliberately were because we saw the return and we felt it aligned with what we wanted to achieve. In terms of other parts of the portfolio, we were above market. And I know there's always lots of observations and commentary from participants outside the bank. Those were the two disciplines we set ourselves, which is we wanted to be sharp, we wanted to be very price-competitive in investor and then a couple of other segments that we're keen. And we were very happy to be above market on owner-occupied just given the shape of our book and the returns that we're going after. Justin McCarthy: Thanks, Andrew. Our next question comes from Ed Henning from CLSA. Ed Henning: I just want to go back to project UNITE and just dig into that a little bit more. You've told us today that you're investing more in '26 than you've previously announced and also the program is going to go longer. So the investment you're spending is more than you've previously flagged. Can you just give us a little bit more on what it's going to deliver in terms of financial outcomes and the timing of that? How much is actually during the program? And then how much is beyond the program? Or are you planning to give that at a later date? Anthony Miller: Well, certainly, what we'll be doing each year in March is giving you a comprehensive update on UNITE and giving you an opportunity to work and go through the detailed work streams with our team. So we'll definitely continue to provide that detail and that access to you. I mean in terms of the investment next year or this financial year of $850 million to $950 million, it's a deliberate range because it will be -- if we can invest that and deliver the outcomes we need to deliver, then we'll take that opportunity, point number one. The second is, in the construct of doing all of the planning that we've done and landing on the decision to go with one ledger, that necessitated us changing some of the investment profile of the program. And so therefore, we had to bring a bit more investment forward, which is why next year is a bit lumpier than we might otherwise have planned because with the decision to go to one ledger, we had to do more work upfront to be able to facilitate that migration in 24 months' time. And so that's the reason why it's a little bit lumpy thereafter. The second is that, we are keeping that investment envelope in a disciplined way at $2 billion because as I described earlier to the previous question, it's about the capacity of the company to execute and can we -- if we can deliver value and if we can, in fact, do more, then we will be open-minded to doing more. The other thing I would say is that in terms of the project itself being longer, I just sort of want to put some context in that for you. When we spoke to the market 6 months ago, we were completing and finalizing the investment and plan for a one ledger. We landed at the one ledger decision, and we had to replan accordingly. Previously, we had -- we had 30 September 2028 as the finish date, and that was just arbitrary that we wanted to have this program completed by the end of financial year '28. Now as a result of that replanning, reflecting the decision to go to one ledger, it's just worked out that we won't have all of the benefits accruing by 30 September 2028. It's likely to be a few months into financial year '29. So that's why there's a bit of an extension. There's just more accuracy that we can provide as a result of the planning we've undertaken. And the last thing I'd sort of say to the spot-on question you've raised, which is, yes, the nature of the program is that much more of the benefits do accrue later in the program. But there's nevertheless still, if you will, benefits being realized now, whether it be, for example, the small movement and consolidation into one private bank, that's already delivering us some cost savings. There's a number of other initiatives where we're already seeing benefits accrue. But the nature of this program is that what we're doing is we're taking all of these customers on two other tech systems and platforms and migrating them onto one tech platform. And only when you switch those two off and you eliminate all the products and processes that, if you will, have to be executed on those two platforms, do you start to fully realize the benefits, the cost to run that follows from that, the cost to change that follows from that. So it is tapered to the back end in terms of the benefits that will be realized. And the premise that we have with UNITE, its key feature is that it helps set us up in a way that we have structurally lowered our cost base so we can really start to achieve our aspiration, which is a cost-to-income ratio that's better than the average of our peers. Ed Henning: And just following on from that, you know, in March coming up next year, are we going to be able to get at that point what you think the savings will be through the period and at the end of the period? Or are you not ready to tell us that? Anthony Miller: Look, we have absolutely clear in our mind as to what we want to achieve as a result of the investment we're undertaking, which represents UNITE. But what I'd rather do is make sure we're delivering and we're executing before we start talking about outcomes. But rest assured, the whole focus here about UNITE is if we can consolidate the new-to-bank processes and systems onto one bank process on one system, then we would expect that, that sets us up to be able to drive to a cost-to-income ratio that's very competitive as compared to our peer. Nathan Goonan: And maybe I'd just add one thing, Ed. I think it may be different than some other programs, but I don't think it's necessarily a program where you take total spend and total benefit sort of narrowed in on just the UNITE benefits and sort of try and make sense of it that way. This is sort of large structural opportunity for us to then get our cost-to-income ratio much better than where it is today. And so I think in some ways, it's a critical enabler of what we've got to do on productivity, but it cannot be the only thing. And so what we're committing to do is just try in a transparent way, as we go through the program, highlight the benefits that we've got from our spend as we go. And then you'll also hear us continuing to talk about that productivity bar that I've already had one question on because we want to be held accountable for making the organization more efficient as we go, significantly enabled by UNITE. So it's going to be more than just the UNITE productivity that you'll hear from us. Justin McCarthy: Our next question comes from Matthew Wilson from Jarden. Matthew Wilson: Two questions, if I may. Firstly, we've seen a nice pickup in your business banking volumes. You're winning share there, which has been really good. However, it's taken 50 basis points or so off the net interest margin. Obviously, there's some reclasses in there. How should we think about how you'll manage the volume margin trade-off in that business right now? Are we at a base that we can grow within without impacting the margin too much? Or should we expect further? Anthony Miller: Why don't I invite Nathan to take first swing at that, and then I'll add some comments on top. Nathan Goonan: Thanks, Matt. And I think it is a good question. And clearly, when you get into the divisional disclosures, it is a number that stands out. I think it's just important, I think, when we're thinking about margins just to make sure we sort of go back up to the top of the house, if you like, and just think about what are the movements in the margin that are happening at the group level. And then the divisional is really a proportional impact of those. So we've made the comment that when you look at business lending margin at a group level, it contributed less than a basis point. I appreciate some of that is just the math of materiality relative to the mortgage book. But more importantly, when you look at the business lending -- business margin at a division, you've got pretty significant impacts from the deposit side of the book. So I think the right way to look at that is sort of just the business lending, which is where your comment was going. Business lending revenue was actually up 7%. So the margin point around the lending is not as material as the overall divisional thing, just given the impact of the deposits. I'd probably say just a couple more points, and then I'll let Anthony come in. I think the lending margin was more stable in business lending in the second half than it was in the first. And I sort of continue to sort of expect trends into the first half are going to be a little bit more like they were in the second half than what they were in the first. So we don't see that accelerating. I think that's really driven front book, back book in our business lending books are much closer together now. One of the features, I think, of this book maybe relative to peers is when you've been out of the market for a little while and then you do reenter the market and accelerate, you can have a bit more of a pronounced cycling from back book margins on the front book margins. And so we might have seen in any given period a little bit more here than others. But I think we're now at that spot where that's much more in equilibrium, and we should move more in line with peers. And then I'd just say sort of two more points. Looking forward, I think mix of this book will be almost more important than pricing. So there is a significant difference in margins between the subsegments, whether it be the size, so corporate versus SME versus small, there's a significant difference between sort of working capital solutions and term lending. So getting that mix right will probably be a bigger determinant than pricing itself. And then just last point on pricing, Matt, not to labor the point. But I guess I've come in and met with the team and spent a lot of time with them on this particular point. And there's probably nothing that I'm seeing in the pricing here that is that different to what I would have expected or seen elsewhere. I think the team are putting their firepower around retaining their existing customers. And so you see pretty good levels or high levels of retention of existing customers when they go to market, and that's good business, and we continue to encourage that. And then where they're trying to be a little bit more disciplined on price is just on the new-to-bank. And so we're probably seeing new-to-bank win ratios drift down a little bit in the last 6 months, but the business is still growing well, and we expect it to continue to take share next year, so a long answer. Anthony Miller: No, no, you hit all the points, and thanks for doing that. I mean I would just say that the growth that we've seen over the last 12 months, Matt, was in, call it, the higher grade part of the book. And so margins there, as you would expect, slightly tighter, but the return on tangible equity was very attractive. The other thing that we were pleased about was that, that growth with existing customers and those sort of retention rates in the sort of high 90s. And then win rates in the context of new to bank were in sort of much, much, much lower than that. So we're really, really thoughtful about where we deployed and where we grew. And we knew that there would be, if you will, some consequence to margin, but it was the right way to go after the opportunity in front of us. The only other sort of additional point to make about business bank, with that growth in the loan book being sort of 3/4 existing customers, only 1/4 new customers, what was really pleasing is that we saw a 13% growth in the transactional account, which we think is a really important sort of opportunity and capability we have at the bank. That 13% growth, what was very pleasing was that sort of about 53%, 54% of that growth was with new-to-bank. So we're bringing new customers in on a product suite that's a really attractive, a, return; but b, also a risk profile for us as a company. So we quite like the way Paul and the team are driving the shape of that growth in that division. Justin McCarthy: Matt, hopefully, your second question doesn't require such a comprehensive answer. Matthew Wilson: Hopefully not. Just with respect to your targets, so 6 months or so ago, you decided to set relative cost to income and ROE targets. In the interim, one of your key peers has sort of changed that line in the sand by producing some absolute targets. How have you responded to that? Because it makes your task a lot harder at the current scenario? Anthony Miller: Look, I expected this question. And in fact, I think I expected it from you, Matt. So thanks for playing consistently. Look, I respect Nuno immensely and what ANZ has done and he's put a marker down, and I wish him well, and we'll watch that process develop from here. We've spent a lot of time and effort to get a plan together, and we have that plan in front of us. And so I think our ambition, which is to be very focused on how do I structurally reset this company with UNITE, how do we then go after the productivity equation year-in, year-out over the next 36 months, bringing those together, we can see where we can get our cost-to-income ratio at a point which is better than our peer average. And so that's -- we've got clear goals, clear targets that we need to deliver, Matt. I'd just much rather, if you will, deliver and be dropping outcomes along the way rather than sort of putting some bold number in front of you. I think it's fair to say, as a company, we probably haven't the right to do that. We put a number in front of you 4, 5 years ago, and we didn't get to it. And so frankly, what we need to do is deliver and then talk about bold numbers and outcomes. Justin McCarthy: The next question comes from John Storey from UBS. John Storey: Firstly, obviously, on the Consumer division, you've seen quite a big improvement half-on-half. And just looking at some of the diagnostics on the actual Consumer division, reported customer surveys, NPS scores are pretty stable, Anthony, as you called out. But one thing that is pretty evident is your MFI number has dropped quite a bit. Maybe if you could give a little bit more details around that? And then just secondly, on the Consumer division, maybe just around the start of the financial year, if you could provide a little bit more color on how the division has been performing, particularly with regards to new business volumes and then also just channels in terms of where mortgages are coming through. Anthony Miller: Look, thanks for that question, John. And so Nathan, you're welcome to jump in as you see fit. Look, you're absolutely spot on. We have an aspiration to lift our MFI ranking from where it is. And if there was one aspect of the performance in Consumer, which has done some great work over the last 12 months, there's one area where we're disappointed and we're actively engaging on is the MFI outcome in Consumer. The irony is that the MFI score has come down a little bit, yet deposits have grown at a very attractive level of 10%. And we've done more work. And as we've unpacked that, we've noticed that actually it's much more in the context of what we call the regional brands, St. George, BankSA, Bank of Melbourne. And part of that is connected to the fact that we were less aggressive in how we were pricing our mortgage book in that area. And as a result, we saw some attrition in the transactional account, the MFI accounts that we really want. And so that was a really humble reminder to us that about not just looking at products like mortgages in a stand-alone only return setting, but to really think about the whole of customer and are we getting the balance right. And we've recognized that in that area, in particular, we weren't getting the balance right, and we've addressed that accordingly and are much more focused on how we grow and support those customers and obviously graduate the MFI. Pleasingly, as it relates to the Westpac offering, the MFI there has started to improve, and we're certainly pleased with the outlook and the momentum that we've got in that. I would say that the others -- if I think about also MFI in the space of 12 months in business banking, they've been able to lift it by well over 1 percentage point. So it does highlight that we do have the offering. We do have the product. We just simply got to get -- make sure it's a priority across the organization, which it now is. Nathan Goonan: Maybe I could just add a little bit on the current flows, John, just to take your second question. I would say that we've -- and Anthony mentioned this in his preprepared remarks, we've probably seen, well, one, I think the market is, in particular, your question goes to home lending, then I think that mortgage market has been accelerating. And I think that's been sort of well covered in the market, and you can see it in the system stats. We're certainly feeling that or seeing that. So we've had increases in pretty much every channel, and we're seeing increased applications. And so front-of-funnel activity, as Anthony said in his preprepared, is probably a little bit higher than where we've been trending on a market share basis over the second half. So we're probably at or around system wouldn't surprise us if our front-of-funnel actually meant that we had a couple of months here where we're a little bit above system. That has been growth in all channels. I think pleasingly, we think October, we're going to see a little bit of volume growth in proprietary. I think the team are very cautious when we talk about green shoots there, and Anthony said it's sort of years, not months. But I think as we've seen proportional increases in applications, the proprietary channel has been performing better than it was in prior periods in that period on a proportional basis. So that continues to be good. And maybe the other thing just to add that may be of interest, John, I think the first homebuyers guarantee scheme has certainly stimulated some interest, whether it was some pent-up demand there, but we saw sort of applications in the first couple of weeks when the changes were made almost went to 2.5x what they were for the first homebuyers guaranteed. It's moderated a little bit. I think last week, it was about 2x what they were. So it's still double. How much of that pulls through? So we're seeing a lot of that volume. I think how much of that actually fulfills is a bit of a wait and see, but it's certainly still a small portion of the bank, but it certainly stimulated some demand. Justin McCarthy: Our next question comes from Brian Johnson from MST. Brian Johnson: Welcome, Nathan. I had 2 questions, if I may. The first one is, I'd just like to understand, you've got a bucket load of surplus capital. You're trading at, I don't know, about 1.8x book. I just want to understand the strategic rationale behind selling RAMS when a buyback, for example, is not as accretive. And also if we could understand any kind of litigation risk or warranties that you've made to the buyers in respect of this business? And then I had another question, if I may. Nathan Goonan: Okay. I'll just start on a couple of specifics, and then Anthony can jump in. I think one of the important features of the transaction, Brian, is that it's an asset sale. So just by virtue of that structure means that we're retaining the entities. And then the assets, it's a loan sale. So effectively, the asset is transferred to the buyer. As part of that, we've given sort of customary reps and warrants and other protections for the buyer so that they know that the asset they're buying is effectively going to perform in a way that it says on the tin. So that's things like title and the enforceability of title and things like that. So all customary things. In particular, as it relates to things like indemnities, you just don't need to given the structure of the sale, that will just stays with the existing entity that we retain. Maybe just to give a little bit of a picture as to the financial impact of it, Brian, because I think prima facie, I would agree, it does -- you sort of -- every day, we wake up and compete really hard on household mortgages. And so it's a core product of the bank. And so prime facie, you've got to scratch your head a little bit when you're then willing to sell a portfolio of home lending. But there's a couple of important points here. It is on a completely stand-alone set of technology. So it's a business that runs almost independently from the rest of the business. And so you've got a cost base here that by the time that we get to completion will be almost equal its revenue base. And it doesn't necessarily give you the type of scale that you might intuitively think in your mortgage business, is sort of one of the key features of this relative to, say, just ceding a little bit of share. And maybe, Anthony, you can touch on it. The other key point is we've made quite a few statements today just about the inherent strength of the deposit franchise, the ability for us to go after transaction accounts in terms of being a strategic advantage for us as we think about our balance sheet structure. And this is a business that has, if not 0, very close to 0 crossover in terms of deposits into the mothership. Anthony Miller: I probably just develop a little bit more on one point, which is, our current mortgage book, Brian, is, let's call it, 21% market share. But essentially, we've got 3 different systems upon which it's spread. So in effect, I've got 3 small banks, 3 small bank cost challenges, 3 small bank compliance, 3 small bank risk challenges in managing the mortgage book. And so UNITE was about moving all of those onto one way of doing things on one target tech stack. And so we were always going to have to spend quite a lot of money, and we're going to have to spend a lot of effort and consume a lot of resource to move the RAMS mortgages onto the target tech stack. And so therefore, if there was an opportunity to do that much faster and more efficiently, which this asset sale represents, then we were open-minded to it because essentially, I have 1 percentage point less market share. But now instead of it being spread across 3 regional bank cost basis, it's spread across 2, and we're on our way to getting one. And importantly, if we complete this, as we target, in 2026, I'm accruing that run cost saving, operational complexity reduction, risk reduction 2 years earlier than was otherwise planned. And so therefore, that's an attractive outcome for the bank. And as I say, 21% or 20%, my scale is wasted on 3 systems. And so I've got to get to the one system to really enjoy the benefits of that scale. So that's why this opportunity made sense. And that's why when we found the right parties, who would be the right owners of these assets, it just made a lot of sense for us to get after it. Brian Johnson: Anthony, just as a subset of that, can I just clarify, there was a story in one of the media reports talking about ASIC and AUSTRAC talking about this. I think subsequently, we've seen a very, very small ASIC fine. Can I just confirm that as far as you're aware, within the RAMS business that you're effectively retaining the risk? Anthony Miller: Correct. So to the extent that we've engaged with the regulators, and it's well documented on a whole range of issues and concerns they had with the way the RAMS businesses were led, managed and prosecuted, we've now -- obviously, we retained that. We've just simply sold the assets. And more importantly, it allows us, as I say, to switch off or get off one of those bank systems. So nothing has changed in terms of the risk profile we had as a result of the ownership of that business. It's just simply much cheaper to run from here. Brian Johnson: So can you address the question, though. There is no AUSTRAC issue? Anthony Miller: Nothing that has been brought to my attention, Brian. Nothing has been brought to my attention. So I don't -- you'll have to send me the article or reference and sort of what context in which it sits. But in the context of AUSTRAC matters vis-a-vis RAMS, I don't have anything in front of me on that front. And I'm looking across at my General Counsel and my Chief Risk Officer, and they equally are acknowledging that we have no such issues at this point. Justin McCarthy: Thanks, Brian. Our next question comes from Jonathan Mott from Barrenjoey. Jonathan Mott: Just a question on UNITE, back to the topic that we talked a bit before. You give us a kind of a traffic light scheme on how the business is going, but there's been a bit of a change in the disclosure. At the first half, you had sort of the green amber red. And now you've got in scope. I'm just looking at Slide 16 here, you've got another classification in scope. And then you've had an increase in the number of amber and a small change in red. Can you give us an update on what that means? Why you're now saying this is scope confirmed? And if you're looking at 18 of the 38 are actually already in the amber and red. Anthony Miller: So thanks for the question, Jonathan. And just sort of let me break it down for you. As a result of all of the planning undertaken, we now have a plan in front of us, and we know what we need to do, in what sequence we have to do it. Those 13 scopes confirmed are essentially 13 initiatives that we now have a plan for. And at some point, over the course of the next 36 months, those, if you will, initiatives will have to be worked on. And so at the moment, not all of those 13 have commenced. And so therefore, to characterize it as green, red or amber is slightly redundant. And so therefore, the others, which we're now moving on because it's a real program of sequence. It's about what we do and how we follow up on each particular completion of work. And so these 13 initiatives will be done. And to the extent, once they start work on them, we'll then obviously recognize whether they're meeting the standards we set, meeting the time line we set, meeting the cost we set, and that will then determine whether they're characterized as green, amber or red. And when we were talking back in May results, 7 of the initiatives at that point were red, and it's now down to 5. What's happened is 4 of those 7 have now moved into Amber Green. One, in fact, has been completed or effectively exited. And so that's behind us. But we've also had 2 new -- or 2 initiatives being recharacterized as red. So that's why there's that change from 7 to 5 over the course of the last 6 months. What we'll keep doing, Jonathan, is to the extent that there's some confusion there, we will get sharper in how we set it out for you because I do want everyone at all times to see that this is a large -- this is a challenging complex program of work. We're absolutely committed to it and most importantly, committed to making sure that there is no surprises as we go through it. And so if we can do better in sharing with you where we're at, we will look to tidy that up as we go forward. Jonathan Mott: And second question, if I could. If you're looking -- I'm looking at Slide 22, 23, I think it is, which just shows the growth in deposits and consumer pretty strong at $15 billion and then $12 billion in mortgages if you exclude RAMS. But including in that number is very strong growth again in offset accounts. I think it was up another $5 billion. You've now got $73 billion in offset accounts. So two things about that. Firstly, are you comfortable with the growth in net of offset accounts because it really is lagging the system? And I know you said you want to get your service proposition right, but are you comfortable with that? And also, given the offset accounts are nearly all against owner-occupied property, it actually means your investor book, as a percentage of the total, excluding offsets, which is just sort of a deposit sitting there, is a lot larger. So can you ask us sort of that considering this net of the offset accounts? Anthony Miller: I'll make a couple of comments and invite Nathan to jump in. I mean, certainly, you're right to call out that the deposit agenda, the idea that we grow deposits and more importantly, get the shape of that right, John, is absolutely not where we want it to be, albeit we're really pleased with the progress we've made, but we would like a lot more in terms of the shape of deposits. And we were disappointed and acknowledge that, that we didn't catch what was happening in the regional brands as fast as we perhaps should have, and that's on myself. We're very much focused on now addressing that. And I think we've got that properly, if you will, tackled, and it's just about how we get after that over the next 12 months. I'm just really pleased though that the Westpac side of the portfolio is continuing to improve and is, obviously, a really critical part of our portfolio there on transactional and savings accounts. I suppose there's definitely -- there's things that if I think about our service proposition, one of the areas that I reflect on is making sure that transactional accounts, deposit services and servicing on that front is front and center for every banker in the company. And we've done a lot of work to recalibrate, for example, scorecards and incentives to make sure that all of our bankers in consumer and business bank understand the priority we attach to that. And pleasingly, we've got a good enough product suite, which means we can be very competitive. And I do feel like we're after that in the right way. I missed the second part of the question? Nathan Goonan: No, I think you've covered it well. Maybe, John, just to add 2 points. I think that you're right to call it out. There's about, as you said, 7% growth in offsets in the half, but importantly, 6% in savings as well. So we have seen strong growth in both those items. I think -- and you're right to call it out in the way you did. The growth in savings accounts is about attracting customers on the liability side and the offset is much more about the business that you do on the asset side. And there is a strong customer preference towards those. They've been growing, as you know, quite strongly as you move from a fixed rate portfolio into a variable rate portfolio, and we're pretty much exclusively there now. As we grow that side of the book, we'll continue to see growth in the offsets. Whether you're trying to target a certain amount of offsets or whether you're happy with it or not, I think it's a key feature of the mortgage product, and there is a strong customer appetite for it. Anthony Miller: Probably the other point you did raise was about investor loans. And we're very keen to continue to be competitive in the investor loan segment. That demographic, that audience is an attractive customer base for us. And we see a real value in being very supportive there on investor loans and more importantly, then converting and making sure it's a whole of bank, whole of customer relationship that follows from that. Justin McCarthy: Our next question comes from Carlos Cacho from Macquarie. Carlos? Carlos Cacho: First, I just want to ask about on your margins, your replicating portfolio benefit is expected to diminish from 3 bps to 1 bp. I was just wondering if there's any other potential tailwinds that are worth calling out as you head into FY '26 because it's mostly negatives that you mentioned as you walk through the waterfall, Nathan. Nathan Goonan: Carlos, Justin has given me the signal for one word answer. So maybe I'll jump straight into it. I think we did just try and lay out as helpfully as we can, Carlos, and happy to sort of pick it up later in the afternoon to the extent helpful. But I guess the other point that we made, if you narrow in on things where we could get a tailwind, I think term wholesale funding markets have been better. So we do expect a tailwind there. We do expect to continue to get some replicating portfolio benefits. We called out a basis point there, which is sort of net across the replicating portfolio and then the unhedged deposits. So there's a little bit of support there. And then I think maybe the other one is just to say on liquids. I think that has been a bit of a volatile item for us quarter-on-quarter. We did expect a sort of increase in investment securities at the third quarter that maybe didn't flow through to the same extent we thought. I do suspect as we go forward into the first half, just where the customer balance sheets are up to and how growth is going, we probably expect liquids to be down a little bit in the first half. And so while neutral to earnings, there might be a little bit of a benefit that flows through there. Carlos Cacho: And then just secondly, you've spoken about wanting to do better in proprietary mortgages. And obviously, it's a long-term strategy. But where are you expecting to win? Or where are you seeing wins come from? I presumably, it's either got to be a new customer who's a first home buyer or they're coming from other banks where they're proprietary or they're coming from brokers? Like do you track that? Is there particular targets you're hoping to do better in? Anthony Miller: Look, I mean, good question. I mean what we've got to do is just get the basics right in terms of how we go after proprietary. So we've got to get the service proposition right. We've made real progress. We've got to get the product right, and we've seen improvement in product NPS, time to decision down inside 5 days. We're operating and executing mortgages more efficiently than we have in the past. Our hygiene and data is in a much better place. So the returns are much more, if you will, better reflected in that. And then I think the things for us, though, is we just got to get, for example, more bankers. We lost too many home finance managers. So we're catching up on that. That takes 6 to 12 months for a good home finance manager to really get into their straps. And so we've started to get that resource allocation right. We certainly got to get a better compensation and incentive arrangement around for our home finance managers, and we've now got that right. We've got the scorecards right. We're also, at last, really taking the full power of the company in terms of the range of data and if you will, insights that come from all of what we have across the entire company to help get behind the home finance managers and give them real leads, which represent real insights and allow us to be much more proactive. And then you heard Nathan talk about investing in the brand. We spend a lot more money to get the brand profile up. So we're just putting in place all of the basics to really get after this area. And I'll be very candid with you. There's nothing more dramatic than just getting all those basics in place to allow us to get after it. It took us a number of years to get to this point. It's going to take a little bit of time to get out of this particular position. But I think we've got what we need to execute. And I was really pleased with some of the actions we took in private wealth last year, which we've already seen a really improved turnaround in first-party in private wealth, which tells us that if we get after this as we have in private wealth and consumer, we can deliver that same turnaround. It will just be, I think, a reasonable period of time of effort to get there. Justin McCarthy: Our next question comes from Andrew Triggs from JPMorgan. Andrew Triggs: I might just ask one question. Deposit mix shift, should we expect that to slow significantly next year? And maybe, Nathan, if you could break that down, please, between the percentage of deposits in behavioral savings versus the percentage of those products themselves where the customers are qualifying for the bonus rate? Nathan Goonan: Yes, I think on the deposit mix spreads, you've probably rightfully called it out. It's probably just really a story for us around the growth that we've seen in that consumer savings product. I think at an overall book level, we've had decreases in proportion to term lending. So I think the bigger determinant of going forward margins, which is really where you're going, is going to be on the savings product. And I would say a couple of things here. I think certainly, this is one of the areas where fourth quarter was a little bit -- showed a few different signs in the third quarter. So we saw, I think savings -- the savings balances in the fourth quarter grew $5 billion. They grew $2 billion in the third quarter. We've said there that we've got about 84%. I think we've given you an annual number there that are the people that are qualifying or achieving the bonus rate, that was actually probably a little bit lower through a couple of months in the middle of the year and then picked up a little bit in the fourth quarter. So I think those 2 main things are things that I'm expecting will flow through into the second half. It's probably -- into the first half. It's probably not so much a mix shift into these products, Andrew. It's much more that's where we're seeing the growth. Justin McCarthy: Our next question comes from Richard Wiles from Morgan Stanley. Richard? Richard Wiles: I'll just ask one question, too. It's following on from Matt Wilson's question around the business bank margin. In your business and wealth update a few months ago, Slide 17 showed the composition of the underlying margin decline. It was 22 basis points, and it was split across portfolio mix, deposits and lending. The decline in this half, Nathan, was 18 basis points. So actually pretty similar to the first half in terms of underlying trends. Could you give us some commentary around the mix between portfolio deposits and lending? Were the trends pretty similar? Or did they start to skew? Nathan Goonan: Yes. Thanks, Richard. Yes, I think my comments earlier to Matt, sorry if that was confusing was just really around the business lending part of that equation. So I think in the second half or in the more current period, we've seen a more moderation of the impact on the lending side. And you would have seen -- for all the reasons we've been speaking about on the deposit side, you would have seen a bigger -- a proportionately higher impact in the more recent period from deposits. Richard Wiles: Okay. So lending was 7% in the first half and deposits was 9%. Lending went down, deposits went up as a headwind for margins? Nathan Goonan: As headwinds, yes. Justin McCarthy: Our next question comes from Brendan Sproules from Goldman. Brendan Sproules: I just have a couple of questions. Firstly, on the Markets and Treasury contribution for this half, it looks like it's running at a run rate of sort of about $2.2 billion. Can you maybe talk about some of the benefits that were achieved this half? And will those sort of repeat into 2026? And how does the $2.2 billion relate to what you would think is a normalized level of earnings from these 2 divisions? Nathan Goonan: Yes. Maybe we can break it down a little bit, Brendan, and then Anthony knows that business well. I think it is very challenging in these business to grab 1 quarter and annualize that and sort of expect that that's where you're run rating -- like -- well, sorry, it is where you're run rating, but to expect that, that sustains over 4 quarters. So I think with these -- certainly, the markets business is a pretty mature business now. It's got a really strong FX, fixed income capability, and it's a pretty mature business now that would be -- should all market conditions being equal, just growing more in line with the underlying activity of our clients and the loan book growth. And then, Nell and the team have got ambition and are doing things to grow out a few more strategies that can build income sustainably in that franchise over time. But I think I would just think about that as more -- it should be producing pretty stable performance on the FX and the fixed income, and it will be more determined by underlying activity. In treasury, I think similar, we've got good disclosure on that over a long period of time. I think that number in and around $1 billion for the treasury has been a pretty consistent number. I think a couple of years ago, we might have had a $600 million, but I think in and around that area is about right. We're probably issuing a bit less wholesale funding, which gives them a few less opportunities. And even with the RAM sale, we expect to do a little bit less in that space. So maybe it comes off a little bit. But there's a few comments, Anthony. Anthony Miller: Yes. Look, I mean, definitely, the financial markets business, it's, I think, the leading franchise in the market now. A couple of just extra comments. I think there's real upside for us in the FX product suite and the penetration into consumer and business bank at Westpac is less than what it should be,, given the quality of the FX franchise we have. So there's real upside there in servicing our existing customers in consumer and business bank. Likewise, I think we're underweight in a few aspects like commodities and aspects of that business, which we see as a real positive for us. Perhaps the real sort of interesting jewel in the crown in there is just the credit business, the credit trading, the credit market making. Now that Australia with its savings bill is actually a genuine capital exporter, and we have a lot of Kangaroo bond issuance into this market, the franchise that we have there in terms of credit market making, origination and, if you will, distribution into this capital market is pretty impressive. It's the best in the street. So we're quite excited about how much more we will see in that business as Australia's position with the superannuation funds makes it a real destination for people to raise capital. Brendan Sproules: That's very helpful. My second question is just on Slide 29 around the impairment provisions. I mean, in this presentation, you've talked, Anthony, about the improving operating environment for the bank. You've also showed some lead indicators on asset quality where you're seeing impaired assets, for example, fall. I was just wondering what the thought process was around increasing the overlays and specifically the downside scenario weight and actually growing your excess provisions above base case in this period. Anthony Miller: I'll just let Nathan make a comment, but it was a robust process. And because clearly, the settings and outlook has continues to be surprisingly benign, but we need to be constantly vigilant and, if you will, balanced about what is going on and what may come our way. And so that's been a very congested and well-developed discussion inside the company with Nathan and I about what's the right outcome here. But Nathan... Nathan Goonan: Probably just to add, I think, Brendan, I think just take it as an indicator that we put a high value on medium-term earnings stability. And so I think when we think about this, it's similar to increases in hedge balances and then the management judgments around that. We've tried to just err on the side of a little bit more stability over time. Justin McCarthy: Our next question comes from Samantha Kontrobarsky from HESTA. Sam? Samantha Kontrobarsky: I'll just keep it to one. So you've recently appointed a Chief Data, Digital and AI Officer, which is a new step for the business. As you bring these areas together, how do you see this changing how Westpac competes? Is it mainly about efficiency and cost? Or could it fundamentally reshape the customer experience and growth? Anthony Miller: Thanks for the question, and that is what I work on every day in terms of how do we get that right. There's no doubt that there's a lot of hype and a lot of, if you will, excitement around the AI revolution or evolution, depending on who you speak to. We certainly think that its capacity to help us be more efficient, help our employees get their job done better, safer, more consistent is a really big and important opportunity that comes from having the right AI program. And so that was one of the key sort of drivers was to get a global thought leader working for and with me in terms of how do we look at the way we do things in the company and how can we do things better. It's a wonderful tool in the hands of employees, but you need to, therefore, invest in your employees and make sure they understand how to use this tool and how they can make it or can help them be more efficient. So that's definitely one emphasis. And there is definitely really interesting ways in which it will help us serve customers and provide a more attractive service proposition to our customers. And we're sort of already taking some of the model capability with this Westpac Intelligence layer, taking all of the data and all the signals that are coming into this company and using that to make better, faster decisions, which allow us to get back in front of our customer more proactively. So we're seeing it, Samantha, also help us in terms of being really good with our customers with a view that, that obviously drives engagement, connection and revenue ultimately. Justin McCarthy: Thanks, Sam. We'll move to some questions now from the media. So our first question comes from Luca Ittimani from The Guardian. Luca Ittimani: Can you hear me right? Justin McCarthy: We got you perfectly. Luca Ittimani: I just wanted to check. So in the wake of the Fair Work Commission decision, do you intend to change your work-from-home policies at all? Have you seen more applications or requests from staff for new or more flexible work from home request? Anthony Miller: Well, we have one of the most flexible work-from-home policies positions in the marketplace. So I think what we are going after, which is finding that balance for our people, I think we've got that right. So no, I don't need or feel a need to change that particular setting. We're also just reflecting on what we might do in response to that recent work-from-home decision by the Fair Work Commission, and we'll land on a decision as to what we will do later this week or the next. What I would also say is that we've got a tremendous level of engagement from our people. And if I look at some of the OHI scores and other engagement measures, just highlighting people are really engaged and really excited about what we're trying to go after and what we're trying to achieve as a company in terms of for our customers and in terms of how we work together as a team. So I feel really encouraged by just where we're at and motivated to go further with what we've got. Justin McCarthy: Thanks. Our next question comes from James Eyers from the AFR. James Eyers: Anthony, you've spoken about this deliberate pricing to attract investors in the residential property market. And you can see on Slide 66, your investor loans and interest-only loans, sort of the second half flow that is tracking well above the averages of the book. The sort of house price data out today showing house prices sort of growing at the fastest pace in a couple of years. And we saw that APRA data on Friday showing investor lending is pretty strong, like sort of 7% annualized, I think. You just said in response to John Mott's question, it was an attractive customer base. But could you just talk a little bit more about that? Like why are you targeting more investors? Are they sort of a better credit risk than owner occupiers? Is there a cross-sell opportunity for you? And do you foresee a little bit of a squeeze on the first homeowner buyers as a result of this investor growth that we're seeing come through? Anthony Miller: Well, I think we're seeing a squeeze on the entire market because of the demand, whether it's first-time buyer investor, there's just a lot of demand. And the key challenge of the day is we've got to get more houses built at the right price point, James. So every aspect of demand is being supported and is going fast, which is only driving the challenge and making it harder. In terms of the investor segment, I mean, yes, it's an attractive segment in terms of from a credit risk perspective. And yes, you're right in terms of, I don't like the term, cross-sell, but the idea that these are people who are investing in property who, therefore, may need an incremental services and support and how do we, therefore, bring this entire bank to them is something that I'm really drawn to, and we see it as a real opportunity for us. And we just got to, I suppose, go about it thoughtfully and be careful about the outlook and the risks that come from sort of going too far, too fast in a particular segment. But we think we've got the balance right. And it's interesting that we're forecasting a sort of 9%, almost 10% increase in residential house prices over the next 12 months. So it's certainly a positive outlook for people who can access the property market. James Eyers: Just a really quick supplementary on that risk -- go on, sorry. Justin McCarthy: No, you're right, James. Keep going, sorry. James Eyers: Just a really quick supplementary on that risk point, Anthony, we saw Lone Star make some comments in July that they begin sort of engaging with banks on implementation aspects around macro prudential tools just to make sure that could be activated in a timely manner if needed. And like back in 2015, I think you sort of had the investor loan growth sort of going above 10% and brought back to that number. And then there was an interest-only element in 2017, where they were sort of looking at that being about 30%. You're at 20% now, I think. So it's well under that. But how much sort of hotter do you think this investor lending growth trend sort of would need to get before you're in that territory again? Anthony Miller: Look, I don't have that answer, James, but we are very much or very cognizant of the balance we need to find. And we engage with the regulator. APRA is a terrific partner to us, and we engage actively often deeply with them about all of these particular issues. And so we'll be making sure there is no risk or issue there vis-a-vis the regulator. Equally, it's an opportunity that we've been pursuing over the course of the last 6 months, and we will continue to pursue it, but it will be balanced around the return. It will be balanced around the risk and it will be balanced around is it that we're converting these opportunities into broader, more substantive customer relationships and not just simply a lender loan. Justin McCarthy: Our last question comes from Steven Johnson from Seven West Media. Steven Johnson: Steven Johnson here from The Nightly news website. Anthony, earlier in your presentation, you said that you want to see more housing around the -- available for the $500,000 mark. Would you be able to explain why you want more housing available for $500,000? And what your typical debt-to-income ratio limit would be now considering the cash trades at 3.6%? Anthony Miller: So the thesis around just sort of promoting the idea that $500,000 is the right price point is really sort of predicated on the following: Median income in Australia is approximately $90,000. When we finance someone in the acquisition of a house, we will lend in the order of 5 to 6x their income subject to expense verification and the like. And so therefore, you've got something anywhere between sort of $450,000 and $550,000 of mortgage capacity. And then, of course, just assume, say, a 10% deposit. And so all of a sudden, you can see median $500,000 as a house, $500,000, $600,000 is just really critical if we're going to solve for, call it, average Australia or the median position in Australia. And the challenge is that properties are being built in major capital cities and the median house price of houses in capital cities in Australia is over $1 million. I am drawn to the fact that median house prices in regional Australia are closer to sort of $500,000, $550,000. And so I feel like Regional Australia is part of the solution potentially here. But I would say that the key is let's build more properties at the right price point to allow people to get access to the market. And so when we talk about building more properties, it just can't be building more properties that doesn't solve the actual challenge. How do we ensure the average Australian gets a chance to buy a property and live in their home of their dream. Steven Johnson: So basically, it's also a social issue that there's too many houses are at $1 million, the average full-time worker can't afford that. Are there going to be some societal challenges, some aspects that would hurt Westpac lending. Anthony Miller: Well, look, I think our success as a company is inextricably linked to the success of this country. And one of the challenges for this country is to get more housing, have more Australians being able to own their own property. And so therefore, I think it's really important. The challenge is that when you think about the cost to construct, you think about the time and cost and process for approval, all of those features contribute to it being very hard to be able to build a house at that price point. And so therefore, I think it's not sort of dependent upon developers and contractors, but it's really important that the entire community, government, regulators and all of us work out how can we create an environment where it's cost effective, it's rational and it's reasonable to expect you build house for $500,000 to $600,000 in Australia. Justin McCarthy: Thank you, Steven, and thanks, everyone, for dialing in. We'll be available over the course of the day. Thank you very much.
Operator: Good day, and welcome to BioCryst Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Nick Wilder. Please go ahead. Nick Wilder: Good morning, and welcome to BioCryst's Third Quarter 2025 Corporate Update and Financial Results Conference Call. Participating with me today are CEO, Jon Stonehouse; President and Chief Commercial Officer, Charlie Gayer; Chief Development Officer, Dr. Bill Sheridan; and Chief Financial Officer, Babar Ghias. A press release and slide presentation about today's news are available on our Investor Relations website. Today's call may contain forward-looking statements, including statements regarding future financial results, unaudited and forward-looking financial information as well as the company's future performance and/or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results or performance expressed or implied in this presentation. For additional information, including a detailed discussion of these risks, please refer to Slide 2 of the presentation. In addition, today's conference call includes non-GAAP financial measures. For a reconciliation of these non-GAAP measures against the most directly comparable GAAP financial measure, please refer to the earnings press release. I'd now like to turn the call over to Jon Stonehouse. Jon Stonehouse: Thank you, Nick. We are very pleased to report yet another strong quarter for the year. Starting with ORLADEYO, we continue to see strong revenue growth year-over-year on a growing revenue base, well on our way to $1 billion at peak. Charlie will share the details as this was the first quarter with new competition, and we continue to see strong underlying growth and a growing prescriber base as we predicted. Next, we closed the sale of our European business and paid off our Pharmakon debt. And this not only cleaned up our balance sheet, but put us in a very strong financial position, generating operating profit and positive cash flow. Babar will share more details regarding our financial position. We are also making progress with our pipeline and expect early data that should give an initial view on activity and dose from our DME program, and we plan to share this early next year. If these data are encouraging, we have also made a decision that given the program is outside our rare disease area of focus, we will look to spin out or partner this program to put it in the hands of someone better suited to advance it further. Regarding BCX17725, Bill will share encouraging data from our healthy volunteer study showing evidence that the drug does get to the skin following IV administration. This is important as this is where the target for Netherton syndrome is and with a very potent inhibitor in BCX17725, we are excited to see in Netherton syndrome patients what effect it has on the disease. Enrollment is taking a little bit longer than planned, and we now expect early data in a small number of Netherton syndrome patients later in Q1 next year. Lastly, having announced the proposed acquisition of Astria last month and the expected close in Q1 next year, we are extremely excited to add a late-stage asset, navenibart, to our pipeline to leverage our expertise in HAE and bring patients a new treatment option with a low burden of administration. So clearly, we have been busy since last reporting quarterly earnings, and this is shaping up to be another outstanding year of performance for our company. With that, I will turn it over to Charlie. Charles Gayer: Thanks, Jon. We entered the final quarter of 2025 with continued momentum. We are raising our ORLADEYO revenue guidance to between $590 million and $600 million for the year, even after closing the sale of our European operations on October 1. And the exciting possibilities of the ORLADEYO granules launch for kids with HAE and the acquisition of Astria are just ahead. ORLADEYO continues to be the most differentiated prophylaxis therapy for patients with HAE. Most HAE patients would rather prevent their attacks with an oral therapy. Physicians know this, and they trust ORLADEYO. Even as 2 new prophylaxis products launched recently, offering patients the potential of once monthly injectable dosing, new prescriptions for ORLADEYO continued at the same strong pace we have seen over the past 2 years. In fact, we slightly exceeded the new patient prescription total from the third quarter a year ago. We also continue to expand the number of ORLADEYO prescribers with 64 new prescribers in the U.S., exceeding the average of the past 8 quarters. The well-established trends in patient retention remained unchanged, and we ended the quarter with a paid patient rate of 82%, right in line with the typical second half pattern compared with the first half of the year. As always, we're very pleased with the great results, but not surprised. Our deep insight and market simulation works consistently predicted that the growth of ORLADEYO would not be affected by new competition. We updated that work over the summer, and the 2025 results were nearly identical to the 2024 results, as you can see on Slide 8 in today's presentation. With the expected addition of ORLADEYO granules on top of the existing strong growth trends for ORLADEYO capsules, our market simulation continues to predict $1 billion in peak revenue for BioCryst in 2029, even after the sale of our European business. The analysis demonstrates that new injectable therapies primarily compete with existing injectable therapies. This is why we are so enthusiastic about the prospect of adding navenibart to our portfolio. With navenibart, we could have the lowest burden, most differentiated injectable prophylactic therapy, along with a long-time leading oral therapy, significantly expanding our ability to help patients in the HAE community. We expect navenibart to drive double-digit HAE revenue growth well into the 2030s after ORLADEYO revenue reaches a steady plateau. And we expect to manage costs by using the same rare disease commercialization engine that has made ORLADEYO so successful. Today, I'm also very pleased to announce that Ron Dullinger will succeed me as Chief Commercial Officer when I move to the CEO role on January 1. Ron led the sales team at ViroPharma during the early days of CINRYZE commercialization. While that drug changed the HAE treatment paradigm at the time, Ron always knew that an oral therapy was what many patients really wanted, and he wanted to be part of making that possible. Ron joined us in 2019 to build and lead the U.S. team -- U.S. sales team for the launch of ORLADEYO. And since 2022, he has served as General Manager of our U.S. and Americas business, fostering a team culture that is deeply caring and authentically focused on serving patients while also being relentlessly driven to improve. That's a rare combination, and it has produced amazing results. I look forward to what our commercial team will achieve under Ron's leadership. As we look forward to helping a growing number of HAE patients, our excitement about the potential to help patients with Netherton syndrome is also growing. I'll turn it over to Bill to describe our progress with BCX17725. William Sheridan: Thanks, Charlie. I'm very pleased to be able to share some findings from our ongoing Phase I study of BCX17725, our novel investigational KLK5 inhibitor designed to replace functions of the natural inhibitor that are deficient in individuals living with Netherton syndrome. This trial is designed with multiple goals in mind: number one, understanding the preliminary safety profile of BCX17725; number two, quantitating its systemic exposure with serum drug levels; number three, evaluating the distribution of the drug into the epidermis. This is very important because the target enzyme, KLK5 is expressed in that location. Number four, assessing its potential early treatment effects on signs and symptoms of Netherton syndrome. We are planning to first do this in a few individuals living with NS in Part 3 of the trial. The trial has so far progressed through multiple cohorts in healthy volunteers with different cohorts administered single or multiple doses of study drug. This gives us a handle on the first 3 goals. The dose level of BCX17725 has been progressively increased with up to 12 milligrams per kilogram administered by IV infusion. In the multiple ascending dose portion, 3 doses were given on a Q2-week schedule. In this trial, administration of BCX17725 has been safe and well tolerated with no safety signals seen and preliminary assessment of systemic exposure profiles supports continued testing of up to every 2 weeks dosing regimens. Some representative images from skin biopsies taken before and after dosing in healthy subjects are shown on the accompanying slide. These small punch biopsies are taken under local anesthetic and processed for imaging. The images shown use a technique called immunofluorescence microscopy. Antibodies are applied that specifically bind to the protein you want to detect, in this case, the drug, BCX17725. These complexes are then detected with secondary antibodies, covalently tagged with a fluorochrome, which is a chemical that fluorescence typically under ultraviolet or near ultraviolet light. That means we can see a specific color based on the fluorochrome used wherever the drug is located in the tissue specimen and the more drug there is, the brighter the signal. We can also use other differently colored fluorochromes to pick out structures such as cell nuclei. Although minimally invasive, we are limited in the number of biopsies we can take. So we decided to obtain a baseline biopsy prior to the first dose as a control sample and a post-dose biopsy 5 hours after the last dose of drug. The displayed biopsy sample images from a representative healthy volunteer in the 12-milligram per kilogram multiple dose cohort show the DNA located in cell nuclei in blue and the drug located in the extracellular matrix in green. The pre-dose sample shows the loose dermis with widely spaced bright blue nuclei and the dense epidermis with tightly packed nuclei with a very faint green signal due to nonspecific binding of the assay reagents. In the post-dose sample, there is an obvious difference with much brighter green fluorescence. You can use the blue nuclei as a benchmark. In the post-dose image, drug has flooded the loose connective tissue in the dermis and distributed throughout the epidermis. These are important findings. The drug was able to diffuse across the epidermal basement membrane into the extracellular matrix of all the layers of the epidermis. Drug getting to the epidermis will allow its access to the target enzyme KLK5 in patients with Netherton syndrome. Our investigators are quite excited by these results as are we, and we look forward to enrolling patients with NS into the trial in coming months. I'd now like to turn the call to Babar to walk you through the financial progress. Babar Ghias: Thanks, Will. My first full quarter as CFO of BioCryst was extremely eventful and was marked by several significant achievements, which I believe position us well for future growth and profitability. On October 1, we successfully closed the sale of our European business, providing an immediate boost to our financial position, enabling us to fully repay our Pharmakon debt. During Q3, we worked diligently on a highly strategic and transformative acquisition of Astria Therapeutics, which we announced last month, an acquisition which is expected to strengthen our presence in HAE and solidify double-digit growth trajectory for our portfolio over the next decade. As part of this proposed transaction, we also worked on securing a strategic financing partnership with Blackstone at a highly attractive cost of capital. Upon closing of the Astria acquisition, which is expected in Q1 2026, we will access up to $400 million of cash from this facility. But all of this was only made possible due to the continued strength of ORLADEYO and our improving operating performance. Please refer to our third quarter financials in today's press release. However, I would like to take a moment to elaborate on some of these accomplishments and their impact on our trajectory. Total ORLADEYO revenue was $159.1 million, representing 37% year-over-year growth. Of that ORLADEYO revenue, $141.6 million or 89% came from the U.S. As you heard in Charlie's remarks, we continue to see strong momentum in our business despite the recently announced approvals. Non-GAAP operating expenses, excluding stock-based comp and transaction-related costs were approximately $108 million (sic) [ $118 million ] for the third quarter of 2025, up from approximately $92 million in the third quarter of 2024. Some of this increase was driven by continued investment in R&D, which continues to be a priority for us. As you heard from Bill, we are very excited about the promise of these programs. We have also made a strategic decision to seek partners for our DME program after we evaluate initial patient data, in light of sharpening our focus on rare diseases and focusing our capital allocation on programs where we can create most value. Non-GAAP operating profit, excluding stock-based compensation expense and transaction-related costs was $51.7 million for the third quarter of 2025 an increase of 107% year-over-year as we continue to benefit from significant operating leverage. Our non-GAAP net income for the quarter was $35.6 million, resulting in non-GAAP EPS of $0.17 per share. We finished the quarter strong with $269 million in cash, which included cash held for sale by European entities. Our strong cash flow profile enabled us to make a $50 million prepayment on our Pharmakon term loan during Q3. And with the closing of the sale of European business, we also paid off the outstanding amount under the term loan of approximately $200 million. Our pro forma cash balance giving effect to these adjustments is approximately $294 million and 0 term debt. Due to the strong expected cash flow generation, we anticipate reaching $1 billion in cash during 2029. However, we will continue to evaluate various capital allocation opportunities to generate value for our stockholders, much like our recently announced proposed acquisition of Astria Therapeutics. We will also explore upon closing of the transaction, a European license of navenibart and strategic opportunities for the STAR-0310 program, which may yield further upsides. Moving on to guidance. Charlie already alluded to the revenue guidance, and at the same time, we are lowering our non-GAAP OpEx guidance to $430 million to $440 million from our original guidance of $440 million to $450 million. The European divestiture allows us the opportunity to continue to streamline our base business cost structure. We remain on track to deliver non-GAAP net income and positive cash flows for full year 2025. As previously stated in our acquisition press release, we are expecting to stay profitable on a non-GAAP basis as well as cash flow positive even during the development period of navenibart. In closing, I'm proud of our team's continued focus and execution as we work to drive sustainable growth and deliver meaningful improvements in patients' lives. Our strong results and disciplined operational and financial strategies position us to capitalize on future growth opportunities, strengthen our leadership in rare diseases and continue delivering value for our stockholders. Operator, we are now ready for your questions. Operator: [Operator Instructions] First question comes from Jessica Fye with JPMorgan. Unknown Analyst: This is Jose for Jessica. Of the 37% year-over-year ORLADEYO net revenue growth, how much of that was volume? And how much of that was better paid rate or net price? And on that front, how should we think about gross to net this quarter and going into 2026? And very quickly, how confident are you that you can maintain steady patient retention rates given the increasingly competitive landscape? Charles Gayer: I can start with that question. So of the 37% year-over-year, we had really steady -- we've had very steady volume growth over time, but there was a big portion of it that was price based on the improvement in paid rate that we described earlier this year, particularly in the Medicare segment. So the volume is growing at the pace that we expect and at the pace that we need to get to the $1 billion in peak revenue in 2029. As far as the patient retention with new competition coming in, as I mentioned in the remarks, our patient retention has been identical to our ongoing trend, not affected at all by the new products coming in the market, and we expect that to continue. Jon Stonehouse: Yes. And I'd just add, the logic behind that is these patients are really well controlled. They're getting similar control to injectable drugs, and they're on a once a day pill. And so what on earth would they switch to that could be better than that. Charles Gayer: And then gross to net is still about 15%, as we've announced earlier this year. Jon Stonehouse: And next year in that 15% to 20%... Charles Gayer: Yes. Next year, it will still be in the 15% to 20%, probably a little closer to the 15%. Operator: The next question comes from Laura Chico with Wedbush Securities. Laura Chico: One question with respect to the new prescriber numbers. I think this is the second quarter in a row you've been over 60. Just curious if you have any feedback, market research that can help us understand why they're deciding to prescribe now? What has been kind of the motivating factor more recently to accelerate the adds here? And then I guess, if you could share a little bit more color on what would the expected blended royalty rate look like in '26? I know you're projecting a step down over time here, but just kind of curious how we should be thinking about it directionally from '25 to '26. Charles Gayer: I'll start with -- thanks, Laura. I'll start with the prescriber data and then hand it over to Babar on the royalties. So the motivating factors, and we've described this before, is just physicians getting more and more comfortable with the long-term evidence, the real-world evidence for how well ORLADEYO works. What they understand now is that ORLADEYO works very well, equally well to injectable products in most patients. It either works or it doesn't. And if the patients don't have the benefit that they need, they move on. So physicians are really understanding that. That's the first part. The second part is our ability to find prescribers in this market and accurately target means that we are able to find physicians who have a smaller number of patients. So if you have one HAE patient, we will find you and ORLADEYO is becoming the treatment of choice for those doctors. Overall, as we grow the number of physicians, we consistently see a pretty equal balance between those smaller prescribers as well as the top 600 or so doctors that treat 50% of the market. So we keep chipping away at those top prescribers and launch to date over 80% of those doctors have prescribed. So we're really thrilled to show this consistent progress expanding the number of prescribers. Jon Stonehouse: And just one other thing I'd like to add, Charlie is, there's still physicians out there even in the top prescribers that haven't written for ORLADEYO. And one of the things we're extremely excited about next year is the pediatric approval because these docs have pediatric patients, many of them, and there is no reason that they should use anything but ORLADEYO for prophylaxis for these patients. So we think that's going to open up even more new prescribers next year. Babar Ghias: Yes. And on the royalty section, we are pleased to share that this quarter, we are tripping over the lower threshold, and it will continue to come down. As you can see in our slides, prepared slides, the rate is in the early -- the blended rate is in early teens. And while we have not given 2026 guidance, I can assure you that rate continues to come down because there's a cap on some of those royalties when you hit the $550 million. But as you can imagine, when we are out to provide you guidance, when you do the math, it will be -- it will continue to decline. And as we've said, over time, it will be in single-digits as we pay off the OMERS liability altogether. Jon Stonehouse: Yes. So as revenue goes up, profitability gets better and better and cash flow continues to flow. So it's a very bright financial future. Operator: The next question comes from Stacy Ku with TD Cowen. Stacy Ku: Congrats on the progress. So we have a couple of questions. First, on the new entrants, our KOLs do indicate there are a couple of patients switching from ORLADEYO to injectables, but the same clinicians are also saying that they expect ORLADEYO's share to stay stable. So beyond this anecdotal feedback and obviously, you all have highlighted the 1-year 60% retention. Are you able to share any recent metrics to suggest ORLADEYO is unlikely to be impacted by these injectable entrants? That's the first question. And then the second is on that pediatric HAE approval. As we approach the PDUFA date, maybe help us understand your views on the opportunity and what commercial strategy and preparation is ongoing to really make sure you all maximize that pediatric expansion? Are many of these patients already identified? Just help us understand as we get to the new year, any type of expectations around maybe some latent patient demand. Charles Gayer: Sure. Thanks, Stacy. As far as the new entrants, yes, of course, some patients are switching from ORLADEYO because 40% of new patient starts on ORLADEYO drop off within the year. And in the past, they might have dropped off to TAKHZYRO and HAEGARDA, now maybe they're more likely to switch to some of the new entrants. So that's exactly what we expected. What we're not seeing, though, is a change in our new patient prescribing patterns or a change in our overall retention rate. And as far as the data that give us confidence in this, as I mentioned, Slide 8, we redid our market research. We redid our big conjoint analysis and market simulation with all the new information about new and future competitors. And what you see is no change to our prior versions of this market research. It shows that ORLADEYO remains -- ORLADEYO patients remain very sticky, and we expect that to continue. As far as the pediatric approval, we see that there are about 500 patients today diagnosed with HAE under age 12. And only about 40% of those patients today are on or kind of in the prophylaxis space have tried prophylaxis. So we think that there's an opportunity both to grow the use of prophylaxis within pediatrics as well as for switching because an oral therapy is important to a lot of patients, but it's particularly important to kids with HAE. So as far as our strategy, and Jon mentioned earlier, the doctors that treat kids with HAE tend to be the same physicians that are treating patients over age 12. So we're already calling on these physicians. We know who is treating kids, and the team will be ready to go with the launch shortly after approval. Operator: The next question comes from Steve Seedhouse with Cantor. Steven Seedhouse: I was hoping you could expand on the decision to deemphasize, I guess, avoralstat for DME. Have you had an early look at the Phase I data there? And then looking at the updated pipeline slide, the undisclosed programs listed for rare diseases, at least that are preclinical. Can you give us some insights into what you're working on there preclinically and how close it might be to the clinic? Jon Stonehouse: Yes, I'll take that one. So regarding avoralstat, no, we haven't seen any of the data. We just enrolled the first cohort. And so this is a decision based on focus and expense. And by bringing a late-stage product like navenibart into our pipeline, we need to create space to be able to fund and bring that to the finish line. And these DME programs get really expensive the further on you go in clinical development. And quite honestly, we don't have the expertise there we do in rare disease. And so we just think it's better in the hands of somebody who has that expertise. And then on the undisclosed, we're not going to disclose what it is. It's early. It's exciting. But when it's ready to be shared, we'll have more information to share with you. Steven Seedhouse: Okay. And just quick on Netherton. Have you had any dialogue with regulators there and forming an understanding of what a pivotal program requirement might be? Jon Stonehouse: Yes, we have. Not enough to share with you the design of the pivotal program at this point. I think the biggest thing, and Bill, you can correct me if I get this wrong, is the bigger the treatment effect, the better options we have to move fast with this program. And we'll figure that out once we start getting data. But too early to predict kind of the design of the pivotal program. Is that fair, Bill? William Sheridan: That's very fair. I think once we have evidence of the effects of the drug in patients with NS and the safety of the drug in NS, then we'll have complete conversations with regulators about how to get it approved. Operator: The next question comes from Maurice Raycroft with Jefferies. Maurice Raycroft: Congrats on the progress. I'll just ask a couple of quick ones on Netherton. Wondering if you could just talk more about the slower enrollment there and how many patients you'll have in the first quarter data update next year? And do you anticipate dosing higher than the 12 mg per kg? And I'm wondering if you're still exploring the subcu dose? Or is it going to be an IV dosing going forward? Jon Stonehouse: Yes, I'll take the first part of it. You want to take the second. We're only off by a quarter. So it's a very slight delay in the program. And the enthusiasm, as Bill said, by investigators is really high, especially when they see the healthy volunteer data. We didn't expect to see the drug get to the target in healthy volunteers. And so that has been really encouraging data. And then, Bill, do you want to take the second part of the question? William Sheridan: Sure. Yes, we're exploring both subcutaneous and intravenous administration. We'll continue to do that. And we may explore higher doses, that option is open. Operator: The next question comes from Brian Abrahams with RBC. Brian Abrahams: Congrats on the continued progress in the quarter. Maybe just continuing on Netherton. Can you elaborate a little bit more on, I guess, what you're seeing from a PK/PD standpoint in those first couple of parts of the ongoing study? And I'm also curious what the trigger was for starting that Part 4, which I know you started in recent weeks. And then just secondarily, separately on ORLADEYO, just wondering what you're seeing in terms of demand from the normal C1 inhibitor population. I think that was a growth driver you cited in the past. Jon Stonehouse: Bill, do you want to take the Netherton and Charlie can take the ORLADEYO? William Sheridan: Sure. So Netherton is a fascinating disease. So it's all about what's happening in the epidermis. There aren't any plasma or serum biomarkers to measure. Secondly, we have a very tight binding, very potent inhibitor. And you have to think about what relationship the plasma concentration is going to have to the effects in the epidermis. And there could, in fact, be a disconnect between how long the drug sits in the epidermis after binding to the target compared to how long it circulates in the plasma. That being said, of course, we're measuring the blood concentrations of the drug, nothing unexpected there. Solely on that basis, we think that it's worth continuing to explore up to every 2 weeks dosing. But really, it's going to be looking at the effects on the disease. There aren't any pharmacodynamic markers to measure. It's the effects on the disease in patients with Netherton and when we get into that. Just a clarification, we have not disclosed whether we've started Part 3 or Part 4. Part 3 is just a few subjects with short-term dosing. That's the design. Part 4 enables longer-term dosing, and we look forward to stepping through both of those. Jon Stonehouse: Yes. And the expectation is that the data we'll have in the first quarter is Part 3. Charlie? Charles Gayer: Yes. Brian, on C1 normal patients, launch to date, that's been about 1/3 of the patients on ORLADEYO, and that's what we saw in Q3. Q2, you might recall, we had an exceptional best ever quarter for new patient starts. There was an additional bolus of C1 normal patients in Q2 because we released some new data. Q3 looked like the steady high demand that we've seen over the last 2 years with about 1/3 of the patients being C1 normal. Operator: The next question is from the line of Jon Wolleben with Citizens. Jonathan Wolleben: Just looking at sales so far this year in your guidance, it's implying that we're going to see a drop in quarter-over-quarter sales for the first time. We haven't seen that seasonality before. So hoping you could talk a little bit about your expectations, what's driving that? And if that's something we should expect moving forward or if this is going to be a one-time seasonality effect? Charles Gayer: Yes, Jon, it's going to be a one-time seasonality because we just sold our European business. So we're losing the sort of $10 million to $15 million of revenue that otherwise would have occurred. So next year, you will not see a drop in Q4. Operator: Mr. Jon, does that answer your question? Jonathan Wolleben: Yes. Operator: The next question comes from Belanger Serge with Needham & Co. John Todaro: This is John on for Serge today. Just wanted to touch on pediatric ORLADEYO with the ongoing review and the PDUFA in mid-December. Just curious if you guys have seen any impacts from the government shutdown, whether you've had continuous feedback from the FDA and whether you expect them to still meet that PDUFA. And then pending product availability, do you have any expectations for how the payer landscape will look in this segment? And whether or not you could expect a bolus of patients to come on board early upon product launch? Jon Stonehouse: So I'll take the first part. Charlie, you take the second. So with regard to the interactions with FDA, we're getting closer to the PDUFA date, and we're going through the things you think you would be going through at this point, late-stage in the review process. So there's nothing that we see that gives us concern about the government shutdown, that could change, but at least where we sit today, nothing that we see. Charles Gayer: And John, as far as payer landscape, we are in a really great spot with payers with ORLADEYO, and we expect the peds indication to slide right into that. So nothing special on the payer front. As far as the bolus of patients, we know that there's a lot of anticipation for this product. I'm sure we'll update you after we launch and get product into the market, we'll update you in 2026 as to the pace of patient growth. Operator: The next question comes from Gena Wang with Barclays. Huidong Wang: Wanted to ask about the Netherton syndrome also regarding the 12-milligram per kg IV dosing, by the way, very impressive biomarker data. I'm wondering what kind of safety you see in the patient -- in the healthy volunteer data? And then also, regarding the first quarter, the Part 3 data. So maybe if you can lay out what we should expect from this 1Q '26 data update from Part 3? And quickly, just housekeeping questions regarding ORLADEYO. I know you mentioned some of the comments, but I do wanted to double check with the actual numbers regarding the retention rate, are we still similar around 60% and the pay rate, I think last quarter, we talked about could be by year-end, 82% to 83%. Is that still the same? And then lastly is the patient segment, 50% switch from other prophy, is that still the same? Jon Stonehouse: All right. So Bill, why don't you take the safety and the design of the Part 3? And then Charlie, you can take the ORLADEYO. William Sheridan: So there's -- really, the thing to say about safety in healthy subjects is that it's very safe so far, it's been very safe and well tolerated. So there have been no safety signals emerging with multiple doses of the drug through the dose that you mentioned. So that's really good news. I think that with regard to what you can expect from Part 3, this is very short-term administration of the drug in Part 3. We're at the cutting edge of clinical science and investigations into Netherton syndrome with a parenteral drug. So we'll be discovering how long it takes in order to get an effect. So I don't know that yet. Will that short-term administration be enough to see an effect? Don't know. If we do, that would be very encouraging. If we don't, we'll just give the drug for longer and maybe we'll increase the dose. So I think I would temper expectations with regard to what we might see from short-term dosing in a few subjects with Netherton. Obviously, we'll be looking at safety. So we'll learn a lot and look forward to extending the dosing in Part 4 of the study. The sorts of things that you would measure are pretty obvious, itch, pain, skin redness and the like. Jon Stonehouse: And Bill, we're testing multiple doses in the Part 3. So we'll get that and start to zoom in on what we then want to look at Part 4. Is that right? William Sheridan: It's the first step for more extensive testing in Part 4. Jon Stonehouse: Great. Charlie? Charles Gayer: And Gena, as far as the ORLADEYO numbers, so yes, the patient retention rate is in line with exactly what we've seen over the last several years. So 60% of patients who start ORLADEYO make it to a year. And everything that we saw in Q3 tells us we're right on track with that same number. The paid rate, we ended Q3 at 82%, which is right about where we thought we would be. In Q4, I wouldn't be surprised if we end closer to 81%, even 80%. Typically, in the second half of the year, the paid rate starts to decline because we have all these new patients coming in and less of an opportunity to switch people from long-term free product to paid product. That opportunity comes in Q1 into early Q2 of the new year. And so we're right on track for where we need to be, and we expect to have a lot of those patients then switching to paid therapy earlier in 2026. And then as far as the source of business for patients, yes, the same basic trends where we get close to 50% of the people switching from other prophy history with other prophy products and then other patients switching from acute only coming over to prophy. And then a good number of patients, best we can tell, are starting ORLADEYO as their first HAE treatment ever because more of those are newly diagnosed patients. Operator: Thank you. This concludes the question-and-answer session. I would like to turn the conference back over to Jon Stonehouse for any closing remarks. Jon Stonehouse: Yes. We thought about ending the call with the rolling stones. This will be the last time, but thought different of it. But let me say this, it's been an honor to lead the employees of BioCryst for nearly the last 2 decades. Proud of what we built, what we've accomplished together and extremely excited and confident to see this team take the company into the future by delivering more and more innovative treatments for patients living with rare disease because in this industry, that's how you create real value. So thank you for your interest in our company and have a great day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Kontoor Brands Q3 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Michael Karapetian, Vice President, Corporate Development, Strategy and Investor Relations. Michael, please go ahead. Michael Karapetian: Thank you, operator, and welcome to Kontoor Brands Third Quarter 2025 Earnings Conference Call. Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to materially differ. These uncertainties are detailed in documents filed with the SEC. We urge you to read our risk factors, cautionary language and other disclosures contained in those reports. Amounts referred to on today's call will often be on an adjusted dollar basis, which we clearly defined in the news release that was issued earlier this morning and is available on our website at kontoorbrands.com. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in today's news release. These tables identify and quantify excluded items and provide management's view of why this information is useful to investors. Unless otherwise noted, amounts referred to on this call will be in constant currency, which exclude the translation impact of changes in foreign currency exchange rates. Joining me on today's call are Kontoor Brands President, Chief Executive Officer and Chairman, Scott Baxter; and Chief Financial Officer and Global Head of Operations, Joe Alkire. Following our prepared remarks, we will open the call for questions. Scott? Scott Baxter: Thanks, Mike, and thank you all for joining us today. Our third quarter results highlight the power of our expanded brand portfolio. Helly Hansen grew double digits. Wrangler gained market share for the 14th consecutive quarter, and we launched Lee's first equity campaign in years, while taking proactive steps to improve the health of the marketplace. While the timing shift impacted growth in the quarter, stronger gross margin expansion and disciplined expense management drove better-than-expected earnings. Based on our year-to-date performance and improving profitability, we are raising our full year outlook while the environment remains dynamic, we are well positioned to finish the year strong and enter '26 with momentum. Now let's review highlights from Q3, starting with Helly Hansen. Third quarter results exceeded expectations with revenue growth of 11% and $0.03 of earnings accretion. Growth was broad-based across both Sport and Workwear in all regions. The business is performing at a high level, the integration is progressing well, and we continue to uncover new opportunities to create significant value together. To build on this momentum, we are focused on our strategic pillars. First, accelerate growth. It starts with product. Our iconic platforms, including Crew, Alpha, Legendary and LIFA Merino continue to differentiate Helly in the marketplace and generate strong demand from our consumers. And our latest product launches have made '25 a record year. We won 6 Red Dot Design awards, our most ever in a single year. Award-winning products include the Odin Ultimate Infinity jacket, Arctic Patrol Down Parka and within Workwear, the Magne Evolution Jacket. These are scalable platforms that we will drive global growth and nowhere is that opportunity greater than in the U.S. We see significant room to grow through a combination of new distribution D2C growth and investments in demand creation to increase brand awareness. Currently, awareness in the U.S. is only 29%. This has grown by 6 points since 2019, while revenue has more than doubled. Starting next year, we will be making investments in top funnel demand creation to increase awareness and fuel accelerated growth. Within Workwear, there are considerable market share opportunities, leveraging Helly's unique dual brand position. The connection to technical outdoor products worn by professionals on the mountain or water has made Helly a leader in pro-grade workwear in Europe. In the U.S., we are leading with footwear in regions where Helly Sport penetration is greatest. Over time, this will expand to include the broader apparel assortment, supported by further development of our lightweight and cooling platforms to drive growth in warmer climates. Outside the U.S., we see opportunities entering new markets in Asia and increasing penetration in key markets within Europe, including Germany, Austria and Switzerland. In addition, we will continue to support our business in China, which we operate through a joint venture. China is on track for over 70% growth this year. And second, double operating margin. We expect to increase operating margin from high single digits today to mid-teens through a combination of gross margin expansion and SG&A benefits. We are leveraging our global operating model, supply chain and technology platforms as well as Project Jeanius. This will create greater back-end efficiency and increased investment capacity to support our growth initiatives. Helly is headed into the fourth quarter with incredible momentum, and I could not be more confident in the opportunities ahead. Turning to Wrangler. Global revenue increased 1%, including 12% growth in digital. Wholesale growth was impacted by a timing shift into the fourth quarter. Excluding this shift, global revenue increased at a mid-single-digit rate. The third quarter marked Wrangler's 14th consecutive quarter of share gains according to Circana. In our core men's and women's bottoms business, we gained 80 basis points of market share. Our female business had another strong quarter with growth of 20%. Our collaboration with Lainey Wilson continues to exceed expectations. Her latest collection is performing very well while supporting more premium AURs and increase penetration with younger consumers, and Bespoke is now the #1 female style at select specialty retailers. This has been a banner year for our female business, and we expect double-digit growth for the year. Western grew high single digits in the quarter as the #1 Western apparel brand, we have never been stronger. At the upcoming Wrangler National Finals Rodeo in Las Vegas, we will be represented by some of the top athletes in the world as well as host events at the annual Cowboy Christmas where the Western world converges to showcase the best of Western apparel. In addition, Wrangler Country Music Star's Lainey Wilson and Cody Johnson will perform sold-out shows. Western is on track for double-digit growth this year. To support this momentum, we will continue to invest behind our demand creation platforms, including live sports, streaming and social media. In particular, our highly successful, Good Mornings Make for Better Days campaign will continue through the balance of the year as we build momentum for the holidays and '26. Turning to Lee. Revenue declined 9% as we took proactive steps to improve the health of the marketplace in China. Excluding these actions, revenue declined 4%. We are encouraged by the progress we are making against our brand realignment. Digital is leading the way with growth of 15% in the U.S. As we previewed last quarter, we launched our Built Like Lee equity campaign in September, the first of this scale in years. While early days, we are encouraged by the reaction in the marketplace and have seen improvements in both brand equity and perception. We are also making progress in aligning products to our refreshed brand position. In addition to activating our iconic platforms, we are seeing success with new introductions such as Velocity Pant and collaborations with Crayola and Buck Mason. Crayola will be Lee's strongest collaboration ever and our second collaboration with Buck Mason is outperforming the initial launch. Importantly, our 2025 collabs are attracting 3x more millennial purchasers. While the lead turnaround will not be linear, we will do this the right way. We expect sequential improvement in the fourth quarter. Finally, we announced this morning, we made an additional $25 million voluntary debt repayment in the third quarter, and we expect to further reduce debt by $185 million in Q4. We are tracking ahead of our deleverage plan and expect to return to approximately 2x by year-end while consolidating a significant increase in earnings and cash flow. Deleverage is our near-term priority, but we will take an offensive posture to deploy our cash generation to support our capital allocation framework, including our dividend and share repurchase programs. Before turning it over to Joe, let me reiterate the confidence we have in achieving our '25 plan, our expanded brand portfolio provides significant opportunities to create value through strong fundamentals and increasing capital allocation optionality and while the environment remains uncertain, we are being proactive with initiatives such as Project Jeanius to offset headwinds in the marketplace. We are executing at a high level, and I am confident we are on a path to drive strong value for shareholders. Joe? Joseph Alkire: Thanks, Scott, and thank you all for joining us today. Our third quarter results reflect the strength of our operating model and the benefits from our expanded brand portfolio. In what remains a highly dynamic environment, our fundamentals are strong, and we are operating from a position of strength. While a timing shift impacted revenue growth in the quarter, better-than-expected revenue and profitability from Helly Hansen stronger gross margin expansion and further improvement in operating efficiency drove earnings upside relative to our outlook. Based on our year-to-date performance and increased visibility into the fourth quarter, we are raising our full year revenue, gross margin, earnings and cash flow outlook. We are well positioned to finish off a record year with good momentum as we enter 2026. Let's review our third quarter results. Global revenue increased 27%, including the contribution from Helly Hansen. By brand, Wrangler Global revenue increased 1%. Revenue growth was impacted by a shift in the timing of wholesale shipments from the third to the fourth quarter. Excluding the shift, global revenue increased at a mid-single-digit rate as a result of strong demand for the brand around the globe. In the U.S., revenue increased 1%, driven by 11% growth in DTC. Wholesale was flat to prior year. However, excluding the previously mentioned timing shift, U.S. wholesale revenue increased at a mid-single-digit rate. Growth was broad-based, driven by strong increases in female, Western as well as continued market share gains. Denim grew at a low single-digit rate. Following a strong July and August, POS moderated to a low single-digit increase in September, consistent with the year-to-date average. October POS was flat compared to prior year, with POS increasing at a mid-single-digit rate over the past 2 weeks. Wrangler international revenue increased 2%, driven by 19% growth in digital and 1% growth in wholesale. Turning to Lee. Global revenue decreased 9%. During the quarter, revenue was impacted by proactive actions in China to address challenges in the marketplace. We discussed our intent to execute these actions on our second quarter call. Excluding the actions taken in China, global Lee revenue decreased 4%, reflecting sequential improvement in the revenue comparison from the second quarter, and we expect further improvement in the fourth quarter. U.S. revenue decreased 9% as we work to address challenges within certain segments of our distribution footprint and drive more consistency with the brand's realignment and go-forward strategy. Digital revenue increased 15%. We remain encouraged by the momentum in our digital business, which has continued into the fourth quarter. Lee international revenue decreased 9%, with declines in wholesale offsetting mid-single-digit growth in our brick-and-mortar stores. Excluding the actions taken in China, Lee international revenue increased approximately 3%. Now turning to Helly Hansen. Global revenue of $193 million increased 11% compared to prior year reported results. Growth was broad-based across both Sport and Workwear and in all geographic regions. We are encouraged by the stronger-than-expected results. The integration is progressing well, and we are confident Helly will be a significant contributor to both revenue and earnings growth in the coming years. We now have line of sight to greater than $25 million of run rate synergies, which will begin to meaningfully impact profitability in 2026. These synergies will help fund investments in business, including geographic and category expansion, demand creation, DTC, supply chain capabilities and our technology platform. As we look forward to 2026, we expect Helly's momentum to continue to build. The spring/summer order book has accelerated from fall/winter 2025 and Workwear preorders are up at a double-digit rate. We recently kicked off the fall/winter 2026 selling season, and the feedback from the marketplace has been strong, reflecting the robust product and innovation pipeline of the brand. Moving to the remainder of the P&L. Adjusted gross margin expanded 80 basis points to 45.8%. Excluding Helly Hansen, adjusted gross margin expanded 140 basis points, driven by the benefits of Project Jeanius, channel and product mix as well as targeted pricing actions. This was partially offset by increased product costs and the impact from recently enacted increases in tariffs. Helly Hansen was diluted adjusted gross margin by approximately 60 basis points. During the quarter, we took actions to improve inventory turnover, increase cash generation and accelerate debt repayment. There is a significant opportunity at Helly Hansen to improve both gross margin and net working capital by leveraging our supply chain capabilities in the areas of planning, procurement and inventory management. Adjusted SG&A expense was $269 million. Excluding Helly Hansen, adjusted SG&A was flat compared to prior year, supported by lower distribution and freight expenses and the benefits of Project Jeanius. We remain focused on driving further improvements in operating efficiency in light of the environment. And adjusted earnings per share was $1.44, increasing 5% compared to prior year. Adjusted EPS was $0.09 above our prior outlook. Helly Hansen contributed $0.03 per share compared to our prior outlook of breakeven earnings. Turning to the balance sheet. Inventory at the end of the third quarter was $765 million. Excluding Helly Hansen, inventory increased 21% to $560 million, driven by a temporary increase in inventory to support our supply chain transformation, earlier-than-expected inventory receipts as a result of improved sourcing lead times as well as the impact of tariffs. We expect inventory to normalize in the fourth quarter and decreased approximately $120 million from the third quarter to approximately $645 million. We finished the quarter with net debt of $1.3 billion and $82 million of cash on hand. Our $500 million revolver remains undrawn. On a pro forma basis, our net leverage ratio was 2.5x. During the quarter, we made a voluntary $25 million debt repayment. We are tracking ahead of our deleverage plan and expect to make an additional $185 million voluntary payment in the fourth quarter. We anticipate returning to approximately 2x net leverage by year-end. Share repurchase activity remains on pause near term as we focus on paying down acquisition-related debt and reducing leverage. We have $215 million remaining under our current share repurchase authorization. And as previously announced, our Board declared a regular quarterly cash dividend of $0.53 per share, a 2% increase. And finally, on a trailing 12-month basis, adjusted return on invested capital was 23%, improving from 22% in the second quarter. Now let's review our updated outlook. Full year revenue is now expected to be at the upper end of our prior outlook range of $3.09 billion to $3.12 billion, representing growth of approximately 19% to 20%. Helly Hansen is now expected to contribute $460 million to full year revenue compared to our prior outlook of $455 million. Excluding Helly Hansen, we expect revenue growth of approximately 2% and compared to our prior outlook of 1% to 2% growth. For the fourth quarter, we expect revenue to be in the range of $970 million to $980 million, representing growth of 39% to 40%, including the expected contribution from Helly Hansen. Our outlook includes the impact of a 53rd week, which is expected to benefit the fourth quarter by approximately 4 points of revenue growth. We continue to plan the business conservatively. For Wrangler and Lee, our updated outlook assumes no meaningful change in POS trends or inventory positions at retail for the balance of the year. This is consistent with our prior outlook. Excluding Helly Hansen, October revenue growth was approximately 6%, tracking slightly ahead of our anticipated organic revenue growth for the fourth quarter, excluding the 53rd week. For Helly Hansen, our revenue outlook is supported by current demand trends and the fall/winter 2025 order book, which accounts for the majority of support revenue. Moving to gross margin. Adjusted gross margin is now expected to be approximately 46.4% compared to our prior outlook of approximately 46.1%. Our outlook represents an increase of approximately 130 basis points compared to prior year. We expect fourth quarter adjusted gross margin of approximately 45.8%, representing an increase of approximately 110 basis points compared to prior year. Adjusted SG&A expense is expected to increase approximately 24%, reflecting the contribution from Helly Hansen as well as increased investments, primarily in the areas of demand creation, technology and direct-to-consumer. Excluding Helly, we expect SG&A to increase at a low single-digit rate, consistent with our prior outlook. We continue to anticipate Project Jeanius savings to mature to a full run rate in excess of $100 million of annual savings over the course of 2026. Adjusted EPS is now expected to be approximately $5.50, representing an increase of 12%. This compares to our prior outlook of approximately $5.45. Helly Hansen is expected to benefit full year 2025 adjusted EPS by approximately $0.20, consistent with our prior outlook. We have not included any benefit from synergies in our outlook. We expect fourth quarter adjusted EPS of approximately $1.64, reflecting growth of about 19%. Finally, we continue to expect another year of strong cash generation. Cash from operations is expected to approximate $400 million, including the contribution from Helly Hansen. This compares to our prior outlook for cash from operations to exceed $375 million. Starting in the fourth quarter, we will begin to leverage and expand our supply chain and AR financing programs to include Helly Hansen. These programs and capabilities will be a significant unlock for the business while supporting accelerated cash generation and deleverage. Before opening it up for questions, let me reiterate the confidence we have in achieving our 2025 objectives. While the environment remains dynamic, we are operating from a position of strength. The integration of Helly Hansen is progressing well. We are ahead of our planned deleverage path and Wrangler and Lee are on track to deliver a strong fourth quarter. Our operational execution and discipline continues to drive further improvements in our business fundamentals, supporting higher returns on capital and significant capital allocation optionality moving forward. This concludes our prepared remarks. I will now turn the call back to the operator. Operator: [Operator Instructions] Our first question is coming from Ike Boruchow from Wells Fargo. Irwin Boruchow: A couple from me. I guess, Joe, could you just clarify Wrangler U.S. wholesale, it seems like it was probably up mid- to high single digits in the third quarter ex the shift. Can you confirm that? And then on the 4Q, can you kind of work with us on what's embedded in your -- in the Wrangler wholesale number there, both with the ship and then also organic? And I know you said POS flattened out in October, but then it sounds like it's accelerated the last couple of weeks. So kind of curious what's in the plan. Joseph Alkire: Yes. So on the timing shift, so the timing shift impacted Q3 revenue by about 2 points, with the primary impact being on the Wrangler brand. Excluding the shift, total revenue would have been above our prior outlook driven by Helly with Wrangler increasing at a mid-single-digit rate. So we had our largest September ever as a company. However, order flow, shipment flow was more back half weighted than what we anticipated in our prior outlook. So the demand was solid. We just had a shift in shipment timing focused on a couple of the key accounts. We did see that pull through in October. I think I said in the prepared remarks; October was up 6% organically compared to the prior year. That's a little ahead of what we have contemplated in 4Q. In terms of growth, excluding the 53rd week. So nothing we see from a demand standpoint. In fact, we've moved to the high end of the revenue range based on our year-to-date performance and our visibility into Q4 and Wrangler is probably the biggest part of that. Irwin Boruchow: Got it. So no red flags on the consumer thus far in terms of what you're seeing. Scott Baxter: And Ike, I would tell you, with our broad distribution and the campaigns that we're running right now with both of our denim brands right now that are out in the marketplace. In addition to the product and the design and just the demand, 14 consecutive quarters now. I mean you've seen that of market share gains with Wrangler, we've put ourselves in a really good position, really like where we sit now for the foreseeable future, and we'll continue to really work that through design great product, tell great stories, broad distribution. It's been a really nice formula of success for us going forward. Irwin Boruchow: Okay. Great. Moving to Helly. So up 11% pro forma growth. I think your first half, you were kind of trending more 1% to 2%, so a nice acceleration. What's driving the near-term inflection in Helly's brand revenue already? And then I guess based on the order book commentary, which is accelerating into next year, could we see Helly growth rates actually continue to accelerate over the next 12 months? Scott Baxter: So I'll go ahead and start. What you're seeing is you're seeing a company that's thriving inside of another apparel company. They haven't had that ecosystem before relative to where they've sat the last decade or so, and now they're inside our ecosystem. We're thriving as far as partners working together. They're accelerating in all fronts, the European business, the China business, the U.S. business is really starting to take off. But obviously, we're feeding that. So we're investing in that and we're seeing really good results. And I think the thing it starts with is they're really building great product. And I think they're having a lot of fun being part of our organization. I think the 2 companies are working really well together. And I think we see a bright future. And I think one of the things that's been really important because we talked about it and it's important that we talk about it again, is we see a big opportunity in North America in addition to what we already have. And that is starting to come to fruition, just having the capability, having our resources in North America to lean on and then now going ahead and making it a priority because we have made that a priority, we're starting to see those results early. So we're really, really excited about what's happening there in the future. Joe, anything to add? Joseph Alkire: Yes, I'd say on the order book, I mean spring/summer '26, that order book for sport reflects an acceleration compared to fall/winter '25, fall/winter '25 accelerated versus spring/summer '25 and even fall/winter '24. So that business is performing really well. Workwear preorders have been strong, up at a low double-digit rate, and we just kicked off the fall/winter '26 selling season, and it's off to a really good start. The feedback from the marketplace has been really good. We also will put more investment behind the business in '26, which should help further accelerate growth. So just a tremendous opportunity for the brand globally across both sport and work. Scott Baxter: And I think one of the things that's really been beneficial is management and the team is intact from the acquisition. So they were already a strong team, and we're only making it stronger by adding and helping, but we've got a good core team that we kept through the merger and the acquisition, and it's really played out really well for us. Irwin Boruchow: That's great. And then just a quick one, lastly. On the inventory, Joe, can you help us get comfortable with that number? I think you said up 21% organic Q3, $645 million for the end of the year, which implies mid-teens organic. Just -- it doesn't sound like there's any issues at all but can you kind of hold our hand a little bit because it is a decent growth rate above where the core growth rate is for the business. So any more color there would be helpful. Joseph Alkire: Sure, Ike. So we ended the quarter, excluding Helly Hansen, up about 21%, about $98 million versus the prior year. So roughly $25 million of that increase related to inventory investments we made to support our supply chain transformation. So we closed our Torreón manufacturing facility in Mexico during the third quarter as part of Project Jeanius, and we carried excess inventory to support the operational transition. So that excess inventory will wind down over the course of the fourth quarter and into the first quarter, and that transition has gone really, really well. About $25 million of the increase relates to higher tariffs. So the cost of that is now embedded in our inventory and about $20 million related to earlier-than-expected receipts of sourced product as a result of lead times improving. So the remaining increase is really in support of the growth plans that we have for the business. We said in our prepared remarks, we expect about $120 million reduction in Q4, and we remain pleased with the overall quality and composition of our inventory. Operator: Our next question is coming from Bob Drbul from BTIG. Robert Drbul: Just a question on pricing. When you look at your business and you look at sort of the plans into next year, what's happening with pricing with your own product? And I guess, I'd be curious to just see what you're seeing competitively on pricing as well. Joseph Alkire: Yes. Bob, I would say for us, pricing has been part of a holistic strategy to combat the impact of the tariffs, right? Pricing for us went into effect mid-June in our own DTC and in July at Wholesale. So something we're watching very closely with our retail partners and look, these plans were put together in collaboration with them and all of the elasticity assumptions are reflected in the outlook. We were very surgical, as you would expect, in terms of where we took price just as we have been in the past. And these price increases were not just a U.S.-focused effort. I think that's part of the power of a global multi-brand portfolio. So overall, the price elasticity equation has been largely consistent with our expectation. It varies a bit by brand and category and channel, certainly, certain parts of the market are more sensitive, other more premium areas less so. But overall, the pricing elasticity equation has been in line with what we expected. Scott Baxter: And Bob, one of the things that we pay particular attention to as an organization is that if you look at all of our brands globally and in the marketplaces where each operates, we really like from a hierarchy standpoint, where we sit. So we're really comfortable with where our brands are positioned and how they're priced than compared to our competitors within those marketplaces. So we've been very thoughtful for a long time about how we price in the product that we have. So I'm comfortable with where we sit right now. Robert Drbul: Got it. And just 2 questions on Helly, if I could. I guess the first one, Scott, I think you mentioned you're seeing new opportunities. Just wondering if you could elaborate on that. And within the U.S. business, growing it from the $150 million level, is it like new distribution targets? I just -- if you could expand a bit on the plan in the U.S., that would be helpful. Scott Baxter: Absolutely, Bob. Actually, it's everywhere and everything. So it's ski shops, it's independents. It's definitely U.S. wholesale. It's across the board. It's digital, it's owned and operated retail. So we've got multiple plans that come into different stages. As you can imagine, we've thought it out from a capital standpoint on how we're going to embrace each one. And it's really interesting, Bob, we sat back, and we said to ourselves, it's even better than we thought at acquisition time. We think there's more than we thought about. It's more robust than we thought. And people are really reacting and responding very positively to our brand because they've seen it around the world before and they just haven't seen it enough here in the United States and its new and it's fresh and it's creating some excitement, but they haven't had the distribution to go ahead and purchase it for themselves. But now we're going to give them that, and that is starting. And then just so you know, because we'll talk about this in the future, we are adding some really key personnel here over the next 12 to 18 months in some significant leadership positions to help support that going forward. So like we said before, it was a big opportunity, one of the strategic reasons we bought it. But as we sat back and now [indiscernible] gotten ourselves involved in this business; we think the opportunity is even bigger than we thought across the board. Operator: Next question is coming from Jonathan Komp from Baird. Jonathan Komp: I want to follow up and ask the raise to the high end of the organic revenue growth to 2% for the year. Can you just maybe talk a little bit more directly what's driving that confidence? And then Joe, it sounds like from your inventory buildup, you may be planning healthy organic growth into 2026. Just any color there would be helpful. Scott Baxter: Yes, Jon, it's Scott. I'll go ahead and start. Really, Jon, we're looking at our business and we're just seeing real strength across the board. Let me start with Helly. I mean we've talked about the fact that Helly is really coming online very quickly, faster than we thought. The companies are working really well together, and we're seeing opportunity across the board. And more importantly than anything we're seeing our consumer want to take out our business. So our POS is strong. We watch really closely our digital business because it's an opportunity for our consumer to purchase immediately, and it's been very strong across our brands and strong with Lee too, which gives us confidence in our turnaround because it's the first opportunity that people can interact with us after we put our turnaround in play. But across the board, really strong from a digital standpoint. So that gave us confidence. The strength of our business here in the third quarter as we reached towards the end of the third quarter and saw this really strong uptick in POS gave us a lot of confidence. And then I would tell you that October gave us a lot of confidence. October came in on plan, no issue at all. So really feeling good about that as we come through the first month of the fourth quarter, feel confident there. And then more than anything, our team is designing really good product and we're telling. We've got 2, right now, 2 national campaigns going on with Wrangler and Lee, which has got us in the marketplace in a fairly significant way, which is really important. And weather is really cooperating. I'll give you a great example. Helly is a rainwear and outdoor and ski and active and pro-business. And we've had more rain across this world, Europe, Asia and the United States. And now we've got early snow across Europe and also here, which we didn't have last year at this stage. So that gives us a really, really good push forward as we enter into that really critical period. So lots to be thankful for right now, but mostly for our great folks here that have got their heads down and working hard. Joe? Joseph Alkire: Yes, Jon. And on inventory, I know it's a little noisy here with the addition of Helly and some of the transitory impacts that I highlighted. But we're comfortable with the composition of the inventory, the sequential progression we have planned, how that's positioned in support of the growth plans and Helly as well. We've talked on prior calls about the net working capital opportunity. At Helly, you'll begin to see the impact of that starting in the fourth quarter and into the first half of next year, which will help contribute to some strong cash generation as we move into next year. Jonathan Komp: Okay. Great. That's helpful. And maybe as a follow-up, as we look to 2026, could you help to frame up as we think about the contribution from Jeanius where you stand and the incremental benefit that you may achieve? And then also the Helly Hansen operating contribution, I think you reiterated $0.20 for this year. But what are some of the factors that might impact how that can grow into next year? Joseph Alkire: Yes, I'll take that, Jon. So on '26, certainly not giving an outlook today, but I'll give you a high-level framework just given all of the moving parts. So we expect the organic business to continue to grow. We are performing well. That's going to be mainly driven by the Wrangler brand. '26 will be a transition year for Lee. The Helly business is performing really well. As you've seen, we will delever quickly, which will create an earnings tailwind as well as additional capital allocation optionality as we consolidate and grow that cash flow and that earnings stream, you'll have synergies that will scale more meaningfully across 2026, and you've got Project Jeanius savings that will be maturing to more of a full run rate. We will have a bigger impact of tariffs next year. For 2026, the full year unmitigated impact is about $135 million, which we're clearly working to mitigate a significant portion of that. But those are the biggest factors influencing '26. We like where we are. We like our model, and we've got a lot of optionality to continue to drive the growth and returns that we expect. Operator: Next question is coming from Mauricio Serna from UBS. Mauricio Serna Vega: First, maybe could you tell us or confirm like what's kind of like the Q4 organic revenue growth that you're expecting in your guide? I mean, you talked about October being 6%. I just wanted to get a sense of what's the expectation for the fourth quarter. And then on Helly Hansen, you raised revenue contribution a little bit for the year, but there was no really change in the EPS revision of $0.20. So just wondering what were the puts and takes on that. Joseph Alkire: Mauricio, I'll take those. So for the full year outlook, we raised the outlook, right? Part of that was the Q3 outperformance that we had. Part of that is the increased visibility into the fourth quarter. So we now expect to be at the high end of the prior outlook range on revenue organically. We've got a stronger contribution from Helly Hansen, and we increased our gross margin, earnings and cash flow. For the fourth quarter, our outlook implies about 6% growth on an organic basis. That includes the 53rd week, which is contributing about 4 points to the growth. You also have the benefit of the timing shift that impacted us in the third quarter. So when you put all that together, we have modest growth contemplated for the business in the fourth quarter. Helly Hansen is expected to contribute close to $240 million of revenue as well in the fourth quarter, growing nicely compared to the prior year. So the assumptions underlying the organic revenue, we've assumed POS trends that are modestly positive, which is what we've seen for the majority of the year. Things have been a little stronger over the last couple of weeks as weather has been more cooperative. And then inventory levels at retail, we really haven't assumed any meaningful change. Our retail partners remain in a fairly conservative posture as they have all year, and we don't expect that to change. Mauricio Serna Vega: Got it. Very helpful. And then maybe just very quickly on Lee, you sound very positive about the feedback that you're getting from the equity campaign. Maybe could you talk a little bit more about more green shoots on the brand? And you've mentioned like sequential improvement for fourth quarter. Is that sequential improvement versus the 9% decline or versus like the 4%, excluding the China proactive actions? Joseph Alkire: Yes. Mauricio, I'll take the latter part, and then Scott can take the first part. So the sequential improvement that we referenced is excluding the impact of the China actions in the third quarter. So I would think about sequential improvement relative to the 4% decline that we saw in the third quarter. Scott Baxter: So Mauricio, I would tell you, similar to some of the comments that I've already made, we're seeing that our investment is paying off. And what I mean by that is we've invested dramatically in both our product engine and also our advertising and marketing. And so creating the right product for the marketplace, specifically in the channels that we sell the product in at the right price, as I mentioned earlier, and then telling a really great story behind that takes a little bit of time because, as you know, this business, you order out over a period of time. So to see your results, it takes 6, 9 months, sometimes a year, except for in the digital component. And what we've seen here early on is a very strong response in the digital component from both male and female, which is really important to us. Our female business is doing exceptionally well. So our conversations with our wholesale partners across the globe and also our own retail stores across the globe have been very positive. I've been pleased. We've been at this, as you know, for about 18 months now and still have a little ways to go. We're never going to be satisfied obviously, going forward. But those are some of the key components as to how we look at the business and how we measure and monitor how it's doing. And the sequential improvement has been really important because it's also a shot from a morale standpoint to the team, too, as you can imagine, when they're making product that's really working and the marketplace is talking about it, they feel really good about it. So we've got that type of momentum, too. So more to come over time because I think we've been very transparent in sharing the story as we've gone along, and we'll continue to do that. But right now, the way I would describe it is that everything is on track to how we planned it from the very beginning. Operator: Next question is coming from Paul Kearney from Barclays. Paul Kearney: My first is clarifying on the October organic growth of 6%. Is that including the shift of timing from Q3 into Q4? And then on the Q4 guidance, I'm just curious on -- is it assumed in the Q4 guidance a continuation of the POS at mid-single digit that you saw in the last 2 weeks? And then a follow-up. Joseph Alkire: Paul, it's Joe. On October, yes, it does include the impact of the timing shift that we talked about. And for POS, the POS assumptions for Q4 does not assume that the mid-single-digit increases that we've seen over the past several weeks continue for the balance of the quarter. Our POS assumptions for Q4 are modestly positive. Paul Kearney: Okay. And then my next is on -- I think you pointed to $25 million of run rate synergies for Helly Hansen for 2026. I guess, can you speak to any clarity on timing on achieving some of those synergies? How should we think about flowing those through in our model versus reinvestment? And just when should we expect to achieve those and which ones. Scott Baxter: Yes, I'll take that, Paul. So we do have direct line of sight to pretty significant synergies across the business. That list of synergies is growing. The deeper we get into the business, as you can imagine. Part of that is just -- we are a more synergistic owner as a global brand operator and a lot of the pain points for the Helly business are -- there are strengths. So they'll benefit greatly. Helly will benefit greatly from being part of our platform as we more fully integrate the business. The $25 million that we talked about, we're starting to see it now. It's smaller for 2025. We're starting to see some of those benefits now. Those will scale more meaningfully across the course of '26, and we'll lay that out in the full context of our '26 outlook in February. Operator: Next question today is coming from Brooke Roach from Goldman Sachs. Brooke Roach: Scott, Joe, I'm hoping you could provide an update on where you stand on Project Jeanius savings realization. What proportion of the greater than $100 million savings have been realized to date? What's still on the horizon into 4Q and to 2026 as you mature into those savings? And how should we be thinking about the opportunity for flow-through to the bottom line as you contemplate continued investments into each of your core brands, including demand creation? Joseph Alkire: Yes. Brooke, so for 2025, we've got about $50 million of gross savings embedded in the outlook. That's above our previous expectations. So those savings compared to our initial outlook have allowed us to reinvest back into the business at a level beyond what we previously anticipated, and those investments are certainly part of the fuel for the growth and the momentum that we're seeing. The benefits of Jeanius and the investments we've made, like I said, they're fully reflected in the outlook. We do expect those benefits to scale materially in 2026 and reach the $100 million of annual savings run rate. We will reinvest a portion of those savings. But as we've said from the very beginning, a portion of these savings will be reinvested back into the business and a portion of these savings will drop to the bottom line and drive profitability and returns improvement. Brooke Roach: Great. And just a follow-up. I was hoping we could double-click on the Lee China business. Are you fully reset in that business today? And do you expect that business to begin to return to growth as we turn the corner into 2026? Where are we in the transition? Joseph Alkire: Yes, I'll start, Brooke. So there's no change to the significant opportunity we see in China longer term. We're more confident in our approach going forward than we've been over the past couple of years, we've got a strong team on the ground there. For the past 18 months or so, we've been working to reestablish our foundation in China for Lee as part of the brand's global approach to the turnaround. Our results have improved over the past year, but there's still more work to be done, and this market remains very dynamic, as you know. The actions we discussed in our prepared remarks reflect the next set of initiatives to really strengthen our presence in the market and build a stronger foundation going forward. So more specifically, we've been consolidating distribution partners. We've been partnering with larger, more sophisticated partners in the market that can invest with us to build and drive the brand going forward. We've taken actions to address inventory challenges in the market. We've elevated our own DTC presence. So there's a number of things that we've been working on behind the scenes. But I'd say the majority of the heavy lifting is behind us from here. Scott Baxter: And I would just add, if you step back a little bit, Brooke, some of the things that came out of COVID and what the world went through, there were some things that happened and some bad practices and what have you. And we've got ourselves now at a point where we've got a really impressive leadership team and a great leader over there. But in addition to that, probably the most important thing is we really have a real strategy there now that makes a lot of sense for what this marketplace is going to look like going forward. So over the last 9 to 12 months, I've become much, much more happy with kind of how we're thinking about it and kind of really like the thought process and the strategy that's gone into it. So we felt -- and this is the point, we felt really confident to make this investment, and that's what drove that. We like the strategy. We like where it's heading. We're happy to make an investment to put them in really good footing and then we move forward from there. So I think that from the standpoint of what's happened here in the last 5 or 6 years with the whole world that we're in a better place than we've been in China in a long time. And I think the future looks bright. Brooke Roach: Best of luck going forward. Operator: Next question is coming from Laurent Vasilescu from BNP Paribas. Laurent Vasilescu: Joe, I was hoping to get a little bit more color again around FY '26. I remember last year on the third quarter call, you provided preliminary thoughts, particularly on the top line. I think you mentioned 1H '25 should grow 4%. Just curious to know, is there any rationale why we're not getting any preliminary thoughts for 1H '26 top line on an organic basis? And then I think, Scott, you mentioned Lee is not going to be linear, but how do we think about when should Lee actually return to growth in all markets? Joseph Alkire: Yes. Laurent, I'll start. Yes, I'd say on '26, I gave the framework, if you will. I'd say, this year versus last year, there are a few more moving pieces, as you know, and we're right in the middle of our planning process now. So we'll be back in February and give the detailed outlook as we normally do. Scott Baxter: Laurent, as product flows and how we create and make product and go to market, I think our confidence is really building that late '26, fall/winter '26, you're going to see us even out and then start our growth algorithm right after that. So feeling really good entering this year, feeling really good about how the product is going to flow in and feeling really good about the product itself that will go ahead and resonate with some stabilization by the end of the year and then growth by the end of the year, beginning of the next year. Laurent Vasilescu: Okay. Great, helpful. And then, Joe, just one sticking point here. There's $0.78 of adjustments is actually larger than the actual GAAP EPS number. Curious to know what the adjustments we should contemplate so we can actually have our models buttoned up for 4Q. What kind of adjustment should we have for 4Q? And when longer term, I think you mentioned to Brooke, there's $50 million of gross savings from Project Jeanius, but when should we see the adjusted and GAAP EPS converge? And of the $100 million, how much of it actually flows through to the bottom line? Joseph Alkire: Yes, I'll take that, Laurent. So as we've discussed on prior calls, we will have onetime adjustments as we move through Project Jeanius as we move through the acquisition of Helly Hansen. I think those are pretty difficult given the transformational nature of those projects. I would say the cost to date have been in line with our expectations. The onetime adjustments that we saw in the third quarter, primarily related to the closure of our Torreón manufacturing facility as well as the integration of Helly Hansen on the SG&A side. But look, we don't pay our bills with adjusted earnings. We don't pay our shareholders with adjusted cash. So we're measuring the cash returns of Jeanius and the returns on Helly and our cash generation remains robust. We raised the cash flow outlook for '25, and we expect another year of strong cash generation in '26, and that includes the impact of the onetime adjustments. Operator: Next question is coming from Peter McGoldrick from Stifel. Peter McGoldrick: I am interested on the cash flow guidance following up on Laurent's question. The -- so the step-up is significantly higher than the adjusted earnings increase in the outlook. So I'm curious if you can bridge the gap on working capital adjustments or any other items influencing the outlook to $400 million operating cash flow. Joseph Alkire: It's really the working capital, Peter. It's the sequential reduction in the inventory in addition to the earnings growth for both the organic business as well as Helly. Peter McGoldrick: Okay. And then on the increased gross margin guidance for the year, can you work through the puts and takes here, whether it be by brand, Helly Hansen versus the denim brands, any fundamental drivers or if there's any influence from the tariff assumption and inventory timing flow-through? Joseph Alkire: Yes, I'll take that, Peter. So on Q3, we were up 80 basis points overall, 140 basis points, excluding Helly Hansen. For the organic piece, mix was about 170 basis point benefit, that's channel mix, product mix, business mix. Our Project Jeanius benefited gross margin by about 90 basis points. And then tariffs net of our mitigating actions as well as higher product costs hurt us by about 120 basis points. For the fourth quarter, we've got 110 basis points contemplated. The organic business will be up modestly with Jeanius, and mix being offset by tariffs, net of the mitigating actions as well as higher product costs. So the year-over-year increase in Q4 gross margin is primarily Helly related, which will be nicely accretive for us in the fourth quarter. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Scott for any further closing comments. Scott Baxter: Thank you. I just wanted to say a big thanks for spending time with us today and all your thoughtful questions and -- as you can see, we're working really hard here and our consumers are trusting us because they're choosing us going forward, which is really important, and we certainly appreciate that. We've got a much broader story to tell as Helly Hansen unfolds, but I just wanted to mention that we couldn't be more pleased with our acquisition and how it's going and really enjoy working with the team there, a really good team, and it's been a really thoughtful merger of our 2 companies and just going really well, which we'll spend some more time talking about going forward. And because we won't spend any time together before the end of the year, I want to wish everybody a happy holiday season, and we'll look forward to seeing you after the first of the year. But again, thanks for your interest in our company. We really appreciate it. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Operator: Good morning, and welcome to the Axsome Therapeutics Third Quarter 2025 Earnings Conference Call. My name is Daryl, and I will be your operator for today's call. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the call over to Darren Opland, Senior Director of Corporate Communications. Please go ahead. Darren Opland: Thank you, Daryl. Good morning, everyone. Thank you for joining us for Axsome's Third Quarter 2025 Earnings Conference Call. With us today are Dr. Herriot Tabuteau, our Chief Executive Officer; Nick Pizzie, our Chief Financial Officer; and Ari Maizel, our Chief Commercial Officer, who will begin our call with prepared remarks. Mark Jacobson, our Chief Operating Officer, and Hunter Murdock, our General Counsel, will also be available for Q&A. This morning, we issued our press release providing a business update and detailed financial results for the quarter. I encourage everyone to visit the Investors section of our website to find the press release and accompanying presentation to today's call. Please note that today's discussion includes forward-looking statements regarding our financial performance, commercial strategy and operational plans, including research, development and regulatory activities. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our SEC filings, including our quarterly and annual reports for a description of these and other risks. You are cautioned not to rely on these forward-looking statements, which are made only as of today, and the company disclaims any obligation to update such statements. And now I'll turn the call over to Herriot. Herriot Tabuteau: Thank you, Darren, and good morning, everyone. Axsome continues to lead in CNS innovation, driven by disciplined execution and a clear focus on sustained growth and value creation. In the third quarter, we delivered strong revenue growth with total revenue of $171 million across our 3 marketed products, representing a 63% increase year-over-year. AUVELITY continues to gain traction as a differentiated treatment for major depressive disorder, driven by strong underlying demand. We're pleased with the pace of AUVELITY's performance, which is tracking well against our long-term expectations and underscores the significant opportunity for continued growth ahead. SUNOSI remains on a steady trajectory with year-to-date sequential growth nearly double that of the same period last year, a testament to the product's durable performance and expanding adoption. SYMBRAVO completed its first full quarter of commercial launch in Q3. Our focus now is to continue strengthening the foundation for long-term success by broadening patient access and driving awareness with clinicians. Nick and Ari will speak in more detail about our financial and commercial performance and the strategic execution driving momentum across Axsome's portfolio. Beyond our continued commercial growth, Axsome's R&D engine is advancing a robust pipeline of late-stage programs with the potential to deliver transformative therapies for patients and significant value to our shareholders. Over the coming months, we expect meaningful activity across our late-stage programs, including 2 NDA stage programs and multiple registrational trials underway or initiating. I'd like to start with our top priority areas in psychiatry and neurology, Alzheimer's disease agitation, narcolepsy and ADHD. These are areas where we see substantial opportunity to transform patient outcomes, leverage our commercial infrastructure and unlock significant value. First, we are pleased to share that we have submitted our supplemental NDA for AXS-05 in Alzheimer's disease agitation. And we look forward to announcing the FDA's decision on acceptance of the filing. This submission is an important milestone for AXS-05 and for the millions of patients and caregivers affected by the serious and underserved condition. The addressable market for Alzheimer's disease agitation is substantial, and the unmet need is high with currently only one product approved. AXS-05 represents a first-in-class mechanism of action that has the potential to set a new standard in the treatment of AD agitation. Work is already underway to efficiently scale our commercial platform to deliver an impactful launch if approved. As a reminder, we are also developing AXS-05 in smoking cessation, and we are on track to initiate a Phase II/III trial in this indication this quarter. Our next pipeline priority area is narcolepsy. We continue to target the submission of our NDA for AXS-12 for the treatment of cataplexy in narcolepsy in the fourth quarter of this year. AXS-12 represents a highly differentiated opportunity to address critical gaps in current treatment. Up to 70% of patients suffer from cataplexy and many continue to experience inadequate relief or poor tolerability to existing treatment options. We are excited about AXS-12's potential to make a meaningful difference for patients living with narcolepsy. We also like its strategic fit with our existing sleep franchise, which we anticipate will enable highly efficient and synergistic launch, if approved. For ADHD, solriamfetol has demonstrated positive results in adults in the FOCUS Phase III trial completed earlier this year. The next step is a Phase III trial in children and adolescents, which we plan to initiate in the fourth quarter of this year. If successful, this indication could substantially expand the opportunity for solriamfetol beyond its currently approved indications. As a reminder, we are also developing solriamfetol in 3 additional indications, MDD with excessive daytime sleepiness, binge eating disorder and shift work disorder. For MDD, we anticipate the initiation of a Phase III trial in adults with MDD with excessive daytime sleepiness this quarter. Next year, we expect top line results from the ongoing ENGAGE Phase III trial in binge eating disorder and the SUSTAIN Phase III trial in shift work disorder, and we look forward to providing progress updates in the near future. Turning to AXS-14, we are finalizing preparations for our planned Phase III trial in fibromyalgia, which we expect to launch before year-end. These milestones highlight the continued expansion of Axsome's leading neuroscience pipeline, spanning multiple psychiatry and neurology indications with significant unmet medical needs and substantial long-term growth potential. All in all, our portfolio of novel medicines is robust and diverse and our late-stage pipeline is deep and rapidly advancing, uniquely positioning Axsome to deliver substantial near- and long-term value through multiple highly differentiated paths. With just 3 years as a fully integrated R&D and commercial organization, Axsome is shaping the frontier of differentiated innovation in brain health. The fundamentals of our business have never been stronger, and we are excited to continue building on this foundation to drive further growth. With that, I'll hand the call over to Nick to review our financial results for the quarter. Nick Pizzie: Thank you, Herriot, and good morning, everyone. Our third quarter performance underscores the continued momentum of Axsome's commercial portfolio and the breadth of our capabilities as an organization. We continue to advance multiple innovative therapies addressing diverse and critical needs in brain health, a foundation that is driving meaningful growth across our entire business. As Herriot mentioned, total product revenues for the quarter reached $171 million, representing a 63% increase year-over-year. AUVELITY continues to demonstrate impressive growth. Net product sales for the quarter were $136.1 million, up 69% versus last year. SUNOSI net product revenues for the quarter were $32.8 million, up 35% versus the prior year. SUNOSI revenues consisted of $31.6 million in net product sales and $1.2 million in royalty revenue associated with SUNOSI sales in out-licensed territories. SYMBRAVO in its first full quarter on the market generated $2.1 million in net sales. These results reflect our continued top line growth and focused execution, driving increasing operating leverage across the business. AUVELITY and SUNOSI gross-to-net discounts for the third quarter were both in the high 40% range. We anticipate that AUVELITY and SUNOSI gross-to-net discounts will increase in Q4 to the low 50% range. SYMBRAVO gross-to-net discount for the quarter was in the mid-70% range, which we anticipate will remain elevated during the launch phase. Turning now to expenses. Total cost of revenue were $11.9 million compared to $8.4 million for the third quarter of 2024. Our research and development expenses of $40.2 million decreased 11% compared to last year, primarily driven by the completion of our clinical trials for solriamfetol in ADHD and MDD. Our selling, general and administrative expenses of $150.2 million increased 57% compared to last year, primarily driven by commercialization activities for AUVELITY including the sales force expansion and our recently launched direct-to-consumer advertising campaign, along with the commercial launch of SYMBRAVO. Our net loss for the quarter was $47.2 million or $0.94 per share compared to a net loss of $64.6 million or $1.34 per share for the same period last year. The $47.2 million net loss this quarter includes $23.1 million of noncash stock-based compensation expense and a $13.2 million noncash charge related to contingent consideration. We ended the third quarter with $325.3 million in cash and cash equivalents compared to $315.4 million at the end of 2024. We continue to believe that our current cash balance is sufficient to fund anticipated operations into cash flow positivity based on the current operating plan. And with that, I'd like to turn the call over to Ari, who will now provide a commercial update. Ari Maizel: Thank you, Nick. Q3 represented Axsome's first full quarter with 3 products, and our commercial team advanced efforts across multiple fronts of Axsome's commercial business highlighted by strong performance for AUVELITY, a foundational first full quarter for SYMBRAVO and steady growth for SUNOSI. AUVELITY's momentum in major depressive disorder continues to build with strong prescription growth, increased new writer activation and the initiation of strategic commercial investments. For the quarter, approximately 209,000 prescriptions were written for AUVELITY representing 46% year-over-year growth and 9% sequential growth. By comparison, the antidepressant market grew 1% year-over-year and was flat versus the second quarter of 2025. Since our expansion of the psychiatry sales force earlier this year, average weekly new-to-brand prescriptions or NBRx has increased by approximately 35%. Our expanded team continues to drive broader and deeper engagement across prescriber segments, and we have made meaningful progress in the primary care setting. Approximately 1/3 of AUVELITY prescribers are primary care clinicians, and NBRxs from the primary care setting have increased by approximately 50% since the expansion. Approximately 5,000 new prescribers were activated this quarter, bringing the total number of unique prescribers to 46,000 since launch. In addition to strong demand growth, we continue to make progress with market access for AUVELITY. Commercial coverage increased from 73% to 75% this quarter, bringing total coverage to 85% of all lives across channels. Importantly, we have also contracted with a third large commercial group purchasing organization or GPO effective August 1, which will support continued coverage efforts moving forward. Turning now to SYMBRAVO. The third quarter marks SYMBRAVO's first full quarter on the market with early progress that is helping to establish a strong foundation for long-term growth. More than 5,000 prescriptions were written and over 3,300 new patients started SYMBRAVO in the quarter. Our targeted approach, including focused sales and marketing activity among headache specialists who drive the majority branded migraine prescriptions is effectively building awareness and driving trial. Feedback from patients continues to reinforce SYMBRAVO's robust clinical profile. SYMBRAVO's MoSEIC technology, which enables rapid absorption while maintaining a long half-life resulting in strong efficacy is resonating with HCPs. In a recent survey of migraine treaters, key drivers of prescribing include SYMBRAVO's multi-mechanistic targeting of the CGRP and prostaglandin pathways, fast migraine symptom relief, improvements in patient functioning and sustained freedom from migraine pain. We continue to make progress with SYMBRAVO market access and coverage with overall payer coverage at approximately 52% of all lives as of October 1. The proportion of covered lives in the commercial and government channels is 48% and 56%, respectively. We have also contracted with a second large GPO effective August 1 for potential coverage of SYMBRAVO. We anticipate coverage for SYMBRAVO to expand and evolve throughout the balance of the year and into 2026. And finally, SUNOSI delivered another quarter of strong and steady performance with approximately 53,000 prescriptions representing 12% year-over-year and 5% sequential growth. By comparison, the wake-promoting agent market grew 4% year-over-year and 3% quarter-over-quarter. More than 460 new clinicians prescribed SUNOSI in the quarter, bringing the total cumulative prescriber base to approximately 15,100 since launch. Payer coverage for SUNOSI remains at approximately 83% of lives covered across channels. Overall, the third quarter represented another period of strong commercial performance across Axsome's growing portfolio of differentiated CNS products. With continued execution on AUVELITY and SUNOSI and the establishment of the growth foundation for SYMBRAVO, Axsome is driving increased demand, growing prescriber and patient engagement and expanding access to our products. We remain confident in Axsome's continued growth potential and look forward to sharing future updates on our commercial progress. I will now turn the call back to Darren for Q&A. Darren Opland: Thanks, Ari. That concludes our prepared remarks. Daryl, please open the line for Q&A. Operator: [Operator Instructions] Our first questions come from the line of Leonid Timashev with RBC Capital Markets. Leonid Timashev: Congrats on the quarter. I actually wanted to ask on SYMBRAVO and your ability to extrapolate what you're seeing in the third quarter out to fourth quarter in 2026. I guess maybe can you talk about the increased depth of prescribing you're seeing and maybe what you'd like to see on the ground before you invest more in the launch and potentially in areas of bottleneck that are stopping additional patients from coming on therapy? Ari Maizel: Leon, thanks for the question. This is Ari. Obviously, it's still very early in the SYMBRAVO launch. And our -- what we're seeing so far is very positive in terms of HCP and patient response. The drug is performing as well as we expected in the real-world setting. We are -- as a reminder, we've taken a very targeted and focused approach, focused on the top 150 headache centers as well as large neurology practices around the country. And our intent is to try to penetrate as many of those providers as possible. And as we observe the impact, we'll make further decisions around expansion or incremental investment for SYMBRAVO. But at this time, we're really pleased with the early response. There's still a lot of work to do, and we're in the early days. But we are really focused on increasing prescribing in our targeted clinicians. As we mentioned earlier, we've seen improvements in market access, which is also a key area of focus for us, and we'll share additional updates as the brand progresses. Operator: Our next questions come from the line of Marc Goodman with Leerink Partners. Basma Radwan Ibrahim: This is Basma on for Marc. We have a question on AUVELITY regarding the primary care segment, which seems to be contributing more and more to the scripts right now. Do you see this segment as a key growth driver for AUVELITY? And how do you envision growing this segment? Is it mainly through sales force expansion? That's it for us. Ari Maizel: Yes. Thanks so much for the question. Yes, we believe primary care is a really important specialty area for AUVELITY in MDD, is largely because most patients in the U.S. present to primary care office upon diagnosis and many stay with primary care throughout the course of their depression episodes. As you mentioned, we are seeing very positive response in the primary care setting. It now represents roughly 1/3 of our subscriber base, and we're seeing strong performance in terms of new patient starts as well as overall prescriptions. In terms of how do we further grow the primary care segment, part of that is just our focused sales force effort. Obviously, we've expanded the team several times, and that has enabled us to reach more primary care clinicians on a routine basis. We believe the expanded market access that we've been able to accomplish over the past couple of years is also helping to ease the prescribing path for a primary care treater that may not have as many resources to support PA processing. And then finally, our direct-to-consumer campaign, which launched in the quarter, we're seeing early positive signals in terms of patient awareness, patient requests for the product, and we expect that to facilitate further growth in the primary care setting along with the psychiatry setting. Operator: Our next question comes from the line of Pete Stavropoulos with Cantor Fitzgerald. Pete Stavropoulos: Congrats on the quarter. There is a clear distinction in the clinical profile of AXS-05 versus antipsychotic. Given the differences in clinical data for Alzheimer's agitation and the mechanisms, what are your expectations for AUVELITY adoption if approved? And how do you plan to drive uptake in the various channels? And have you identified key elements from REXULTI commercialization and marketing strategy, you would do differently to ensure a greater uptake and success? Ari Maizel: Yes. Thanks for the question. Obviously, we're very optimistic about the impact AXS-05 can have on the Alzheimer's agitation market. In terms of our focus area, what we have seen in our early launch preparation is that there are a mix of specialties that are treating agitation. Primary care is the largest. There are also geriatric psychiatrists, neurologists and then traditional psychiatrists. Of course, long-term care is an important setting of care for Alzheimer's patients. And our anticipation is that we'll cover all of those different specialties and settings of care with our efforts. We see a high degree of overlap between Alzheimer's agitation and major depressive disorder in terms of prescriber base. And so we'll be able to leverage our existing sales force. We see high synergies related to promotion there. And of course, we will need to invest in long-term care promotion, which is something we don't currently have, but do anticipate bringing online if the drug is approved. In terms of REXULTI's promotion, our -- we don't typically comment on other companies and their promotional mix. But we have been following along, and they're having really nice success with REXULTI. And so there are some learnings that we'll incorporate into our launch strategy if an AXS-05 is approved. Operator: Our next question comes from the line of Sean Laaman with Morgan Stanley. Sean Laaman: I'm just wondering on the sales force expansion. I think you just mentioned on the call, you're up to 46,000 prescribers, added 5,000. Given the bump in SG&A, I'm wondering how much capacity you think you've got in the existing sales force and when you might have to go again and how that ties into your thinking about the time to cash flow positivity? Ari Maizel: Yes, I'll take the first part of the question. We are pleased with the size of our sales force at the moment. It is driving considerable growth in terms of new prescribers as well as new patients. We previously shared that we intend to add some additional representatives in support of the Alzheimer's agitation approval. And we have started our efforts in terms of laying the groundwork for future expansions, although we haven't quite settled on a final number. That is something that we're looking to do early in 2026. Nick Pizzie: Yes. Maybe just a little bit on the SG&A for the quarter. This is Nick. So in Q3, the SG&A increased slightly. That was really driven by our launch of the DTC campaign that we launched in September. Additionally, we had a full quarter of commercialization activity for SYMBRAVO. So even with that, if you take a look at our net loss on a cash basis, we continue to improve quarter-over-quarter as well as on a GAAP basis, continue to improve on the net loss. So no changes as it relates to our outlook for cash flow positivity. Operator: Our next question comes from the line of Ash Verma with UBS. Ashwani Verma: Just on the AD agitation application, can you comment on how many days past you are after the application filing? Are there some investor discussion going on whether you're past the 60 days and that's unlikely to get a priority review? And then any implications that you can draw from the government shutdown to your filing application process review and how this may play out? Ari Maizel: Sure. So as is our practice, we haven't disclosed the data of the submission, but the FDA typically let sponsors know, say, up to 74 days following the submission when -- on a potential acceptance. We don't see any potential impact from the shutdown for the timing. So we'll -- as we said, the next update that we expect to share is potential acceptance decision. Operator: Our next question comes from the line of Andrew Tsai with Jefferies. Lin Tsai: Great execution this quarter. Maybe shifting gears to the pipeline. You've got 2 Phase III readouts with SUNOSI for binge eating and shift work disorder. So can you talk a little bit about the study designs, what positive data would entail for -- in order for you guys to file 2 more sNDAs next year or 2027? Herriot Tabuteau: Sure. As it relates to binge eating disorder, it's a standard parallel-group study design. And that would be the first study that we would need in order to be able to file an sNDA. So then based upon the results of that study, we would intend to initiate another trial, so we would need 2 studies for that. Other indications for solriamfetol include ADHD and where we currently have one positive Phase III trial for that in adults, and we're looking to start our second study, which would be in pediatric subjects or pediatric patients in the fourth quarter. Operator: Our next question comes from the line of Ami Fadia with Needham & Company. Ami Fadia: My question is just sort of broader, stepping back. You've got a couple of products in the market, making your way towards cash flow positively and several other late-stage assets. Sort of from a long-term strategic perspective, where are you in terms of your thinking around the portfolio? Are you looking to add additional assets to drive sort of operational efficiencies over the next couple of years? Or do you think that you've got enough in late stage that focuses really more on execution on those assets? Herriot Tabuteau: Thank you for the question. We're in a very -- we're in a unique position from the perspective of -- as you mentioned, we do have 3 marketed products which are still in relatively early stages of launch. So there's a lot of growth ahead. And also we're very fortunate that the period of exclusivity for these products goes out into the next decade or a couple of decades. So that's a great position to be in. And on the back of that, there is the next wave of products which we would -- products and indications, which we would expect to be approved over the next couple of years. We talked about the sNDA filing for Alzheimer's disease agitation and the planned NDA filing for AXS-12. And then of course, there's AXS-14 for which we intend to launch our next Phase III trial. So all of that means that we really do not need to do anything extra as it relates to the pipeline in the near term. But that would be, I think, the standard approach, and our approach is always to make sure that we're ahead of the curve. And so as it relates to that, we are taking the opportunity of the position that we're in to field inbound as it relates to potential additions to the pipeline, which could be complementary. So we're not going to quit while we're ahead. And we'll continue to make sure that we make very good strategic decisions as it relates to potentially enhancing the pipeline, and we're in a position whereby we can be very choosy about what we bring on board. Operator: Our next question comes from the line of David Amsellem with Piper Sandler. David Amsellem: I had a question on reboxetine. I wanted to get your latest thoughts on how you're thinking of the commercial opportunity, particularly given that you'll be entering the market more or less around the same time as oveporexton, the first orexin 2 receptor agonist. So how are you thinking about the competitive dynamics here? How are you thinking about sizing this opportunity? Just wanted to get your latest thoughts on the product. Herriot Tabuteau: Yes. So I think we'll all tackle that. One thing which is really interesting about reboxetine is its focus on norepinephrine reuptake inhibition. And that is a common pathway for the orexins. So the pathophysiology of the disease is orexin neuron loss, then decreases the production of norepinephrine. And so then -- so we -- this is -- the reboxetine works in very logical, rational way in terms of the pathophysiology of the disease. So we're very excited about the product profile because we know from our experience in the sleep space with SUNOSI that there is still very high unmet medical need. Ari? Ari Maizel: Yes. And I'll just add, when you look at the clinical profile that was observed in the Phase III trials, great efficacy in cataplexy, nonstimulant daytime treatment, favorable tolerability profile. These is a lot to like about it, and what we hear from KOLs and sleep experts is that many patients require a polypharmacy. There's a lot of trial and error. And even with the entry of a new mechanistic approach, we believe that there will still be significant unmet need, which creates opportunity for AXS-12 in those patients. Mark Jacobson: And maybe just one other add is with respect to sizing, we see incredibly high synergy, almost near perfect synergy with the current sales and marketing infrastructure that we have in place for SUNOSI right now. So very, very, very complementary to what's already in place. So we're excited about that. Operator: Our next question comes from the line of Joon Lee with Truist Securities. Joon Lee: Congrats on the strong quarter. Your commercial execution on SUNOSI is quite impressive. Any idea where the demand for SUNOSI is coming from? Is it NT1, NT2, IH or something else? And given your strength in combining products, any thoughts on combining SUNOSI with AXS-12 to address both EDS and cataplexy? Or do you think it's just better to keep them a la carte? Ari Maizel: Yes, I'll take the first part of that question. We're seeing sort of -- the predominant growth is coming from the OSA segment. There is significant unmet need in terms of excessive sleepiness with OSA patients. And it represents roughly 2/3 or so of the overall prescribing for SUNOSI, and we are seeing very strong demand for SUNOSI with those patients. Narcolepsy, of course, is an important component of the SUNOSI sales mix, but what we've seen particularly over the past couple of years is a greater awareness of excessive sleepiness among OSA patients. And as a consequence, we're seeing increased utilization there. Herriot Tabuteau: Yes. And as it relates to your question about whether it should be an a-la-carte approach for AXS-12 and SUNOSI, given how complementary the planned indications are. Our priority is to make sure that we get the product approved. That's first and foremost. So let's start with that. And that's going to accomplish our main goal, which is to provide clinicians extra treatment options. And clearly, given how the patients are treated with narcolepsy, given the varied symptomatology, probably undoubtedly, there would be patients who receive both SUNOSI and AXS-12. And our goal is to provide clinicians the data such that they can treat the patients in the best way that they see fit. Operator: Our next question comes from the line of Ram Selvaraju with H.C. Wainwright. Raghuram Selvaraju: Congratulations on all the progress. Just with respect to SYMBRAVO, I was wondering if you could elaborate on the number of centers that you expect to target in the next wave after the initial 150 headache centers. And also if you could tell us a little bit about the timing with which you expect the DTC campaign for SYMBRAVO to be engaged, if we should be thinking about the time line as being similar to the time line with which you initiated the DTC promotional activity in support of AUVELITY. Ari Maizel: Thanks, Ram. So regarding the, I guess, increase in number of centers, the way to think about it is right now, we are really focused on the predominant headache centers and headache specialists in the country. A future expansion would enable us to actually expand out more into the primary care market where you might have a heavy proportion of migraine treaters. And so right now, we feel very good about our coverage of headache centers and headache specialists, but that next wave would really be more about primary care expansion. As it relates to DTC, I think it's a little premature to talk about potential timing. If you look at AUVELITY and our timing related to our DTC launch, it really was a function of ensuring we had a strong foundation of HCP prescribers support from a prescriber perspective. We have reached a critical mass in terms of market access, and we had a sales force size that was big enough to support the increase in patient requests coming from a DTC campaign. So when that might happen, obviously, we're focused on execution across all fronts, and we'll evaluate as the brand progresses. Operator: Our next question comes from the line of Jason Gerberry with Bank of America. Dina Ramadane: It's Dina on for Jason. Congrats on the quarter. Just on AXS-05 for Alzheimer's disease agitation, could you maybe share your understanding of the clinical profile bar that's necessary for priority review under breakthrough designation? Is there a requirement that AXS-05 shows efficacy benefit relative to REXULTI? And maybe how do you think investors should think about that scenario and the read-through to the ACCORD trial? And then just a quick follow-up on your comment on AXS-05 ADA long-term care promotion. Could you just maybe detail what those efforts look like? Are there docs that are affiliated with long-term care facilities? I appreciate any additional color there. Mark Jacobson: So just one thing just to share, our base case here is always a standard review for the application. And we are eligible and -- for a potential priority review, but our understanding is that currently, the default position for the FDA for any application is standard review. And with respect to like quantitative efficacy bars, that's not how it works, right? It's -- so it's not a specific or again, quantitative analysis that the agency does. So it's hard to give you anything there for what may or may not go into an analysis like that. But again, our base case has always been standard review. And I think we will -- as we said, we'll keep people posted on a potential acceptance decision as I think the next thing that we'd expect for the course of the review. Ari Maizel: Yes. And Dina, in terms of your long-term care question, it's a little different than traditional outpatient facilities where you may be calling on MDs, NPs, PAs along with office staff. In long-term care facilities, there's a significant nursing staff, pharmacy directors, medical directors. Of course, there are physicians, NPs and PAs that will make rounds in long-term care, but they also are treating patients in the community. And so there is a synergistic effect of the community-based promotion for those clinicians that go into long-term care. So it is a little bit of a different approach, which is why we feel it's necessary to have a dedicated team focused on long-term care facilities if the drug is approved. Operator: Our next question comes from the line of Yatin Suneja with Guggenheim Partners. Yatin Suneja: One more question on the ADA. How do you think about the AdCom? Is that going to be required given that we already had one for the space with REXULTI? Just curious to hear your thoughts on how you are thinking about it. Mark Jacobson: In AdCom, that's something companies find out on potential acceptance decisions for FDA. So stay tuned on that. Operator: Our next question comes from the line of Graig Suvannavejh with Mizuho Securities. Graig Suvannavejh: Congrats on the continued success across the board, both commercially and on the pipeline. Just want to talk about AUVELITY commercially. I just wanted to revisit the gross to net and its evolution. I think you mentioned that the gross to net was in the high 40s in the third quarter. I'm wondering what led to that happening and whether there are any unique onetime events or items that contributed to that. And also just looking forward on the progress you've made with contracting. Are there any other significant gains that you're looking forward to? I mean it seems like you're in a pretty good place, but just wondering just in the future, how we should think about that dynamic. Nick Pizzie: Graig, this is Nick. Thanks for the question. You're correct, AUVELITY discount for the quarter improved from the mid-50s to the high 40s in Q3. So pleased with the net price improvement around AUVELITY. And something that did change during the quarter is that we received additional 28 million lives in Q3. And so we were able to see those lives covered in an improved fashion in first-line or first switch. So improved access, improved amount of patients covered along with improved net price from a GTN perspective. Ari, do you want to take the second question? Ari Maizel: Yes. So I think, first and foremost, we're at 85% total lives covered, which we're really pleased with. We shared on the opening remarks that we signed the third large GPO. Our expectation is to continue to add additional covered lives. Our goal is to try to get to as close as 100% as we can. Obviously, with the third GPO signed, that will enable additional covered lives moving forward. As you know, it's very difficult to predict exactly when those new PBM contracts will come online. But we do feel optimistic that there's great interest and the team is continuing to focus on driving additional covered lives moving forward. Operator: Our next question comes from the line of David Hoang with Deutsche Bank. David Hoang: Congrats on the quarter. I just wanted to go back to the planned sales force expansion for ADA. Recognize that it's early days, but could you maybe bookend or at least point us towards maybe a minimum number of reps that you think would be sufficient to execute a successful launch in that indication? And are those numbers already contemplated in your guidance for reaching cash flow positivity? Ari Maizel: Yes. Thanks, David. The plan would be to expand the team if the drug is approved. In terms of the overall number, we're still working through that. There's obviously 2 pieces to it. One is, are there clinicians we don't -- we would like to cover that, we don't currently cover with the current team and what sort of incremental headcount numbers that we need to reach them. And then the long-term care area is something that we'll need to think through in terms of overall headcount needed to appropriately educate and engage with long-term care setting. So a little early to share a specific number, but the goal is to expand the team if AXS-05 is approved, and we'll share additional updates in the future. Unknown Executive: And David, would you mind just repeating, I think you had a question about cash flow positivity. David Hoang: Yes, whether the ADA -- anticipated ADA sales force expansion is already contemplated within the existing guidance or cash flow positivity? Nick Pizzie: Yes, David, it's Nick. Absolutely, it's contemplated. We -- the way that we forecast our cash is assuming that everything is positive as it relates to clinical and regulatory outlooks and then the additional associated costs with that. So obviously, upon the launch, you would have -- it would be capital intensive in the first few quarters. And then ultimately seeing an ROI. So yes, the answer is we have already included that in our cash flow. Operator: Our next question comes from the line of Troy Langford with TD Cowen. Troy Langford: Congrats on all the progress in the quarter. Just with respect to AUVELITY, approximately how many quarters do you think it will take to see an impact from the recently launched DTC campaign on prescriptions? And do you think we'll see any sort of inflection in the current trajectory of prescriptions? Or do you think we'll see just more of a continued gradual upward trend? Ari Maizel: Yes. Thanks, Troy, for the question. In terms of number of quarters, it's hard to predict exactly when the most significant impact from DTC will hit. But one of the things that we're looking at is changes in our weekly new patient starts. We have begun to see an increase in new patient starts. In general, it's sort of 8 to 12 weeks is when we'd be looking for anything significant in terms of DTC impact. Right now, we feel like it's still early days, but we're pleased with some of the trends that we've observed, and we'll continue to provide updates. Operator: Our next question comes from the line of Myles Minter with William Blair. Myles Minter: Just the first on the third GPO contract in those P&T meetings coming online. Would you expect that commercial covered lives moving from 75% to somewhere in the mid-90% to have a similar favorable gross to net impact, as you saw with the 28 million lives coming online in the third quarter there? And then secondly, just given the FDA news this morning with uniQure and then George Tidmarsh, obviously, resigning. Just anything you can say about the confidence of the FDA as you work through the regulatory process on the CDER side? Nick Pizzie: Myles, I'll take the first one on GTN. I think it's too early to say where GTN will land with an additional contract now at hand. So -- but we are pleased, as we shared with where we are with the improvement in GTN as well as the improvement in the amount of lives covered and the formulary access. So stay tuned for where that -- where we will land. But we will continue to negotiate in a similar fashion as we have previously, ensuring that we maintain long-term value and try to have as many patients covered as possible. Mark Jacobson: And on the FDA side, right now, things are status quo for us in terms of our dialogue and interactions with -- across the various divisions that we engage with. Operator: Our next question comes from the line of Madison El-Saadi B. Riley Securities. Madison Wynne El-Saadi: Congrats on the quarter. On AUVELITY and SUNOSI as well, but more so AUVELITY, are you seeing per prescriber activity trending upward? Just trying to kind of get a sense of how much growth here is sensitivity to promotion versus more organic growth? Obviously, the sensitivity to promotions is great. But my sense is that there's also some organic growth here as well. If you could just comment and then maybe a follow-up. Ari Maizel: Yes. Thanks for the question, Madison. We are -- I guess the way that I would recommend sort of thinking about the growth is it's a function of 2 things: productivity among the existing writer. So the number of prescriptions per existing writer and then our ability to add additional new writers into the prescriber mix. And for both brands, we're seeing those things come to fruition, which I think is a testament to the impact that these medicines are having on patients' lives, the positive reinforcement that these clinicians are hearing from their patients and our team's ability to engage with them and educate them on a routine basis. So those are things that we'll continue to look to drive moving forward. Madison Wynne El-Saadi: Got it. Understood. And then secondly -- so we have 4 Phase III trials planned to initiate this quarter. Just wondering on the cadence of those, should we think of these as almost parallel launches? Or will these kind of come in a sequence throughout the remaining quarter? Herriot Tabuteau: Yes. So with 4 Phase III trials launching, there are a lot of moving parts from an operational perspective to make sure that, that happens. So it's very unlikely that they're all going to happen on the very same day. So do expect a natural cadence. It's nothing that we're preplanning. However, we are working towards and are on track for the initiation of those studies in the fourth quarter. Operator: Our last questions will come from the line of Benjamin Burnett with Wells Fargo. Unknown Analyst: This is Craig on for Ben. So just a couple from us here. So given your successful track record of getting products through the finish line, I'm curious, can you provide a little bit of color of how your regulatory interactions in regards to the sNDA for AXS in ADA has maybe differed from some of those past programs? And I guess second question, in regards to narcolepsy, I feel like we're seeing a lot of estimates of the epidemiology of those indications kind of expanding and expanding further. So out of curiosity, what do you guys think is driving that? And are you seeing growth in IH, NT1, NT2, any one particular area? Yes, any color there would be helpful. Mark Jacobson: I'll take the first part. So it's ordinary course at the moment based on where we are in the cycle, in terms of the submission for AXS-05 in AD agitation. Herriot Tabuteau: Yes. And from an epidemiological perspective, for narcolepsy you've got to look at the surveys that are done and the quality of the surveys. And however, one aspect of the market that we've always pointed to is the fact that in this orphan indication, there's still a large percentage of patients who, one, have remained diagnosed in the past; and secondly, who are treated. So certainly, as there is more interest in the space as more products are being developed and coming to market, one would expect that there would be an increase in awareness and maybe that's what you're seeing. Anything that you would add, Ari? Ari Maizel: No. I think you mentioned NT1, NT2, IH, I think that there's a lot of symptomatology overlap in different formalized diagnoses, which may muddy the waters a little bit. But from our perspective, we feel good about our current estimates, which is around 185,000 people in the U.S. suffering from narcolepsy, and that's what we're building our plans around. Operator: There are no further questions at this time. I would now like to hand the call back over to management for any closing comments. Herriot Tabuteau: Thank you. And thanks, everyone -- thank you to everyone for joining us this morning. As we've highlighted today, Axsome delivered another strong quarter. We continue to drive robust growth across our commercial portfolio, and we are well positioned to deliver significant long-term value through our advancing pipeline. We look forward to sharing our continued progress over the coming months. Thank you. Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Operator: Good morning, ladies and gentlemen, and welcome to the NAPCO Security Technologies Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, November 3, 2025. I would now like to turn the conference over to Mr. Francis Okoniewski. Please go ahead. Francis J. Okoniewski: Thank you, Emma. Good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for NAPCO Security Technologies. Thank you all for joining today's conference call to discuss financial results for our fiscal first quarter 2026. By now, all of you should have had the opportunity to review our earnings press release discussing our quarterly results. If you have not, a copy of the release is available in the Investor Relations section of our website, www.napcosecurity.com. On the call today are Dick Soloway, Chairman and CEO of NAPCO Security Technologies; Kevin Buchel, President and Chief Operating Officer; and Andrew Vuono, Chief Financial Officer. Before we begin, let me take a moment to read the forward-looking statement as this presentation contains forward-looking statements that are based on current expectations, estimates, forecasts and projections of future performance based on management's judgment, beliefs, current trends and anticipated product performance. These forward-looking statements include, without limitation, statements relating to growth drivers of the company's business such as school security products, reoccurring revenue services, potential market opportunities, the benefits of our reoccurring revenue products to customers and dealers, our ability to control expenses and costs, and expected annual run rate for reoccurring monthly revenue. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These factors include, but are not limited to, such risk factors described in our SEC filings, including our annual report on Form 10-K. Other unknown or predictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. All information provided in today's press release and this conference call are as of today's date, unless otherwise stated, and we undertake no duty to update such information, except as required under applicable law. I'll turn the call over to Dick in a moment. But before I do, I want to mention we will be attending the International Security Conference trade show, November 18 through the 20th, in New York City's Javits Center. We'll be showcasing an array of exciting new products. And if anyone is interested in attending, please contact me, and I will arrange to get you a guest pass. In addition, we're actively planning our Investor Relations calendar for non-deal roadshow and conference attendance in the near future. Investor outreach is important to NAPCO, and I'd like to thank all those who assist us in these type of events. In the coming weeks, we'll be attending the [ Robert Baird ] Global Industrial Conference in Chicago; the Stephens Annual Investment Conference in Nashville; the UBS Global Industrials & Transportation Conference in Palm Beach, Florida; the Melius Research Conference in New York City; and Needham's 28th Annual Growth Conference also in New York City. With that out of the way, let me turn the call over to Dick Soloway, Chairman and CEO of NAPCO Security Technologies. Dick, the floor is yours. Richard Soloway: Thank you, Fran. Good morning, everyone, and welcome to our conference call. We appreciate you joining us as we review our fiscal first quarter 2026 performance. Our first quarter results, which reflects record Q1 revenue, continues the momentum we reported from Q4 of fiscal 2025 and is a reflection of our continued focus on long-term growth and resiliency of our business. Our recurring revenue model has continued its steady growth, while maintaining its substantial profitability. We remain encouraged with our equipment revenue performance and our ability to weather the various microeconomic challenges we encountered in fiscal 2025 as we started to realize some of the benefits from our pricing strategies in response to tariff uncertainties. We have started fiscal 2026 with a positive momentum and confidence in our ability to continue to execute on our plan to provide enhanced shareholder value and growth through the balance of the fiscal year. Now, I'll turn the call over to our President and Chief Operating Officer, Kevin Buchel, who will comment on some of our operational and financial performance highlights. Following Kevin's remarks, our CFO, Andy Vuono, will go through the financials in more detail, and then I will return to delve deeper into our strategies and market outlook. Kevin, the floor is yours. Kevin Buchel: Thank you, Dick. Good morning, everyone. I'm pleased to share a few highlights from what was a very strong start to fiscal 2026. Total revenue for the quarter was $49.2 million, and that's a Q1 record and up 12% compared to the same period last year. Within those results, equipment sales reached $25.7 million, also up 12% year-over-year, demonstrating the continued strength of our relationships with our distributors and our dealers. And this increase was also supported in part by the early impact of 2 price adjustments: one related to tariffs, and that was implemented at the end of April; and our normal annual price increase, and that took effect in mid-July. We did not see the full impact of those price adjustments in Q1, but we expect to see a larger benefit in the upcoming quarters of fiscal 2026. Recurring revenue remained strong as well, growing 11% over last year's Q1 and maintaining an impressive gross margin of 90.3%, with StarLink commercial fire radios continuing to be the key driver within that mix. Our equipment gross margin improved as well to 26%, representing a 300 basis point sequential increase from fiscal 2025's Q4. From a profitability standpoint, operating income increased 15% year-over-year. Net income rose 9% to a Q1 record of $12.2 million, and that represents 25% of revenue. And our adjusted EBITDA was up 21%, and we now have an adjusted EBITDA margin of 30.4%. Finally, cash continues to grow. It reached $106 million as of September 30, 2025. Cash from operations was $11.6 million. And of course, we have no debt. As such, we are pleased to announce that we are continuing our dividend program, as our Board of Directors declared a quarterly dividend of $0.14 per share, payable on January 2, 2026 to shareholders of record on December 12, 2025. Overall, this was a strong start to fiscal 2026, and I'm very proud of the team's execution across the board. With that, I will turn the call over to our CFO, Andy Vuono, for a deeper look at the financials. Andy? Andrew Vuono: Thank you, Kevin, and good morning, everyone. Net revenue for the 3 months ended September 30, 2025 increased 11.7% to $49.2 million as compared to $44 million for the same period a year ago. Recurring monthly service revenue continued its strong growth, increasing 11.6% in Q1 to $23.5 million as compared to $21.1 million for the same period last year. Our recurring revenue service now has a prospective annual run rate of approximately $95 million based on our October 2025 recurring service revenues, and that compares to $94 million based on July 2025 recurring service revenues, which we reported back in August. These increases reflect the continued demand for our line of StarLink radios. Equipment revenue increased 11.8% to $25.6 million as compared to $22.9 million for Q1 of fiscal '25, which is a result of increased volume in our door locking product line and the impact of certain product pricing increases that went to effect in the quarter. Gross profit for the 3 months ended September 30, 2025 increased 13.1% to $27.8 million with a gross margin of 56.6% as compared to $24.6 million with a gross margin of 55.9% for the same period last year. Gross profit for recurring services revenue for the quarter increased 10.7% to $21.2 million with a gross margin of 90.3% as compared to $19.2 million with a gross margin of 91.1% last year. Gross profit for equipment revenues in Q1 increased 21.8% to $6.6 million with a gross margin of 25.7% as compared to $5.4 million with a gross margin of 23.6% last year. The increase in equipment gross profit was primarily a result of product mix as door locking products have a higher gross margin than intrusion. That, coupled with certain price increases and improved overhead absorption as a result of increased volume, contributed to the improvement in the equipment margins. R&D costs for the quarter increased 6% to $3.2 million or 6.6% of revenue as compared to $3.1 million or 6.9% of revenue for the same period a year ago. The increase for the 3 months primarily resulted from increased labor costs, which was partially offset by reduced consulting fees. Selling, general and administrative expenses for the quarter increased 13% to $11 million or 22.3% of net revenue as compared to $9.7 million or 22.1% of net revenue for the same period last year. The increase in SG&A for the 3 months were primarily due to increased legal fees and sales commissions, partially offset by decreased bonuses and compensation and benefits. Operating income for the quarter increased 15.1% to $13.6 million as compared to $11.9 million for the same period last year. Interest and other income for the 3 months decreased 13.5% to $1 million as compared to $1.1 million last year. The decrease for the 3 months ended September 25 was due to lower interest income from the company's cash and short-term investments as a result of lower interest rates. The provision for income taxes for the 3 months increased 36% or $655,000 to $2.5 million with an effective tax rate of 16.9% as compared to $1.8 million with an effective tax rate of 14% last year. The increase in the provision for 3 months was due to higher pretax income, as well as a larger portion of the company's taxable income being attributable to U.S. operations, and the remeasurement of certain deferred tax liabilities due to tax rate changes enacted in the One Big Beautiful Bill Act in the current period. Net income for the quarter increased 8.8% to $12.2 million or $0.34 per diluted share as compared to $11.2 million or $0.30 per diluted share for the same period last year and represented 25% of net revenue. Adjusted EBITDA for the quarter increased 21.1% to $14.9 million or $0.42 per diluted share as compared to $12.3 million or $0.33 per diluted share for the same period a year ago and equates to an adjusted EBITDA margin of 30.4%. As it relates to our balance sheet, as of September 30, the company had $105.8 million in cash and cash equivalents and marketable securities as compared to $99.1 million as of June 30, 2025, a 6.6% sequential increase. The company had no debt as of September 30. And cash provided by operating activities for the 3 months ended September 30, 2025 was $11.6 million as compared to $12 million for the same period last year, a 3% decrease. Working capital, which is defined as current assets less current liabilities, was $159.2 million as of September 30 as compared with working capital of $149.9 million on June 30, 2025. Our current ratio was 7.5:1 on September 30 as opposed to 7.3:1 on June 30, 2025. And our CapEx for the quarter was $193,000 as compared to $680,000 in the prior year period. That concludes my formal remarks, and I would like to return the call back to Dick. Richard Soloway: Thanks, Andy. Let me close with a few reflections on where we've been and where we're headed. This quarter, NAPCO once again demonstrated the strength and resilience of our business model. We remain focused on delivering lasting value to our customers, partners and shareholders, and the results speak for themselves. Recurring revenue now represents nearly half of our total sales, supported by a sustained 90%-plus gross margin. This steady high-margin income continues to drive consistent cash generation and reinvestment in innovation and growth. A key contributor remains our StarLink Fire radio platform, which has become the industry standard for commercial fire communications. Operationally, our team is executing exceptionally well. We manage inventory tightly, continue to invest in product development, compliance and infrastructure, and return capital through dividends, all while maintaining a debt-free balance sheet. Looking ahead, we remain optimistic. Market dynamics continue to evolve, but we're not standing still. We've implemented pricing actions, diversified our distribution base and invested in automation and enhancements to the StarLink platform, aimed at sustained growth and protecting margins. Our strong balance sheet provides flexibility for both organic investments and potential strategic acquisitions, while keeping us committed to shareholder returns. One area where NAPCO continues to make a real impact is school security, one of the most critical challenges of our time. We're proud to partner with school districts nationwide, providing integrated solutions that include our Trilogy and ArchiTech lock sets and enterprise-scale access control systems. These platforms are secure, scalable and aligned with the Partner Alliance for Safer Schools, or PASS, program standards, giving educators and administrators solutions they can trust. What truly differentiates NAPCO is our ability to integrate locking, access control and alarm technologies into a unified interoperable platform, protecting students and staff every day, while driving future growth. At the same time, we continue to expand recurring revenue opportunities through innovation. A great example is our MVP cloud-based access control platform, which integrates seamlessly with our locking hardware. MVP introduces a new subscription-based revenue stream for NAPCO and our dealers, and it's available in 2 configurations: MVP Access, an enterprise-grade solution supporting unlimited users; and MVP EZ, a mobile-first version for locksmiths and smaller facilities. We believe MVP has the potential to be a game changer, extending our leadership into hosted access control and reinforcing our strategy of pairing innovative hardware with cloud-based services to drive higher-margin recurring revenue. Beyond education, our Alarm Lock and Marks hardware lines continue to gain traction in health care, retail and multi-dwelling applications, as well as airport infrastructure upgrades. And as the transition away from legacy copper phone lines accelerates, our StarLink radios, which operate on both AT&T and Verizon networks and now also T-Mobile, are well positioned to capture additional market share across millions of commercial and residential buildings. Operationally, our Dominican Republic manufacturing facility continues to be a key competitive advantage, offering cost efficiency, stable logistics and low tariff exposure, a benefit versus many competitors manufacturing in higher-tariff regions. While external market and regulatory conditions remain fluid, we're focused on what we can control, driving innovation, executing with discipline and growing our base of recurring revenue. We're confident that our strong net income, adjusted EBITDA and cash flow trends will continue to strengthen. In summary, we have begun fiscal 2026 with a solid momentum, a clear focus, a stronger financial foundation than ever before. I'm incredibly proud of our team, what our team has accomplished and excited about the opportunities ahead. Thank you all for your continued support and confidence in NAPCO. Our formal remarks are now concluded. We'd like to open the call for the Q&A session. Operator, please proceed. Operator: [Operator Instructions] Your first question comes from Matt Summerville with D.A. Davidson. Matt Summerville: A couple of questions. First, on locking. Can you talk about what percent of your locking mix today is represented by that networked product? And then, can you also discuss how your MVP technology differs from other major locking players in the space today? And then, I have a follow-up. Kevin Buchel: I'll answer the first part, and then Dick could answer the second part. So the first part, most of our sales in locking are the traditional products. MVP is just starting out. It's gaining some traction. We're going to show it again at ISC East, which is in a couple of weeks. We're going to show upgrades to what we showed at ISC West back in April. The expectation is, once we show that and start shipping that, we'll start to gain more traction in the new stuff. But the old stuff, the traditional stuff is powerful stuff. Locking is 66% of equipment sales. And that includes all the categories we mentioned in our prepared remarks, including schools and lots of things. We don't announce all the school wins. The schools, sometimes they don't want us to talk about it. But believe me, they're there, and that's part and parcel of why locking was so strong. It was very strong in this quarter, and the expectation is it will continue to be strong. Now Dick, maybe you can comment on why our MVP is different than anybody's product out there. Richard Soloway: Sure. So the MVP product that we introduced is a new recurring revenue generator for locksmiths, as well as system integrators. And what's interesting about it is that we have a totally integrated system because we manufacture the locks. We've been gold standard lock manufacturers under the Trilogy brand for many, many years. It's considered the best locking product. Now, we've added the radio aspect to it, which communicates to our cloud and the cloud is owned by us. We built it. So we're a total integrated manufacturer, which allows us to add a lot of extra functionality to the concept of locking with a recurring revenue tail to it. So if you're an administrator in a hospital, you're in charge of the security division, you can get instantaneous information with all the equipment up in the cloud. No longer does it have to be on the site and where the dealer has to go back and make upgrades to the software. It can all be done in the cloud, and we do it all for the dealer. And we charge $3 a door for each door, and there are millions and millions of doors out there. While we're very successful with the fire alarms and the burglar alarm radio products, which generate recurring revenue, there's millions of those type of buildings where there's one radio per building usually. In this case, you could have 15, 20, 100 doors generating $3 per door with all these services. So it's a totally integrated hardware-software package, and we made it in 2 different ways. One is for basic smaller offices, doctors' offices. You have 6 doors. And that's the MVP EZ. And then, the full-blown access control cloud system is for system integrators to do larger jobs. So we can control our own destiny unlike a lot of our competitors, which have to get locks from one manufacturer, then they do the software themselves or vice versa. We do it all in-house. We have an engineering staff that develops everything from soup to nuts, from the hardware, all the way up to the middle and software of these systems. So it makes us very unique. It's going to be very powerful in the future. It's a way for dealers and locksmiths to build equity in their business now by getting recurring revenue from each door where they install the locks. Matt Summerville: And then, just as a follow-up, can you parse out a bit, in the fiscal first quarter, how much of the hardware revenue growth would have been price versus volume? I'm trying to get a feel for how much price has yet to be realized. And any high-level thoughts as to how the remainder of the fiscal year cadences out would be beneficial. Kevin Buchel: So that's -- it's a combination, Matt. As I said earlier, it's -- we didn't get the full benefit of the price, but we will as the year progresses. Andy could give us some color of kind of what it was in Q1, but we know that there's a lot more to come from the benefit of the pricing. Andy, do you want to comment on it? Andrew Vuono: Sure. Matt, so in response to that, so of the approximate 12% increase in equipment revenue for the period, our preliminary analysis has indicated approximately 60% of that is related to volume increases and 40% is tied to the pricing increases that went into effect in Q1. Operator: Your next question comes from Jim Ricchiuti with Needham & Co. James Ricchiuti: Maybe a follow-up to that, and I know this information is going to be in the Q later today, but can you give us a sense as to what the overall growth was in the door locking products business and whether, when you talk about the early pricing benefits, you saw some benefit in that part of the business as opposed to the radio business? Kevin Buchel: So locking -- and you'll see this in the Q that's going to be filed today, a little later today. Locking for Q1 was $17,083,000. Last year's Q1, it was $13,854,000. So that's a substantial increase. Locking was very strong. Some of it did come from orders that were placed by distributors trying to beat the price increases. We carried a backlog of several million into Q1 from Q4. But a lot of it was not that. So it was really some of it guys going ahead, trying to beat the rush, but a lot of it is locking being strong. This is one of the strongest locking quarters, maybe the strongest we've ever had. It was right up there. And the expectation is, it's going to continue. We don't have situations in the channel where guys are loaded up and presumably, they're not going to skip when we come to then this quarter, Q2. You never know with distributors. They behave funny sometimes, but the channel is good. The sell-through is strong. The expectations are all very good in the locking segment. James Ricchiuti: Helpful, Kevin. And I wonder, maybe just to the comment you just made, just the overall tone of demand, what you're hearing from some of your channel partners? You alluded to a good sell-through that you're seeing on the door locking side, maybe on both parts of the hardware business. Any color you could provide in terms of what you're seeing, hearing sell-through stats or otherwise? Kevin Buchel: Right. So sell-through stats -- this is as of Q1. I can't really comment on what's Q2, which is a month old. But for Q1, we saw very good sell-through stats for all of our locking partners. And we have 2 locking companies, and it was good on both. On the intrusion side, we saw tremendous improvement there, too. So as -- and I look at this very closely every month. So I was [indiscernible] what I'm seeing. I always caution because I never know what distributors are going to do. It's their year-end in December. Who knows what's going to happen. But if we're going to base it solely on what stats we're seeing, and that's their inventory levels and the sell-through, we should be in good shape in both areas, locking and intrusion. Operator: Your next question comes from Peter Costa with Mizuho. Peter Costa: I'd like to maybe dig a little bit further into the service margins. That 80 basis point year-over-year decline was a little bit more than expected. What's kind of causing that pressure? Is there anything on underlying radio margins, an acceleration in MVP? Anything there? Kevin Buchel: So Peter, there were really 2 factors that affected the margin for the recurring, which still is tremendous. 90.3% is still tremendous. It did go down from a little bit over 91%. So 2 factors. Factor number one, we now have a triple carrier radio. That introduces T-Mobile into the mix. We have to buy minutes to support that. We haven't really charged anybody for that. And even though it's not a lot of money, it did move the needle a little bit. The expectation is, we will increase our radio -- our recurring radio charge to cover that. It's not going to be a lot, but it might be enough to move the needle back to where it was. That's one factor. Another factor is, we are gaining a lot of business from some very large dealers. I don't want to mention any names, but there are large dealers out there. One in particular has been buying a lot of the smaller dealers. It seems like they do an acquisition every week. And as a result of that, we're picking up more radio business, and we will be picking up more in the future. This consolidation, if you want to call it that, from the big guys buying up some of the smaller guys, and the radio segment has all moved in our favor. But the big guy loves our fire radio. And when he buys a smaller dealer, he is going to make sure that the smaller dealer's customers get our StarLink Fire radio, if they weren't using it. Maybe they were using it. But if they weren't, opportunity for us to pick up even more share. The one negative of this, and it's mostly positive, is a big guy can command a little bit of a better price. Maybe the big guy pays $1 less than what the smaller guy is paying. We honor that. We're happy to get more business. So if a guy was paying $8 and we have to lower it to $7, just to use an example, we will do that. We'll do that all day long because we're picking up more radio recurring revenue business. So that, too, can move the needle a little bit. Absent of that, it's all the same powerful margins that you've been seeing. Peter Costa: Makes a lot of sense. Richard Soloway: Let me add something else to that. I network a lot with the dealers, and some of the dealers in certain parts of the country have told me that T-Mobile is more reliable on their cell phones than the other services. So evidently, the towers are different or the way the reception is for the radios on their towers is different. So by adding T-Mobile to our mix of AT&T and Verizon, now we have all the major carriers. And the areas where T-Mobile is the strongest in pickup and communications is now in our radios. So we're going to pick up market share -- additional market share with a more stable radio network with T-Mobile. So that's going to help us a lot. So overall, it should be a net positive having T-Mobile as part of our mix. Peter Costa: Awesome. Maybe just thinking about the price on the radio, I think that's kind of intended to be under the RSR, and that seems like a pretty big deal. How would you kind of approach that? Is that just the entire installed base would get a little bit of price, just incremental sales or just like the T-Mobile radios? How would you tackle that? Kevin Buchel: If it's a triple carrier, it's going to be in everybody's radio. So to cover it, everybody would probably get a little bit of an increase, not much. Believe me, we don't want to mess with a very good formula. But I -- like the shareholders, I want to keep that 91% margin as well. And if we have to raise it a little bit to keep it up there, we're going to do that. So we're looking at that now, Peter. Operator: [Operator Instructions] Now our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group. Jeremy Hamblin: Congrats on the strong results. Just wanted to start a little bit with kind of the manufacturing facility, making sure that in terms of the hurricane that had some impact in the DR, just understanding what you've seen there. And then, just kind of related note, in terms of how the tariffs are being applied at this point and impact, as you look forward in calendar '26, do you feel like you're going to have kind of normal pricing increase on products? Or is there any incremental that you need to take to cover where tariffs stand today? Richard Soloway: This is Dick Soloway. I moved down there to the Dominican Republic after I searched around in China and Mexico and decided Dominican is great for a lot of advantages, closest to the U.S., stable government and being able to get the workers that we needed. And we built this custom building. After we were in individual smaller buildings, we built a custom building, which is Category 5 proof. It's all concrete building. So we don't have any issues. We had no problem with the hurricane that passed by. We generate our own power, make our own water. We're self-contained like city down there. And of course, we have our workers come from around the area. And it's actually a shelter for them in a hurricane because it's stronger than the houses. So it works out really, really well. So we had no issues with that, and we don't expect there's anything that's going to be able to cause us any grief in the future. And what was the second part of the question? Jeremy Hamblin: Just in terms of tariff impact and thinking about pricing in 2026 and whether or not you take kind of your more typical price increase or whether or not you would take slightly more, just given how kind of the tariffs are playing out here. I mean, we've seen some stabilization in kind of tariff mandates, but... Kevin Buchel: The tariffs for the DR, very stable. It's not like some of the other countries where it's going up, it's down, it's here, it's there. We know what it is, 10%. That's what it is. That's what it's been. We took an increase to cover that back in -- we announced it back in April. We don't need to do anything more on that front. We took a general price increase that we announced in July. We don't expect to do another one until we get to the end of this fiscal year that we're in. So pricing-wise, we're good. The only thing is, we haven't felt it all yet. We expect to feel good about it -- better. We feel good already. We expect to feel better about it as we get deeper into the year as the full effect is felt. We haven't felt it yet. Jeremy Hamblin: Great. And then, just coming back to the service revenues. You saw a nice little bit of sequential year-over-year improvement from what you had in the June quarter. And you just had a strong quarter with locking. I wanted to just get a sense with the evolution of that business and potentially getting some recurring revenue associated with that in combination with kind of the radio alarms and so forth. When do you think you might kind of see that show up here in recurring service revenue growth as FY '26 plays out? Kevin Buchel: When we released it, when we first talked -- started talking about it, showed it at ISC West in April, and we said at that time, give it 18 months to 2 years. That's how long this kind of thing takes. We hope it's sooner, but I would give it time. I think we'll feel a little bit more as this fiscal year progresses. I think fiscal '27 is when I think we'll really start to feel it. So you got to give it time. We're like 6 months removed basically from when we really had a coming out party for it. Now, we're going to have another coming out party in a couple of weeks to show the other versions of MVP. Give it another year after that, and I think it could be meaningful. Richard Soloway: I went through -- because I've been in the alarm business for a long time, I went through alarms without recurring revenue. Imagine, in the early years, it was just a hardware job that was put in by a dealer. There was no recurring revenue, and the dealer went on to another hardware job. And then, the intro of recurring revenue in the alarm business revolutionized that business. Every job that goes in, intrusion of fire, has a recurring revenue communicator in it, and it gives great service to the occupant of the building, the owner of the building. So, that change, it took a couple, 3 years for dealers to understand why you want to build equity in your business. You just don't want to do a job and do another job after that without having a recurring revenue tail. We're going through the same situation now in the locking business, 25 years later. The locking business is such that a dealer will put in a locking job, either a large building or smaller buildings, and then they go on to the next job, but there's no equity building, no recurring revenue. We are unique in the business, having the fact that we make the locks, we make the radios and that the locksmiths and the integrators don't get recurring revenue from this type of service. And we believe, like it happened in the alarm business, there's going to be a changeover that locksmiths are going to want to get recurring revenue tail to everything they do. And that's what we're doing now. Patterning ourselves after the original alarm business, now we're bringing it to the locking business, and we're unique in the fact that we're the company that can do that because we have all these different facets that we've knitted together to make an integrated manufactured locking product and a cloud product for these locksmiths and for the system integrators. So it's going to be an exciting ride going forward. Just piling on more recurring revenue is the name of the game for us. We've become a communications type of company, and it's going to grow ever larger. Jeremy Hamblin: Just as a quick follow-up on that point, so as we look to FY '27, do you have a sense for what portion of your total service revenues could be tied to the locking products as opposed to the alarm? Kevin Buchel: I think it's premature for us to throw out projections like that. I would just say, I think it would be meaningful and just leave it at that. Richard Soloway: Just think about how many doors are out there and how many commercial buildings. This is all commercial. This is not residential. And what information you can get from every door who comes in, in case of emergencies, what's going on in the hospital, in the drug area, where the drug cabinets are, and you get instant information and reports, doing time and attendance and all kinds of other great things, knowing everything that goes on in every door in the building that has an MVP system, locking system installed on it. I would say that if you don't have this type of system a couple of years from now, you're really in the blind as a management company or as a security department in an industrial building. You've got to have this information. You shouldn't be in the blind. And MVP will give it to everybody. And it's very, very economical, very reliable because it's all built using our StarLink communications program. Operator: Next up, we have Jaeson Schmidt with Lake Street. Jaeson Schmidt: Curious if you can give us an update on how ADI is progressing. Kevin Buchel: ADI relationship, excellent. They do a great job over there. They move a lot of intrusion equipment on our behalf. I couldn't be happier with the exception of one thing. I'd like more locking sales out of them, and we told them this. They're great with the alarm side. We think there's an opportunity for locking through them. They have over 100 branches. I think it's 115 branches, and it would be nice to move locking through those 115 branches. Absent of that, they're doing a very good job, very happy. Richard Soloway: Let me add something to that. There's lots -- there are many, many dealers, and a larger percentage of dealers are going to be doing locking jobs. These are the alarm dealers that do fire and burger alarm jobs, but they're not doing -- not a large percentage of doing locking. They're just staying into the alarm sector of the business. Now, with recurring revenue added on to the locking jobs, it's not just a hardware installation. It's a recurring revenue generator for them. It adds to their fire and burger alarm recurring revenue. And we're going to be training lots of these locking dealers to utilize it and lots of the alarm dealers to utilize it and vice versa. So we're going to be doing a lot of cross-training so that a dealer can be a total wraparound business. He gets recurring revenue from his alarms and he gets recurring revenue from his locking installations and vice versa. So ADI is a great vehicle because they're the largest distributor. They should -- they will, I'm sure, enter into the locking business all across the country, and it's going to be great for market share for us because we're the only alarm manufacturer that has a locking division, and we're the only locking manufacturer that has an alarm division designing and manufacturing all these things. So we're a natural play for the whole locking and alarm industry. We have 3 locking companies, Marks and Alarm Lock and Continental, and we have the NAPCO burglar and the fire alarm business. So we really have the widest range of products out there. Great partners with ADI, and they're a great company. They're really buttoned up. Jaeson Schmidt: Okay. That's helpful. And then, just as a follow-up, sorry if I missed it, but when will the price increase go into effect to account for the T-Mobile compatibility? Kevin Buchel: We're studying that now, Jaeson. We're very cautious with the pricing for the recurring. But it's very clear that we're adding a cost that we're not being compensated for. So we're looking at it. And I would say it's imminent, but we haven't decided it yet. Operator: [Operator Instructions] Our next question comes from Lance Vitanza with TD Cowen. Lance Vitanza: So I wanted to talk a little bit about the school security side. And I think it was about a year ago that you announced the Pasadena school contract. I'm wondering what the status is of that, how far along that is or how it went? Any sort of lessons to learn or just how that sort of leaves you feeling about the opportunity more broadly? Kevin Buchel: That project went well. It's been completed. The opportunities are still tremendous throughout the country. You see all the shootings that are still going on. You still see the announcement that barricade chairs in front of the doors. These are all things we all have been hearing for over 10 years. And unfortunately, a lot of the schools, school districts move very slowly. We do our best to go around the country and show the school districts if they have any issues with money, how to go about getting the money. There's lots of money available. A lot of funds have been allocated to school security. It's there. The universities have no issues. They have the money, and they have the needs as well. Despite the shooting has been going on for over 10 years, we're in the early innings, I would say, fourth or fifth inning of this. Still tremendous opportunity. We win a lot of business, and we don't -- we're not able to tell you about it unless the school grants it, grants us permission. And sometimes, we don't even know about it because the distributors just are doing a job for a school district and they buy a lot of our equipment. We know it's meaningful. We know there's a lot more to go. We know we have the solutions. We know we're the only company because we do locking and access and alarms. We're the one-stop shop that a lot of schools need. So we just keep going out there and getting that word out. Richard Soloway: Yes. We manufacture locks, which are inexpensive for K-12s, and then we manufacture versions of that lock with remote control to them, so you can lock doors remotely, do wide area campuses with our locks. And it's a very diversified line of wide-ranging locks. And as Kevin said, we manufacture the locking, the lock set. We make the parts. We assemble it. We do the radios. We have the cloud. We have all of that experience, and schools appreciate it, and we're doing very nice school work. And -- but still, even after hundreds of shootings a year in the U.S. -- it's a tragedy -- a lot of schools haven't installed it yet. So the fourth or fifth inning of the installation availability. So there's a lot more to do. So schools that make great choices will select the NAPCO system, and we can be flexible from the smallest to the largest campuses out there. So it's a great thing that we're manufacturing that. We want to protect the students and the faculty. And with NAPCO, you can. So our guys are beating the bushes and showing this to these facilities. And eventually, everybody will get armed up against intruders that come into schools and cause havoc. Lance Vitanza: If I could just get one more in on the balance sheet. Cash at $106 million, that's as high as it's been in my memory, recent memory. What do you plan to do with all that cash? I know you talked about possible M&A. The dividend, I mean, you're covering that out of your cash flow. So -- and I'm guessing that the amount of cash that you actually need to run the business is a small fraction of what you had -- what you have. So can we be thinking about any kind of accelerated return of capital to shareholders in 2026? Kevin Buchel: It's a good problem to have, Lance. We keep generating more and more cash. There's not a lot of M&A that's required to run the business. You heard in Andy's comments that CapEx was minimal. We need lots of labor, and we can get it in the Dominican Republic. So the needs for cash dividends, potential acquisition, we have lots of bankers talking to us. Every banker tells us they have the perfect deal for us, but we're pretty fussy. There's a lot of boxes it has to check. We don't want to be distracted. But if it's the right deal, we certainly would proceed. And there are -- I'm sure there are companies out there, and we go through -- as the bankers present them, we go through them all. And if one hits the right spot, we'll go after it. The last thing we want to do though is get distracted by something that's not accretive from day 1. We don't want to overpay, but it could be a good thing. And we're in a good position to do it much better than the position we were in when we did our last one 15 years ago when we had minimal cash, lots of debt and no recurring revenue. So we got a lot of cash, lots of recurring, no debt. We could do it. It's got to be right. Operator: There seems to be no further questions at this time. So I will now turn the call over back to Richard. Please continue. Richard Soloway: Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, feel free to call Fran, Kevin, Andy or myself for further information. We thank you for your interest and support, and we look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q2 results. Have a wonderful day, everybody. Bye-bye. Operator: Thank you, Richard. Thank you, everyone. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, everyone, and welcome to the Pinnacle West Capital Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Amanda Ho. Ma'am, the floor is yours. Amanda Ho: Thank you, Matthew. I would like to thank everyone for participating in this conference call and webcast to review our third quarter earnings, recent developments and operating performance. Our speakers today will be our Chairman, President and CEO, Ted Geisler; and our CFO, Andrew Cooper. Jacob Tetlow, COO; and Jose Esparza, SVP of Public Policy, are also here with us. First, I need to cover a few details on the slides. The slides that we will be using are available on our Investor Relations website, along with our earnings release and related information. Today's comments and our slides contain forward-looking statements based on current expectations, and actual results may differ materially from expectations. Our third quarter 2025 Form 10-Q was filed this morning. Please refer to that document for forward-looking statements, cautionary language as well as the risk factors and MD&A sections which identify risks and uncertainties that could cause actual results to differ materially from those contained in our disclosures. A replay of this call will be available shortly on our website for the next 30 days. It will also be available by telephone through November 10, 2025. I will now turn the call over to Ted. Theodore Geisler: Thank you, Amanda, and thank you all for joining us today. In the third quarter, we delivered strong operational and financial performance, underscoring the discipline and focus that define our strategy. Today, I'll share how we plan to continue to meet rising customer demand and how we successfully navigated a dynamic summer season. I'll also highlight our long-term planning efforts and strategic investments that position us for sustainable growth. Then Andrew will walk through how increased sales and transmission revenue have led us to revise our 2025 earnings guidance, along with our forward-looking financial expectations. Importantly, our long-term planning and resource procurement paid off as we reliably serve customers over multiple record peak days this quarter. I'm proud of our entire team for stepping up during the summer season to support our customers and communities with industry-leading reliability, a hallmark of our company. Our crews battled storms, flooding and extreme heat, yet we are prepared to ensure customers were taking care of with rapid response and operational excellence. Additionally, Palo Verde Generating Station operated at 100% capacity factor the entire summer, delivering a solid performance for our customers and the entire Desert Southwest region. Our peak demand record reflects the strong underlying economic growth in our service territory with weather-normalized sales growth of 5.4% and residential sales growth of 4.3% in the third quarter alone. Arizona's population growth remains robust, fueled by major employers, expanding their operations and driving demand for skilled labor. The state's ability to attract and retain high-quality talent is truly a key differentiator and a powerful signal of the long-term economic vitality we're helping support. SEMICON West, recognized as North America's largest Microelectronic Exhibition and Conference was held outside California for the first time in more than 50 years with Phoenix being selected as the host city. Our region's economic momentum continues to accelerate. Site Selection Magazine recently named Maricopa County, the top county in the nation for economic development in 2025, citing its success in attracting high-growth industries like semiconductors, data centers and logistics. Taiwan Semiconductor reaffirmed its commitment to Arizona, accelerating production of 2-nanometer wafers and advanced technologies. They also announced plans to acquire a second location in Phoenix to support their vision for a stand-alone giga-fab cluster. Meanwhile, Amkor Technology broke ground on a $7 billion advanced semiconductor packaging and testing facility, which is an increased investment of $5 billion over their original plans. The first phase is expected to be completed by mid-2027 with production beginning in early 2028. To support this growth, we're executing our plan for long-term investments in both transmission and baseload generation, which are essential to secure a reliable grid for the long term. In Q2, we announced our role as the anchor shipper on the Desert Southwest expansion project. And just days ago, we announced our plans to develop a new generation site near Gila Bend just southwest of Phoenix, which could add up to 2,000 megawatts of reliable and affordable natural gas generation to our customers. The Desert Sun Power Plant is a 2-phase project designed to serve both existing customers and the rising demand from extra-large energy users like data centers and manufacturers. Phase 1 is expected to begin serving committed customers by late 2030. Phase 2 is expected to support new demand from our queue of high load factor customers. Importantly, we're working with customers now to contract for the Phase 2 capacity using our subscription model, a commercial construct designed to ensure growth pays for growth while protecting affordability for all customers. Investment in generation alone will not be enough to support the growth in customer demand. We're making significant investments in transmission as well with multiple projects underway and more in development. These projects are expected to enhance reliability, resiliency and integration of new resources. They also expand our access to out-of-state generation and regional markets. Transmission investment benefit from constructive and timely recovery through our FERC formula rate and creates opportunities for additional wheeling revenues that support affordability for our retail customers. Turning to our pending rate case. We remain actively engaged with intervenors in responding to data requests and remain on track for a hearing in Q2 of next year. As we approach the end of 2025, our priorities remain clear: executing our mission to deliver reliable and affordable service to our customers, investing in baseload generation and transmission to serve growth, and achieving a constructive regulatory outcome that protects customer affordability while reducing regulatory lag. Thank you for your time today. I'll now turn it over to Andrew. Andrew Cooper: Thank you, Ted, and thanks again to everyone for joining us today. This morning, we released our third quarter 2025 financial results. I'll walk through the key drivers behind our performance, provide context on our updated 2025 guidance and share our outlook for 2026 and beyond. We reported earnings of $3.39 per share for the quarter, a modest increase of $0.02 year-over-year. This result was primarily attributable to higher transmission revenues and higher sales driven by robust sales growth across customer classes. These gains were partially offset by lower weather-driven sales compared to last year's Q3, higher interest expense, reduced pension and OPEB benefits and an increase in our outstanding share count. Based on strong sales growth along with above normal weather, an increase in transmission revenues and contributions from El Dorado, we are raising our 2025 EPS guidance from a range of $4.40 to $4.60 per share, up to $4.90 to $5.10 per share. With the ability to derisk future operating expenses, our updated guidance reflects an increase to our forecasted O&M for the year to a range of $1.025 billion to $1.045 billion. Sales growth across all customer classes continues to be strong. We experienced 5.4% weather-normalized sales growth for the quarter, including 6.6% C&I growth, supported by the continued ramp-up of our large load customers and 4.3% residential growth. Year-to-date residential sales growth stands at 2%, exceeding our expectations and fueled by continued customer growth to the top end of our range. We are, therefore, narrowing our customer growth guidance range to the high end of 2% to 2.5% for the year. As we look ahead to 2026, we anticipate earnings per share of $4.55 to $4.75 per share. The expected year-over-year decrease compared to our revised 2025 earnings guidance is due to the projection of normal weather and higher financing and D&A costs as we work through the rate case process. We continue to expect robust customer and sales growth increased transmission revenues, focused O&M management and some positive contributions from our El Dorado subsidiary. Customer growth next year is expected at 1.5% to 2.5%, supported by Arizona's ongoing population and business expansion. Last year, we set a post-recession record with nearly 35,000 new meter sets. We're on track to match that figure again in 2025, and our forecast for 2026 customer additions remained strong. For overall sales growth, we expect weather normalized sales to continue to grow at 4% to 6% in 2026. And with the strong residential sales growth trends and continued ramping and acceleration plans by our extra high load factor customers, including in the advanced manufacturing space, we are increasingly confident in our forecasted long-term sales growth range and are raising it up from 4% to 6% to 5% to 7% and extending it through 2030. Our capital and financing strategy remain focused on enabling growth while maintaining affordability and financial discipline. We've updated our capital plan through 2028 to include critical strategic investments in transmission and generation that support reliability and the demands of our rapidly growing service territory. As highlighted by Ted, we look forward to developing these new resources for the benefit of our customers. These investments are expected to drive rate base growth of 7% to 9% through 2028, an increase from our prior guidance of 6% to 8% through 2027. To support this plan, we've updated our financing strategy for '26 through '28, maintaining a balanced mix of debt and equity aligned with our balance sheet targets. For 2026, approximately 85% of our equity need has already been priced with an additional $1 billion to $1.2 billion of Pinnacle West equity forecasted through 2028. On the O&M front, our 2026 outlook reflects our commitment to cost efficiency. We expect a slight year-over-year decrease despite continued customer growth, and we remain focused on reducing O&M per megawatt hour over the long term. Finally, we are affirming our long-term EPS growth guidance range of 5% to 7% based on the midpoint of our original 2024 guidance range. We recognize that regulatory lag will continue to be a factor in 2026. However, we remain confident in our long-term financial strategy. Our service territory offers unique advantages, including strong growth across all customer classes and a diversified economic base that includes advanced manufacturing, data centers and continued population growth. Working closely with the Arizona Corporation Commission and stakeholders, we're committed to addressing regulatory lag, improving recovery timing and ensuring affordability as we continue serving new and existing customers. This concludes our prepared remarks. I will now turn the call back over to the operator for questions. Operator: [Operator Instructions] Your first question is coming from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: Nicely done, I got to say again. Look, let me -- if I can kick it off here, obviously, the gas build is front and center here for you guys, good progress. How are you thinking about just eventually giving visibility on '29 and '30, especially what you've seen up here? Can you speak a little bit to the extent possible of what that trajectory as you rolled it forward here would potentially look like in that context? And maybe speak a little bit more to the sequencing of getting this pipeline built in time and in service to align with what seems like a fairly tight time frame altogether to build out this generation. Theodore Geisler: Yes, Julien, thanks very much. And I'll start and then Andrew can talk about the capital plan. The pipeline is expected to be in service in 2029. We're staying very close to that project and remain confident in the milestones between here and there. And so as you know, that was the first key step. Second step then is starting to announce some of the generation capacity projects that we've been working on, Desert Sun being the first major announcement and project that we would expect. And so as we've said, we think about this in really 2 phases. The first phase is going to be necessary to support committed customers. That's a part of the 4.5 gigawatts that we've already committed to and are building out to serve. And we'd expect to be able to have that phase in service in 2030. So still a healthy margin past when the pipeline is in service, but a schedule that we're comfortable with meeting. Importantly, we've got all the key equipment secured, land interconnection is in place. So I think we're in a good spot to be able to deliver on that time line. And then the second phase of that project, we've identified the opportunity to be able to serve our subscription customers with. We've rolled out an opportunity to subscription customers for 1.2 gigawatts and we're actively working with those counterparties on their desired timing and ramp rate to be able to take advantage of that second phase. And that's one of the benefits of the subscription model is we can ensure that the delivery time line of that second phase corresponds with the counterparties ramp rate, and we make sure that reliability is protected by keeping those 2 in sync. Both will, of course, take service from the new pipeline, but we're comfortable with the timing and how that coincides with the pipelines in service. And we'll continue to monitor pipeline progress along the way. And be prepared to adjust if needed. But we're comfortable with the time line we've laid out. Andrew, do you want to speak to the capital plan? Andrew Cooper: Sure. Yes. Julien, as specifically relates to the Desert Sun project. There is some of the capital related to that project, both on the generation side as well as a small amounts on the transmission side in the current plan. You've got long lead equipment and land and things like that, that are in the plan. And certainly, given the in-service date that Ted is talking about for Phase 1, you would see that CapEx ramp up as we get closer to the end of the decade. Certainly around the broader capital plan as we work through the rate case and understand the dynamics of the formula grade and continue to develop our subscription model with our customers that will provide us the opportunity to give more visibility as we certainly want to make sure that, that growth pays for growth. But the plan that we've put forward through '28 reflects the beginnings of some of those really big longer lead time investments we're making on the generation and the transmission side. You could see it in the 2028 kind of new run rate for transmission investments and some of the additional information we provided about our ability to start to look at that additional $6 billion backlog of FERC-regulated transmission assets and start to begin to develop those in parallel with a project like Desert Sun. So that's the plan. We feel good about the plan through '28. And as we are able to certainly provide more information about the time line through the end of the decade, and we've tried to start to do that with some of the construction work in progress disclosure that we've been providing over the last few quarters. Julien Dumoulin-Smith: Got it. And excellent. Just you kind of teed up the next piece. How is that progress going on the subscription part? You talked about this 1.2 gigawatt opportunity. Where are you in sort of "filling that bucket" or that opportunity? Theodore Geisler: Yes, we've got active dialogue. This was Tranche 1 of our subscription and recognize that the timing of Tranche 1 coincides with developing that Phase 2 of Desert Sun as well as the in-service of the new pipeline. So we're working with counterparties now to match that up with their desired in-service timing. But conversations are active, and we remain optimistic in being able to deploy subscription model to both continue to serve part of the 20-gigawatt queue that is ready to begin service in our service territory while also designing it in a way that helps with financing and protects customer affordability. So I think the key elements of the model has been well received by the market. We're actively working with counterparties and it's going to be a good way to be able to serve that queue both now and going forward. Julien Dumoulin-Smith: Yes. Fair enough. One little detail here on '26, you've got this $0.55 bump here on transmission. That's a sustainable level, right? That's a pretty big bump. Andrew Cooper: Yes. Julien, we'll provide guidance as we go forward, obviously, on that. But I think it's reflective of the trend. We've been very committed to investing in our FERC-regulated transmission business, and that's some of the capital that I was talking about. So it's because of that need to access resources from further field and to serve our growth. And given the FERC construct, the formula rate, and the amount of capital that we've stepped into there, this is just a natural reflection of the plan that we've put forward and converting it now into annual earnings opportunity. Operator: Your next question is coming from Nicholas Campanella from Barclays. Fei She: This is Fei for Nick today. So quickly, just one clarification on equity dilution, if I could. So since 2026 equity need is 85% taken care of, which is the $550 million already priced as you put in the slide. What's the true incremental equity needs for '26 through '28, especially when we look at the $1 billion to $1.2 billion total equity used for the 3-year guidance period? And also, I guess, how should we think about the cadence of issuing through '26 and '27? And how should we think about any equity mitigation given the strong sales growth backdrop that you just provided in the update? Andrew Cooper: Thanks Fei. So yes, on the equity, as you pointed out, we have substantially derisked the need in '26 through all the equity that we've priced both through the block issuance we did in 2024 and our use of our ATM over the last 2 years. So it would feel like we're in a good position. If we look over the incremental need over the 3 years, that '26 to '28 period, that's what that $1 billion to $1.2 billion represents. And so certainly, these projects are lumpy. So the cadence of issuance need kind of goes with that. That's where an ATM has worked well for us to date to be able to time our drawdowns and our issuance with the CapEx as we go through some of these larger projects. But your last question around mitigation is really the key one. When you think about that range and our ability to meet our long-term aspirations around a balanced capital structure and to minimize the amount of equity dilution within that balanced capital structure, it really comes back to all the work we're doing both around reducing regulatory lag through the rate case process, to improve retained earnings and our ability to fund that capital from internally generated funds. And then to look to our large load customers in the subscription discussion to make sure that to the extent that we could secure cash upfront to fund those investments that it reduces the need for us to go out to the market for equity. So while that's the range today of forecasted need, we're going to continue to work through the rate case process and the engagement on the large load side to try to mitigate that as much as possible. Fei She: Got it. That's very helpful. And secondly, just on the transmission capital investment slide you laid out, if I could. I appreciate the clarity on the $2.6 billion cumulative transmission CapEx through '28, and also the $6 billion plus through 2034. Could you just comment on your assumption on annual transmission CapEx post 2028? And how should we interpret the $6 billion plus, especially on what's contributing and driving the upside? Andrew Cooper: Yes. So we haven't laid out the specifics of the plan post 2028 because these are really the projects that are reflected in the 10-year strategic transmission plan that we file with the commission every other year. There are a host of projects in their, 500 or 600 miles of high-voltage lines that we're developing to meet different needs. And there's some fungibility in terms of do you develop this line with or that line? So we're doing a lot of that work today. The way I would think about it overall is that we went from under $200 million a year of run rate CapEx 5 years ago in transmission for just sort of the local area projects, the things that we do that are 69-kV plus. That number is increasing to the $300 million to $400 million range of just the blocking and tackling CapEx we do on the transmission side. And so the increments above that, that you see almost in the potential for that $850-plus million number to be a run rate. There is a baseline $300 million to $400 million in there. And then the increment above that is reflective of the beginning of investing in the strategic transmission projects. But it's a really long runway, and the number will vary from year-to-year. But I think if you look at 2028, that is a reflection of the opportunity on an ongoing basis through the combination of core transmission and that increment from strategic transmission. Fei She: Got it. That's super helpful. If I could, just another quick clarification. On the robust sales growth guidance you refreshed. I guess seeing a really elevated level of 5% to 7% through 2030, while looking at a 7% to 9% rate base growth is through 2028. I guess can you comment on your confidence level to possibly extend the 7% to 9% rate base growth further into the horizon? And I guess, what could be the key drivers contributing to that? Andrew Cooper: Yes. So we've laid out through 2028 on the rate base side. And one of the reasons stepped up is that you're beginning to see some of those long lead projects come into service in '28. The best example being Redhawk, the expansion of our natural gas facility there. As you get into 2029 and 2030 and beyond, more of these larger projects come in, in service of, to your point, the higher sales growth we're seeing, especially from the large load type customers. And so as we continue to kind of move forward and develop the CapEx plan around Desert Sun, around those strategic -- that $6 billion strategic transmission that we were just talking about, we'll continue to look at that rate base growth rate. Our confidence is that, that runway is quite long. What the level is, is what we'll be able to kind of continue to work through. That CWIP disclosure that I mentioned earlier, it's also a good way to think about some of the projects that we know are already in the hopper that take us into '29 and '30 and a good way to extrapolate if you do some of that math. Operator: Your next question is coming from Shar Pourreza from Wells Fargo. Unknown Analyst: This is actually Alex on for Shar. So just on the growth rate outlook, just you guys are still targeting that 5% to 7% of the '24 midpoint. Just in the context of today's new '26 guidance, can you just help frame what you might use as your new base? And will you roll forward the plan as soon as the rate case is concluded? Andrew Cooper: Sure. Yes. So really, the rate case becomes precipitant for us to look at all that. And if you think about base years, we really try to set as high a bar for ourselves as we can to make sure that we're consistently meeting or exceeding expectations and doing so in the right way. And so we want to get to the point where the -- that 5%, 7% becomes evergreen. Right now, we're in a situation where earnings are lumpy. We go and we have a rate case and we get a rate increase, and then there's regulatory lag through a lengthy rate case process. The formula rate is really an important element here to be able to convert that earnings growth rate from being kind of a long term look at '24 and then look at '28 to something that can be more evergreen. And so I think, as we work through the rate case process and the structure of the formula rate, we'll be much better positioned to talk about what all that looks like. And ultimately, that's the goal is to be able to deliver year in, year out, produce more modest increases year-over-year for customers as well. That's a really important part of it. And ultimately, that creates the better stability for us around our earnings growth. Unknown Analyst: Got it. Okay. That's helpful. And then just switching gears here, just give you a sense -- more of a sense on the megawatt pipeline you have around the hyperscaler side and just sort of how you think about capacity first generation needs? Theodore Geisler: Yes, sure, Alex. So we continue to see just a robust pipeline of demand. As we've articulated in the slides, we've got 4.5 gigawatts of incremental demand that we've already committed to. That's in part what Desert Sun is going to be serving as well as future generation and transmission investments that are included in our guidance period and will have to be developed even beyond. But in addition to that, we want to start making progress on committing and serving part of the 20 gigawatts of uncommitted load that is in our current queue. And so that's also a part of what Desert Sun will begin to be able to allow us to serve. But of course, we anticipate wanting to be able to offer much more than just that initial tranche of 1.2 gigawatts. So the intent is contract that first tranche, and then we'll continue to identify generation and transmission capacity expansion opportunities as we get to a certain point in the predevelopment of those projects to where we are confident in the timing and level of capacity available for us to be able to offer, we'll go to the market and offer another tranche service to that uncommitted queue. And that's the model that we anticipate being able to deploy going forward. Bottom line is we anticipate being able to continuously offer capacity to eat into that 20 gigawatts, and we think the 1.2 gigs that we've offered recently is just the first step into that trajectory. Operator: Your next question is coming from Travis Miller from Morningstar. Travis Miller: I just want to confirm on the guidance for '26. There's no contribution from the rate case. Is that correct? And then if that's correct, any ideas or guidance you could give on what maybe a dollar increase, so to speak, would be in the back end of the year? Any thoughts there? Theodore Geisler: Yes, Travis, you're correct. We have not made any assumptions for rate case conclusion that's informed 2026 guidance. As we said, we do anticipate the case resolving in the last quarter of the year. And given that such a small quarter for us anyhow and the timing just didn't seem prudent for us to be able to make any assumptions at this point. But certainly, once the case concludes, that will allow us to step back and reevaluate the constructive nature of the outcome and what that means in terms of forward-looking guidance. So we'd look to do that at that time as well as the details around how the formula rate would work both timing and level on a go-forward basis. So look for further updates once the case concludes on all those aspects. Travis Miller: Okay. Makes sense. And then separately, that 4.5 gigawatts of committed customers, can you kind of elaborate on who those customers are? And maybe is any of that going to kind of your system wide base with residential or small commercial? How do you -- how would you break up that 4.5 gigawatts? Theodore Geisler: Yes. The 4.5 gigawatts is a nice balance and blend between incremental industrial growth, such as chip manufacturing, TSMC and Amkor being examples of that as well as their supply basis, as well as, of course, data centers that are already in development or even in service, but we expect to ramp through this period. And then importantly, we continue to see just steady and robust residential and small business growth. So I'd say that's one of the hallmarks of our growth story is a very diversified story, not too dependent on one industry or customer base or another. Maricopa County just recently ranked top County for economic development in 2025, and it's the third fastest in the U.S., Phoenix just rank #1 of the top 15 growth markets for manufacturing. And all of that is separate from a data center story. It just shows the true underlying growth. We're also pleased to see that affordability still is a hallmark of our service territory, favorable cost of living. Phoenix inflation is growing at about 1.4% versus national average at 2.9%. So I think there's a lot of drivers behind why we're seeing diversified growth in that 4.5 gigawatts represents all sectors, which gives us confidence in the growth rate, but also means that we've got a lot of infrastructure to deploy to continue to keep up with the various sectors that are demanding it. Travis Miller: Okay. Yes. No, that sounds good. And then -- so would most of that 4.5 gigawatts go into rate base? Or some of that the subscription model that you were talking about that might be outside of rate base? Theodore Geisler: Well, let's be clear, all of our investment goes in the rate base. The subscription model still goes into rate base. We are just contracting with those customers. Think about it as more of a special rate agreement rather than out of rate base, and that special rate agreement just ensures that growth pays for growth and that the timing of their ramp coincides with the timing of the ramp of the infrastructure to be built to serve them as well as potentially getting their help to finance some of that infrastructure so that we maintain a healthy balance sheet as we grow these rate base investments, specifically for data centers. So it's all going in the rate base. It's just a matter of how you recover the dollars is really the difference in the subscription model. Operator: Your next question is coming from Steve D’Ambrisi from RBC Capital Markets. Stephen D’Ambrisi: I just was hoping for a little bit more color on the year-over-year change in sales growth as an EPS driver. I know for '25 guidance, you had embedded $0.58. And for '26 guidance, it looks like you're embedding $0.39. I guess I would just step back and say it doesn't seem like the magnitude or mix is really that different given both years were 4% to 6% total, of which 3% to 5% was from large C&I. So can you just give a little color there? Is it mix within the C&I classes? Or what's driving the difference in EPS magnitude uplift from sales growth? Andrew Cooper: Steve, it's Andrew. Sure. Yes, so you're right, '26 does have a bit of a smaller contribution there. And that's really the fact that we're talking about a pretty big group of customers that has puts and takes in their ramp rate from year to year. And some of those -- as we've been an early data center market, we've been able to develop more sophisticated forecasting on a customer-by-customer basis, who's testing equipment, who's actually ramping. And so you do see some variation within the customer class. So the residential small business number is relatively stable. And as we've seen this quarter and our guidance for this year, the expectation of continued pretty large new customer additions and an actual positive contribution from residential sales despite the fact that we've continued to have energy efficiency and distributed generation pressed up against that. So it really is the year-to-year variability in some of our large load customers. I think where we really want to focus is the fact that this is a long-term set of customers with the trajectory now that we feel confident about through [indiscernible], including raising that sales growth guidance by 100 basis points over that period. And the fact that, that means that the extra load factor contribution to that steps up by 100 basis points as well. So over the long term, feeling really good. There is some intra-year variability. But once you pair that with continued customer growth, residential growth and then the continued conversion of our transmission investments into revenue through our FERC formula, we're feeling pretty confident about the ultimate outcome. Stephen D’Ambrisi: That's really helpful. And I guess like that would be like the put and take versus what kind of we were assuming is just the sales growth versus transmission. I know Julien asked about it, but can you talk a little bit more about that? Clearly throughout the rest of the plan, transmission growth steps up materially into '28? And so does that $0.55 benefit scale linearly with the increase in transmission spending? Or is there something that's causing super normal growth in recoveries... Andrew Cooper: Yes. No. Over time, it should be proportionate to the investment. We earn pretty quickly, right, when we're putting assets into service. I think the thing that will happen is we'll get a little bit lumpier because in the near term, that $300 million to $400 million of run rate projects, those are smaller projects that get done within a given year, maybe over 2 years at max. And we're moving forward into lines that may take longer to build. Some of the things that we're looking at are, can you energize them on a sectionalized basis so that we can reduce the regulatory lag if we're building a 100-mile line, can you do it in segments? That's the type of thing that we're thinking about to make sure that we continue to translate that opportunity into earnings. The other thing that's been nice about the transmission opportunity is that it's part of the broader wholesale market. And so the opportunity to offset some of the impact to our retail customer base through willing -- others rolling over our system has been a big part of our customer affordability story as well. So there's multiple benefits to doing it. We are doing some larger projects. So the scaling will ultimately get there over the long term. But intra-year, there could be some lumpiness just given you're talking about that increment above the core $300 million to $400 million being longer lead time projects that can take a few years to get into service. Operator: Thank you. That completes our Q&A session. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Justin McCarthy: Good morning, and welcome to Westpac's Full Year 2025 Results Briefing. I'm Justin McCarthy, the General Manager of Investor Relations. Before we commence, I acknowledge the traditional custodians of the land in which we meet today. For us in Barangaroo, that's the Gadigal people of the Eora Nation. I pay my respects to elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people. I'm pleased today to be joined by our CEO, Anthony Miller; and CFO, Nathan Goonan. After the presentation, we'll move to Q&A. [Operator Instructions] With that, over to you, Anthony. Anthony Miller: Thanks, Justin, and good morning, everyone. I'm pleased to present Westpac's full year results to outline the value we're creating for customers, shareholders and the communities we serve. We began the year with a robust balance sheet and capital position. This provided us the capacity and flexibility to pursue our growth and transformation agendas. We are driving operational and business momentum supported by 5 priorities. To ensure we are there for our customers at the time and place that suits them, we've adopted a whole of bank to customer approach. Our refreshed leadership team is guiding our 35,000 people who are energized, engaged and turning our priorities into outcomes. It's not just what we deliver, but how, and that is why our focus on execution is key for Westpac. Disciplined execution is how we will achieve our goals. As Australia's first bank, we recognize the vital role we play in supporting economic prosperity. We're proud of our contribution as Australia's sixth largest taxpayer, helping to fund essential services and improve people's lives. Our employees bring this to life by volunteering their time and making pretax donations to more than 500 charities. Through our Rugby League and Cricket partnerships, we promote sport participation from grassroot clubs, including programs for schools, women and First Nations talent through to elite competition. We also offer free financial literacy programs across Australia, New Zealand and the Pacific to help educate thousands of people and small business owners every year. We're improving banking access in regional areas and investing in ag scholarships and technology to drive innovation. These initiatives create more prosperous communities while fostering trust and brand advocacy. Turning to financial performance. The result reflects our strategy of balancing growth with returns, while making necessary investments in people, innovation and transformation to support our future. Net profit, excluding notables, decreased 2% to $7 billion. Statutory net profit fell 1% to $6.9 billion. This led to a slight contraction in our key return metric, return on tangible equity. The impact was cushioned by the reduction in share count through the buyback. As we execute our transformation agenda, expenses are higher, lifting our cost to income to 53%. We're addressing the cost structure through our Fit for Growth program, which will help offset expense growth in FY '26. Our performance reinforces the need for us to focus on execution while managing RoTE and CTI. The steady financial performance and strong capital position saw the Board declared a second half dividend of $0.77, equating to a full year dividend of $1.53 per share fully franked. This equates to a payout ratio of 75% of profit after tax, excluding notable items. This is the slide I use to track our progress against our FY '29 targets. We put customers at the center of everything we do. To be Australia's best bank, more work is needed to lift customer and brand advocacy. In the past 2 years, we've gradually improved consumer NPS. We're currently ranked equal second and the gap to first place has narrowed. In business, we have established clear leadership in SME and commercial. However, our overall position shows work is needed to lift small business. For institutional customers, we aim to be #1 in our target markets by investing in our people's expertise and building stronger customer relationships. We are now executing UNITE. We will be open and transparent as we drive to complete this program. On performance, our decisions and approach are guided by delivering improvements to cost to income and RoTE. Our strategy supports our ambition to be our customers' #1 bank and partner through life. For our customers, we aim to win the whole relationship by delivering the whole bank. To meet more customer needs, we're offering the full range of products and services we have in a more timely and personalized way. For our people, we are investing in their development and leader capability while driving a high-performance culture where employees can perform at their best. On risk, we have completed the final transition of the customer outcomes and risk excellence program known as CORE. In response, APRA released the remaining $500 million of operational risk capital overlay, marking 5 years of meaningful change. Our commitment to ongoing risk improvements will continue, and our priorities for risk management to be recognized is our differentiator. Our transformation agenda is focused on delivering UNITE and 2 flagship digital innovations, Biz Edge and Westpac One. Ultimately, our performance will be reflected in how we execute on these priorities. Our service proposition is foundational to earning trust and becoming the bank of choice for our customers. Despite economic uncertainty in recent years, our customers remain resilient. We supported customers with 46,000 hardship packages with 3/4 of them back on their feet. Service quality is improving. For example, our financial market clients time to trade in the Commercial division is down by 30%. Our new brand positioning, It Takes a Little Westpac, along with our award-winning banking app and rewards program is strengthening engagement and loyalty. For businesses, we doubled our women in business commitment to $1 billion. We are growing our regional presence through new service centers. Our first location in Moree was well received by the community. Our latest Australian-first innovations, Westpac SafeCall and SafeBlock, supported a further 21% decline in reported customer scam losses. This is just a snapshot of the ways we're improving our service proposition to become #1. With a refreshed executive leadership team, we're placing a stronger focus on how we lead and support our people to perform at their best. Professional development programs, including the Business Performance Academy as well as skills training in data and AI are just some of the ways we are investing in our people. We've strengthened our employee value proposition to attract, retain and develop top talent while expanding benefits. We're also building the presence of our bankers where it matters most for our customers. Employee engagement remains strong, and we continue to invest to improve. Pleasingly, our consumer deposits grew by 10%, including offsets. This is a testament to the quality of our business and our customer base. It also reflects the effectiveness of our award-winning banking app and the competitive product suite, which we have, which provide reliable everyday banking solutions. We have expanded our capability in migrate banking. Prospective customers from several key markets can now apply for a transaction account before arriving in Australia. Our recent sponsorship with Cricket Australia will also present new opportunities in this target segment. Transaction banking is at the heart of our business strategy. New account openings of 130,000, supported transaction account growth of 13% this year. We also launched a new online payment solution, OnlinePay. With simple onboarding, it has attracted 1,000 customers within 3 months of launch. In Institutional Banking, we continue to maintain our lead in public sector deposits with growth of 11%. Financial institutions is also a target area where we are now seeing real momentum. Our goal of deepening relationships and supporting more customer needs is reflected in loan growth across business and institutional, where existing customers make up approximately 3/4 of new lending. Business lending increased by 15% with even stronger growth across target sectors of health, professional services and agriculture. Institutional lending grew by 17%. The portfolio is diversified, and we remain the country's largest lender to renewables. Growth in both areas has been accretive to RoTE. I'm very pleased that the average risk grades across the business and institutional lending books have remained stable, while absorbing this attractive level of growth. Looking more closely at mortgages. Our focus has been on getting the service proposition right, making it consistent, attractive and most importantly, easy for our customers. We've made progress. Time to decision has improved with most proprietary home loans now processed in under 5 days. In a highly competitive environment, we must get the service proposition right and then balance growth with return. Overall, I think we've managed this well. Returns have improved, supported by operating efficiency and disciplined execution. We've been more efficient in how we deploy capital with balances up and RWA down. Today's announced sale of the RAMS portfolio will further improve the operating efficiency of our mortgage business. We've targeted high-returning segments, including investors, where flows increased by around 4 percentage points to just under 40%. This was a deliberate move with our pricing competitive. In contrast, we positioned ourselves above market in owner-occupied. Momentum in early FY '26 has picked up and is tracking slightly above system. Looking further out, we see a clear opportunity to improve proprietary lending, which currently makes up just under 1/3 of new flow. We know what to do. However, progress will take time. It will be measured in years, not months. To support this, we're adding more home finance managers. We're enhancing banker incentives, and we're investing in the brand. Additionally, we're capturing insights and generating leads and opportunities by leveraging data, analytics and AI across the company to drive proprietary lending. UNITE is up and running. We finalized the scope, we have a plan, and we are now into execution. Some initiatives are progressing faster than expected, which is encouraging, while others are proving more challenging. This is typical for a project of this scale. Moving to a single deposit ledger meant we had to revisit about 1/3 of the initiatives to make sure we addressed all impacts and all interdependencies. This additional planning delayed our time line. We expect completion where we are accruing all target benefits to extend from the end of FY '28 into FY '29. To drive execution, we formed a centralized delivery team of 1,600 people focused solely on UNITE. We've also grouped the initiatives into 10 work packages to ensure we manage interdependencies and challenges effectively. In FY '26, we expect to invest between $850 million and $950 million in UNITE as we go flat out on execution. The program is expected to account for approximately 40% of annual investment spend in FY '27 and '28 before reducing in FY '29. Our progress is starting to deliver improvements that are making banking simpler and more connected for our employees and our customers. We've put some of those outcomes in front of you. Two things I want to call out. Westpac home loan customers can now set up multiple offset accounts with no additional fee. This is a key feature requested by our customers. Since February, we've opened more than 35,000 additional accounts. We've also completed the migration of private bank customers to Westpac with minimal attrition. The validation that we've done this well is shown in recent positive brand NPS. We've completed 8 initiatives and 51 are now underway. Most initiatives are green, a few are red, and we're prioritizing getting those back on track. We will provide updates on progress and continue to refine our disclosure to improve transparency. We invested $660 million in UNITE during FY '25, and this was slightly above our guidance. This was because we saw an opportunity to get additional work done now, and so we prioritized the resources to make that happen. Alongside UNITE, we're also modernizing technology through capabilities like Westpac One and Biz Edge for better customer and employee experiences. Biz Edge is our new lending origination platform, accelerating digital capabilities for bankers with AI-powered tools that support faster, more confident decision-making. This is dramatically improving how we lend to businesses by guiding applicants and bankers through the best pathway. Since launching in March, Biz Edge has processed nearly $5 billion in business lending applications. So far, time to decision has improved by 45%. More benefits are on the way for customers and bankers. For Institutional clients, Westpac One will be the new platform that brings together real-time treasury management, FX, trade and lending with powerful data insights. In December, we'll pilot the first Westpac One initiative with real-time transaction banking and a new modern digital experience for corporate clients. Advanced transaction banking capabilities like liquidity management, including multicurrency and cross-border capabilities, will be progressively dropped over the next 36 months. Once complete, the platform will deliver end-to-end liquidity and cash management, helping clients run and fund their businesses more efficiently. This capability will be market-leading and a differentiator in supporting our corporate, large commercial and institutional clients. AI represents a significant opportunity to improve the way our people work as well as the quality of their work to help us provide better, more consistent service to our customers. We're embracing new gen and agentic AI capabilities while also continuing to use traditional AI tools, like machine learning and advanced analytics. These are helping us automate tasks and modernize our technology. It's also giving our people more time back and providing bankers with more insights to serve customers better. The key is making sure we scale proven solutions. Examples with tangible benefits include strengthening defenses against fraud and scams, supporting faster approvals for mortgages and business loans, helping employees quickly answer process and policy questions and automating coding and testing. However, to realize its full potential, we must approach AI with an enterprise-wide mindset. We've appointed a global leader reporting directly to me to drive this across the entire company. We're moving at pace and recently launched the Westpac Intelligence layer, which draws on the enormous data and insights across the company to drive faster, safer and more proactive decisions. We have prioritized using the layer in consumer to support our focus on growing proprietary lending. It is already giving our home finance managers better insights to deliver faster, more personalized service. I'm really excited about what we will achieve as we broaden this intelligence layer and roll it out across the bank in the next 12 months. Nathan will now take us through the performance in more detail. Nathan Goonan: Thanks, Anthony, and good morning, everyone. It's a privilege to present my first result for Westpac. I recently took over from Michael as CFO, and I want to begin by acknowledging Michael's contribution over the past 5 years and wish him all the best for the future. I'm excited to be joining Westpac at an important time in the company's history. I look forward to doing my best to help our people deliver consistently for our customers. As foreshadowed, we've adjusted our disclosures to make peer comparison easier, now reporting net profit, excluding notable items as an equivalent measure to cash earnings among peers. Starting with the financial performance over the year before talking in detail about the half year trends. Excluding notable items, which related solely to hedging items, net profit was down 2% with higher expenses more than offsetting growth in operating income and lower credit impairment charges. EPS was flat, reflecting reduced share count from the on-market share buyback. Revenue was up 3%, comprising a 3% increase in net interest income, driven by an increase in average interest-earning assets and a 1 basis point decline in net interest margin and a 5% increase in noninterest income. Operating expenses were 9% higher, including the restructuring charge of $273 million. Excluding the charge, expenses rose 6%. These revenue and expense outcomes resulted in a decline in pre-provision profit of 3%. Credit impairment charges remained low at 5 basis points of average gross loans compared with 7 basis points the prior year. Half-on-half, we saw improving underlying trends, offset by increased investment. Pleasingly, pre-provision profit increased in Institutional, New Zealand and Consumer, while business and wealth held flat. Net profit was up 2% in the half and comprised of the following: Net interest income rose $335 million. Core net interest income was up 3%, a 2 basis point increase in core net interest margin and a 1% growth in average interest-earning assets. Noninterest income was up $143 million, mainly reflecting an increase in markets income, a combination of both client activity and market conditions. Expenses were up 9% or $520 million, including the restructuring charge. Overall, pre-provision profit was down 1%. Excluding the restructuring charge, pre-provision profit increased 4%. Asset quality metrics continued to improve, resulting in lower credit impairment charges. The charge of 4 basis points to average loans was down from 6 basis points in the prior period. The effective tax rate was 30.6%, down from 31.3%. As Anthony outlined, sustainably growing customer deposits over time underpins our ambition to improve returns. The growth of 4% in the half was pleasing and highlights the inherent strength of our customer segments. Mix improved with the reliance on term deposit decreasing from 29% to 27% of the book, while savings and transaction balances grew. We expect strong deposit growth to continue in FY '26 with our economics team forecasting system growth of 7%, reflecting continued improvement in household conditions. Strong deposit growth has supported lending growth in chosen segments. Gross loans increased 3% with growth across all customer segments. Australian Mortgages, excluding RAMS, grew by 3%, slightly below system as we balance growth and return in a competitive market. Australian business lending continues to show good momentum, growing at 8%. The larger commercial subsegment performed well, and we also saw growth in both SME and small business, which grew 9% and 5%, respectively. Prior to this half, small business had contracted or been flat in the preceding 4 halves. Institutional lending grew by 10%. The portfolio is well diversified with infrastructure, renewable energy and industrials underpinning growth. Lending grew 3% in New Zealand, where demand for credit remains subdued in a more challenging economic environment. The RAMS portfolio continued to run off. The balance at 30 September was $22 billion. The sale announced today is expected to complete in the second half of 2026. Until completion, these balances will continue to run off. Please bear with me as I spend a bit of time talking to net interest margin given the importance and likely focus. Core net interest margin increased 2 basis points to 1.82%. This follows a decline of 3 basis points in the prior half. We've seen a reduction in the amplitude of the components of NIM with all drivers having a modest impact. The lending margin was stable with an improvement in New Zealand due to fixed rate repricing, offset by a decline from auto finance, which was sold in March. Lending margins in business contributed less than 1 basis point. In Mortgages, the market remains competitive, but relatively stable, and we saw several factors play out. The cumulative impact of these was less than 1 basis point. These include the benefits from the initial timing impact from rate cuts. Deposits were also stable as benefits from the replicating portfolio and the repricing of the behavioral savings product was offset by the initial impact of rate cuts, customers switching to higher-yielding accounts and more behavioral saving customers qualifying for the bonus rate as well as the compression in TD spreads from prior period. Liquid assets contributed 3 basis points, reflecting reductions in trading securities. Whilst a positive to NIM, this is neutral to earnings. Lower earnings on capital detracted 1 basis point. The benefit from the higher replicating portfolio rate was more than offset by the impact of lower rates on unhedged largely surplus capital and the averaging impact of the share buyback. The contribution from Treasury and Markets rose from 12 to 13 basis points. Looking to first half 2026, we've included some key trends we expect to impact margin. We expect lending margins, excluding the timing impacts from rate cuts, to edge lower. Pressure on deposit spreads from the average impact of rate cuts and prior period switching to saving products is likely to continue. The replicating portfolio is expected to be a net benefit of 1 basis point. This includes a 4 basis point benefit from the total replicating portfolio, offset by a 3 basis point reduction in unhedged deposits. This reflects the decision to increase the deposit hedge by $10 billion. This was executed in September and October to provide further earnings stability through the cycle. The benefit from improved term wholesale funding markets is expected to be a slight tailwind. While mortgage margins appear relatively stable, lending competition remains difficult to predict, along with short-term funding costs and RBA rate cuts. To this end, we've provided 2 sensitivities to help understand the potential impact. The next 25 basis point rate cut, RBA rate cut, leads to an approximate 1 basis point contraction over the first 12 months, reflecting the impact on unhedged deposits and capital. Based on September balances, a 5 basis point move in the 3 months BBSW OIS spread equates to approximately 1 basis point of NIM. Quickly touching on noninterest income, which increased 10% for the half. Fee income was up 5%. Higher card fees reflected increased spending and fee changes, which are being phased in. Business and institutional lending fees increased due to strong balance sheet growth. Wealth income was up 3% with higher funds under administration. Trading and other income increased 27% from higher sales and risk management income, including foreign rates and foreign exchange and favorable DVA. Moving to investment spend, which increased 9% over the year. UNITE investment was $660 million as the project continued to step up through the period. The proportion of investment spend that was expensed increased to 60%. UNITE was the main driver with this work expensed at 74%. Notwithstanding the acceleration of UNITE, spend on growth and productivity initiatives was in line with that of FY '24. This includes Biz Edge and Westpac One. Risk and regulatory spend declined substantially after the completion of several projects, including the CORE program. Into FY '26, investment spend is expected to be approximately $2 billion, with UNITE accounting for just under half the total spend at $850 million to $950 million. This is in line with the fourth quarter run rate where UNITE spend was $225 million. Both risk and regulatory and growth and productivity investment will decline to allow the UNITE investment to accelerate within the expected $2 billion total investment spend. Moving to expenses. This slide is changed in presentation to better reflect the underlying drivers. My comments relate to movements over the year, which we believe provides a better guide to key trends. Staff costs increased $397 million as the new EBA began, superannuation rates increased, and we invested in more bankers in business, wealth and consumer. Technology costs increased $146 million, reflecting vendor inflation, increased demand to support growth and more cyber protection. Volume and other rose $199 million. Drivers include the important investment in our brand and marketing and higher operations-related expenses to support customers and prevent fraud and scams. This was offset by $402 million of structural productivity savings. This included the benefit of a simpler operating model, more automation and reductions in branch space. The ramp-up in UNITE added $399 million over the year. Looking to FY '26, staff costs will rise as we continue to invest in bankers and eligible employees receive a 3% to 4% pay rise under the EBA. The averaging impact of bankers hired from this year and higher superannuation rates will also flow through. Technology expenses are expected to remain a headwind. The expense contribution from investments will be driven by the mix shift towards UNITE with the increased cash spend expensed at approximately 75%. Assuming the midpoint of our guidance, this will translate to $190 million increase in operating expenses. This will be partially offset by the decrease in other investment. Amortization expense will continue to be a headwind in FY '26, although to a much lower extent. We remain focused on closing the cost-to-income ratio gap to peers over the medium term, and we need to structurally lower our expense base. Total productivity is expected to be at least $500 million in FY '26. This revised view of productivity will give us a consistent way to demonstrate the benefits from both UNITE and Fit for Growth initiatives. Overall, credit quality remains sound and with consumers and business portfolios performing well. Stressed exposures to total committed exposures decreased 8 basis points. This reflects a decline in mortgage arrears and reduced stress across most of our business segments. This half, we've continued to see improvement in 90-day plus Australian mortgage arrears. These have reduced from a peak of 112 basis points in September last year to 73 basis points, reflecting a combination of customer resilience and an adjustment to the reporting of loans when customers complete their hardship period. In New Zealand, mortgage arrears fell by 8 basis points to 46 basis points as rate relief began to feed through to customers rolling off higher rate fixed mortgages. We have provided the chart by industry for our non-retail portfolio. As you can see, business customers are managing conditions well with stress reducing across most sectors. Our portfolio remains well diversified across sectors and geographies. Looking forward, the 2 key drivers of asset quality outcomes are likely to remain the unemployment rate and asset prices. Total credit provisions were 2% lower at almost $5 billion. This reflects a $72 million decrease in individually assessed provisions and a reduction in model collectively assessed provisions driven by improvements in underlying credit metrics and the economic outlook. Offsetting the model-driven outcomes were 2 main items of management judgment. The weighting to the downside scenario was increased by 2.5 percentage points to 47.5% at the third quarter. The base case reduced by the same amount. In addition, we increased overlays by $108 million with overlays as a percentage of total provisions increasing from 3% to 5% in the period. As a result, overall coverage reduced by 1 basis point with total provisions now $1.9 billion above our base case. An improvement in the composition and funding and liquidity adds to our competitive positioning and helps provide medium-term earnings stability. The deposit-to-loan ratio has reached an all-time high of just under 85%. A more stable source of funds from household and business transaction accounts has reduced the reliance on term funding with issuance in FY '25, the lowest in 10 years. Our liquidity and funding metrics are above our normal operating ranges, which we believe is appropriate given the market backdrop. The strength of the capital position is a key feature of this result and provides us with flexibility and opportunities over the medium term. The CET1 capital ratio ended the half at 12.5%. Net profit added 80 basis points, while the payment of the half year dividend reduced capital by 58 basis points. Risk-weighted assets detracted 7 basis points with higher lending balances more than offsetting data refinements, improvements in delinquencies and a reduction in IRRBB risk-weighted assets. Other movements added 16 basis points, largely reflecting lower capitalized software balances and movements in reserves. There are several adjustments to consider for first half '26. These include the removal of the $500 million operational risk overlay in October added 17 basis points of CET1 capital. The new IRRBB standard came into effect on 1 October, and the extension of our non-rate sensitive deposit hedge has now been allowed for regulatory purposes. These 2 items add 39 basis points of capital. Offsetting this, the remaining $1 billion of the previously announced share buyback will reduce CET1 by 23 basis points. Following these adjustments, the standardized capital floor was met in October. Importantly, there are opportunities for us to manage the standardized floor, and we expect the impact on the CET1 ratio at the half to be modest. We've implemented a new capital target of 11.25% following APRA's changes to AT1. We have approximately $3.1 billion of capital above the new target after the payment of the second half dividend. The payout ratio, excluding notable items, was 75%, which is at the top end of our target range of 65% to 75%. This balances our strong financial and capital position while maintaining capacity to both invest and support customers. We have $1 billion of the previously announced buyback outstanding. We see value in the flexibility provided by this form of capital management. With that, I'll hand back to Anthony. Anthony Miller: The Australian economy is showing signs of improvement following a sustained period of below-trend growth. Household purchasing power is rising as real disposable incomes grow. Businesses are emerging from a period of subdued activity, partially supported by lower rates, easing input costs and some productivity gains. Westpac DataX Insights highlights an improvement in card spend growth at 6.5%, the strongest we've seen since April 2023. For business, commercial customers are feeling better, but it's still challenging for our SME customers. However, we've just started to see an improvement in cash flows off the back of firmer household spending. Underlying inflation is at the top of the RBA's target range. This will put pressure on the RBA to hold rates tomorrow. We are starting to see more growth driven by private rather than public investment. However, this transition has been slower than anyone expected. A smarter balance calls for bold, coordinated action across government, regulators and the private sector. It has been pleasing to see the focus on the productivity agenda in the national debate. Targeted action is key to unlocking Australia's long-term prosperity and resilience. An area we are focused on is addressing the housing affordability challenge. We need to tackle the structural undersupply of housing and efficiently deliver more houses in the $500,000 price range. More broadly, the global outlook is not without risk, with ongoing trade and geopolitical tensions a constant threat. Our strong financial position helps us navigate that uncertainty while being there to support our customers. It's pleasing to see business credit is expected to grow 7%, driving private investment. We're building on the strong foundations, and it is all now about execution. We have 13 million customers. However, to realize the advantage of that scale, we must drive more efficiency. We must complete our transformation agenda, and we must enhance our service proposition. Each business has a clear direction, has the right leadership team in place and must now deliver. I'm pleased with our progress and energized by the opportunities ahead. With disciplined execution driving momentum, we're deepening customer relationships and investing in our businesses to support sustainable returns for shareholders. Thank you. Justin McCarthy: Thanks, Anthony. We'll move to Q&A now. Our first question comes from Tom Strong from Citi. Thomas Strong: Just first question around the productivity benefits into '26. I mean you took $400-odd million in this year, and you've guided to $500 million in '26, but you've got the benefit of, I guess, incrementally $270 million from the Fit for Growth, which you took the restructuring charge for. So is that $500 million conservative, you think, in terms of the FY '26 opportunity? Nathan Goonan: Yes, why don't I start. Thanks for that. I think you've sort of read it the right way. That's a line item in terms of just showing on a consistent basis where we think the benefits of the restructuring charge, and then in the future, as UNITE becomes a more material piece of it, we'll continue to show our productivity benefits on a like-for-like basis through that line. As it relates to the greater than $500 million, I think that's the guidance that we've given. The benefits from the $273 million, we actually had a little bit in this year. So there's probably about -- we had $402 million productivity for FY '25. There's about $40 million of that will be benefits from the restructuring charge this year. And I think when we made the pre-release, we just made comments that we thought the rest of that will be phased reasonably evenly during FY '25 -- FY '26, and then there will be a little bit of benefit to flow into FY '27. So yes, look, we're expecting to do $500 million. We've got to wake up every day and strive to do better than that, but our guidance today is in excess of $500 million. Thomas Strong: Okay. That's very clear. And just the second question around UNITE. It was 35% to 40% of the investment envelope and you've clarified that, say, at 40%. You have kept the $2 billion per annum consistent over the next few years. Just given the reallocation towards UNITE and I guess, the decline in purchasing power over that time, do you think that $2 billion per annum is still appropriate as a view out to FY '28, FY '29? Anthony Miller: Look, I mean, that's a very good question. And you're right, we'll continue to ask ourselves, have we got that right. I mean in framing up $2 billion per year, it's really anchored around what can we do effectively and deliver, if you will, cost effectively and substantially. So it's really about the capacity of the company to deliver the change we need to undertake. If it's the case that we can prove certainly in what we deliver over the next 12 months that we can do more, then we'll remain open-minded about that. But at the same time, it's about balancing the capacity of the company to execute the change of cost effectively and also balancing -- making sure we deliver return to shareholders. So it's a balance that we'll have to navigate over the next 36 months. Justin McCarthy: Next question comes from Andrew Lyons from Jefferies. Andrew Lyons: Maybe Nathan, a question for you. I just want to try and flesh out how everything you've mentioned on expenses will ultimately impact growth in FY '26. So perhaps just referencing the various FY '26 considerations that you have provided us, can you perhaps talk in a bit more detail as to how you expect this to translate to the various moving parts that you have in your expense waterfall slide on Slide 27, please? Nathan Goonan: Thanks, Andrew. Good to hear from you. I guess I'm just going to try and find the slide, just give me 2 seconds. It's up on the screen now. So I guess a deep walk through these and maybe just happy just to go through them again and try and give a little bit more flavor as we go. I think we've looked at it on a -- the first thing is just to sort of look at it on an annual basis, Andrew, and that's what we've tried to do. I think on people costs, we do continue to think that, that will be an increase in expenses next year. We probably expect if you break that down a little bit, we've got some pull-through of things like the investment in bankers that we had this year. There's a pull-through of the superannuation guarantee coming through. So there's a few of those things. We probably expect that we'll have lower absolute wage growth. The EBA is into its second year. So it's a lower number year-on-year. But we do expect to continue to invest in bankers. So I think that number will continue to be a big feature as we look at FY '26. On tech, I guess my comment was just similar that we continue to think that, that will be a headwind. And then on volume and other, maybe just to break that one down a little bit and try and give a little flavor. Probably the one thing that's a little bit of feature of FY '25 was a reasonably material investment in the brand, which we're really pleased about and is important in investing in the business. And that was about $60 million in the year, $45 million in the half. So we'll have some of that flow through into next year, but maybe not as much. We gave the disclosure on UNITE. Clearly, that investment bucket is just going to be determined by how much skews towards UNITE and then it's expensed at a higher ratio than the other. So we tried to give a bit of guidance there. And then amortization was about $100 million for the year, and we expect that to be a significantly lower number. And then we've had the conversation about productivity. So they're the moving parts, Andrew. Happy to try and sort of be helpful or answer a follow-up on any one of those. But hopefully, in sort of laying it out that way, you get a picture of the moving buckets. Andrew Lyons: No, that's great. I appreciate that detail. I might just move on to my second one, just around volumes. You mentioned that mortgage growth ex RAMS was 0.8x system over the year, and you put that down to being a function of just focusing more on returns. But like to be honest, when we continue to speak to mortgage brokers and the like, we do still hear that even though the gap between the 2 bookends have closed, Westpac is still pretty aggressive on front book discounting. So I'm just keen to sort of understand how you recognize those or reconcile those two opposing views around pricing for growth versus still being pretty competitive from the perspective of brokers. Anthony Miller: Andrew, it's Anthony here. Definitely, we have to be competitive. And this product that is a mortgage today is a highly commoditized and very price-sensitive offering. So we just need to acknowledge that. The second thing is, yes, in certain areas where we felt it made real sense for us and the returns were right and reflected the customer base we have and want to get more of, such as investor loans, we were sharp on price. And we deliberately were because we saw the return and we felt it aligned with what we wanted to achieve. In terms of other parts of the portfolio, we were above market. And I know there's always lots of observations and commentary from participants outside the bank. Those were the two disciplines we set ourselves, which is we wanted to be sharp, we wanted to be very price-competitive in investor and then a couple of other segments that we're keen. And we were very happy to be above market on owner-occupied just given the shape of our book and the returns that we're going after. Justin McCarthy: Thanks, Andrew. Our next question comes from Ed Henning from CLSA. Ed Henning: I just want to go back to project UNITE and just dig into that a little bit more. You've told us today that you're investing more in '26 than you've previously announced and also the program is going to go longer. So the investment you're spending is more than you've previously flagged. Can you just give us a little bit more on what it's going to deliver in terms of financial outcomes and the timing of that? How much is actually during the program? And then how much is beyond the program? Or are you planning to give that at a later date? Anthony Miller: Well, certainly, what we'll be doing each year in March is giving you a comprehensive update on UNITE and giving you an opportunity to work and go through the detailed work streams with our team. So we'll definitely continue to provide that detail and that access to you. I mean in terms of the investment next year or this financial year of $850 million to $950 million, it's a deliberate range because it will be -- if we can invest that and deliver the outcomes we need to deliver, then we'll take that opportunity, point number one. The second is, in the construct of doing all of the planning that we've done and landing on the decision to go with one ledger, that necessitated us changing some of the investment profile of the program. And so therefore, we had to bring a bit more investment forward, which is why next year is a bit lumpier than we might otherwise have planned because with the decision to go to one ledger, we had to do more work upfront to be able to facilitate that migration in 24 months' time. And so that's the reason why it's a little bit lumpy thereafter. The second is that, we are keeping that investment envelope in a disciplined way at $2 billion because as I described earlier to the previous question, it's about the capacity of the company to execute and can we -- if we can deliver value and if we can, in fact, do more, then we will be open-minded to doing more. The other thing I would say is that in terms of the project itself being longer, I just sort of want to put some context in that for you. When we spoke to the market 6 months ago, we were completing and finalizing the investment and plan for a one ledger. We landed at the one ledger decision, and we had to replan accordingly. Previously, we had -- we had 30 September 2028 as the finish date, and that was just arbitrary that we wanted to have this program completed by the end of financial year '28. Now as a result of that replanning, reflecting the decision to go to one ledger, it's just worked out that we won't have all of the benefits accruing by 30 September 2028. It's likely to be a few months into financial year '29. So that's why there's a bit of an extension. There's just more accuracy that we can provide as a result of the planning we've undertaken. And the last thing I'd sort of say to the spot-on question you've raised, which is, yes, the nature of the program is that much more of the benefits do accrue later in the program. But there's nevertheless still, if you will, benefits being realized now, whether it be, for example, the small movement and consolidation into one private bank, that's already delivering us some cost savings. There's a number of other initiatives where we're already seeing benefits accrue. But the nature of this program is that what we're doing is we're taking all of these customers on two other tech systems and platforms and migrating them onto one tech platform. And only when you switch those two off and you eliminate all the products and processes that, if you will, have to be executed on those two platforms, do you start to fully realize the benefits, the cost to run that follows from that, the cost to change that follows from that. So it is tapered to the back end in terms of the benefits that will be realized. And the premise that we have with UNITE, its key feature is that it helps set us up in a way that we have structurally lowered our cost base so we can really start to achieve our aspiration, which is a cost-to-income ratio that's better than the average of our peers. Ed Henning: And just following on from that, you know, in March coming up next year, are we going to be able to get at that point what you think the savings will be through the period and at the end of the period? Or are you not ready to tell us that? Anthony Miller: Look, we have absolutely clear in our mind as to what we want to achieve as a result of the investment we're undertaking, which represents UNITE. But what I'd rather do is make sure we're delivering and we're executing before we start talking about outcomes. But rest assured, the whole focus here about UNITE is if we can consolidate the new-to-bank processes and systems onto one bank process on one system, then we would expect that, that sets us up to be able to drive to a cost-to-income ratio that's very competitive as compared to our peer. Nathan Goonan: And maybe I'd just add one thing, Ed. I think it may be different than some other programs, but I don't think it's necessarily a program where you take total spend and total benefit sort of narrowed in on just the UNITE benefits and sort of try and make sense of it that way. This is sort of large structural opportunity for us to then get our cost-to-income ratio much better than where it is today. And so I think in some ways, it's a critical enabler of what we've got to do on productivity, but it cannot be the only thing. And so what we're committing to do is just try in a transparent way, as we go through the program, highlight the benefits that we've got from our spend as we go. And then you'll also hear us continuing to talk about that productivity bar that I've already had one question on because we want to be held accountable for making the organization more efficient as we go, significantly enabled by UNITE. So it's going to be more than just the UNITE productivity that you'll hear from us. Justin McCarthy: Our next question comes from Matthew Wilson from Jarden. Matthew Wilson: Two questions, if I may. Firstly, we've seen a nice pickup in your business banking volumes. You're winning share there, which has been really good. However, it's taken 50 basis points or so off the net interest margin. Obviously, there's some reclasses in there. How should we think about how you'll manage the volume margin trade-off in that business right now? Are we at a base that we can grow within without impacting the margin too much? Or should we expect further? Anthony Miller: Why don't I invite Nathan to take first swing at that, and then I'll add some comments on top. Nathan Goonan: Thanks, Matt. And I think it is a good question. And clearly, when you get into the divisional disclosures, it is a number that stands out. I think it's just important, I think, when we're thinking about margins just to make sure we sort of go back up to the top of the house, if you like, and just think about what are the movements in the margin that are happening at the group level. And then the divisional is really a proportional impact of those. So we've made the comment that when you look at business lending margin at a group level, it contributed less than a basis point. I appreciate some of that is just the math of materiality relative to the mortgage book. But more importantly, when you look at the business lending -- business margin at a division, you've got pretty significant impacts from the deposit side of the book. So I think the right way to look at that is sort of just the business lending, which is where your comment was going. Business lending revenue was actually up 7%. So the margin point around the lending is not as material as the overall divisional thing, just given the impact of the deposits. I'd probably say just a couple more points, and then I'll let Anthony come in. I think the lending margin was more stable in business lending in the second half than it was in the first. And I sort of continue to sort of expect trends into the first half are going to be a little bit more like they were in the second half than what they were in the first. So we don't see that accelerating. I think that's really driven front book, back book in our business lending books are much closer together now. One of the features, I think, of this book maybe relative to peers is when you've been out of the market for a little while and then you do reenter the market and accelerate, you can have a bit more of a pronounced cycling from back book margins on the front book margins. And so we might have seen in any given period a little bit more here than others. But I think we're now at that spot where that's much more in equilibrium, and we should move more in line with peers. And then I'd just say sort of two more points. Looking forward, I think mix of this book will be almost more important than pricing. So there is a significant difference in margins between the subsegments, whether it be the size, so corporate versus SME versus small, there's a significant difference between sort of working capital solutions and term lending. So getting that mix right will probably be a bigger determinant than pricing itself. And then just last point on pricing, Matt, not to labor the point. But I guess I've come in and met with the team and spent a lot of time with them on this particular point. And there's probably nothing that I'm seeing in the pricing here that is that different to what I would have expected or seen elsewhere. I think the team are putting their firepower around retaining their existing customers. And so you see pretty good levels or high levels of retention of existing customers when they go to market, and that's good business, and we continue to encourage that. And then where they're trying to be a little bit more disciplined on price is just on the new-to-bank. And so we're probably seeing new-to-bank win ratios drift down a little bit in the last 6 months, but the business is still growing well, and we expect it to continue to take share next year, so a long answer. Anthony Miller: No, no, you hit all the points, and thanks for doing that. I mean I would just say that the growth that we've seen over the last 12 months, Matt, was in, call it, the higher grade part of the book. And so margins there, as you would expect, slightly tighter, but the return on tangible equity was very attractive. The other thing that we were pleased about was that, that growth with existing customers and those sort of retention rates in the sort of high 90s. And then win rates in the context of new to bank were in sort of much, much, much lower than that. So we're really, really thoughtful about where we deployed and where we grew. And we knew that there would be, if you will, some consequence to margin, but it was the right way to go after the opportunity in front of us. The only other sort of additional point to make about business bank, with that growth in the loan book being sort of 3/4 existing customers, only 1/4 new customers, what was really pleasing is that we saw a 13% growth in the transactional account, which we think is a really important sort of opportunity and capability we have at the bank. That 13% growth, what was very pleasing was that sort of about 53%, 54% of that growth was with new-to-bank. So we're bringing new customers in on a product suite that's a really attractive, a, return; but b, also a risk profile for us as a company. So we quite like the way Paul and the team are driving the shape of that growth in that division. Justin McCarthy: Matt, hopefully, your second question doesn't require such a comprehensive answer. Matthew Wilson: Hopefully not. Just with respect to your targets, so 6 months or so ago, you decided to set relative cost to income and ROE targets. In the interim, one of your key peers has sort of changed that line in the sand by producing some absolute targets. How have you responded to that? Because it makes your task a lot harder at the current scenario? Anthony Miller: Look, I expected this question. And in fact, I think I expected it from you, Matt. So thanks for playing consistently. Look, I respect Nuno immensely and what ANZ has done and he's put a marker down, and I wish him well, and we'll watch that process develop from here. We've spent a lot of time and effort to get a plan together, and we have that plan in front of us. And so I think our ambition, which is to be very focused on how do I structurally reset this company with UNITE, how do we then go after the productivity equation year-in, year-out over the next 36 months, bringing those together, we can see where we can get our cost-to-income ratio at a point which is better than our peer average. And so that's -- we've got clear goals, clear targets that we need to deliver, Matt. I'd just much rather, if you will, deliver and be dropping outcomes along the way rather than sort of putting some bold number in front of you. I think it's fair to say, as a company, we probably haven't the right to do that. We put a number in front of you 4, 5 years ago, and we didn't get to it. And so frankly, what we need to do is deliver and then talk about bold numbers and outcomes. Justin McCarthy: The next question comes from John Storey from UBS. John Storey: Firstly, obviously, on the Consumer division, you've seen quite a big improvement half-on-half. And just looking at some of the diagnostics on the actual Consumer division, reported customer surveys, NPS scores are pretty stable, Anthony, as you called out. But one thing that is pretty evident is your MFI number has dropped quite a bit. Maybe if you could give a little bit more details around that? And then just secondly, on the Consumer division, maybe just around the start of the financial year, if you could provide a little bit more color on how the division has been performing, particularly with regards to new business volumes and then also just channels in terms of where mortgages are coming through. Anthony Miller: Look, thanks for that question, John. And so Nathan, you're welcome to jump in as you see fit. Look, you're absolutely spot on. We have an aspiration to lift our MFI ranking from where it is. And if there was one aspect of the performance in Consumer, which has done some great work over the last 12 months, there's one area where we're disappointed and we're actively engaging on is the MFI outcome in Consumer. The irony is that the MFI score has come down a little bit, yet deposits have grown at a very attractive level of 10%. And we've done more work. And as we've unpacked that, we've noticed that actually it's much more in the context of what we call the regional brands, St. George, BankSA, Bank of Melbourne. And part of that is connected to the fact that we were less aggressive in how we were pricing our mortgage book in that area. And as a result, we saw some attrition in the transactional account, the MFI accounts that we really want. And so that was a really humble reminder to us that about not just looking at products like mortgages in a stand-alone only return setting, but to really think about the whole of customer and are we getting the balance right. And we've recognized that in that area, in particular, we weren't getting the balance right, and we've addressed that accordingly and are much more focused on how we grow and support those customers and obviously graduate the MFI. Pleasingly, as it relates to the Westpac offering, the MFI there has started to improve, and we're certainly pleased with the outlook and the momentum that we've got in that. I would say that the others -- if I think about also MFI in the space of 12 months in business banking, they've been able to lift it by well over 1 percentage point. So it does highlight that we do have the offering. We do have the product. We just simply got to get -- make sure it's a priority across the organization, which it now is. Nathan Goonan: Maybe I could just add a little bit on the current flows, John, just to take your second question. I would say that we've -- and Anthony mentioned this in his preprepared remarks, we've probably seen, well, one, I think the market is, in particular, your question goes to home lending, then I think that mortgage market has been accelerating. And I think that's been sort of well covered in the market, and you can see it in the system stats. We're certainly feeling that or seeing that. So we've had increases in pretty much every channel, and we're seeing increased applications. And so front-of-funnel activity, as Anthony said in his preprepared, is probably a little bit higher than where we've been trending on a market share basis over the second half. So we're probably at or around system wouldn't surprise us if our front-of-funnel actually meant that we had a couple of months here where we're a little bit above system. That has been growth in all channels. I think pleasingly, we think October, we're going to see a little bit of volume growth in proprietary. I think the team are very cautious when we talk about green shoots there, and Anthony said it's sort of years, not months. But I think as we've seen proportional increases in applications, the proprietary channel has been performing better than it was in prior periods in that period on a proportional basis. So that continues to be good. And maybe the other thing just to add that may be of interest, John, I think the first homebuyers guarantee scheme has certainly stimulated some interest, whether it was some pent-up demand there, but we saw sort of applications in the first couple of weeks when the changes were made almost went to 2.5x what they were for the first homebuyers guaranteed. It's moderated a little bit. I think last week, it was about 2x what they were. So it's still double. How much of that pulls through? So we're seeing a lot of that volume. I think how much of that actually fulfills is a bit of a wait and see, but it's certainly still a small portion of the bank, but it certainly stimulated some demand. Justin McCarthy: Our next question comes from Brian Johnson from MST. Brian Johnson: Welcome, Nathan. I had 2 questions, if I may. The first one is, I'd just like to understand, you've got a bucket load of surplus capital. You're trading at, I don't know, about 1.8x book. I just want to understand the strategic rationale behind selling RAMS when a buyback, for example, is not as accretive. And also if we could understand any kind of litigation risk or warranties that you've made to the buyers in respect of this business? And then I had another question, if I may. Nathan Goonan: Okay. I'll just start on a couple of specifics, and then Anthony can jump in. I think one of the important features of the transaction, Brian, is that it's an asset sale. So just by virtue of that structure means that we're retaining the entities. And then the assets, it's a loan sale. So effectively, the asset is transferred to the buyer. As part of that, we've given sort of customary reps and warrants and other protections for the buyer so that they know that the asset they're buying is effectively going to perform in a way that it says on the tin. So that's things like title and the enforceability of title and things like that. So all customary things. In particular, as it relates to things like indemnities, you just don't need to given the structure of the sale, that will just stays with the existing entity that we retain. Maybe just to give a little bit of a picture as to the financial impact of it, Brian, because I think prima facie, I would agree, it does -- you sort of -- every day, we wake up and compete really hard on household mortgages. And so it's a core product of the bank. And so prime facie, you've got to scratch your head a little bit when you're then willing to sell a portfolio of home lending. But there's a couple of important points here. It is on a completely stand-alone set of technology. So it's a business that runs almost independently from the rest of the business. And so you've got a cost base here that by the time that we get to completion will be almost equal its revenue base. And it doesn't necessarily give you the type of scale that you might intuitively think in your mortgage business, is sort of one of the key features of this relative to, say, just ceding a little bit of share. And maybe, Anthony, you can touch on it. The other key point is we've made quite a few statements today just about the inherent strength of the deposit franchise, the ability for us to go after transaction accounts in terms of being a strategic advantage for us as we think about our balance sheet structure. And this is a business that has, if not 0, very close to 0 crossover in terms of deposits into the mothership. Anthony Miller: I probably just develop a little bit more on one point, which is, our current mortgage book, Brian, is, let's call it, 21% market share. But essentially, we've got 3 different systems upon which it's spread. So in effect, I've got 3 small banks, 3 small bank cost challenges, 3 small bank compliance, 3 small bank risk challenges in managing the mortgage book. And so UNITE was about moving all of those onto one way of doing things on one target tech stack. And so we were always going to have to spend quite a lot of money, and we're going to have to spend a lot of effort and consume a lot of resource to move the RAMS mortgages onto the target tech stack. And so therefore, if there was an opportunity to do that much faster and more efficiently, which this asset sale represents, then we were open-minded to it because essentially, I have 1 percentage point less market share. But now instead of it being spread across 3 regional bank cost basis, it's spread across 2, and we're on our way to getting one. And importantly, if we complete this, as we target, in 2026, I'm accruing that run cost saving, operational complexity reduction, risk reduction 2 years earlier than was otherwise planned. And so therefore, that's an attractive outcome for the bank. And as I say, 21% or 20%, my scale is wasted on 3 systems. And so I've got to get to the one system to really enjoy the benefits of that scale. So that's why this opportunity made sense. And that's why when we found the right parties, who would be the right owners of these assets, it just made a lot of sense for us to get after it. Brian Johnson: Anthony, just as a subset of that, can I just clarify, there was a story in one of the media reports talking about ASIC and AUSTRAC talking about this. I think subsequently, we've seen a very, very small ASIC fine. Can I just confirm that as far as you're aware, within the RAMS business that you're effectively retaining the risk? Anthony Miller: Correct. So to the extent that we've engaged with the regulators, and it's well documented on a whole range of issues and concerns they had with the way the RAMS businesses were led, managed and prosecuted, we've now -- obviously, we retained that. We've just simply sold the assets. And more importantly, it allows us, as I say, to switch off or get off one of those bank systems. So nothing has changed in terms of the risk profile we had as a result of the ownership of that business. It's just simply much cheaper to run from here. Brian Johnson: So can you address the question, though. There is no AUSTRAC issue? Anthony Miller: Nothing that has been brought to my attention, Brian. Nothing has been brought to my attention. So I don't -- you'll have to send me the article or reference and sort of what context in which it sits. But in the context of AUSTRAC matters vis-a-vis RAMS, I don't have anything in front of me on that front. And I'm looking across at my General Counsel and my Chief Risk Officer, and they equally are acknowledging that we have no such issues at this point. Justin McCarthy: Thanks, Brian. Our next question comes from Jonathan Mott from Barrenjoey. Jonathan Mott: Just a question on UNITE, back to the topic that we talked a bit before. You give us a kind of a traffic light scheme on how the business is going, but there's been a bit of a change in the disclosure. At the first half, you had sort of the green amber red. And now you've got in scope. I'm just looking at Slide 16 here, you've got another classification in scope. And then you've had an increase in the number of amber and a small change in red. Can you give us an update on what that means? Why you're now saying this is scope confirmed? And if you're looking at 18 of the 38 are actually already in the amber and red. Anthony Miller: So thanks for the question, Jonathan. And just sort of let me break it down for you. As a result of all of the planning undertaken, we now have a plan in front of us, and we know what we need to do, in what sequence we have to do it. Those 13 scopes confirmed are essentially 13 initiatives that we now have a plan for. And at some point, over the course of the next 36 months, those, if you will, initiatives will have to be worked on. And so at the moment, not all of those 13 have commenced. And so therefore, to characterize it as green, red or amber is slightly redundant. And so therefore, the others, which we're now moving on because it's a real program of sequence. It's about what we do and how we follow up on each particular completion of work. And so these 13 initiatives will be done. And to the extent, once they start work on them, we'll then obviously recognize whether they're meeting the standards we set, meeting the time line we set, meeting the cost we set, and that will then determine whether they're characterized as green, amber or red. And when we were talking back in May results, 7 of the initiatives at that point were red, and it's now down to 5. What's happened is 4 of those 7 have now moved into Amber Green. One, in fact, has been completed or effectively exited. And so that's behind us. But we've also had 2 new -- or 2 initiatives being recharacterized as red. So that's why there's that change from 7 to 5 over the course of the last 6 months. What we'll keep doing, Jonathan, is to the extent that there's some confusion there, we will get sharper in how we set it out for you because I do want everyone at all times to see that this is a large -- this is a challenging complex program of work. We're absolutely committed to it and most importantly, committed to making sure that there is no surprises as we go through it. And so if we can do better in sharing with you where we're at, we will look to tidy that up as we go forward. Jonathan Mott: And second question, if I could. If you're looking -- I'm looking at Slide 22, 23, I think it is, which just shows the growth in deposits and consumer pretty strong at $15 billion and then $12 billion in mortgages if you exclude RAMS. But including in that number is very strong growth again in offset accounts. I think it was up another $5 billion. You've now got $73 billion in offset accounts. So two things about that. Firstly, are you comfortable with the growth in net of offset accounts because it really is lagging the system? And I know you said you want to get your service proposition right, but are you comfortable with that? And also, given the offset accounts are nearly all against owner-occupied property, it actually means your investor book, as a percentage of the total, excluding offsets, which is just sort of a deposit sitting there, is a lot larger. So can you ask us sort of that considering this net of the offset accounts? Anthony Miller: I'll make a couple of comments and invite Nathan to jump in. I mean, certainly, you're right to call out that the deposit agenda, the idea that we grow deposits and more importantly, get the shape of that right, John, is absolutely not where we want it to be, albeit we're really pleased with the progress we've made, but we would like a lot more in terms of the shape of deposits. And we were disappointed and acknowledge that, that we didn't catch what was happening in the regional brands as fast as we perhaps should have, and that's on myself. We're very much focused on now addressing that. And I think we've got that properly, if you will, tackled, and it's just about how we get after that over the next 12 months. I'm just really pleased though that the Westpac side of the portfolio is continuing to improve and is, obviously, a really critical part of our portfolio there on transactional and savings accounts. I suppose there's definitely -- there's things that if I think about our service proposition, one of the areas that I reflect on is making sure that transactional accounts, deposit services and servicing on that front is front and center for every banker in the company. And we've done a lot of work to recalibrate, for example, scorecards and incentives to make sure that all of our bankers in consumer and business bank understand the priority we attach to that. And pleasingly, we've got a good enough product suite, which means we can be very competitive. And I do feel like we're after that in the right way. I missed the second part of the question? Nathan Goonan: No, I think you've covered it well. Maybe, John, just to add 2 points. I think that you're right to call it out. There's about, as you said, 7% growth in offsets in the half, but importantly, 6% in savings as well. So we have seen strong growth in both those items. I think -- and you're right to call it out in the way you did. The growth in savings accounts is about attracting customers on the liability side and the offset is much more about the business that you do on the asset side. And there is a strong customer preference towards those. They've been growing, as you know, quite strongly as you move from a fixed rate portfolio into a variable rate portfolio, and we're pretty much exclusively there now. As we grow that side of the book, we'll continue to see growth in the offsets. Whether you're trying to target a certain amount of offsets or whether you're happy with it or not, I think it's a key feature of the mortgage product, and there is a strong customer appetite for it. Anthony Miller: Probably the other point you did raise was about investor loans. And we're very keen to continue to be competitive in the investor loan segment. That demographic, that audience is an attractive customer base for us. And we see a real value in being very supportive there on investor loans and more importantly, then converting and making sure it's a whole of bank, whole of customer relationship that follows from that. Justin McCarthy: Our next question comes from Carlos Cacho from Macquarie. Carlos? Carlos Cacho: First, I just want to ask about on your margins, your replicating portfolio benefit is expected to diminish from 3 bps to 1 bp. I was just wondering if there's any other potential tailwinds that are worth calling out as you head into FY '26 because it's mostly negatives that you mentioned as you walk through the waterfall, Nathan. Nathan Goonan: Carlos, Justin has given me the signal for one word answer. So maybe I'll jump straight into it. I think we did just try and lay out as helpfully as we can, Carlos, and happy to sort of pick it up later in the afternoon to the extent helpful. But I guess the other point that we made, if you narrow in on things where we could get a tailwind, I think term wholesale funding markets have been better. So we do expect a tailwind there. We do expect to continue to get some replicating portfolio benefits. We called out a basis point there, which is sort of net across the replicating portfolio and then the unhedged deposits. So there's a little bit of support there. And then I think maybe the other one is just to say on liquids. I think that has been a bit of a volatile item for us quarter-on-quarter. We did expect a sort of increase in investment securities at the third quarter that maybe didn't flow through to the same extent we thought. I do suspect as we go forward into the first half, just where the customer balance sheets are up to and how growth is going, we probably expect liquids to be down a little bit in the first half. And so while neutral to earnings, there might be a little bit of a benefit that flows through there. Carlos Cacho: And then just secondly, you've spoken about wanting to do better in proprietary mortgages. And obviously, it's a long-term strategy. But where are you expecting to win? Or where are you seeing wins come from? I presumably, it's either got to be a new customer who's a first home buyer or they're coming from other banks where they're proprietary or they're coming from brokers? Like do you track that? Is there particular targets you're hoping to do better in? Anthony Miller: Look, I mean, good question. I mean what we've got to do is just get the basics right in terms of how we go after proprietary. So we've got to get the service proposition right. We've made real progress. We've got to get the product right, and we've seen improvement in product NPS, time to decision down inside 5 days. We're operating and executing mortgages more efficiently than we have in the past. Our hygiene and data is in a much better place. So the returns are much more, if you will, better reflected in that. And then I think the things for us, though, is we just got to get, for example, more bankers. We lost too many home finance managers. So we're catching up on that. That takes 6 to 12 months for a good home finance manager to really get into their straps. And so we've started to get that resource allocation right. We certainly got to get a better compensation and incentive arrangement around for our home finance managers, and we've now got that right. We've got the scorecards right. We're also, at last, really taking the full power of the company in terms of the range of data and if you will, insights that come from all of what we have across the entire company to help get behind the home finance managers and give them real leads, which represent real insights and allow us to be much more proactive. And then you heard Nathan talk about investing in the brand. We spend a lot more money to get the brand profile up. So we're just putting in place all of the basics to really get after this area. And I'll be very candid with you. There's nothing more dramatic than just getting all those basics in place to allow us to get after it. It took us a number of years to get to this point. It's going to take a little bit of time to get out of this particular position. But I think we've got what we need to execute. And I was really pleased with some of the actions we took in private wealth last year, which we've already seen a really improved turnaround in first-party in private wealth, which tells us that if we get after this as we have in private wealth and consumer, we can deliver that same turnaround. It will just be, I think, a reasonable period of time of effort to get there. Justin McCarthy: Our next question comes from Andrew Triggs from JPMorgan. Andrew Triggs: I might just ask one question. Deposit mix shift, should we expect that to slow significantly next year? And maybe, Nathan, if you could break that down, please, between the percentage of deposits in behavioral savings versus the percentage of those products themselves where the customers are qualifying for the bonus rate? Nathan Goonan: Yes, I think on the deposit mix spreads, you've probably rightfully called it out. It's probably just really a story for us around the growth that we've seen in that consumer savings product. I think at an overall book level, we've had decreases in proportion to term lending. So I think the bigger determinant of going forward margins, which is really where you're going, is going to be on the savings product. And I would say a couple of things here. I think certainly, this is one of the areas where fourth quarter was a little bit -- showed a few different signs in the third quarter. So we saw, I think savings -- the savings balances in the fourth quarter grew $5 billion. They grew $2 billion in the third quarter. We've said there that we've got about 84%. I think we've given you an annual number there that are the people that are qualifying or achieving the bonus rate, that was actually probably a little bit lower through a couple of months in the middle of the year and then picked up a little bit in the fourth quarter. So I think those 2 main things are things that I'm expecting will flow through into the second half. It's probably -- into the first half. It's probably not so much a mix shift into these products, Andrew. It's much more that's where we're seeing the growth. Justin McCarthy: Our next question comes from Richard Wiles from Morgan Stanley. Richard? Richard Wiles: I'll just ask one question, too. It's following on from Matt Wilson's question around the business bank margin. In your business and wealth update a few months ago, Slide 17 showed the composition of the underlying margin decline. It was 22 basis points, and it was split across portfolio mix, deposits and lending. The decline in this half, Nathan, was 18 basis points. So actually pretty similar to the first half in terms of underlying trends. Could you give us some commentary around the mix between portfolio deposits and lending? Were the trends pretty similar? Or did they start to skew? Nathan Goonan: Yes. Thanks, Richard. Yes, I think my comments earlier to Matt, sorry if that was confusing was just really around the business lending part of that equation. So I think in the second half or in the more current period, we've seen a more moderation of the impact on the lending side. And you would have seen -- for all the reasons we've been speaking about on the deposit side, you would have seen a bigger -- a proportionately higher impact in the more recent period from deposits. Richard Wiles: Okay. So lending was 7% in the first half and deposits was 9%. Lending went down, deposits went up as a headwind for margins? Nathan Goonan: As headwinds, yes. Justin McCarthy: Our next question comes from Brendan Sproules from Goldman. Brendan Sproules: I just have a couple of questions. Firstly, on the Markets and Treasury contribution for this half, it looks like it's running at a run rate of sort of about $2.2 billion. Can you maybe talk about some of the benefits that were achieved this half? And will those sort of repeat into 2026? And how does the $2.2 billion relate to what you would think is a normalized level of earnings from these 2 divisions? Nathan Goonan: Yes. Maybe we can break it down a little bit, Brendan, and then Anthony knows that business well. I think it is very challenging in these business to grab 1 quarter and annualize that and sort of expect that that's where you're run rating -- like -- well, sorry, it is where you're run rating, but to expect that, that sustains over 4 quarters. So I think with these -- certainly, the markets business is a pretty mature business now. It's got a really strong FX, fixed income capability, and it's a pretty mature business now that would be -- should all market conditions being equal, just growing more in line with the underlying activity of our clients and the loan book growth. And then, Nell and the team have got ambition and are doing things to grow out a few more strategies that can build income sustainably in that franchise over time. But I think I would just think about that as more -- it should be producing pretty stable performance on the FX and the fixed income, and it will be more determined by underlying activity. In treasury, I think similar, we've got good disclosure on that over a long period of time. I think that number in and around $1 billion for the treasury has been a pretty consistent number. I think a couple of years ago, we might have had a $600 million, but I think in and around that area is about right. We're probably issuing a bit less wholesale funding, which gives them a few less opportunities. And even with the RAM sale, we expect to do a little bit less in that space. So maybe it comes off a little bit. But there's a few comments, Anthony. Anthony Miller: Yes. Look, I mean, definitely, the financial markets business, it's, I think, the leading franchise in the market now. A couple of just extra comments. I think there's real upside for us in the FX product suite and the penetration into consumer and business bank at Westpac is less than what it should be,, given the quality of the FX franchise we have. So there's real upside there in servicing our existing customers in consumer and business bank. Likewise, I think we're underweight in a few aspects like commodities and aspects of that business, which we see as a real positive for us. Perhaps the real sort of interesting jewel in the crown in there is just the credit business, the credit trading, the credit market making. Now that Australia with its savings bill is actually a genuine capital exporter, and we have a lot of Kangaroo bond issuance into this market, the franchise that we have there in terms of credit market making, origination and, if you will, distribution into this capital market is pretty impressive. It's the best in the street. So we're quite excited about how much more we will see in that business as Australia's position with the superannuation funds makes it a real destination for people to raise capital. Brendan Sproules: That's very helpful. My second question is just on Slide 29 around the impairment provisions. I mean, in this presentation, you've talked, Anthony, about the improving operating environment for the bank. You've also showed some lead indicators on asset quality where you're seeing impaired assets, for example, fall. I was just wondering what the thought process was around increasing the overlays and specifically the downside scenario weight and actually growing your excess provisions above base case in this period. Anthony Miller: I'll just let Nathan make a comment, but it was a robust process. And because clearly, the settings and outlook has continues to be surprisingly benign, but we need to be constantly vigilant and, if you will, balanced about what is going on and what may come our way. And so that's been a very congested and well-developed discussion inside the company with Nathan and I about what's the right outcome here. But Nathan... Nathan Goonan: Probably just to add, I think, Brendan, I think just take it as an indicator that we put a high value on medium-term earnings stability. And so I think when we think about this, it's similar to increases in hedge balances and then the management judgments around that. We've tried to just err on the side of a little bit more stability over time. Justin McCarthy: Our next question comes from Samantha Kontrobarsky from HESTA. Sam? Samantha Kontrobarsky: I'll just keep it to one. So you've recently appointed a Chief Data, Digital and AI Officer, which is a new step for the business. As you bring these areas together, how do you see this changing how Westpac competes? Is it mainly about efficiency and cost? Or could it fundamentally reshape the customer experience and growth? Anthony Miller: Thanks for the question, and that is what I work on every day in terms of how do we get that right. There's no doubt that there's a lot of hype and a lot of, if you will, excitement around the AI revolution or evolution, depending on who you speak to. We certainly think that its capacity to help us be more efficient, help our employees get their job done better, safer, more consistent is a really big and important opportunity that comes from having the right AI program. And so that was one of the key sort of drivers was to get a global thought leader working for and with me in terms of how do we look at the way we do things in the company and how can we do things better. It's a wonderful tool in the hands of employees, but you need to, therefore, invest in your employees and make sure they understand how to use this tool and how they can make it or can help them be more efficient. So that's definitely one emphasis. And there is definitely really interesting ways in which it will help us serve customers and provide a more attractive service proposition to our customers. And we're sort of already taking some of the model capability with this Westpac Intelligence layer, taking all of the data and all the signals that are coming into this company and using that to make better, faster decisions, which allow us to get back in front of our customer more proactively. So we're seeing it, Samantha, also help us in terms of being really good with our customers with a view that, that obviously drives engagement, connection and revenue ultimately. Justin McCarthy: Thanks, Sam. We'll move to some questions now from the media. So our first question comes from Luca Ittimani from The Guardian. Luca Ittimani: Can you hear me right? Justin McCarthy: We got you perfectly. Luca Ittimani: I just wanted to check. So in the wake of the Fair Work Commission decision, do you intend to change your work-from-home policies at all? Have you seen more applications or requests from staff for new or more flexible work from home request? Anthony Miller: Well, we have one of the most flexible work-from-home policies positions in the marketplace. So I think what we are going after, which is finding that balance for our people, I think we've got that right. So no, I don't need or feel a need to change that particular setting. We're also just reflecting on what we might do in response to that recent work-from-home decision by the Fair Work Commission, and we'll land on a decision as to what we will do later this week or the next. What I would also say is that we've got a tremendous level of engagement from our people. And if I look at some of the OHI scores and other engagement measures, just highlighting people are really engaged and really excited about what we're trying to go after and what we're trying to achieve as a company in terms of for our customers and in terms of how we work together as a team. So I feel really encouraged by just where we're at and motivated to go further with what we've got. Justin McCarthy: Thanks. Our next question comes from James Eyers from the AFR. James Eyers: Anthony, you've spoken about this deliberate pricing to attract investors in the residential property market. And you can see on Slide 66, your investor loans and interest-only loans, sort of the second half flow that is tracking well above the averages of the book. The sort of house price data out today showing house prices sort of growing at the fastest pace in a couple of years. And we saw that APRA data on Friday showing investor lending is pretty strong, like sort of 7% annualized, I think. You just said in response to John Mott's question, it was an attractive customer base. But could you just talk a little bit more about that? Like why are you targeting more investors? Are they sort of a better credit risk than owner occupiers? Is there a cross-sell opportunity for you? And do you foresee a little bit of a squeeze on the first homeowner buyers as a result of this investor growth that we're seeing come through? Anthony Miller: Well, I think we're seeing a squeeze on the entire market because of the demand, whether it's first-time buyer investor, there's just a lot of demand. And the key challenge of the day is we've got to get more houses built at the right price point, James. So every aspect of demand is being supported and is going fast, which is only driving the challenge and making it harder. In terms of the investor segment, I mean, yes, it's an attractive segment in terms of from a credit risk perspective. And yes, you're right in terms of, I don't like the term, cross-sell, but the idea that these are people who are investing in property who, therefore, may need an incremental services and support and how do we, therefore, bring this entire bank to them is something that I'm really drawn to, and we see it as a real opportunity for us. And we just got to, I suppose, go about it thoughtfully and be careful about the outlook and the risks that come from sort of going too far, too fast in a particular segment. But we think we've got the balance right. And it's interesting that we're forecasting a sort of 9%, almost 10% increase in residential house prices over the next 12 months. So it's certainly a positive outlook for people who can access the property market. James Eyers: Just a really quick supplementary on that risk -- go on, sorry. Justin McCarthy: No, you're right, James. Keep going, sorry. James Eyers: Just a really quick supplementary on that risk point, Anthony, we saw Lone Star make some comments in July that they begin sort of engaging with banks on implementation aspects around macro prudential tools just to make sure that could be activated in a timely manner if needed. And like back in 2015, I think you sort of had the investor loan growth sort of going above 10% and brought back to that number. And then there was an interest-only element in 2017, where they were sort of looking at that being about 30%. You're at 20% now, I think. So it's well under that. But how much sort of hotter do you think this investor lending growth trend sort of would need to get before you're in that territory again? Anthony Miller: Look, I don't have that answer, James, but we are very much or very cognizant of the balance we need to find. And we engage with the regulator. APRA is a terrific partner to us, and we engage actively often deeply with them about all of these particular issues. And so we'll be making sure there is no risk or issue there vis-a-vis the regulator. Equally, it's an opportunity that we've been pursuing over the course of the last 6 months, and we will continue to pursue it, but it will be balanced around the return. It will be balanced around the risk and it will be balanced around is it that we're converting these opportunities into broader, more substantive customer relationships and not just simply a lender loan. Justin McCarthy: Our last question comes from Steven Johnson from Seven West Media. Steven Johnson: Steven Johnson here from The Nightly news website. Anthony, earlier in your presentation, you said that you want to see more housing around the -- available for the $500,000 mark. Would you be able to explain why you want more housing available for $500,000? And what your typical debt-to-income ratio limit would be now considering the cash trades at 3.6%? Anthony Miller: So the thesis around just sort of promoting the idea that $500,000 is the right price point is really sort of predicated on the following: Median income in Australia is approximately $90,000. When we finance someone in the acquisition of a house, we will lend in the order of 5 to 6x their income subject to expense verification and the like. And so therefore, you've got something anywhere between sort of $450,000 and $550,000 of mortgage capacity. And then, of course, just assume, say, a 10% deposit. And so all of a sudden, you can see median $500,000 as a house, $500,000, $600,000 is just really critical if we're going to solve for, call it, average Australia or the median position in Australia. And the challenge is that properties are being built in major capital cities and the median house price of houses in capital cities in Australia is over $1 million. I am drawn to the fact that median house prices in regional Australia are closer to sort of $500,000, $550,000. And so I feel like Regional Australia is part of the solution potentially here. But I would say that the key is let's build more properties at the right price point to allow people to get access to the market. And so when we talk about building more properties, it just can't be building more properties that doesn't solve the actual challenge. How do we ensure the average Australian gets a chance to buy a property and live in their home of their dream. Steven Johnson: So basically, it's also a social issue that there's too many houses are at $1 million, the average full-time worker can't afford that. Are there going to be some societal challenges, some aspects that would hurt Westpac lending. Anthony Miller: Well, look, I think our success as a company is inextricably linked to the success of this country. And one of the challenges for this country is to get more housing, have more Australians being able to own their own property. And so therefore, I think it's really important. The challenge is that when you think about the cost to construct, you think about the time and cost and process for approval, all of those features contribute to it being very hard to be able to build a house at that price point. And so therefore, I think it's not sort of dependent upon developers and contractors, but it's really important that the entire community, government, regulators and all of us work out how can we create an environment where it's cost effective, it's rational and it's reasonable to expect you build house for $500,000 to $600,000 in Australia. Justin McCarthy: Thank you, Steven, and thanks, everyone, for dialing in. We'll be available over the course of the day. Thank you very much.
Operator: Greetings. Welcome to Freshpet's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note today's conference is being recorded. At this time, I'll now turn the conference over to Rachel Ulsh, Vice President, Investor Relations and Corporate Communications. Thank you, Rachel. You may now begin. Rachel Perkins-Ulsh: Good morning, and welcome to Freshpet's third quarter 2025 earnings call and webcast. On today's call are Billy Cyr, Chief Executive Officer; and Ivan Garcia, Interim Chief Financial Officer. Nicki Baty, Chief Operating Officer, will also be available for Q&A. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements related to our strategies to accelerate growth, progress and opportunities and capital efficiencies, timing and impact of new technology, capital spending, adequacy of capacity, expectations to be free cash flow positive, 2025 guidance and 2027 targets. They involve risks and uncertainties that could cause actual results to differ materially from any forward-looking statements made today, including those associated with these statements and those discussed in our earnings press release and most recent filings with the SEC, including our 2024 annual report on Form 10-K, which are all available on our website. Please note that on today's call, management will refer to certain non-GAAP financial measures such as EBITDA and adjusted EBITDA, among others. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for how management defines such non-GAAP measures, why management believes such non-GAAP measures are useful, a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP and limitations associated with such non-GAAP measures. Finally, the company has produced a presentation that contains many of the key metrics that will be discussed on this call. That presentation can be found on the company's investor website. Management's commentary will not specifically walk through the presentation on the call, rather, it is a summary of the results and guidance they will discuss today. With that, I'd like to turn the call over to Billy Cyr, Chief Executive Officer. William Cyr: Thank you, Rachel, and good morning, everyone. The message I would like you to take away from today's call is that we are quickly adjusting to the new economic reality and remain one of the best-performing pet food businesses. We continue to outperform the U.S. dog food category. We are building market share across every channel, and we are winning a disproportionate share of new pet parents. We also continue to deliver strong operating performance despite the slowdown in volume growth. Further, we have maintained financial discipline and appropriately manage our capital spending to match our growth. And that, in combination with strong operating performance has enabled us to achieve positive free cash flow in the third quarter and will enable us to become free cash flow positive for the full year, which is 1 year ahead of our original 2026 target. Taking a step back, the deceleration in sales growth this year was unprecedented. We clearly started this year expecting to operate in a much different environment and have had to shift our strategy to address these challenging and dynamic times. While we can't control consumer sentiment, we can adapt our consumer proposition and make sure we are best positioned to increase household penetration by winning both new and existing pet parents, while also improving our profitability and free cash flow generation. We believe we are taking all of the necessary steps to stabilize and then reaccelerate our top line growth by continuing to focus on areas that are within our control. To address the consumer environment, we have adjusted our media and go-to-market strategy to both reach and appeal to more households, while super serving our MVPs who account for 70% of our volume. This includes starting to test new digital touch points and expanding our focus and resources on e-commerce channels, including DTC. The transition to this updated and improved commercial framework began earlier this year, but it is an evolution, so we will gradually increase the investment behind it as we get increased evidence of its effectiveness. We are also doubling down on our 3 key strategies designed to expand the appeal of Freshpet, particularly amongst our MVPs. Those strategies are: first, best food. We believe that Freshpet's highly differentiated product offers an enhanced experience for our consumers that we need to highlight in order to expand our franchise. We launched a new media campaign at the end of August and early September, showing the lengths, we go to produce the best food and at the end of October, launched another new ad showcasing our ingredients. The new ads are much more focused on the benefits of fresh food than our previous creative and early in-market data is encouraging. Second, strong value proposition. We are operating in an environment where economic uncertainty has led to less trade-up than in the past. To address this, we have now launched our new complete nutrition bag product in select retailers to help encourage trial as well as new multipacks and bundles, both online and in-store for the more value-focused consumer. We have also sharpened our price point on our 1-pound chicken roll, which we believe will help drive more trial and increase household penetration. Third, improved accessibility. We continue to make good progress on the visibility and the availability of Freshpet, one of our greatest competitive advantages. You may recall that we showed a rendering of a fridge island back in February at the CAGNY conference, which is a new concept with a mix of both open air and closed-door fridges. It is designed to change the way the consumer shops the fresh pet food category, changing it from a search for a packaged good in an aisle to grocery shopping for your pet. We believe this is the next big unlock in our retail visibility and availability strategy and will create increased awareness of the brand and greater trial of our wide range of items. Last month, we started testing new fridge islands in the first 16 stores of a large mass retailer, and we've included a picture in our earnings presentation. It is still very early days, but we believe this expansion demonstrates how leading retailers view Freshpet as the future of the dog food category because of its enormous growth potential. We've also further increased distribution in a large club customer. We are in our first store in this retailer in April, 125 stores at the end of July and are now in 590 stores as of the end of September. The sales are still ramping up. However, we are very encouraged by the launch so far and the future potential. At another club retailer, we've also expanded our range to have a third SKU in select stores and have also just started a small test in a rural lifestyle retailer. As we look to the next leg of distribution, we expect the majority of growth to come from stores where we have or can have second and third fridges or outside of aisle placements like fridge islands as well as the online channel. We plan to leverage our retail strength where we are the clear category growth driver. And at the same time, we are really excited about our continued growth of e-commerce. We had another strong quarter of growth in digital orders, up 45%, and we recognize we are significantly underpenetrated in the e-commerce channel, including DTC. We are keenly focused on increasing our presence to capture the omnichannel and online customers and plan for this to be a more meaningful part of the business as we head into 2026. In total, we believe these strategies will enable us to reaccelerate our growth. Each of these strategies drive actions that we can control and leverage our unique capabilities and proposition. That will ensure that we will continue to outperform the category and drive the transition of the dog food business to fresh food regardless of the macro environment. Our efforts to adapt to the current environment are not limited to driving the top line. We are also focused on driving operational efficiency through a variety of approaches. First, via our new technology. The current demand environment means that our team has more available line time to lean in and test new technologies and formulations. We have been working on new bag technology since 2019 that is designed to produce significantly better products at a lower cost. It does this by increasing throughput, improving yields and reducing the amount of product that requires secondary processing. We expect this to result in increased bagged product margins and decrease the margin gap between bags and rolled products. Our goal is to deliver both meaningful product improvements and significantly improved economics. It can also unlock new innovation capabilities. The first new production scale line that uses this new technology is now fully installed and in the final stages of commissioning. We expect to produce salable products on that line in Q4, and we are very excited by what we have seen so far. Second, we are also taking a pragmatic approach to managing our capacity. It is not clear how long this period of consumer uncertainty will last, so we are using a variety of approaches to ensure that we have adequate capacity to meet our growing demand, but also don't get too far ahead of ourselves on capital spending and staffing. Fortunately, our facilities are running very well now, and that has provided us with free capacity. In conjunction with further operating improvements that we expect to deliver, we expect to have adequate capacity to support our growth for a while. We are a much more stable business than we were 3 or 4 years ago. And when you couple that with the new technology, it enables us to reduce our capital spending this year and next year. We do not believe that this reduction in CapEx will limit our ability to grow over the next 2 to 3 years as we already have $1.5 billion of installed capacity available to us if the growth reaccelerates and can add staffing as needed. Now I'll provide some highlights from the third quarter. Our third quarter net sales were $288.8 million, up 14% year-over-year, primarily driven by volume. Adjusted gross margin in the third quarter was 46.0% compared to 46.5% in the prior year period, and adjusted EBITDA in the third quarter was $54.6 million, up approximately $11 million or 25% year-over-year. From a category perspective, we continue to be the #1 dog food brand in U.S. food with a 95% market share within the gently cooked fresh, frozen branded dog food segment in Nielsen brick-and-mortar customers, defined as xAOC plus pet. We compete in the nearly $56 billion U.S. pet food category per Nielsen omnichannel data for the 52 weeks ended September 27, 2025. And within the nearly $38 billion U.S. dog food and treats segment, we have increased our market share to 3.9%. From a retail perspective, competitive entrants have not slowed our expansion to date. In fact, we believe that new competition will ultimately grow the category as we have seen many times before in other categories, such as Greek yogurt and coffee. Freshpet products are now in 29,745 stores, 24% of which have multiple fridges in the U.S. Looking ahead, we expect this percentage to increase as we add more fridges to the highest velocity stores. We ended the third quarter with 38,778 fridges or nearly 2.1 million cubic feet of retail space with an average of 20.1 SKUs in distribution. Our percent ACV in grocery, where we're the dog food market leader was 79% at quarter end and xAOC only 68%. From a household penetration and buy rate standpoint, we remain one of the only dog food companies that consistently grows both. Our household penetration as of September 28 was 14.8 million households, up 10% year-over-year, and total buy rate was $111, up 4% year-over-year. MVPs, which are our super heavy and ultra-heavy users are continuing to grow faster with a total of 2.3 million of those households, up 15% year-over-year. MVPs represented 70% of our sales in the latest 12 months with an average buy rate of $490. We are still growing households across every age and income group and gaining market share. The dog food category is declining, but Freshpet continues to be a clear winner. We are seeing that we are attracting a large portion of new pet parents, which is very encouraging. Turning to capacity. We feel good about our manufacturing footprint today. Ennis continues to be the most profitable Freshpet kitchen and accounts for approximately 38% of sales volume. Our overall operating effectiveness, or OEE, our measure of operating efficiency continues to improve and the new technology line in Bethlehem is expected to produce salable product later this quarter, as I mentioned a few minutes ago. This will be our 16th line across the network, and we are very excited by its potential. The technology to make fresh pet food is still very nascent, and we constantly try to push the limits and come up with ways to drive greater returns. Next spring, we also plan to retrofit another bag line in our Bethlehem kitchen with the light version of the new technology that could prove to deliver a meaningful portion of the same benefits of the full technology line with minimal line downtime to install the new technology and minimal CapEx. Our capital efficiency framework is center around 3 key areas: first, getting more volume out of existing lines, primarily through OEE improvements; second, getting more out of existing sites where whether that be finding ways to add more lines on our campuses or network optimization; and third, developing and implementing new technologies. We've made tremendous progress with this framework and believe there is still a significant opportunity to create incremental shareholder value. Now turning to our outlook for the remainder of the year. We are currently tracking to the lower end of our previous net sales and adjusted EBITDA guidance ranges. So we now expect net sales growth to be approximately 13% for the year and adjusted EBITDA to be between $190 million and $195 million. We are updating our CapEx guidance to approximately $140 million as we're able to shift more projects out. The silver lining of the slower-than-expected sales growth this year is it has now positioned us to achieve positive free cash flow a year earlier than anticipated, a significant company milestone. Ivan, our Interim CFO, will walk through more details of our 2025 guidance in a few minutes. In regard to our fiscal 2027 targets, we remain confident in our ability to achieve 48% adjusted gross margin and 22% adjusted EBITDA margin in 2027 if our sales volume growth is at least low teens. If we were to grow high single digits, we believe we can still achieve an adjusted EBITDA margin of approximately 20%. In summary, we have taken actions in strategic areas to focus on what we can control and make sure we continue to deliver category-leading growth, despite the current category softness and competitive entrants. Dog food has historically been one of the best, most recession-resistant categories, and we believe we are best positioned to capture the future growth of the category. We expect to continue to build market share, grow household penetration and win a disproportionate share of new pet parents to ultimately capture the lion's share of profit in the category, too. Before I hand it to Ivan, I want to address the ongoing CFO search. We've hired an independent executive search firm, and we have a very long list of very exciting candidates. We hope to select the next CFO quickly, but we will take our time to find the right person. In the interim, we are confident in Ivan and his team's capabilities and believe we can still deliver the necessary business results until we find a permanent successor. Ivan has been with Freshpet for 11 years, having joined the company shortly before the company went public in 2014 from KPMG. He has been involved in every aspect of our financial operations since then, including leading accounting, financial planning, systems development and our data analytics operation. Ivan is a trusted member of our team, and his move into the interim CFO role has been seamless. With that, I'll turn it over to Ivan to walk through more details of our financial results. Ivan? Ivan Garcia: Thanks, Billy, and good morning, everyone. The highlight of the third quarter results is that we demonstrated our ability to deliver category-leading growth, while also achieving positive free cash flow. Now let me provide more details on our financials and updated guidance. Third quarter net sales were $288.8 million, up 14% year-over-year. Volume contributed to 12.9% growth, and we had positive price/mix of 1.1%, primarily driven by mix. We saw broad-based consumption growth across channels. For Nielsen measured dollars, we saw 10% growth in xAOC, 10% in total U.S. Pet Retail Plus, 8% in U.S. Food and 2% growth in Pet Specialty. As a reminder, the third quarter benefited by about 1 point of growth from a slight shift in timing of orders from the end of June to early July, which we shared on the Q2 call. We also expanded into most of our major club retailer stores in the third quarter and initial pipeline shipments helped boost our shipments growth versus last year. When you net all of that out, we believe that consumption growth in the quarter was approximately 12%. Third quarter adjusted gross margin was 46% compared to 46.5% in the prior year period. The 50 basis point decrease was driven by reduced leverage on planned expenses, partially offset by lower input costs. The deleveraging of planned costs are a result of ending the quarter with lower inventory. Third quarter adjusted SG&A was 27.1% of net sales compared to 29.3% in the prior year period. This decrease was primarily due to a lower variable compensation accrual, partially offset by increased media as a percentage of net sales. We spent 11.2% of net sales on media in the quarter, up from 10.8% of net sales in the prior year period. Logistics costs were 5.5% of net sales in the quarter compared to 5.6% in the prior year period. This continues to be a great strength of ours and something that we're very proud of. Third quarter net income was $101.7 million compared to $11.9 million in the prior year period. The significant increase in net income was primarily due to the deferred income tax benefit resulting from the release of a $77.9 million valuation allowance in the current period, higher sales and decreased SG&A expense and was partially offset by a decrease in gross profit as a percentage of net sales. The release of the $77.9 million valuation allowance is being taken now because we have demonstrated consistent profitability over a meaningful period of time. As a result, our accumulated NOLs are now believed to have meaningful value. So they must flow through the P&L and end up on our balance sheet as an asset. We view this as another milestone in our progress towards becoming a highly profitable company. Third quarter adjusted EBITDA was $54.6 million compared to $43.5 million in the prior year period. This improvement was primarily driven by higher gross profit, partially offset by higher adjusted SG&A expenses. Capital spending for the third quarter was $35.2 million, while operating cash flow was $66.8 million, and we had cash on hand of $274.6 million at the end of the quarter. As Billy mentioned, we achieved positive free cash flow in the third quarter and now expect to be free cash flow positive for the full year. We intend to utilize our balance sheet to support our growth going forward with no need to raise outside capital. Now turning to guidance for 2025. As Billy said earlier, we are tracking to the lower end of guidance ranges we provided last quarter. So we now expect net sales growth of approximately 13% compared to our previous guidance of 13% to 16% growth year-over-year. We now expect adjusted EBITDA in the range of $190 million to $195 million compared to the previous guidance of $190 million to $210 million. We continue to expect adjusted EBITDA dollars and margin to improve in the fourth quarter compared to the third quarter. Media as a percent of sales for the year is expected to be greater than 2024. However, the fourth quarter will be the lowest total dollars spent and as a percent of net sales, in line with our past practices. We now anticipate adjusted gross margin to be flat year-over-year based on lower plant leverage related to our inventory levels, which caused a timing impact to our P&L. We have been able to successfully tighten our inventory without seeing any impact to fill rates. In regards to tariffs, we are currently seeing a small impact on vegetables sourced from Europe and mitigating them where we can. Capital expenditures are now projected to be approximately $140 million this year compared to our guidance last quarter of approximately $175 million and original guidance earlier this year of $250 million. We have included some impact from tariffs in the updated CapEx projection. The majority of our CapEx spend is focused on the installation of new capacity to support demand in the out years and the implementation of our new technology. But as Billy mentioned, we are seeing greater capital efficiencies in our existing facilities. While it's too early to provide guidance for next year, we do expect that ordinary CapEx for new capacity, fridges and maintenance will be in line with this year's spending. However, if our new production technology demonstrates the potential we are expecting and we have the opportunity to accelerate either conversions of existing lines or the installation of new lines using that technology, we would certainly consider those opportunities. We believe the new technology could generate sizable economic benefits, improve our competitive position and elevate the quality we can deliver to consumers. Similarly, if we have a breakthrough in the new distribution, particularly if it's a sizable expansion of the island fridges, we would also fund that initiative due to the significant growth it could deliver. In either case, it would not impact our ability to deliver positive free cash flow in 2026, but our CapEx spending could be higher than 2025. In summary, despite a challenging year, we are proud to have delivered another quarter of best-in-class CPG growth and demonstrated our cost discipline to deliver even stronger adjusted EBITDA margin expansion and become free cash flow positive. We believe Freshpet has a long runway for growth and is well positioned to capture the sales growth and profit growth of the high-growth fresh, frozen dog food category. That concludes our overview. We will now be glad to answer your questions. As a reminder, we ask that you please focus your questions on the quarter, guidance and the company's operations. Operator? Operator: [Operator Instructions] Our first question comes from the line of Peter Benedict with Baird. Peter Benedict: So my first is around kind of the new production technologies. Curious kind of maybe the time line on when you would make a decision on accelerating those implementations, I guess, next year. Maybe give us a little sense of maybe how this light version coming in the spring compares with maybe the full version. And Billy, as you -- if you roll this new technology out, you talked about improved quality. What does it mean for pricing? I mean, at these lower levels of sales, do you intend to kind of turn that into a more aggressive pricing structure in order to kind of reaccelerate the top line and take more share? Or how do you think about reinvesting those potential benefits? William Cyr: Great. Great. Thanks, Peter. Let me just start with, we're very excited by this new technology. As you heard in the recorded comments, the reality is we've been working on this for a long time. And what we see is the upside potential on it is enormous. We're still really early in the qualification of the first line. And so it's really hard for us to say exactly how long we'll watch that until we make a decision on expanding. It depends on how reliable the line is, how much of a benefit we get, the performance of the products in the market. So I don't want to get on the record with any comment about when we would make that decision because it's really going to be dependent upon the operating performance and the quality of the products we produce. The second line, the first conversion of an existing line, the light version that we talked about, will start up in the second quarter of this year. In terms of what's different about it and what makes it any different than the original technology, think of it as it has many of the same attributes, just not to the same degree. So there is a throughput benefit, but it may not be as significant. There's a yield benefit, but it may not be as significant. There could be some quality benefits and may not be quite as significant. But what is significant is that it can be -- those lines can be converted much more quickly at a much lower capital cost. And so we'll be watching as we start up that line and comparing the performance of that line against the initial line that we're putting in that's starting up now and having to make a decision about is less capital done more quickly on existing lines, a better idea than installing a new line that gives you all the benefits. And we really won't know that until we get the line up and running. So think of it as sometime in the back half of next year, we'll be able to make that assessment about whether or not that makes sense for us to accelerate the expansion of those lines. So in the end, I think it's a great place to be. We have 2 very promising technologies that are very, very different and that can make a big difference. On the second part of your question, which is about how we deal with the quality improvements and also potentially pricing. It's also too early for us to commit on whether or not we would do anything related to pricing. Our focus right now is to demonstrate the quality benefits of the product. Obviously, we have a strong interest in improving the margins on our bags because they're below our roles. But it's -- we'll be in a nice place when you can actually look at significant margin pickup and the opportunity to choose where you invest that, whether it goes to the bottom line or whether that goes into making -- sharpening our price point. I suspect that over time, you'll see a little bit of both. But for the most part, we are very determined to drive the margins up on our bag business, and that's one of the real benefits of this technology. Peter Benedict: That's helpful, Billy. And then I guess my follow-up question would be around the competitive dynamics in the space. You alluded to the recent entry, said it has not affected your kind of retail placement plans at this point, but maybe just any early learnings in terms of pricing, positioning? Just anything you would say about how you're seeing new competition, both at retail, but then also in some of the frozen areas, which are tangential and coming more online? William Cyr: Yes. Let me frame it at the -- I'll give you some top line thoughts. I'm going to hand it to Nicki to talk to you about what we're seeing with our retailers in their actions. But obviously, there's been an unusually large amount of activity in the space this year. We view that as a validation that the fresh category is a big long-term potential. Retailers have seen that. Retailers are recognizing that. And so that is a good validator for us, and it kind of gives us a sense that the investments that we've made, the position we've carved out is a really attractive one. So far, from a top line perspective, we haven't seen much impact on our business, certainly not from the executions that have happened to retail. Most of the things that have happened in retail to date have been relatively small and not very significant in their total size. It's just still a little too early to talk about what happened -- what's happening with the Blue Buffalo launch. It's only been out there for a couple of weeks. The one thing I would notice is we have seen a little bit of price discounting done by them already, which is something that we're not surprised by. That's sort of their calling card. That's the way they do business. Our approach so far has been to stick to the game plan that we've executed over the long haul, and we'll continue to stick to that game plan, but we also are very determined that we won't lose consumers on a price or value basis. But that's how I see the competitive environment. I'm going turn to Nicki, and she can talk a little bit more about how our customers are reacting to it. Nicola Baty: Thanks, Billy, and thanks also, Peter. So despite the increasing competition coming into the category at the moment, we've been really pleased with, I think, a number of the metrics that we would use to just assess our retailer engagement. As Billy said in the upfront comments, we've grown our cubic feet by 12% this year. We've had 13% improvement in distribution as well and also been making some good ground either in some new retailers where we've been testing some other ones where we've had some full national rollout with certainly in the club area. And then a strong signal, I think, from one of the largest retailers of really starting to get behind improved visibility for fresh and have us leading the way with some new island units. So despite that competitive backdrop, I think we've actually had one of our best years in terms of fridge placements and support from retailers. I think where that's going is for us, a very strong endorsement that the fresh/frozen segment is very much here to stay and the only area that's leading growth. And to touch on the velocity point that Billy made, it's very early days. The competitive set at retail level is certainly relatively small in terms of velocities that they're seeing per store per week. We've been seeing, again, very strong velocities in those stores that new players are coming into. So we've certainly seen no impact. But we are watching very closely. The key data set we'll be using in the coming months is much more of our panel data to just make sure that there's no switching, certainly with our occasional households or any loss of retention. So we'll keep a really close eye on it, and we've got some strong plans to make sure that, that doesn't happen. Operator: The next question is from the line of Brian Holland with D.A. Davidson. Brian Holland: Maybe sticking along the lines of the distribution dynamic at retail, obviously, the fridge island test. Maybe a little more context, if you could, about the conversations with that customer and how long that's been progressing, the logic behind the magnitude of that expansion just on a per store basis and maybe what you're looking for, what they're looking for to help determine what would be a successful test and maybe timing for a subsequent expansion on that? Nicola Baty: Great. Thanks, Brian. I'll take this one. So look, as you're no doubt aware, this retailer doesn't make decisions overnight, and there's a lot of discipline that goes into making sure that the operational effectiveness runs smoothly for something like these island units. The capacity of each of the island units is around 2.5x an individual chiller. So these island units allow not just fantastic retail visibility and brand visibility to lead the category, but they also allow more assortment and a breadth of assortment to be coming into each store. So what that's done, and I think as you know already, with this retailer, we typically don't have perhaps as many SKUs as we do to compete with some of the grocery retailers. So it's allowed us to actually launch some of our innovation in the more affordable price bracket. So that would include things like the multipacks, the entry-level bag, a number of items really that can bring in new households through. So as of this week, we installed 16 of these island units. We have another burst coming of island units as well. And there's some criteria that we're working with Walmart on to really be able to set exactly what the sales velocity needs to be for future rollout. Now one caveat I would say is making sure that the islands perform to our mutual criteria because these are also a bigger capital investment is important. And then there will be likely somewhere in the region of a 4-month lead time before we're able to execute at scale as well. Brian Holland: Appreciate the color. And then Billy, appreciating it's November 3, and you typically start to provide a little more color around how '26 is shaping up in early January. Just a sense about some of the building blocks here, right? Because obviously, we're in a very dynamic environment. But relative to maybe this time a year ago, you've got a better handle on what's happening with the consumer or at least we've been in this dynamic for longer now. You also have some of these distribution moving pieces here that are coming together. So really interested in 2 parts. One, just thinking about the building blocks for '26 on the top line at this juncture and also how that informs your media spend? Obviously, you've talked about a lot of plans in place. But how do you think about the magnitude of the investment you want to put behind media when there are clearly fewer incremental pet parents to go after in this environment? William Cyr: Yes. I'll give you a couple of thoughts on that. So first of all, as you know, we'll give our guidance when we get to the end of February. And in an environment as dynamic as this, I'm frankly very grateful to have the couple of extra months of an opportunity to observe what's happening. Recall, the world looked very different last year on the same day than it end up looking back when we got to the end of February and changed even further. As you know, we are very, very focused on trying to drive up household penetration, particularly looking at MVPs. So we're watching that data very, very carefully and seeing what the trends are, what directions it's going. And that will be a big driver of how we determine what our expectations are for revenue for next year. We're still going to be very much a media-driven business. We are very focused on using media to drive our business, but we're not going to be irrational about it. We're going to make sure that the media that we're spending is getting us a decent return. As Nicki has commented, we've done quite a bit to drive the efficiency of our media plan, and we need to make sure that we're really focusing on those things that are as most efficient as possible and give us the highest likelihood of a return. And so that's a big part of the planning process that we're in right now. And then the last part is obviously what are retailers going to be doing? And how does that influence the visibility and availability of the brand. As you know, we are not of the school that thinks that we are just creating demand via white space. We think it's really visibility, meaning amplifying the advertising and availability, meaning having a wider range of items available. But having good visibility on what that's going to look like will inform us quite a bit. As we mentioned previously, the island fridges is a big step change. It's probably not going to have much of an impact in the first half of next year. There's a chance to get have some impact in the second half of next year. But there are also a bunch of other retailers who are looking at doing some fairly sizable things, either new retailers, as we mentioned in the call, there's a rural lifestyle retailer who's now in test. We also have quite a bit of new distribution coming with existing customers in the forms of the second and third fridges. So we'll put all those things together, and we'll give you what our view is. But I think it's way too early to say right now. It's just going to be built on the same building blocks we talked about in the past. Operator: The next question is from the line of Tom Palmer with JPMorgan. Thomas Palmer: Maybe kicking off, I just wanted to ask on the CapEx next year, $140 million as kind of a starting point. What projects is most of this going to? I guess the commentary on the $1.5 billion in production capacity would seem like you've got a couple of years before you really run into constraints at least. And so just kind of wondering, are there -- is it because there are certain products that are facing constraints even if from a dollar standpoint, you're fine? Any color? William Cyr: Yes. I'll frame this, and then I'm going to hand it to Ivan. But always start with the understanding that we are a growing business. Even though we're not growing at the rate we were growing before, we are a growing business and adding capacity takes time. So we'll be investing in '26 for capacity that we won't need until probably '27 or '28. And you're right in your assumption that there is some form specific elements to this. So bags are different than rolls, our home style creations and our chicken bites require different technology, different capacity. And then don't forget that we have the new technology that we can always pull forward, which is what we were talking about before, but the new technology, investing in new technology is something we can do. But let me turn it to Ivan, and he can characterize for you sort of how you think about that $140 million being spent next year and the optionality that he described in his comments. Ivan Garcia: Yes. Thanks, Billy. Tom, so another thing to also keep in mind with our CapEx spend is we currently have $1.5 billion of capacity in front of us currently on the business. So any spend that we're doing is for the out years. When we look at the $140 million, that is -- that includes our current spend, what we're currently looking at as far as the projects. And we're also looking at wrapping up some of the technology that we are currently going to go live with next year. That being said, there -- if we have any new distribution such as the island chillers that we want to lean into, we're willing and able to go ahead and make those investments, and that will be above and beyond the $140 million. Also, if we want to lean into technology, if we start to see that play out, we're also willing and able to go ahead and lean into that, and that will also be above and beyond the $140 million. Thomas Palmer: Understood. On the EBITDA margin longer term, you gave some helpful color on kind of different levels you could hit at different growth rates. Just when we're bridging the high single-digit potential growth to that 20% EBITDA margin you noted, the 2% difference, where would we mainly see that? Is the gross margin target kind of holding at multiple levels and it's more about SG&A leverage or perhaps a bit different? Ivan Garcia: Yes, that's a great question. That's obviously something that we're currently looking at. And as you noted, high single digits, we're looking at 20%, low teens, we're looking at 22%. So let's just break apart the P&L for a second. On the gross margin level, we feel very confident that we will be able to hit our 48% at both high single digits and low teens. There might even be potential for us to be a little bit above that 48%, and that's excluding any new technology. I want to make sure everyone appreciates that. And then from there, it's just the leverage that you would get flowing through your SG&A. We currently believe that at single digits, we'd be at 20% and then double digits we would be at 22% at that point at scale. But we continue to be very confident with our ability to hit both the adjusted EBITDA as well as our gross margin. Operator: Next questions come from the line of Rupesh Parikh with Oppenheimer. Rupesh Parikh: So I just want to go to the -- I guess, the Q4 implied sales guidance. It does imply a moderation versus even maybe the 12% consumption you saw in Q3. So just curious the drivers there and maybe it also embeds conservatism. So yes, just curious on the drivers there. William Cyr: Yes, Rupesh, we're frankly just reflecting what we're seeing in the market today, what we're seeing in the consumption data that's coming through. We also have to be mindful that we've seen years past where retailers move up or down their inventory at the year-end around the holidays. We want to be cautious about that. And also just recognizing that we have a new competitive set, and we want to be mindful that there are things that could change in the dynamics in the coming months. But at this point, we're looking at the Nielsen every week, just like everybody else is. We feel good about the trends that we're seeing in delivering the guidance we talked about. And hopefully, that continues. Rupesh Parikh: Great. And then maybe my follow-up question, just on gross margins. So I know this year, there's pretty minimal gross margin expansion. But as you look towards getting to that 48%, what are the bigger buckets we should be thinking about? Ivan Garcia: Yes. Good question, Rupesh. So as we look at the gross margin for this quarter, I want to really maybe peel back the -- I mean, just one layer and look at the drivers that we're seeing during this quarter. So when we look at input costs, we're very happy with the progress we've made throughout the year. We continue to make slight progress on yield every quarter. When we look at quality, we continue to be in the low 2% throughout the year. And more importantly, we're having a lot of consistency with our quality, which is going to be very important as we look at gaining leverage on gross margin in the coming years. And then we have plant cost. So our conversion cost this quarter was actually really good. We were happy with that conversion cost. What occurred during the quarter is there was a timing issue between our inventory in Q2 versus Q3, we went ahead and decrease our inventory. That was a hurt of 130 basis points, which we should get back in Q4. That's what we're expecting in Q4 to have a gross margin handle of 47%. And that's where we believe we are currently. We're a 47% gross margin company. So as we look at getting to 48%, we will continue to leverage our plant costs. That's the main lever that we have in front of us currently. William Cyr: Yes. Let me just add to that. One of the things that we're very focused on is getting ourselves in a position where we have the right amount of inventory, very healthy inventory to deliver great customer service, good in-stock conditions, not have surplus inventory because that obviously doesn't serve us well. But we believe we're now in a position where we have the staffing that can carry us through next year. And to Ivan's point about conversion cost, that's the single biggest driver of our margin improvement. We'll be getting better leverage on the conversion cost, and it's basic leverage on the staffing, and that comes because we're driving the ROE. The team that we've got, the training, the stability in our manufacturing operations has delivered the capability to get more volume out of existing staffing, and that's a critical driver for us of building margin. Operator: Our next question comes from the line of Robert Moskow with TD Cowen. Robert Moskow: Billy, on Slide 17, you mentioned $1.5 billion of installed capacity today that is not fully staffed. And then in terms of priorities for next year, retrofitting existing bag lines with light versions. I guess 2 questions. The $1.5 billion, how quickly can you fully staff that much capacity? And then secondly, what's the -- is there a way to quantify what the benefit of this light version is? Like what does it provide to you from a gross margin perspective? William Cyr: Yes. So on the timing question, typically, if we have the line installed in an existing building, adding staffing can be done on, call it, 90- to 120-day kind of timetable. You wouldn't want to do 2 or 3 lines at the same time that way because you would be diluting the talent that you have at that site. But if we had an increase in demand and we had a line that had available capacity, meaning it was running only half time or it's partial schedule, then we could add staffing in, call it, 90, 120 days. And so we feel very comfortable about our ability to do that. The labor market supported. Our training and development teams are in a good position to do that. In terms of the value of this -- the new technology and how that might impact the capacity, that's one of the most important questions we want to get answered as we go through the testing and qualification phase. Every one of the test runs we do, we're tinkering with what the throughput rates will be. We're tinkering with the amount of time we can run the line continuously between stopping it and doing the maintenance and clean out. And all those variables will have a big impact on what the total increase in capacity will end up being. It's too early for me to commit to it. But when you think about the margin gain, what we've described is if we execute this new technology, the gap between our bags and our rolls could close considerably. It won't get all the way back to where our rolls are, but it will get pretty close once it's fully expanded across our entire lineup across all of our lines. So it's not something you have in '26 or '27. But by the time you get into '28, you could start seeing the gap between bags and rolls close considerably. Operator: Next question is from the line of Angeline Goh with Deutsche Bank. Voon Pang Goh: This is Angeline on for Steve. A quick question on how would you approach trade promotions going forward given that [indiscernible] is promoting heavily? William Cyr: Yes. Let me frame this, and then I'll turn it to Nicki. But first of all, welcome to the call. It's nice to meet you. I would just tell you; our position has been that we believe when you're in the perishable products business that trade promotion, which just creates spikes in demand, short-term stocking up and then troughs that follow behind it, it's not a very efficient way to run the business. And so we are going to avoid that practice as much as we possibly can. It's also good for the long-term profitability, and it also means that our advertising model is the primary driver of bringing consumers in the franchise. So people buy the product for the first time at full price. So that's the overall philosophy. I'll turn it to Nicki, and she can just comment on how we're thinking about it in the context of having new competitors in the market. Nicola Baty: Thanks. Nice to meet you, Angeline. So we've done a lot of work really reviewing both category dynamics in terms of promotions, price elasticity on our portfolio and also deeply assessing the media ROI. We come out in a place where we still believe what's right for our brand is media. It's the critical driver overall for growth. Trade promotions, as Billy indicated, don't seem to be doing anything other than driving what we would call occasional households into the brand. And as it stands, we're here to build long-term brand equity and also to build a loyal franchise of consumers in Freshpet. We haven't seen any strong results really in the competitive environment of brands succeeding with promotions in the dog food category. So our focus right now is very much to make sure that our media delivers both long-term equity and near-term ROI. And that's really the model that we're using. You will see us investing less in areas like linear TV, where we've seen a little bit of diminishing returns with the current consumer sentiment. But you're also going to see us investing more in digital touch points that drive that direct conversion, in particular, through e-commerce, which we believe is a very big opportunity for growth for Freshpet in the future. Operator: The next question comes from the line of Michael Lavery with Piper Sandler. Michael Lavery: Just want to touch on -- you announced a CFO transition in the quarter. And in the time that from when Todd was there until just now, there's been significant improvement, obviously, in a lot of different ways, most notably the margin momentum. But it was always our sense that he changed some of the sort of discipline and institutional things that could last beyond him quite well. So can you maybe just touch a little bit on some of how that comes to life and what to expect kind of being sticky from some of the changes or momentum that was in place for these last few years? And maybe then what you're looking for and who's next in terms of kind of taking it from there? William Cyr: Yes. I'll take a shot at this. I'll ask Ivan to chime in, in a minute with what he's observed that changed because he's been here for a very long time, and he's got a long view on it. But obviously, we love having Todd here. He added an enormous amount of value. He was a healthy skeptic on anything that the most optimistic members of our organization viewed as slam dunks, and it was a healthy balance that it created in our organization. Also brought a lot of practical discipline, and he had a relentless desire to keep things simple. And I think that, that's a calling card of his, and I think that's something that's been embraced as part of our organization. When I look forward, obviously, as I said in the scripted remarks, the reality is that this is viewed as a very attractive position being the CFO at Freshpet. We have a very robust amount of interest in the position. I am highly confident we're going to be able to attract really high-quality talent for this position. What's really going to be important for us, though, is -- and its sort of the root of your comment is how this person fits in with the team. We need somebody who is going to be complementary to what the team's skills are. And the skills that we have today are dramatically different than the skills that we had a couple of years ago when we hired Todd. We are much deeper. We have a much stronger capability across our broad leadership team within our finance team. And the requirements for the person stepping into this job are going to be probably much more strategic, much more conceptual leadership because we've built a lot of the technical capability inside the organization today. And so we're looking for somebody who can play at that level. But I'll turn it to Ivan to just give you any observations he has about what he observed in the pre-Todd days to Todd days and what he hopes to carry forward. Ivan Garcia: Yes. Thank you. Michael, I think you touched on something that's really important that Todd was able to drive, and that was culture, right? And culture permeates. And the great thing about culture is that when someone leaves, that culture stays behind. And there's a few things that he definitely brought healthy optimism, as Billy noted, practicality. And also when we look at planning, the thing that we also -- we always ensure is that there's various paths to get to the goal. And that's something that we continue to have when we look at our long-term guidance for 2027. There's more than one path there. And when -- we'll see where it all ends up, but we continue to feel very confident that we'll be able to deliver on the goals that Todd assisted us in building out. And Todd, if you're listening. Hello. I love you. Michael Lavery: That's all really helpful. And just a follow-up on 4Q. You pointed out that you're basically guiding that implied 4Q momentum right at around what it's selling through. But you've also got some of the new advertising. You've got a new competitive launch that's pushing into fresh. You've got the bag, the complete nutrition bag launch. Are your assumptions that all of those are sort of a push? Or would you say you expect a lift or a risk? Or I guess, how would you unpack some of those pieces and what to keep an eye on from our side in terms of how things might unfold for the rest of the year? William Cyr: Yes. Let me just balance it out and just tell you, obviously, the level of precision we had in this business 1.5 years ago doesn't exist today given the environment that we're operating in. But you described many of the things that I would characterize as sort of the initiatives that are going to drive growth and then some of the things that are headwinds to work against. Obviously, the new advertising is a big help. We've seen it on air. We are very optimistic about the performance is going to drive the retailer engagement and the actions the retailers are taking is helping us. The expansion that we described in the club channel is obviously helping us quite a bit. The complete nutrition product is helping us quite a bit. We have to put all that against the backdrop of the consumer sentiment remains weak. The consumer sentiment for October was in line with where it was in April and May, which is not a healthy place to be. The category is still in a tough place. So that's a fairly sizable headwind that we have to address. We believe that we are outperforming the category by a significant margin, call it, in the range of 10 points, and it's something we'd expect to be able to sustain, but it's just the category is having a tough time right now. In addition to that, there's the uncertainty created by the expanded number of competitors that we have. And again, so far, so good. We feel pretty good about the position that we're in and the relative outperformance that we have. But we're also going to be very mindful that things are still going to come down the pike, and we'll have to see how we play against those. So you balance them all out and kind of say, okay, what's in the market and what we're seeing in Nielsen today, it looks like is what we're going to see for the balance of the quarter. And that's sort of the way we're thinking about it. Operator: The next question comes from the line of Peter Galbo with Bank of America. Peter Galbo: Not to harp on the Q4 implied guidance, but I do have an additional question there. Look, I think if we're reading the math right, right, the implied actual dollars of revenue in Q4 is probably flat to down versus Q3. And I know you don't want to give guidance on '26 today, but maybe we could just pressure test the logic of if we run out kind of the current environment into the front half of next year before island bridges coming in the back half, it just -- to me, it seems like there's a possibility that sequentially, things kind of stay the same, at least through the first half, which I think would imply what you've seen in the past, some kind of flattish revenue quarters, at least sequentially. So again, I know you don't want to give an official '26, but maybe we can just kind of think about that logic as we think about the first half of next year and any thoughts there? William Cyr: Yes. Yes. Let me just recharacterize what we believe is happening sequentially, and you can then project it forward as you see fit. But remember that the Q3 number we described, we had 1 point of help of stuff that carried over from Q2 into Q3, and another point of help that came from the Sam's pipeline fill that happened in the quarter. So you're seeing is Q3 was probably a little bit bigger than it normally would be. When you go to Q4, while it hasn't happened every year, Q3 to Q4 has been probably the smallest sequential gain we have historically. There have been some years where it's basically been flat Q3 to Q4. Part of that is the way the trade manages their inventory. Part of that is it's our lowest advertising spend quarter. There's a whole lot of reasons for that to happen. So I wouldn't take a relatively flat sequential Q3 to Q4 to mean anything about what the trend will be going into Q1 because we've seen stuff like that before, and Q1 then bounces back and is a fairly significant increase. On top of that, the other part of it is, I would say that the biggest anomaly for us was Q2 of this year. Q2 obviously gave up some volume to Q3 and that shift that we saw. But Q2 was relatively flat compared to Q1, and that was the real anomaly. And that really matched up with all the concern around tariffs, all the change in the consumer sentiment was so dramatic. As you project going forward, I would expect that next year would have a more normal cadence that the market has adapted to this environment. And so you see sequential cadence that look more like it has historically rather than what it looked like in 2024 -- 2025. But under any set of circumstances, you should recognize we will be building market share. We will be outpacing the category. And so no matter what the sentiment is, no matter what's going on, we will be outperforming the category sequentially as well as on a year-on-year basis. So that's sort of how we're seeing it. Peter Galbo: Okay. That's very helpful. And Ivan, maybe just a slightly more technical one. Just the NOL tax benefit in the quarter, I mean, is there a changed assumption in the tax status now? Should we be actually modeling cash taxes going forward? Just anything on that, please? Ivan Garcia: Yes. And maybe I'll take a little bit of a step back and explain that entry a little bit more. It's not that common of an entry actually. So it's something that throughout our time here, our goal has always been to be a highly profitable company. And on that journey, every now and then, you hit certain milestones, and this is definitely one of the big milestones that we are hitting. What this is saying is all those NOLs that we incurred since the start of Freshpet, they have a tax benefit associated with it. Unfortunately, the auditors, the accounts don't allow you to take that benefit to your P&L until you're able to prove that you will be able to utilize them. And this is the first quarter where we've been able to utilize or to prove to our accountants that we will actually be able to utilize the NOLs. So we now have an asset -- a significant asset on our books, and we also see the offset flowing through the P&L. That's a onetime benefit that's flowing through. And yes, going back to your specific comment, we will now start to see a tax expense flow through our P&L in the coming quarters. That being said, we will not be a taxpayer. We will actually offset that with the asset that we have on the books. But it's something that we're really proud of for all the Freshpet team members that are listening in, please be very proud of this. This is a huge thing that we're all really excited about. William Cyr: Yes. And just comment on when you think we would become a cash taxpayer. Ivan Garcia: Yes. No, it's a good point. Right now, we're looking at -- depends on the growth algorithm, but around 2028 is when we think we'll start to be a taxpayer -- cash taxpayer. Peter Galbo: Ivan, just if I could sneak one in. Like what's the estimated book tax rate just book versus cash, but just the book tax rate we should put in the model going forward? Ivan Garcia: Yes. We're still -- I mean, we're still looking into that, but we're going to -- just the normal corporate tax rate and then the New Jersey tax rate on top of that. But we'll keep on sharpening the pencil on that. But once again, in the short term, we will not be paying tax, we'll be utilizing the NOLs against that. Operator: Our last and final question will be from the line of Jon Andersen with William Blair. Jon Andersen: I'll put 2 in here and then listen. Billy, you mentioned in the prepared comments that you expect the online business to have a more material impact in 2026. You've been underpenetrated historically. I assume that that's not -- you're not underpenetrated with respect to kind of your clicks and bricks part of that strategy, fulfillment from your fridges is strong, but more on the DTC side. Can you talk about some of the actions that you might take on that front, what to expect, how impactful that could be? And then second, just in light of all the discussion around competition lately, if you could just remind us where you are in terms of your moat. I think when I think about early days of Freshpet, it was about the fridge footprint. It seems like it's perhaps the manufacturing scale and maybe even now the technology that you're considering implementing that represent maybe the bigger parts of your moat, but I think it would be helpful if you have some thoughts on that as well. William Cyr: Yes. So I'll take the second part first, and then I'll turn it to Nicki to answer the first part about the e-commerce DTC part. Your characterization of the moats is fairly accurate. I think the moats evolve and develop over time. As you recall, we launched Feed the Growth in 2017, it was because we believe that Fresh was inherently a scale-driven business. And we also had a first mover, and we wanted to maximize the benefit of both the first move and also get scale before others entered the market. We've now gotten to the point where we've delivered on those, the advantages we've got, the head start we've got, the scale that we've created are delivering sizable advantages. In 2019, we made the decision to start investing in technology and manufacturing because we believe the manufacturing technology in the space was very premature or immature. And so we start investing. And that's sort of the long-term thinking that we brought to this business. And today, we're now about to realize the benefit of that long-term thinking and that investment that we've made, where it's not only going to be the manufacturing scale, it's going to be the manufacturing technology and the quality and the margins that, that produces that will be a big advantage. Along the way, we've been building a brand, a brand that stands for the virtues and benefits of this category. We've been broadening our product lineup. So now we have product assortments that meet a wider range of needs than any of the people who have come into the category after us. We've gotten the retail visibility and availability from the number of stores and the fridges we had, and we continue to invest in that by changing the way in which people shop this category with the fridge islands. So you should think about us as continually investing in those things that will create an even bigger and more sizable moat. And frankly, the struggles that everybody has had in competing with us would suggest that those investments have served us very, very well. So at this point, I think you should expect that we're probably working on some stuff behind the scenes that you aren't aware of yet that are going to build that moat further. But we're right now going to focus on driving the moats that we have created, the technology, manufacturing scale, the brand equity, the product assortment and driving get maximum leverage from those. So let me turn to Nicki to talk about the e-commerce side of this. Nicola Baty: Great. Thanks, Billy. Jon. So e-commerce, as you rightly point out, is a big opportunity for us here at Freshpet. It's only 14% share of our business. And we've had another quarter. This quarter was 45% growth, the previous 2 quarters around 40% growth. So it's also becoming a really important part of our growth algorithm going forward, too. The category is over 30% e-commerce penetration. And we know when we dig into our consumer that it is a preferred place to shop as well and also very important for that millennial and Gen Z consumer that we're a bit underpenetrated in. So this year, we've spent a lot of time building out our capabilities and focus to really start to win in e-commerce, and you'll see more of that as we go into next year, too. The fridge network, yes, you rightly point out, that's the biggest part of our e-commerce business serviced through click and collect and also last mile delivery. But we also think that there is an opportunity, obviously, with pure play. You've seen the news on AmazonFresh and Chewy clearly is opportunity space for us to drive into. But our D2C business is also going to be an important part of the mix. I would say that D2C for us won't be a primary channel that we will drive, but it absolutely plays a role in terms of incremental households to the brand. So we stood up a small D2C business earlier this year. We're seeing some really encouraging green shoots coming through. 70% of our households are incremental, first time trying the Freshpet brand with very, very high buy rates, typically more than double what our current MVP buy rate is, we're seeing coming through in that area. So all the metrics are looking like it has got some good headroom to be part of our growth for the future. Operator: At this time, we have reached the end of our question-and-answer session. I'd like to turn the floor back over to management for closing comments. William Cyr: Great. Thank you, everyone. Thank you for your interest. Let me leave you with this thought. It's from an unknown offer. Without my dog, my wallet would be full, my house will be clean, but my heart would be empty. To that, I would add, fill your dog summit with Freshpet every day and your heart will be forever full. Thank you very much for your interest. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.