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EQIX 2025 Q3 财报电话会议

Operator: Good afternoon, and welcome to the Equinix Third Quarter Earnings Conference Call. [Operator Instructions] Also, today's conference is being recorded. If anyone has any objections, please disconnect at this time. I would now like to turn the call over to Phillip Konieczny, Senior Vice President of Finance. You may begin. Phillip Konieczny: Good afternoon, and welcome to our third quarter conference call. Before we get started, I would like to remind everyone that some of the statements that we will be making today are forward-looking in nature and involve risks and uncertainties. Actual results may vary significantly from those statements and may be affected by the risks we identified in today's press release as well as those identified in our filings with the SEC, including our most recent Form 10-K filed on February 12, 2025, and our most recent Form 10-Q. Equinix assumes no obligation and does not intend to update or comment on forward-looking statements made on this call. In addition, in light of Regulation Fair Disclosure, it is our policy not to comment on its financial guidance during the quarter unless it is done through an explicit public disclosure. On today's conference call, we will provide non-GAAP measures. We provide a reconciliation of those measures to the most directly comparable GAAP measures and a list of the reasons why the company uses them in today's press release on the Equinix Investor Relations page at www.equinix.com. We have made available on the IR page of our website a presentation designed to accompany this discussion, along with certain supplemental financial information and other data. We would also like to remind you that we post important information about Equinix on the IR page from time-to-time and encourage you to check our website regularly for the most currently available information. With us today are Adaire Fox-Martin, CEO and President; and Keith Taylor, Chief Financial Officer. Following our prepared remarks, we will be taking questions from sell-side analysts. At this time, I'll turn the call over to Adaire. Adaire Fox-Martin: Thank you, Phillip. Hello, everyone, and a very warm welcome to our Q3 2025 earnings call. Equinix delivered a very strong third quarter, a performance that continues to demonstrate our ability to rapidly invest in significant expansion whilst growing our top line and improving profitability. This performance was underpinned by three highlights. First, top line growth. We are seeing continued revenue acceleration, delivering MRR growth of 8% year-over-year on a normalized and constant currency basis. Further, we also achieved record annualized gross bookings of $394 million, a meaningful 25% increase year-over-year and up 14% over Q2. Importantly, this accelerated growth comes from a highly diversified set of customers across geographies, industries and segments. Second, profitability. We again delivered strong adjusted EBITDA margins for the quarter, and AFFO was up 12% year-over-year on a normalized and constant currency basis. This was better than expected and reflects strong flow-through of our operating results, favorable net interest expense and timing of recurring CapEx spend. As a result, we are raising our adjusted EBITDA, AFFO and AFFO per share guidance for the full year. Third, expansion. Given the strong demand backdrop, we are advancing our Build Bolder strategic move where our intent is to double capacity by 2029. We have recently closed on substantial land acquisitions in our Greater Amsterdam, Chicago, Johannesburg, London and Toronto metros, which will support over 900 megawatts of retail and xScale capacity. These results indicate that our strategy is gaining even more traction and resonating with our customers as we continue to deliver differentiated infrastructure, products and levels of service. On the topic of customer resonance, we achieved significant momentum in Q3, closing over 4,400 deals with more than 3,400 customers. This volume reflects continued demand for a wide variety of latency-sensitive AI and non-AI workloads, supporting significantly increased data residency and sovereignty requirements and delivering seamless connectivity to distributed data sources. Our rich ecosystems continue to proliferate across a variety of sectors. including key verticals such as automotive, financial services, networks as well as cloud and AI service providers. Hyundai Motor Group, for example, runs its proprietary HCloud platform at Equinix. Using Equinix Fabric, Hyundai connects to multiple cloud providers in Asia Pacific, the U.S. and EMEA. This enhances customer experience and improves service quality for over 10 million Hyundai connected-car subscribers worldwide. Zetaris, an AI data lake house platform provider, relocated its AI workloads to Equinix. Using Equinix's distributed AI infrastructure, Zetaris is helping its customers develop Agentic AI and other AI applications 6x faster and at 1/3 of the cost. ING is making a strategic shift by migrating its core banking infrastructure in Germany to Equinix, showcasing our ability to help customers meet strict regulatory standards and requirements. Nitori, the largest furniture and home furnishing chain in Japan with over 1,000 stores across Asia and the U.S., partners with Equinix to connect its Osaka and Tokyo operations with low latency to Oracle Cloud. This helps them simplify their network for future expansion and supports Nitori's growth objectives of tripling their branches worldwide. In addition, we saw continued momentum with key AI-related magnets and enterprises, including Ally Bank, Bristol Myers Squibb, Nebius and Groq amongst others. As I've shared in previous earnings calls, our strategy comprises three strategic moves orchestrated across the business to accelerate our expansion, innovation and profitable top line growth. We continue to deliver strong results and see accelerating momentum against each. The first strategic move is Serve Better. As evidenced by our recent customer wins, Serve Better is rooted in delivering value to customers at every stage of their engagement with us. Customers are increasingly looking to secure both their immediate and their long-term infrastructure requirements. This robust demand profile resulted in our record $394 million of annualized gross bookings in Q3. For clarity, this annualized gross bookings number represents the bookings we expect to start generating revenue within the next 90 days. Additionally, we have a presold balance totaling $185 million of annualized gross bookings. This presold cumulative balance will start generating revenue beyond 90 days. As of yesterday, we have closed more than 40% of our Q4 bookings plan. We have ample pipeline to achieve our Q4 bookings targets and to build momentum heading into 2026. Our second strategic move, Solve Smarter, is focused on simplifying the consumption of our solutions and extending the value of our leading interconnection capabilities. Our interconnection products had an exceptional quarter. We added 7,100 net physical and virtual connections in Q3, bringing our total to more than 499,000. Interconnection revenue grew 8% year-over-year on a normalized and constant currency basis to $422 million, driven partially by a 57% year-over-year increase in our fabric bookings in Q3. We also added two new native cloud on-ramps in Barcelona and Dubai, adding to our market-leading share of native private cloud on-ramps. These results highlight the critical importance of low latency and proximity to end users and our ability to deliver it as both enterprises and service providers manage their distributed architectures. In September, we unveiled our distributed AI infrastructure solution. This includes a new AI-ready networking backbone and Fabric Intelligence software designed to support enterprise inferencing workloads. We showcased these capabilities at our first AI Summit together with key partners and industry leaders, including NVIDIA, Dell, Groq, HPE, Adobe, Zayo, Zoom and WWT. Our customers and partners provided use cases to highlight how Equinix is uniquely positioned to comprehensively deliver on their demands and requirements at enterprise level. And finally, Build Bolder. Through Build Bolder, we are both accelerating and innovating the delivery of capacity around the world and securing our future through strategic land acquisitions. As mentioned earlier, we are excited to announce that we have recently closed on land acquisitions in several high-demand markets to serve customer demand across both our retail and xScale businesses. This brings our total developable capacity to approximately 3 gigawatts, a nearly 50% increase from last quarter. These are the latest steps towards doubling our available capacity in the next 5 years. Since our last earnings call, we added seven new projects, including our Dallas 12 development, which is expected to deliver roughly 3,700 cabinets or approximately 67 megawatts of capacity to this key metro. We now have 58 major projects underway globally, including 12 xScale projects. 20% of our retail capacity has been considerably accelerated from the initial delivery date. We also opened our 77th market in Chennai, India as we continue to invest in this fast-growing region. More than 75% of our retail expansion is in major metros and more than 90% of our expansion CapEx is on owned land or where we have long-term ground leases. Our stabilized cash-on-cash return expectations for these retail expansions are approximately 25%, which is consistent with our existing portfolio. Our North American JV continues to show exciting progress with the closing of our Chicago land acquisition, which we anticipate will be contributed in large part to our xScale business in 2026. In addition, we are in late-stage negotiations for the lease of the entire capacity at our Hampton campus with potential xScale customers. The overall demand picture for our xScale business remains robust as key players continue to seek capacity in major metros, aligning with our xScale strategy. As our results show, we are consistently delivering on the immediate needs of our customers and the expectations of the market, whilst expanding our salable capacity in anticipation of even greater sustained long-term demand, and we are doing this very profitably. We have been built for this opportunity, and we will continue to build for it. Let me now turn it over to Keith to share more on the quarter and our Q4 outlook. Keith Taylor: Thanks, Adaire, and good afternoon to everyone. Further to Adaire's remarks, the business delivered a very strong third quarter, which immediately translated into solid financial and nonfinancial results. Nearly every key metric was at or better than expected. Our sales teams delivered record annualized gross bookings across our diversified customer base, resulting in very healthy net bookings in Q3. To further demonstrate the strong momentum in the business, Adaire highlighted we now have $185 million of annualized presales, which will be recorded as bookings in future quarters. Over 40% of the current presales balance was signed in Q3 as customers increasingly look to secure their future growth within our ecosystems. And we continue to deliver accretive value to the bottom line with AFFO well ahead of our expectations for the quarter. So our strong performance in Q3, coupled with our strategic efforts to continue to secure land for future growth in our major metros is setting the stage for 2026 and beyond. And given our balance sheet is a strategic differentiator, it provides us with the flexibility to invest into a robust demand backdrop and the financial capacity to secure our future energy needs. Finally, our relentless focus on best-in-class capital allocation for our investors while delivering durable long-term value, remains a key priority for us as we execute against our Build Bolder initiatives. As it relates to our nonfinancial metrics, they continue to demonstrate positive momentum across nearly all dimensions, including net interconnection additions, provision VC capacity, pricing, volume of transactions and cabinets billing. We added a healthy 7,100 net interconnection adds in the quarter, supported by cloud and enterprise connectivity. Cabinets billing stepped up 2,500 cabinets led by strength in the Americas region. With our record Q3 gross bookings performance, we expect our cabinets billing metric to continue to be strong in Q4. Our global MR per cabinet yield stepped up $41 quarter-over-quarter on a normalized and constant currency basis, primarily due to increasing densities, strong interconnection and firm pricing across each of our regions, consistent with the broader supply-demand dynamics in the marketplace. As Adaire highlighted, we continue to make great progress with our Build Bolder strategy. Our recent land purchases will support more than 900 megawatts of incremental capacity across our full product continuum once built out, meaningfully increasing the capacity to be developed across our portfolio. The capacity to be developed now stands at 3 gigawatts, positioning Equinix to serve the expanding market opportunity across hybrid and multi-cloud and AI. Our investments remain focused on either enhancing our strong existing ecosystems or laying the foundation for both current and future AI inferencing solutions, which will be built on top of our highly differentiated platform. Now let me cover the highlights for the quarter as depicted on Slide 7. Do note that all growth rates in this section are on a normalized and constant currency basis. Global Q3 revenues were approximately $2.32 billion, up 5% over the same quarter last year. Our recurring revenue growth stepped up 8%, which is underpinned by the continued bookings momentum of the business. As expected, our nonrecurring revenues moderated sequentially, largely due to lower xScale fees. Q3 revenues, net of our FX hedges included a $9 million FX headwind when compared to our prior guidance rates. Global Q3 adjusted EBITDA was $1.15 billion or approximately 50% of revenues, up 8% over the same quarter last year. Q3 adjusted EBITDA, net of our FX hedges, included a $4 million FX headwind when compared to our prior guidance rates. Global Q3 AFFO was $965 million, up 12% over the same quarter last year and meaningfully above our expectations due to strong operating performance, disciplined balance sheet management and timing of recurring CapEx spend. Q3 FFO included a $2 million FX impact when compared to our prior guidance rates. As expected, global MRR churn in Q3 stepped down to 2.3%, and we expect Q4 MR churn to be within our 2% to 2.5% quarterly guidance range. And now looking at our capital structure. Please refer to Slide 10. Our balance sheet was approximately $38 billion, which included cash and short-term investments totaling $2.9 billion. Our cash and short-term investments stepped down from elevated levels in Q2 as our capital and real estate investments stepped up, and we repaid $1.2 billion of senior notes. Our net leverage was 3.6x our annualized adjusted EBITDA. During the quarter, we issued U.S. dollar equivalent $500 million in Singapore-denominated green notes at a rate of 2.9%. We also published our green bond allocation and impact report in September. Equinix has now issued approximately $9.5 billion in green bonds with $7 billion in net proceeds allocated to eligible green projects. Turning to Slide 11 for the quarter. Capital expenditures were approximately $1.14 billion, including a recurring CapEx of $64 million. We opened 8 major projects across 7 markets since our last earnings call, adding retail capacity in key metros, including London, Miami, Montreal and Washington, D.C. We opened two new data centers, one in Chennai, India, the other in Monterrey, Mexico. Revenues from owned assets are 69% of our recurring revenues. Now moving to Slide 12. Our capital investments continue to generate strong returns. Our now 188 stabilized assets increased revenues by 4% year-over-year on a constant currency basis and are collectively 82% utilized and generate a 26% cash-on-cash return on the gross PP&E invested. And finally, please refer to Slides 13 through 17 for updated summary of 2025 guidance and bridges. Do note, all growth rates are on a normalized and constant currency basis. For the full year, we're maintaining our underlying revenue outlook with a 7% to 8% normalized and constant currency growth rate. Our expected quarter-over-quarter MRR step-up is greater than $60 million, a significant year-over-year increase, highlighting the underlying momentum in the business and gives us the confidence as we look into 2026. And as we previewed in July, our Q4 revenue guidance also includes a meaningful step-up in nonrecurring fees attributable to the xScale business. As Adaire mentioned, our discussions with potential xScale customers are in their advanced stages. But as with transactions of this size and complexity, the timing of contracting can be fluid, hence, the expanded revenue guidance range. Given our strong profitability in Q3, we're raising our underlying 2025 adjusted EBITDA guidance by another $21 million. Adjusted EBITDA margins are expected to range between 49% and 50% for the full year. We're also raising our underlying 2025 AFFO guidance by another $31 million. AFFO is expected to grow between 11% and 13%, while AFFO per share growth is expected to range between 8% and 10% compared to the previous year. And finally, 2025 CapEx is now expected to range between $3.8 billion and $4.3 billion, including approximately $290 million of recurring CapEx spend. So I'm going to stop here. I will turn the call back to Adaire. Adaire Fox-Martin: Thanks very much, Keith. So in closing, we remain excited and optimistic about the future and our differentiated and durable market position. We are focused on executing against our Q4 expectations and building our momentum for 2026, and we are very much on track on both accounts. Our intent is to continue to build on the outcomes that defined this quarter, greater capacity, increased revenue and improved profitability and accelerate them as our strategy achieves even greater traction. We were built for this moment, and I am confident we will continue to make the very most of this opportunity in regard to both the long-term growth and long-term value creation for our shareholders. So I'll stop here and open it up to questions. Operator: [Operator Instructions] Our first question comes from Nick Del Deo from MoffettNathanson. Nicholas Del Deo: You have a very strong position with cloud on-ramps, and that's obviously helped to pull a lot of enterprise business over time. You've been starting to land some new cloud on-ramps and network nodes. Adaire, I think you mentioned Nebius and Groq in your prepared remarks. I guess how strategic do you think these deployments will be relative to some of the more traditional cloud on-ramps? And what are you doing to actively attract AI magnets like these? Adaire Fox-Martin: Yes. Thank you very much for the question. Yes, you're right. We have a market-leading position in native cloud on-ramps, which is, I think, a very important part of the connectivity narrative that we have for our customers, and we're in a position to add two additional on-ramps this quarter to our installed base. We also, as you mentioned, have a very strong presence in terms of AI magnets sitting inside the Equinix ecosystem. Companies that I mentioned in my prepared remarks, they are like Zetaris, Lyceum who is a GPU as a service provider in Germany, Block, Groq with a Q, Outrider, Nebius, CoreWeave to name but a few. Many of these Neoclouds are using Equinix as a point of connectivity and a point of presence. And I suspect there's an element of attraction in terms of our 10,000-plus enterprise customers who are also making use of Neoclouds for data storage and for connectivity. So our team, particularly our team in the Americas focuses on this aspect of our customer cohort and manages and engages those relationships appropriately in order to ensure that we have the right magnet representation in our ecosystem going forward. Operator: Next, we'll go to the line of Aryeh Klein from BMO Capital Markets. Aryeh Klein: On the strength in presale activity, I think you changed your approach with sales not that long ago to enable them to sell capacity further out from delivery. Is that some of what you're seeing helping to drive the strength there? And then maybe on a related basis, there's a lot of capacity that's set to come online in some of your most important markets. How much pre-leasing activity are you seeing for those? Keith Taylor: Aryeh, do you mind -- you broke up there just when you asked the question. Adaire Fox-Martin: First part of your question, you. Keith Taylor: Could you repeat that, please? Aryeh Klein: Yes, sure. Sorry. Just on the strength in presale activity, I think not that long ago, you changed the approach enabling your sales force to sell capacity further out from delivery. Is that some of what you are seeing helping to drive the strength there? And then just on a related basis, there's a lot of capacity set to come online in some of your most important markets. How much pre-leasing activity are you seeing for those? Adaire Fox-Martin: Okay. Thanks very much for the question and for the repeat. I think that you saw in Q3 in addition to the annualized gross bookings of the $394 million that the team delivered, we also shared the cumulative total presold balance of $185 million of annualized gross bookings, which will be recognized in future quarters. This presales motion is a relatively newer motion for our core retail business. And we have recently extended the window for our sales team to be able to sell retail capacity ahead of delivery for the next 12 months. Previous to that, it was a 3- to 6-month window, and this presales opportunity is something that gives our sales team critical capacity to sell into. And it actually is a degree of comfort for our customers because it enables our customers to know where their deployments will be placed when they need them. And I think in the overall macro environment with the demand continuing to outpace supply, we actually have seen the velocity of presales increase over the course of 2025 through to Q3. I think Keith mentioned in his remarks that 40% of our total presales balance was signed in Q3 of 2025. So providing these two elements, I think, provides greater visibility to our investor community. That being said, when we look at the presales activity, it's fairly evenly spread across the capacity that's coming online, and we certainly have seen very significant activity around locations like Frankfurt, London and others where capacity is in short supply, New York, et cetera. And yes. So definitely seeing the uptick in this, which is why we decided to share that data point with you. Keith Taylor: Aryeh, maybe I'll just add one other comment to what Adaire said. I think it's also important to realize that part of the reason that we've sort of entered into another sales motion, as Adaire refers to is the fact that you've got a supply and demand environment that has shifted. And we're -- right now, we're chasing demand. We're trying as hard as we can to bring new supply on -- into the business. And so we want to make sure that our sales organization has the ability to have that visibility at the same time, having Raouf and his organization, Global Design and Construction, accelerate as fast as they can some of the builds that were out there to a quarter or potentially 2 quarters sooner than we originally had planned. So it's the combination of basically a demand-rich environment and also us chasing the ability to deliver capacity into the market as fast as we can that really allowed us to enter into the sort of presale arrangement. And so as Adaire said, the combination of the $394 million, $185 million, it just gives you a real sense of how much momentum there is in the business relative to where we were not only 2 quarters ago, but certainly last year. Adaire Fox-Martin: The one other remark that I think it's important just to reiterate, the presale relates to our retail footprint. So not to the entirety of our business. When we look at our xScale business, that, of course, is -- we're looking at through the lens of pre-leasing. So presale is entirely within the retail business. Operator: Next, we'll go to the line of Eric Luebchow from Wells Fargo. Eric Luebchow: Just wanted to touch on what you're seeing in kind of the pricing environment today. You said you're doing more presales. Are you seeing firm pricing or improving pricing just based on some of the capacity constraints we see in the market? And maybe just if I could squeeze one more in. I know you guys have kind of preguided to about a 5% AFFO growth rate next year. I know there's a lot of moving parts as we think into next year, but obviously, interest rates, financing costs looking a little better than you guided to. So any thoughts to some of the moving parts as we kind of roll our models forward to 2026? Adaire Fox-Martin: Okay. Maybe I'll take the second piece first and then make some comments on the remarks, I think a part on your questions around pricing. So I guess as we look ahead into 2026, we're certainly focused on our execution in Q4. So revenue is a very prime focus for us, ensuring that we have a very strong exit from Q4. And we're certainly feeling very confident about the demand that we're seeing. And I guess our presale and our Q3 gross bookings is evidence of that demand. And Pete also mentioned the ability of our amazing design and construction team to be able to accelerate forward RFS dates. We are monitoring and forecasting RFS with the same intensity that we do for revenue. And we did see a 20% acceleration on the 58 projects that we have underway. So the first, I guess, two elements of our 2026 color is this focus on revenue, this focus on RFS acceleration date. We will also continue to focus on cost and how we are operating the business from an efficiency and effectiveness perspective in order to ensure that we're delivering a very strong operating performance. And I think you can already see some very positive trends there as it relates to that. And then, of course, there is the capital model and the astute management of our capital and our CapEx requirements, which Keith, you may want to comment on? Keith Taylor: Yes. And so Eric, the -- as it relates to the balance sheet, the one thing in addition to all the good news that sort of Adaire was sharing with you there, the other part of the story is slightly different than where we were at our Analyst Day is that our rate of -- the cost to borrow not only presently, but as you look forward is lower today than it was. So that's a positive news. Add on to that, our ability to raise capital in this environment across different markets and really get a fairly effective low cost to borrow, and as we look forward, we're probably going to continue to, as I mentioned maybe in some of the last calls, continue to look at markets like Canada, Europe, whether it's synthetic or otherwise, we're going to raise more capital and so continue to drive down our cost to borrow. The other thing I would say is we have the ability -- again, we run the business on a global basis, as you understand. And so when we repatriate the capital into the United States, we get a higher return on that capital. And so the ability to manage our balance sheet really effectively as well as the cost line that goes through the P&L is -- we're quite effective at that. And maybe the last part, I would say is, as we've started to increase our construction in progress, no surprise to you, we're continuing to look at how we capitalize the interest expense associated with those construction initiatives, whether it's the prebuy or it's the development of land. And you can see that over not only this quarter, but as we look forward, we'll spend more and more on land or in powered land. And so we'll continue to capitalize interest into those projects appropriate with the business. Adaire Fox-Martin: All right. And maybe let me just come back on the pricing question. We're certainly not seeing any dilution in our pricing, very firm. Operator: Our next question goes to the line of Jon Petersen from Jefferies. Jonathan Petersen: Great. You talked about the 900 megawatts of land acquisitions that you did in Amsterdam, Chicago, Johannesburg, London and Toronto. Can you give us just some more details on if any 1 or 2 of those sites are particularly larger than the others and where you might be expecting to build scale versus retail within those markets on that new land? Adaire Fox-Martin: Okay. Yes. Thank you very much. We were very excited about those land acquisitions. We believe they're very meaningful and associated closely with the metros where we have a lot of demand from our customers. So as you know, these recent land acquisitions have really brought our land under control to a very significant level, enabling us to -- actually since last quarter to increase land under control to nearly -- by nearly 50%. In terms of how we view the various different elements of the portfolio here, in alignment with the long-term capital investments that we detailed at Analyst Day, we do plan to double our overall capacity, both inclusive of retail and xScale by 2029. And whilst we're not providing a very specific breakdown of the anticipated megawatt delivery between retail and xScale within these recent land acquisitions, we do anticipate that a significant proportion of London and Chicago land purchases will be earmarked for xScale business and will be contributed to the JV for which we will be compensated. And I think our global design and construction teams also remain highly focused on delivering critical capacity across the portfolio. And so to some extent, the split of megawatts between retail and xScale is somewhat fungible because of the full product continuum that Equinix offers across traditional retail, larger footprint retail and xScale. And so really, we're looking to maximize the value based on the opportunity that we see for each of those land acquisitions. Operator: Next, we'll go to the line of Michael Elias from TD Securities. Michael Elias: Great. I'm going to see if I can press my luck here. I was looking at the municipal filings for the [ Manuka ] campus site. And from what I found in the minutes for the meeting, I think there was a talk about a split for that Chicago site, some of it being for xScale, some of it being for retail. I'm just wondering if there's kind of any direction you could give us in terms of what your leading is for that campus for retail versus xScale. And then also as part of that, just curious, you talked about signing a bank deal in this quarter. We're seeing some large bank deals out in the market. I'm curious if xScale, you're still thinking about reserving that for hyperscale customers or maybe you'd be willing to take on some large enterprise customers within that space. Adaire Fox-Martin: All right. So two questions. Let me address them one at a time. So certainly, the concept of a mega campus considers the possibility of jointly co-locating xScale with retail on a single campus. And that is certainly something that we are actively reviewing and considering as we plan out our mega campuses and something that I think will be a value add to all the participants, whether they're a participant in the xScale ecosystem or in the broader Equinix ecosystem. As it relates to transactions with banks, certainly, it was interesting to see financial services as a very dominant sector in our Q3 results. And emerging requirements, for example, in theaters of operation like EMEA, where the DORA regulation is requiring a different level of resilience for financial services organizations. This is also something that's helping to augment the demand that we're seeing in the Financial Services segment. Certainly, we believe that our capacity is somewhat fungible across our xScale and retail footprint. And if there was an opportunity to service a large footprint through an xScale capacity that was available, then we would certainly work with our partners to ensure that, that would be something that we could consider for that customer. Keith Taylor: And Mike, maybe I'll add on just one other thing. You made a reference to [ Manuka, ] which obviously has many hundreds of megawatts of capacity in that market. As Adaire alluded to, we look at the test fits and understand what is the best structure for both the partnership and for the retail business because quite overly, we want a certain amount of capacity to come into the retail portfolio because we need that capacity in some of these larger markets. And so we're going to continue to look at that. The team as part of any of these large campus type builds, we'll look to see how to bifurcate the land so that a portion stays in the xScale structure and then a portion of it can be owned by Equinix directly. But again, I'd just say, appropriately, you could appreciate that there is some of these larger markets, and Adaire alluded to London and Chicago, but the other one that's out there is Amsterdam, which is in the Greater Amsterdam area and something that we really are putting a lot of attention to. So hopefully, that gives you a little bit more color on the large-sized opportunities that are in front of us. Operator: Next, we'll go to the line of Michael Rollins from Citi. Michael Rollins: So a couple of questions. First, with respect to Adaire, you just referenced the larger footprint retail. And from the Analyst Day, that was one of the incremental uses of capital and investment for Equinix. So curious what you're seeing on that front in terms of demand? And are those the types of deployments that you should also see some significant pre-leasing as you get closer to bringing them online commercially? And then just one clarification. Keith, you mentioned the width of the revenue guidance. I think this year, it's -- for 4Q, it's $120 million versus $40 million when you were coming into the fourth quarter of '24. And just kind of curious like if you could frame the nonrecurring revenue toggle of what if all of that opportunity for xScale bookings gets pushed into 2026 versus maybe being able to get all of what you'd like to see in the fourth quarter of '25? Adaire Fox-Martin: Can I go first? Keith Taylor: Yes. Adaire Fox-Martin: Thanks, Mike. So as it relates to large footprint, we actually had a very healthy mix in our Q3 revenue mix of large footprint deals, but also a very, very healthy retail and interconnection uptick in the quarter. As it relates to the applicability of large footprint to the presale sales motion, certainly, we're seeing customers who require capacity that is contiguous as part of that presale sales process because that's one way of securing that contiguous capacity long term, particularly in high-demand markets. Keith Taylor: And then the second question, which is we really highlighted on Page 15 of the earnings deck, and I know some of you might not have seen the deck yet, but we sort of give a breakdown, a bridge on sort of what's happening. And clearly, there's a meaningful step-up in revenue between Q3 and Q4. And you can see that at 7%, and that also translates into -- sorry, EBITDA profit, 7% quarter-over-quarter growth. Embedded in that, in the prepared remarks, we sort of noted that the $60 million plus will come from recurring, again, a very steep increase from where we historically have been on a recurring basis, and it's very reflective of the comments that Adaire made on the strength of our booking activity and how quickly that turns into sort of a billing line. And so that sort of the $60 million is part of it. But from -- going from sort of the normalized Q3 to midpoint of Q4, it's $153 million step-up. And so it tells you that there's roughly $90 million nonrecurring. Of that, I would say, roughly 1/3 of it is traditional nonrecurring activity, 2/3 is this large potential transaction that we have been working on for months. And so part of the reason we expanded the range quite simply is we have a certain assumption that's based in the fourth quarter here. We want to live within the guidance range that we're guiding you to. Our intention is, and we are highly confident that we can close this transaction in this quarter, but we wanted to give you the range on what would happen if it didn't close this quarter and it closed in Q1, which is not our intention. So again, I think it's just an appropriate way to manage or manage the -- again, the large nonrecurring activity. I might leave you with one other thought. Again, Adaire sort of alluded to it already. As we work with great confidence with, again, potential party to this transaction, it is for the full build -- it is for potentially the full build-out and that's 240 megawatts. Those 240 megawatts are split into four buildings at 60 megawatts each. Embedded in this number is roughly half of that. So you can get a sense that to the extent that we do the entire transaction, it sort of puts us in a different part of the range than where we typically try and run at midpoint or better. So hopefully, that gives you the color that you need. And because it was a complex response, we probably are happy to ask -- let you ask a follow-up question if you need to. Michael Rollins: That was super helpful color. So Keith, thank you so much. But since you're giving me the extra question, I have to take advantage of it. So just curious, one of the things I was looking at was when I look at the Slide 7 -- actually, sorry, 8 and 9, and I'm looking at the regional performance. And I'm looking at the normalized constant currency type of growth rates in each region relative to the EBITDA and trying to think about margins, what's happening in the segments where it looked like margins accelerated significantly in the Americas. You had less EBITDA growth in EMEA and kind of middle of the pack in APAC. And is there anything unique about this quarter in terms of the way investors should be thinking about operating leverage or just continuing to expand margins as revenue grows in each of these regions? Keith Taylor: Yes, thanks for the question, Mike. I think one, it's a very fair question and one that we certainly want to talk about. As Adaire alluded to earlier in her comments, in addition to driving the top line growth, which you're seeing, obviously, the magnitude of increase in our annualized gross bookings, in addition to that, you can throw on the presales. The business is performing really well. But we are actively going after the cost. And the thing that's unique about the Americas, remember, we break our business into three segments. And embedded in the Americas business is basically all the corporate SG&A, which, of course, is a lot of the SG&A line that sits on our financials. And so by attacking the cost line, you're seeing a lot of benefit coming into the Americas region for those reasons. The second thing I'll talk about is you've got some one-offs. And like anything, when you have xScale and you have transactions and particularly last year in EMEA, some transactions in the xScale space that didn't repeat themselves. And so the profitability shifts between the years. But I would say that just fundamentally, there's one-offs in EMEA this quarter to the tune of roughly $10 million. And if you compare it to the same quarter last year, there was a $10 million benefit in the quarter. And so you have a $20 million swing. And that has a big enough move in the EMEA business to cause some movement around the margin line. But fundamentally, you can see when you look at APAC, you look at Americas and ultimately, when you take out sort of the seasonal aspects of power costs and some of the one-offs from xScale, the fundamental business, the profitability is increasing in all three regions of the world. And that's something that, again, that Adaire has been pushing us on across the markets and also the corporate functions to make sure that we're as judicious as possible with our spend. Operator: Next, we'll go to the line of Jim Schneider from Goldman Sachs. James Schneider: A little bit of a left field question. Given the 12 xScale projects you're working on, maybe give us a sense about your level of confidence of power availability and scheduling for those additional projects. I'm assuming you feel relatively confident, but maybe kind of give us a sense of the time frame for planning those. And then any changes you're seeing in terms of your anticipated use of power, whether it's grid power or other alternative sources for those? Adaire Fox-Martin: All right. Thank you. There's a lot to unpack in that question because I think there's a lot to unpack in the power and energy narrative around the data center space. And there's no doubt that this is a complex area and the complexity is certainly growing by the day. I think Equinix has a number of significant benefits here when it comes to navigating power as a constraint in the industry. First of all, your 27-year history, which has a very clear profile of how we use power, how we minimize and optimize our use of energy and also the relationships that we've developed over that period of time with all of the utilities who provide us service and partner with us from the grid. And this is something I think that's held us in good stead as we are looking at this issue holistically across the business. I think the second thing that we can see is that there is a change in terms of the customer supplier dynamics between the data center and large energy users and the utilities overall in that in many cases, for many of these land acquisitions, there is a contract that you enter into in order to secure the load ramp that you have identified for this acquisition, and that often requires a CapEx investment in order to secure that power commitment. I think as Keith mentioned earlier, we're extremely fortunate to have a very, very strong balance sheet and to be able to meet those requirements in a very differentiated way. When we look at the land acquisitions that we've made recently for the land that's under our control, either the power for these lands is either already fully committed or we're in very advanced stages of discussions with the power providers because as I'm sure you know that we're not in the business of speculatively buying land. As it relates to our 12 xScale projects that are underway, all of our current 12 projects, all have power secured. So power is not a constraint on the 12 xScale under development scenarios. I hope that gives you a picture of where we are in terms of the 12 xScale projects, but also the broader power continuum. Operator: Next, we'll go to the line of David Guarino from Green Street. David Guarino: A question on the annualized gross bookings and now the new metric presold gross bookings. I'm admittedly still trying to wrap my head around what a normal run rate each quarter should look like. So was this a one-off quarter? Or is this the normal run rate we should expect going forward? And then similarly on that comment, Adaire, just to clarify the comment you made earlier, there is no price difference for customers committing to capacity 12 months out versus committing today. Is that correct? Adaire Fox-Martin: Yes. Maybe the first part of your question, I'll try to address. Look, I think when you look at our bookings history, and of course, this is a relatively new measure that we revealed on Analyst Day for the first time, and we did provide a little historical perspective when we provided that number on Analyst Day. You can see that it is a relatively consistent growth story across the annualized gross bookings measure. But in fairness, it is also a measure that could be quite volatile depending on how a particular quarter would play out. I think as it relates to our position as we move into Q4 and executing now as we are on Q4, already 40% of our Q4 budget and target is already closed at this point of the quarter. And the pipeline that we have as it relates to Q4 is a very strong pipeline. And so our standard conversion rates applied against that pipeline would lead us to believe that we will meet our Q4 budget. So I think for the period of time that we have shown this data, you can see a relative degree of consistency in terms of growth over quarter-over-quarter, but I would make the point that bookings can be inherently volatile. And therefore, it's not possible to predict that bookings themselves will always be up and to the right, even though we believe that the underpinning demand in the market and the momentum in the market is up and to the right. Keith Taylor: And David, maybe just one sort of add-on to Adaire's comment. To the extent that we don't have capacity in certain markets, and as we talk about, there's -- presale isn't in that number, that $394 million. And so to the extent that we say we run out of capacity in a given and sort of highly sought-after market, you might see a scenario where presale activity moves. So as Adaire said, you can have some volatility, and we used to have more seasonal volatility. But because of the supply-demand dynamics, I think that's very different today. But that also presents a scenario where you could have maybe more presale activity than you would have basically annualized gross bookings. And so there's going to be these trade-offs. And again, we don't -- I can't give you a number right now, but I think to the extent that we see things happening, we're going to guide you to it. And we say, hey, we're out of capacity in these five markets, we anticipate more presales than we would say annualized gross bookings, which turn into revenues much sooner than a presale item. Operator: Next, we'll go to the line of Frank Louthan from Raymond James. Frank Louthan: Great So talk to us about the uptick in the cross-connect revenue and the ARPU there. What's driving that? Is that more power densities or a customer mix? And is that strength you're seeing in the Americas replicable in other markets and other areas of the world? Is that sort of a -- is that great to see the lead there in the Americas? Adaire Fox-Martin: Yes. Thank you. Certainly, the Americas is the leader in terms of the demand that we're seeing for our interconnection portfolio, and we added 7,100 physical and virtual interconnects. And as a result of that, our interconnection revenue grew 8% year-on-year. The cohort of customers, you can see the technology and infrastructure providers, the clouds being the ones who are driving that demand, primarily in the Americas business. And I guess as we start to see those organizations and segments proliferate into other markets, then we will see that continue to evolve and grow in other theaters of operation. But you're quite correct in your assumption that this was largely driven by our Americas business this year -- this quarter rather. Frank Louthan: And was it power densities or customer mix? Or what's sort of driving that? Adaire Fox-Martin: Customer mix, customer mix. Operator: And for our final question, we'll go to the line of Michael Funk from Bank of America. Michael Funk: So first for you, Keith. I heard the comment on the call about accelerating some of the builds and also your comment about capitalizing some of that expense. But does any of that change your thought or outlook on level of AFFO or the shape of AFFO growth that you laid out at Analyst Day? And then second, for you, Adaire, putting your tech hat back on, as you think about distributed AI infrastructure solution and other emerging solutions at Equinix, can you size the addressable market for us for those and how you think about it? Keith Taylor: Yes, why don't I take the first question, then we'll pass it back to Adaire. So as I said in my sort of -- in response to one of the earlier questions, the company has had the ability to raise capital at a lower rate than originally planned, even though the majority of it, we're going to do a lot of refinancing in '26, '27 and '28. The underlying assumptions have changed as well. And I would say, I don't want to take this as an opportunity to shift guide on as you know we'll spend time in February on what we're going to do for 2026. But it's fair to say that our cost to borrow is lower. We're getting good return on the cash that's sitting on the balance sheet. And we are capitalizing a little bit more largely because we have more construction in progress. And as a result, you should expect capitalized interest increase a little bit. To give you a perspective, in Q2, we capitalized roughly 14 -- if I got my numbers right, $14 million. In Q3, we capitalized $27 million. And then in Q4, the number will be somewhere between $20 million and $30 million of capitalized interest. And so that's a little bit higher than what it was before. But we're spending faster. We're accelerating faster. Again, we really ask Raouf [indiscernible] and the teams to really build as fast as they can. And so with the acceleration of the capital spend, you would see more capitalized interest go into the balance sheet. Adaire Fox-Martin: As it relates to the product portfolio, certainly, you can see this increase in our interconnection revenue up to $422 million in the quarter and a very specific focus on fabric with a 57% year-over-year increase and actually continuing to provision at record levels. We're now up to 110 terabits in terms of fabric provisioning. So I think all of this speaks to the connectivity narrative and opportunity that Equinix represents and the range of services that Equinix can provide to customers who are considering AI and non-AI-orientated workloads. The connectivity of the company is certainly the secret sauce. And I do feel that there are opportunities for us to look at potential for this aspect of our product portfolio. But I would say that connectivity is not just the only dimension around which people are considering Equinix when they look at solving for deploying inferencing and inferencing-based workloads at Equinix. Latency is one dimension, but there are others around model provider flexibility, around edge processing so that you're reducing the cost of bringing data back to the center, around data residency and compliance so that sensitive data is being processed [ in situ ] and also around intellectual property protection. And all of these elements are considerations around the platform that is Platform Equinix when our customers consider workload deployment and workload placement with us. So I think this represents a very viable opportunity for us to continue to evolve and grow. Keith Taylor: Great. Phillip Konieczny: Thank you, everybody, for joining the call... Keith Taylor: And go ahead. Phillip Konieczny: Yes. Thanks, everybody, for joining the call. Have a great afternoon, everybody. Operator: Goodbye. Thank you all for participating in the Equinix Third Quarter Earnings Conference Call. That concludes today's conference. Please disconnect at this time, and have a great rest of your day.

88天前Insight Analytics约5分钟阅读

FPH 2025 Q3 财报电话会议

Operator: Greetings, and welcome to the Five Point Holdings, LLC Third Quarter 2025 Conference Call. As a reminder, this call is being recorded. Today's call may include forward-looking statements regarding Five Point's business, financial condition, operations, cash flow, strategy, acquisitions and prospects. Forward-looking statements represent Five Point's estimates on the date of this conference call and are not intended to give any assurance as to actual future results. Because forward-looking statements relate to matters that have not yet occurred, these statements are inherently subject to risks and uncertainties. Many factors could affect future results and may cause Five Point's actual activities or results to differ materially from the activities and results anticipated in forward-looking statements. These factors include those described in today's press release and Five Point's SEC filings, including those in the Risk Factors section of Five Point's most recent annual report on Form 10-K filed with the SEC. Please note that Five Point assumes no obligation to update any forward-looking statements. Now I would like to turn the call over to Dan Hedigan, President and Chief Executive Officer. Over to you, sir. Daniel Hedigan: Thank you. Good afternoon, and thank you for joining our call. I have with me today Mike Alvarado, our Chief Operating Officer and Chief Legal Officer; Kim Tobler, our Chief Financial Officer; and Leo Kij, our Senior Vice President of Finance and Reporting. Stuart Miller, our Executive Chairman, is joining us remotely. On today's call, I'll review our Q3 results, which reflect another profitable quarter for Five Point as we continue to build on our track record of consistent quarterly earnings. I'll also provide an update on our current operations and outline our strategic focus as we move towards the end of 2025. Then Mike will discuss the integration of Hearthstone into our platform. Finally, Kim will review the details of our financial results, address the successful refinancing of our senior notes and discuss our outlook for the balance of the year. After our prepared remarks, we'll open the line for questions. Turning to the third quarter. I'm pleased to report another profitable quarter for Five Point. We generated consolidated net income of $55.7 million, continuing our pattern of steady earnings performance. This quarter's results were primarily driven by strong performance from our Great Park Venture, which sold 326 homesites on 26.6 acres for an aggregate base purchase price of $257.7 million, resulting in net income for the venture of $201.6 million. Our share of those earnings was $69.5 million, and the Venture made distributions of $216 million, of which Five Point received $81.8 million. From a balance sheet perspective, we ended the quarter with total liquidity of $47.6 million, comprised of cash and cash equivalents of $351.1 million and borrowing availability of $125 million under our unsecured revolving credit facility. During the quarter, we also took significant steps to strengthen our capital structure and position the company for long-term growth. We closed the acquisition of a 75% ownership interest in our new Hearthstone Residential Holdings land banking venture for $57.6 million. We issued $450 million in new 8% senior notes due 2030, and we used the proceeds from the offering, along with cash on hand to fund the repurchase and redemption of our prior $523.5 million, 10.5% senior notes due 2028. The prior notes were due to step up to 11% coupon in November. The step down in coupon will benefit the future cash flows for the company. Additionally, Moody's upgraded our corporate credit rating and senior notes rating to B2 with a stable outlook, underscoring our financial resilience and improving credit profile. And last week, we upsized our revolving credit facility from $125 million to $217.5 million and extended the maturity by two years to July 2029. Reducing the outstanding principal on our notes while maintaining substantial liquidity to allow us to operate our business and execute on our growth strategy were important goals for us this year, and we're pleased to have been able to achieve them as planned. Let me now share our outlook on the market. Our third quarter performance was underpinned by resilient homebuyer and builder demand at the Great Park, which remains solid despite continuing pressure from higher interest rates and affordability headwinds. While buyers remain somewhat cautious, the underlying imbalance between housing supply and demand in this core California market continue to support our land sale activity and our disciplined lot sales strategy allowed us to capitalize on that environment. Looking ahead to the rest of 2025 and into 2026, we remain cautiously optimistic. We expect improvement in buyer confidence if mortgage rates ease and affordability begins to loosen. Given the structural undersupply in our markets, we believe the long-term fundamentals remain in our favor. We anticipate a gradual rebound in home sales activity as the rate environment normalizes, which we believe will result in demand from builders seeking to maintain a pipeline of home sites. On my last call, I indicated that we expected to end the year with net income consistent with our 2024 earnings, and we still believe we're on track to meet that guidance. That said, the housing landscape continues to evolve, and we are closely watching how shifting economic factors may influence buyer sentiment and buyer activity. Kim will provide more details on our guidance for the remainder of 2025 during his remarks. Our performance in the third quarter demonstrates the strength of our operating model and the effectiveness of our disciplined approach. As we move into the final quarter of the year, we remain focused on the same four key strategic priorities that have guided our progress throughout 2025. First, optimizing the value of our home sites within our premier master planned communities by aligning land sales with homebuilder demand. Even as national housing demand has moderated amid higher interest rates, our California markets remain chronically undersupplied, sustaining long-term builder interest. That said, because we don't have to sell when home sales absorption slows, optimization sometimes means moderating land sales with the goal of maintaining long-term value in these communities. Second, maintaining our lean operating structure by carefully managing fixed costs and overhead. We continue to demonstrate the growth and efficiency can go hand-in-hand even as we integrate Hearthstone into our platform. Third, matching development expenditures with revenue generation, ensuring that capital deployment remains disciplined and aligned with near-term monetization. And fourth, pursuing selective growth opportunities through acquisitions, joint ventures and strategic relationships like our Hearthstone investment, which we expect to be accretive to earnings. Let me now provide you with some updates on our communities, starting with our Great Park neighborhoods community. At the Great Park, builders sold 187 homes during the quarter, an increase from the 112 homes sold in quarter 2. We currently have six active selling programs with several expected to sell out by early 2026. 10 additional new programs are anticipated to start sales either later this year or in early 2026. I previously reported that we had completed bidding and contracting for nine new residential programs totaling 572 homesites. We closed the sale of five of those programs consisting of 326 homesites in the third quarter. Shortly following quarter end, we closed the sale of another two programs consisting of 113 home sites. We anticipate one other program to close later in the fourth quarter. We anticipate the final program consisting of 59 homesites will close in early 2026. These recently closed land sales were modified to include base purchase price paid at closing range from approximately $8.5 million to $11 million per acre, plus price participation rights that can allow us to capture upside in the event there is an improving market at the time of the home sales, the homes are sold to homebuyers. Now let me discuss Valencia, our other active community. In Valencia, builders sold 50 homes during the quarter compared to 47 homes in the second quarter. We currently have eight actively selling programs with eight new programs anticipated to open over the next few quarters. On the commercial side of our Valencia community, following the end of the quarter, we closed on the sale of a 15.8-acre industrial site. We also continue to advance regulatory approvals for our next phase of development are expected to add approximately 8,900 homesites and 183 net acres of commercial land. These approvals will allow us to continue delivering much needed housing to one of California's most supply-constrained housing markets. Turning to San Francisco. We are finalizing engineering for the next phase of infrastructure and expect to begin construction in the first half of 2026. We are very focused on optimizing product design for the San Francisco market and remain engaged in discussions with potential capital sources to advance development of our Candlestick and Shipyard communities. As I mentioned earlier, we closed the Hearthstone acquisition in July, marking a major milestone of Five Point's strategic evolution. I want to welcome the Hearthstone team to the Five Point family. We are generally excited to have them join Five Point as this acquisition gives us an established national platform providing capital solutions to homebuilders. Mike will discuss Hearthstone further in his remarks. Let me conclude by saying that we are very pleased with our progress through the first nine months of 2025. Our third quarter results reflect strong execution, continued profitability, balance sheet strength and meaningful strategic advancement through the addition of the Hearthstone platform. Even as the broader housing market continues to adapt to interest rates and affordability challenges, Five Point remains well positioned financially, operationally and strategically to continue creating long-term value for our shareholders. With that, I'll turn it over to Mike to provide more color on how Hearthstone fits into our long-term vision. Michael Alvarado: Thanks, Dan. As Dan mentioned, the Hearthstone acquisition was not only a first step towards our growth strategy, but a meaningful one to set us up to be an institutional platform that can own, develop and finance land at various stages in the development cycle. Immediately after the closing of this acquisition, we focused on expanding Hearthstone's capital relationships, pulling resources and communication lines together to increase the builder deal flow to Hearthstone and enhancing its already strong operational controls. All of these efforts will be ones that we will remain focused on as we work through the integration, but we are off to a strong start. First, we are engaged in meaningful discussions with capital providers to continue to expand the assets under management for the Hearthstone Venture. When we first started talking with Hearthstone, they had approximately $2.6 billion of assets under management. And today, we are at approximately $3 billion and growing with ongoing discussions for additional investments from new capital sources of $300 million, which could grow to over $1 billion. As a reminder, a substantial majority of capital deployed through Hearthstone's land baking business will be provided by third-party capital sources, while Hearthstone's returns will largely be generated by recurring asset management fees. Hearthstone's current portfolio spans 16 states and approximately 33 market areas, geographically diversifying the investment base of Hearthstone's lot option program. Second, builders have been contacting us with an eye towards expanding their lot option financing deal flow. As I noted on our last call, it's been reported that over 70% of land pipelines for homebuilders are optioned rather than purchased outright and that the public homebuilders buy and develop over $35 billion in land per year. We believe our venture has the opportunity to capture a meaningful portion of that market, and our recent communications with builders appear to justify that belief. Third, we have already started integrating our public company level controls of our financial and operational reporting into the Hearthstone venture, and we intend to bring technological enhancements to the platform to allow us to grow this business in an efficient and effective manner. Capital providers are selective when choosing to invest with operators, emphasizing strong risk mitigation controls over growth at an all-cost approach. Hearthstone has a proven track record of disciplined underwriting and their focus on risk managed capital deployment aligns with Five Point's commitment to delivering strong long-term returns for shareholders. While we intend to scale this business, we intend to do so with the same discipline that Hearthstone has done for many years and to bring the full scale of our public company platform to Hearthstone's operations. Five Point now has two legs of the land development cycle stool. We have top-tier master planned communities in supply-constrained markets that will generate revenue for decades. And now we have a short-term land financing program through Hearthstone that we anticipate will increase our fee-based income substantially in the coming years. Next, we intend to focus on our midterm land strategy, where we will continue to take an asset or investment-light approach, bringing in capital partners to acquire residential land that is neither generational in nature nor short term that fits the typical land bank model. This midterm land is what the homebuilders have traditionally held on their balance sheets as a necessary element of their inventory in key markets. As we have already reported, this is a market segment currently unserved by traditional capital providers. With the undersupply of homes and home sites in this country, particularly in the metropolitan areas that are experiencing growth, we believe that capital will be available to pursue and execute on these opportunities. In short, we are extremely excited about welcoming the Hearthstone team to Five Point and to taking the next steps to position Five Point to be a meaningful participant in the land development ecosystem and to generating long-term sustainable growth for our company. Now let me turn it over to Kim to report on our financial results for the quarter. Kim Tobler: Thank you, Mike. Dan has provided a good summary of the financial results for the third quarter. I'm now going to review our results for the 9 months ending in the third quarter and provide some additional information about the Hearthstone venture since this is the first time that information will be included in our 10-Q. Then I will conclude by updating our earnings guidance for what we are expecting for the balance of 2025. We recognized $158.7 million -- excuse me, for the nine months ended September 30, we have recognized $124 million of net income. The nine months net income is made up of the following significant components. We recognized $158.7 million of equity and earnings from our unconsolidated entities, $157.1 million of which came from the Great Park Venture. The equity and earnings from the Great Park Venture was attributable to the venture's net income of $456.3 million, which resulted from land sales revenue of $613.6 million and at approximately a 75% gross margin. The sales revenue I just noted includes $13.3 million of price participation consideration. Additionally, the venture also had $17.1 million of profit participation revenue. Five Point added $32.3 million of management services revenue, $18.3 million of which is associated with the incentive compensation from the Great Park Venture and $3.4 million is associated with two months of the Hearthstone Venture operations. Our SG&A for the first nine months was $44.6 million. We had interest income of $13.5 million. And finally, we recognized $20.1 million of income tax for the nine months. Dan shared our liquidity and cash position and the improvements that we have accomplished this last quarter with the refinancing and $75 million reduction in our senior notes and the recent upsizing of our revolving credit facility. We have been working very hard to position the company for long-term growth and flexibility. Our new senior note covenant package is substantially similar to our prior notes with the exception that the prohibition against dividends and stock buybacks has been removed. Those actions are now subject to common covenant limitations. I'd like to emphasize that with the rate improvement and reduced principal, we are saving over $20 million a year in cash flow. I'd also like to note that in September, we received initial senior notes and corporate ratings of BB- and B, respectively, from Fitch Ratings. Moody's ratings upgraded us to B2 for both our senior notes and corporate ratings, as Dan noted, and S&P Global Ratings reaffirmed our ratings at B+B. Now let me turn to the Hearthstone transaction. On July 31, the company acquired substantially all of the assets associated with the asset and investment management business of Hearthstone Inc., a provider of capital solutions to the U.S. homebuilding industry. We purchased 75% of the outstanding Class A units of the Hearthstone Venture for an aggregate purchase price of $57.6 million, while Hearthstone Inc. and affiliate trust and certain employees of Hearthstone retained the remaining 25% of the outstanding Class A units all of the Class B units and certain other less significant distribution priority rights. The Class B units are temporary in nature and will be extinguished proportionally as and when the company contributes additional capital to the Hearthstone to grow its business. This acquisition represents a significant expansion of Hearthstone's capabilities, positioning Five Point as an active manager of capital solutions for the homebuilding industry through investment fund structures while positioning the Hearthstone Venture to scale its platform. We are accounting for the transaction as a business combination and have identified the assets acquired, liabilities assumed and noncontrolling interest held by the legacy Hearthstone owners of the acquiree and recorded them with limited exceptions at the fair market value on the acquisition date. You will note that we have preliminarily recorded $69.8 million of goodwill. The goodwill primarily represents the value of expected operational synergies, enhanced scale and market presence, the assembled workforce and other intangible benefits expected to be realized from integrating the Hearthstone Venture platform with Five Point's existing operations. While we don't expect any changes to the preliminary fair value recorded, the accounting rules allow for changes during the measurement period, which will not extend beyond one year from the acquisition date. We are excited about the growth opportunities that the Hearthstone Venture presents. As Dan mentioned, we continue to expect to close out 2025 with net income close to last year's income of $176.3 million. As he described in October, we already closed a commercial land sale in Valencia and residential land sales in the Great Park. And we have an additional land sale in the Great Park expected to close later in the fourth quarter. These sales, together with Five Point and Hearthstone's continuing management services revenues will all contribute to a strong finish in 2025. With that, let me turn it back to the operator, who will now open it up for questions. Operator: [Operator Instructions] The first question comes from the line of Alan Ratner from Zelman & Associates. Alan Ratner: Congrats on all of the progress in the quarter. Really great to see and thank you for all the information so far. Dan, I guess first question, obviously, Hearthstone is kind of the topic you guys spent a lot of time discussing. And I'm curious, since the deal closed, we've gone through a number of homebuilder earnings reports thus far. And we've seen a fair amount of walkaways on option deals from builders, and I know there's a distinction between land banking and traditional options. But I'm just curious, a, as you kind of jump in here into Hearthstone's business and begin to work with existing option deals and bank deals that were in place before you acquired them, how have those discussions been going? I'm assuming there are situations where builders are coming to you guys looking to either renegotiate terms or pricing, et cetera. So just curious if you can comment a little bit on how the existing book of business is going. And then I guess, just going forward, how should we think about the revenue and income stream? I mean I see the table in the release, it looks like roughly $1 million or so was the segment profitability for the two months or I'm guessing the two months that the deal closed. So is that fairly representative of how we should think about it, at least in the near term until you grow the assets under management? Daniel Hedigan: Thanks, Alan. Appreciate the questions. I'm going to split these up. I'm going to talk about the contracts on your first part, and I'll give it to Kim to talk about the numbers. But one of the things when we made a decision to buy in, partner up with Mark Porath at Hearthstone, we did a lot of diligence, and they have a 30-year history of -- in this business. And one of the most important aspects is their underwriting discipline and their structure and their deals and the deposits that they get. So as far as the question of their current existing book of business, it has some of the best underwriting, I think, in the industry, and we have not seen any issues there at all, and we don't expect to see any issues there because of that disciplined underwriting that is really their hallmark. So, and Kim, do you want to take the second part about numbers? Kim Tobler: Yes. Alan, as it relates to the representation there, I think that the $1 million for two months is accurate in the sense of looking forward in the near term, we're expecting that to grow as we move into later in the year, next year. So I think you'll see that we'll continue that, and then it will start to get a little velocity as we get into the later part of the second quarter and moving forward. Alan Ratner: Great. I appreciate that. Thank you both for those responses. Very helpful. Second question, obviously, land sale activity has been pretty robust in Great Park, and you're continuing to do great there. I didn't hear any mention of any residential lot sales in Valencia, and it's -- I think it's been about a year or so since your last transaction there. So curious if you can give just a rough time line on when we should expect to see the next residential lot sale coming in Valencia. Daniel Hedigan: Yes, Alan, good question. And we actually are looking very carefully at Valencia. The kind of short answer is it's going to be in 2026 because as we've said, one of the things we don't want to do is push lots out if there's not a market for it. And in Valencia, we're monitoring that market very carefully. We've kind of got a steady flow of sales quarter-to-quarter. But on the other hand, we have looked at some additional transactions there and decided based on the current pace in the market that we should probably wait on those because we think we get better pricing by waiting, and there's enough inventory in the market to keep the master plan moving forward. But on the other hand, we actually have programs ready to go, and we can enter the market quickly if we start seeing the market having more demand. So, but right now, the direct answer to your question is we think it'd be 2026. We aren't looking at closing anything else there on the residential side this year. Operator: [Operator Instructions] We take the next question from the line of [ David Langran ], who is a private investor. Unknown Attendee: Hi, Dan. Thanks for taking my question. Congratulations on the quarter. I'm trying to understand from your balance sheet and the number of outstanding shares, you have like 69 million roughly basic Class A shares, 149 million diluted. And so trying to understand from your balance sheet, what would you say is your book value per share? Daniel Hedigan: Well, David, I'm going to turn that one to Kim, if you don't mind. Unknown Attendee: Sure. Kim Tobler: Yes, David, I would say that our book value per share is about between $8 and $10 a share. Unknown Attendee: Okay. So that's different than what I calculated because the way I would look at it is you have like $11.5 would be the book value per share. If you look at -- if you have 69 million basic and then from the balance sheet, total members' capital is $803 million, I guess, and then the noncontrolling interests are $1.476 billion. So I guess there's some -- at least for me, trying to calculate it's kind of confusing. Can you give -- can you elaborate on how you came up with the between $8 and $10 per share book value? Kim Tobler: That's what I just -- I mean, I had it in my head from the standpoint of when I'm going through the numbers, I'll have to get back to you on that. Unknown Attendee: Okay. Yes, I appreciate it because I mean, it's a struggle for me as I try to calculate it myself, and that's why I wanted to ask that question just so I have some clarity. But thank you for taking my question. Congratulations on the quarter. Good luck with the next quarter. Daniel Hedigan: Thank you. And Kim will follow up with you. Operator: We take the next question from the line of Alan Ratner from Zelman & Associates. Alan Ratner: I'm back again with another -- the prior question just kind of spurred another thought. I noticed on your balance sheet, the -- I think the nonredeemable line -- equity line on your balance sheet, it increased by about $40 million from last quarter, $45 million. Can you explain exactly what's driving that? Daniel Hedigan: Kim, I'll let you answer that. Kim Tobler: Yes, Alan, that's the temporary equity associated with the Hearthstone transaction. We have -- there's a put call on the remaining 25% that we didn't acquire. And so that's temporary equity. Alan Ratner: I see. So is that going to remain on the balance sheet, I guess, until if that call is ever made? Kim Tobler: It will. And then there are certain other interests that may, over time, simply amortize off. Alan Ratner: Got it. And I guess just going back to that last question because I know I get this question a lot from investors. Correct me if I'm wrong, but that 149 million diluted share count, that's going to be pretty close adding up your various kind of Class A, Class B shares. So kind of thinking about the overall equity of the company, assuming those other classes ultimately convert to common Class A. I've always thought about that being the ultimate denominator in terms of calculating your book value per share. Is that something you would agree with? Kim Tobler: Yes. I would agree with that. Alan Ratner: Okay. Yes. So I think that probably -- I get to a slightly higher number than the range that you discussed. I think it's maybe north. Kim Tobler: You know what. Yes, I hear. Just the number actually as of the end of '25, I mean, the September '25 is actually $15 -- about $15.5. Alan Ratner: Yes. Okay. That's what I was getting, which is, I guess, just the total shareholders' equity of $2.2 billion, $2.3 billion divided by the 149 million or so. Kim Tobler: Yes. That's right. Operator: Ladies and gentlemen, as there are no further questions, I will now hand the conference over to Dan Hedigan for his closing comments. Daniel Hedigan: Thank you. On behalf of our management team, we thank you for joining us on today's call, and we look forward to speaking with you next quarter. Operator: Thank you. Ladies and gentlemen, the conference of Five Point Holdings has now concluded. Thank you for your participation. You may now disconnect your lines.

88天前Insight Analytics约5分钟阅读

ATRC 2025 Q3 财报电话会议

Operator: Good afternoon, and welcome to AtriCure's Third Quarter 2025 Earnings Conference Call. This call is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Marissa Bych from the Gilmartin Group, for a few introductory comments. Marissa Bych: Thank you. By now, you should have received a copy of the earnings press release. If you have not received a copy, please call (513) 644-4484 to have one e-mailed to you. Before we begin today, let me remind you that the company's remarks include forward-looking statements. Forward-looking statements are subject to numerous risks and uncertainties, many of which are beyond AtriCure's control, including risks and uncertainties described from time to time in AtriCure's SEC filings. These statements include, but are not limited to, financial expectations and guidance, expectations regarding the potential market opportunity for AtriCure's franchises and growth initiatives, future product approvals and clearances, competition, reimbursement, and clinical trial outcomes. AtriCure's results may differ materially from those projected. AtriCure undertakes no obligation to publicly update any forward-looking statements. Additionally, we refer to non-GAAP financial measures, specifically constant currency revenue, adjusted EBITDA and adjusted loss per share. A reconciliation of these non-GAAP financial measures with the most directly comparable GAAP measures is included in our press release, which is available on our website. With that, I would like to turn the call over to Mike Carrel, President and Chief Executive Officer. Michael H. Carrel: Great, and good afternoon, everyone. Thank you for joining us today. We had a very strong third quarter with total revenue of $134 million, reflecting a 16% increase year-over-year. Our growth was driven across key franchises globally, demonstrating the expanding adoption of our therapies and breadth of market opportunities. We also substantially improved profitability and cash generation with nearly $18 million of adjusted EBITDA and over $30 million in cash generated in the third quarter. Overall, our revenue growth and profitability exceeded expectations for the quarter, and we will once again raise guidance for the year. Product innovation and clinical science initiatives continue to flourish at AtriCure, and that is evident in the success of our recent product launches. The AtriClip FLEX-Mini and cryoSPHERE MAX devices are propelling outstanding growth in appendage and pain management in the United States. The launch of our EnCompass Clamp is driving accelerated growth in Europe while continuing to fuel steady growth in the United States many years after launch. And we are building on surgeon interest in this product with our PFA platform development program and further expanding our market opportunity with the initiation of our BoxX-NoAF clinical trial. Additionally, our cryoXT device, launched this quarter, will set a new standard for managing pain in lower limb amputation procedures. Each initiative reflects our commitment to delivering innovative therapies to address unmet clinical needs for patients around the world. Now on to updates from each of our franchises. Starting with appendage management, where worldwide revenue grew over 20%, continuing the acceleration realized in the first half of 2025. This is a direct result of increasing adoption of our AtriClip FLEX-Mini and PRO-Mini devices. Both devices leveraged our third-generation AtriClip platform technology, featuring a smaller profile clip, which improves visibility in procedures. These devices are the smallest surgical LAA implants available, and build on more than a decade of outstanding results for the over 700,000 patients treated on our AtriClip platform. Related to the AtriClip, early in the third quarter, we completed enrollment of over 6,500 patients across 137 sites globally in our landmark clinical trial, LeAAPS. The success of enrollment is a reflection of the strong interest from trial investigators, of which over 500 surgeons participated and are now focused on patient follow-up. As most of you know, the LeAAPS trial is designed to evaluate the use of AtriClip devices for stroke prevention in cardiac surgery patients who do not have prior Afib diagnosis. This is a significant underserved patient population with more than 70% of the nearly 2 million patients who undergo cardiac surgery annually not having a prior Afib diagnosis, and we are very excited about the potential ahead. While we await the results of the trial, we are driving physician awareness and expanding access to AtriClip devices globally. To that end, we are pleased to announce the recent approvals of our AtriClip Flex-V, PRO-V and FLEX-Mini devices in Japan. In addition to the groundbreaking clinical evidence from LeAAPS, we intend to stay leaders in this market with continuous innovation and have turned our research and development efforts towards delivering the next generation of AtriClip devices, and we look forward to sharing our progress over the coming year. Within our ablation franchises, open ablation growth accelerated to over 18% for the quarter. Sales of our EnCompass Clamp continue to drive growth in the United States, and the launch in Europe boosted our international results. As I commented last quarter, the durability of the EnCompass Clamp's growth is a clear testament to our ability to deliver meaningful and consistent innovation, providing clinicians with effective and time-saving solutions. We expect to further advance concomitant ablation procedures with our platform development of an EnCompass Clamp enabled with PFA. We are making progress with robust preclinical testing and expect first-in-human use over the coming months. Beyond technical innovation, we are also moving forward with our BoxX-NoAF clinical trial and are excited to share that the first patient was treated. BoxX-NoAF trial is another foundational study at AtriCure, aimed at reducing the onset of postoperative Afib in cardiac surgery patients who do not have a pre-existing Afib condition. This trial will significantly expand the opportunity to use our ablation technologies in this broader patient population, multiplying our cardiac surgery market opportunity overall. Adding to the momentum from our LeAAPS trial, we believe BoxX-NoAF will transform the standard of care in cardiac surgery towards preventative approaches. In our minimally invasive hybrid therapy, market dynamics remained challenging in the U.S. due to increased adoption of PFA catheter technology. Nonetheless, we continue to see substantial unmet need for patients with long-standing persistent Afib and believe that our hybrid AF therapy is uniquely positioned to address this need. Finally, turning to our pain management franchise, which grew 28% in the quarter and was driven by sales of our latest product innovations, the cryoSPHERE MAX and cryoSPHERE+ probes. These product launches have shown the value of reducing procedure times, allowing us to increase market penetration in thoracic surgery and gain traction in the sternotomy market. Another reason for optimism in our pain management business is the launch of cryoXT, which improves recovery and quality of life in patients following extremity amputation. Feedback already from surgeons using the cryoXT device has been encouraging. And we are even more excited by the reports of rapid patient recovery in the days following the procedure. As is the case with new therapy development, it will take time to ramp the cryoXT use. But we are confident that the benefit for patients, physicians and hospital economics are significant. We recently launched the vanish registry to track patient outcomes with cryoXT, and expect this data to demonstrate acute and phantom limb pain reduction with our Cryo Nerve Block therapy in patients undergoing extremity amputation. CryoXT unlocks a meaningful expansion opportunity in pain management and is another example of our ongoing commitment to innovation across all of our franchises. Going forward, we will also continue to invest in comprehensive clinical and economic data to support the value of Cryo Nerve Block therapies. A non-opioid pain management -- but as non-opioid pain management becomes an increasing priority across health care, these efforts are helping drive broader awareness and adoption. In closing, I want to express my gratitude to our entire AtriCure team for another successful quarter. Your work demonstrates an unrelenting focus on patients. We are executing well on our growth and profitability objectives, including record cash generation this quarter, providing a strong foundation as we end the year and go into 2026. I am confident that our shared determination to deliver exceptional patient outcomes and executing on our strategic priorities will transform standards of care in each of our markets. With that, I'll turn the call over to Angie Wirick, our Chief Financial Officer. Angie? Angela Wirick: Thank you, Mike. Our third quarter 2025 worldwide revenue of $134.3 million increased 15.8% on a reported basis and 15.1% on a constant currency basis when compared to the third quarter of 2024, reflecting healthy adoption across key product lines and markets. On a sequential basis, we experienced normal procedure seasonality with a 1.4% decline from the second quarter to the third quarter of 2025. Third quarter 2025 U.S. revenue was $109.3 million, a 14.5% increase from the third quarter of 2024. While we experienced a decline in our minimally invasive ablation sales to $7.4 million for the quarter, all other U.S. franchises drove robust growth from the continued adoption of our innovative technologies. Open ablation product sales in the U.S. were $35.6 million, up 16.3% over 2024, driven by expanding use of our EnCompass Clamp. Through the third quarter, total accounts purchasing Encompass reached 740 this year, surpassing the 700 accounts purchasing during the entire fiscal year 2024. U.S. sales of appendage management products were $45.4 million, up 21.5% over the third quarter of 2024, led by ramping adoption of our recently launched AtriClip FLEX-Mini device. Growth in open LAA devices was over 26% for the quarter, while our minimally invasive LAA devices were up slightly on conversions to AtriClip PRO-Mini, which launched earlier this year. Finally, pain management product sales were $20.8 million, up 27.7% over the third quarter of 2024, reflecting increasing application of our cryoSPHERE MAX and cryoSPHERE+ probes, primarily in thoracic procedures. International revenue totaled $25 million, up 22% on a reported basis and 17.9% on a constant currency basis as compared to the third quarter of 2024. European sales contributed $15.2 million in the quarter, representing 24.2% growth. Sales in Asia Pacific and other international markets grew 18.8% to $9.8 million from the third quarter of 2024. Our gross margin was 75.5%, an increase of 59 basis points from the third quarter of 2024, driven primarily by more favorable product mix globally, stemming in part from new product launches in the United States. Operating expenses for the quarter totaled $101.1 million, an increase of $6.9 million or 7.4% from the third quarter of 2024. Research and development expenses rose 9.2% from the third quarter of 2024, reflecting a slower pace of spending in the quarter as we transition between projects after completing enrollment in LeAAPS and multiple new product launches over the last 12 months. SG&A expenses increased 6.8%, well below revenue growth for the quarter, demonstrating continued leverage as we further scale our operations. As a result of our strong revenue growth and disciplined approach to investing, we recognized $17.8 million in adjusted EBITDA, roughly $10 million above the third quarter of 2024. We expanded our adjusted EBITDA margin to 13.3% for the quarter, showing continued progress throughout 2025 and achieving profitable growth. Our basic and diluted net loss per share as well as the adjusted loss per share was $0.01 in the third quarter of 2025 as compared to $0.17 in the third quarter of 2024. Our balance sheet continues to strengthen as we ended the third quarter with $147.9 million in cash and investments, representing positive cash generation of $30.1 million for the quarter. This quarter, we had a onetime cash inflow of approximately $6 million from a sale-leaseback transaction as we began the expansion of our Ohio campus. We continue to expect positive cash generation in the first quarter, further elevating an already sound capital position. Now turning to our outlook for the remainder of the year. We now expect to achieve approximately $532 million to $534 million in full year 2025 revenue, reflecting approximately 14% to 15% growth compared to 2024. We are confident in the long-term growth trajectory for the large underpenetrated markets we serve globally. Year-to-date, gross margin is pacing 20 basis points above 2024 due to shifting product mix. We now expect our full year 2025 gross margin to be slightly higher than 2024 with the potential for varying impacts from geographic and product mix. Next, our priorities for capital allocation continue to focus on cultivating future catalysts for our business through meaningful investments in clinical science, product development, and therapy awareness. While we make these investments, we are also committed to driving expanded profitability. With that in mind, we are raising our positive adjusted EBITDA outlook to approximately $55 million to $57 million for the full year 2025, corresponding to an adjusted loss per share of approximately $0.23 to $0.26. I would also like to thank our extended AtriCure team for driving exceptional overall financial performance this quarter. As we make great strides in our mission to reduce the burden of Afib and postoperative pain, we are meaningfully improving the sustainability of our business through continued revenue and margin expansion. At this point, I will turn the call back to Mike. Michael H. Carrel: Thank you, Angie. Our third quarter performance underpinned by strong revenue growth and increasing profitability highlights our team's persistence and commitment to our patients, partners, and our shareholders. I'm especially proud as we celebrate AtriCure's 25th anniversary this week. These same values of patients, people and partners have guided our company over the past 2.5 decades, building to the incredible opportunity that sits in front of us today. Our trajectory is truly exciting. And I look forward to sharing further progress as we end the year and begin 2026. With that, we will turn it over to questions. Operator: [Operator Instructions] Our first question comes from John Young with Canaccord. John Young: Mike and Angie, congrats on a great quarter. First, I just wanted to ask on the CMS proposal for ablations to possibly move into the ASC setting. Do you believe that the decrease in strain on hospital cath labs can actually lead to a rebound in the EPi-Sense business? Michael H. Carrel: I mean it's a good question, John. I don't know that that's going to have a material effect on the overall EPi-Sense business because we're not -- that's not really our business per se. I think it will just lead to more efficiency in the cath labs for sure. I think what's going to drive the EPi-Sense business is going to be as they have non-responders to PFA and they go through 1 or 2 nonresponding PFA techniques with the different catheters are out there. Then, they're going to look for, well, how am I going to treat this patient when I've done everything possible with the catheters at that point in time. So what we're seeing now is we're starting to see some breakthroughs at a couple of sites. It's more than a couple, but several sites where they're starting to refer some patients, not enough to drive that revenue growth yet. But we are definitely starting to see that where they are seeing non-responders. And they've typically gone through 2 different catheter ablations at that point in time. So that that's going to be really kind of a leading indicator for us more so than the change in the ASC. John Young: Is there any way to quantify the opportunity in Japan given those approvals that you got there? Michael H. Carrel: Yes. Right now, I mean, there's about 40,000 or so cardiac surgeries in Japan in totality. So obviously, with the LeAAPS trial and others, you've got the possibility of getting that entire area to cover that. Today, we don't sell that many clips. We do have our AtriClip on the market today. We're the leading player in the market relative to that. And obviously, now bringing in our newer technology, hopefully, will help accelerate that overall. We don't anticipate getting any revenue in the near term from it as we kind of prep the market over the course of the next 6 months. But we did just get the approval. We actually got it earlier than we expected and we'll be rolling it out sometime next year. Operator: Our next question comes from Lilly Lozada with JPMorgan. Lilia-Celine Lozada: Maybe I'll start with one on open and then I have a follow-up on guidance. In the open business, 19% growth is really impressive and well ahead of what the segment had done historically. Obviously, EnCompass has done really well, but what do you think is driving the acceleration at this point? I know you said you've already basically seen full conversion from the legacy product over to EnCompass and that it's really adoption in new accounts and CABG doctors who historically hadn't been customers that have been driving growth. So where do you think you stand in penetrating that population? And how long do you think we can see this level of growth in the open business? Michael H. Carrel: I think you hit it. You could have answered the question right there, Lilly. It is primarily CABG patients because those surgeons have typically not done a good job of actually doing any kind of ablation on these patient population. They don't get behind the heart as we've talked about before. And so that's really what you're seeing. More and more surgeons are actually doing ablations that weren't doing it before. And we believe, obviously, EnCompass has really helped them get there, both from ease of use of the technology and the speed at which -- because it cut out about 30 minutes out of the procedure time. So it really dramatically improved it from both ease of use and speed to actually get a really good ablation done during that. So yes, that's what's driving it right now. We're still severely underpenetrated in the CABG market. And we're maybe at approaching 10% of the CABG patients that have -- Afib are getting treated. And then when you look at all CABG patients -- and CABG patients tend to be the ones that go into most post-op Afib. And with BoxX-NoAF, we also see that as another really big opportunity. And we feel good about obviously enrolling our first patient in that, that we're going to enroll in that pretty quickly. You saw what we did on the LeAAPS side. We'll enroll in this very quickly and then hopefully get those results in the coming years. Angela Wirick: Yes. Maybe one thing to add, Lilly, on the growth. It was a little over 16% in the U.S. in our open ablation franchise and 26% in our international business. A big part of that was the uptick that we're seeing on adoption in Europe for our EnCompass Clamp, where our European open growth was over 30% for the quarter. So I think we're excited, obviously, for the long-term prospects here, as Mike said, seeing additional adoption and treatment within CABG patients in particular. Lilia-Celine Lozada: Just a clarification on guidance, on profitability specifically. You put up really nice results on adjusted EBITDA. So first, can you talk a bit about the strength that you're seeing from a margin perspective? And second, guidance, I think, implies a sequential step down on adjusted EBITDA. So what's driving that? Is that just conservatism? Or is there something else at play in the fourth quarter that we should be thinking about? Angela Wirick: Sure. Touching on margins first, I'd say, starting with gross margin, we obviously saw some strength in the quarter with the shifting mix here. A portion of that is our international business with distributors, a more favorable mix. New product launches, which we've talked about contributing to margin accretion over the year as those continue to build as a percentage of the overall revenue. And then the third thing I would point out is we are starting to realize some efficiency from our manufacturing, specifically with the EnCompass Clamp. This is a project we had talked about a couple of quarters ago. We're starting to see that show up in the numbers as well. So expansion on the gross margin side. Within operating expenses, a lighter quarter in R&D spend. This is transitioning from -- within clinical trials from our LeAAPS clinical trial, which enrolled early in the first quarter to now starting to ramp up with our BoxX-NoAF trial. That will start to contribute to spend as you think about the fourth quarter, which is part of what went into the fourth quarter guide and then continued leverage within SG&A. So to the guide side on the bottom line, really pleased with the progress that we've made so far this year and the progress that we'll continue to make each quarter going forward. A bit of conservatism on the bottom line, but then also starting to ramp up some of the R&D initiatives in the fourth quarter. Operator: Our next question comes from Marie Thibault with BTIG. Marie Thibault: I wanted to talk a little bit about the appendage management business. Noticed that this is another quarter of high 20s growth in the Open Clip segment of that business. I wanted to understand, I think the majority of this is driven by a volume uptick. Just how sustainable is some of this high 20s growth? FLEX-Mini, how far along would you say we are in that rollout? Just some understanding of what that segment can do going forward. Michael H. Carrel: We think there's a tremendous opportunity. I'm not going to commit to any specific numbers. But from an overall market dynamic standpoint, we're still in less than 30% of all sites in the United States with that product today. So we feel like there's a lot of upside just getting in sites, let alone getting to all the physicians that could use them at each one of those sites in addition to being used on a lot of patients. So we feel like there's a lot of upside in that opportunity, not to mention the longer term with the LeAAPS trial and hopefully expanding the market opportunity in general. So we think that there's a great deal of opportunity without giving specifics on like what each quarter revenue growth is going to look like, but the opportunity is very large there. Angela Wirick: I was just going to add, Marie, from a revenue contribution, FLEX-Mini was around 30% of our U.S. Open Clip growth or Open Clip revenue for the quarter. Obviously, continue to see really nice uplift each quarter following launch and a long runway, as Mike said. Marie Thibault: Yes. Okay. Another sequential uptick. Great to hear. And then I guess a follow-up on the adjusted EBITDA metric. And my question is more kind of focused on the long-range plan that you set out earlier on that metric. Clearly ahead of schedule on those goals. So how would you think about the cadence now, the trajectory, where this metric can go very long term? Angela Wirick: Thanks, Marie. At this point, we're not ready to guide for 2026 yet. We are extremely pleased with the progress that we're making on the bottom line and the trajectory that we're on. I would expect continued improvement as we operate into 2026. I think relative to our LRP metrics that we put out at our Analyst and Investor Day earlier in the year, we are ahead of schedule. And our goal all along, both top and bottom line is to continue to outperform. Operator: Our next question comes from John McAulay with Stifel. John McAulay: First one for me, I just want to sort of follow up on Lilly's question about the fourth quarter. In terms of EBITDA, I understand the reasoning typical sort of conservatism for the step down. I just wanted to get a better sense of revenue. It seems like sort of 12% implied in the fourth quarter. We've been doing to mid-teens all year. Just any dynamics in the fourth quarter we should be thinking about puts and takes for performance there? Angela Wirick: John, I'd say we're really confident in the guide for the fourth quarter and for the full year. It's worth repeating our philosophy around guidance, which is to put numbers out there that we feel really confident in achieving with a pathway to beating. So the totality of our business, you can see almost every area is firing on good cylinders here. Hybrid, we will expect continued softness, but that's a very small portion of our business overall. So just pleased with the trajectory there, really along the philosophy of our guide for the year. In terms of comps, fourth quarter last year, you did have a couple of the new product launches hitting there, saw nice results overall, but that's really the only thing to take into consideration when you think about the comps for 2024. John McAulay: One follow-up. Just curious, I may missed it. I didn't see anything specifically calling out in the press release. But any update on the PFA program, time lines there, progress there? Just be curious to know next steps and what we should be looking ahead for. Michael H. Carrel: Yes. On the PFA, we've done all the preclinical testing on our products at this point. And we are going into first in human by the end of this year, early part of next year. And then the next step after that, as we talked about the Analyst Day, is to go into clinical trials likely in the early part of 2027. And so no change on that. And we've made great progress on that front and are getting really, really good results in all the work that we're doing. Operator: Our next question comes from Mike Matson with Needham. Joseph Conway: Mike, Angie, it's Joseph on for Mike. Maybe just a couple around pain management. I'm trying and just all ask them together. I guess with cryoXT, is that in a limited launch right now? I don't necessarily know if you said that in the prepared remarks? Or is that more pedal down launch just given the success with + and MAX? Is there going to be any contribution to pain management growth of that project -- product in 2025? And then, I guess, just the pain management portfolio, how much of that is available in Europe? Michael H. Carrel: Sure. On the -- related to the XT launch, I don't know that I'd call it a limited launch, but definitely a very focused launch at this point in time. And so we won't see a lot of contribution. Typically with our launches, you don't start to see a lot of contribution until about 3 to 6 months after the launch after we've kind of worked it out, gone to the site, seen a lot of success and kind of built upon that. So I guess you could call it limited. We just don't call it that internally. But -- so we don't anticipate much revenue coming this quarter, but we do anticipate in obviously, next year that it will be a meaningful contributor to our overall business in 2026. As it relates to Europe, we do have our cryoSPHERE over there. And so it's being used and there's a lot of -- it's throughout Europe and then also in Australia. Joseph Conway: I'll just ask another one on pain management. I did see a video on AtriCure's website. I guess this was on XT just interviewing a surgeon. And he said this quote that just caught me. I'm just kind of curious you guys' opinion. He said, utilizing Cryo Nerve Block for 10 to 15 minutes can add a lifetime of benefit to the patient and the absence or need for secondary procedures. So obviously, it seems like a very positive comment. I'm just kind of curious what kind of discussions are you having physicians or maybe physicians having with each other or their own colleagues to looking for alternatives to opioids or reduce opioid use. What are you hearing from them? Michael H. Carrel: Well, I mean, what we're seeing from the market in general, I mean, I think what the physician on our website was talking about is that you can see the dramatic benefit is unlike our Afib franchise, where when they -- when you don't necessarily solve the Afib per se right then and there. It's got a long-term effect of it. You really want to affect that long-term aspect of it. With the pain management, you literally see it they recover that much more quickly. They don't have pain when you're in the step-down units and they're going through recovery. So it's quite remarkable to see that. And that's why you're hearing that kind of benefit because they can -- like, for example, on an amputation case, they can begin to walk faster. They can get the prosthetics fit more quickly. They can begin to get out of the hospital a lot faster. And they don't feel that general pain right away after the surgery. So that's an example of where the cryo nerve block can help. Then obviously, long term, what he's referring to is that in his practice because he was one of the early adopters in this area. He was practicing and seeing actually that there's not just the original post-op pain that he's saving, but also longer term phantom limb pain that he's seeing. And those are studies that we have ongoing and that we're looking at to see how we can get those published, et cetera. Operator: Our next question comes from Danielle Antalffy with UBS. Danielle Antalffy: So just two questions for me. One, Mike and Angie, this is now, gosh, I mean, I don't know, like the -- it's multiple years in a row now of mid to high teens open ablation growth. And I'm just curious if you can talk about the sustainability of that growth. I know you guys talked about it at your Analyst Day. But -- maybe remind us what's most important in driving sustainability of growth there? Is it new modalities like PFA? Is it training more surgeons? Is it same-store utilization growth? Is it just iterating on the products like EnCompass, et cetera? Because it's been a few years now, and it just does not seem to be losing steam. Michael H. Carrel: Yes. I mean the biggest thing right there, quite frankly, is awareness for the product because EnCompass right now, we have the products today. That's what's going to drive the overall growth, both in Afib patients. And then as you look out longer term, like we talked about at our Analyst Day in the non-Afib patients as well. We think that prophylactic treatment to reduce post-op Afib as with this clinical trial we just kicked off is going to have meaningful benefit and helpful with the existing technology we have today. So the technology works incredibly well. It's very fast to utilize it and get a robust box lesion and then you add the AtriClip to it, and it's incredibly robust from that standpoint. We're already seeing papers get published that show incredible results with that BoxX and the box lesion. The BoxX being the box, and then the X being the exclusion of the appendage, which is exactly what we're seeing in there. So the two big things right now are awareness within the community that this works and is incredibly robust and more papers out. And two is expanding that opportunity for post-op Afib patients because that obviously more than doubles, if not triples, the overall patient population. So that's really where you're going to see the growth, but no new technology per se. Danielle Antalffy: I'm curious about -- so my second question is on the appendage management business. And I'm actually curious, we have a pretty major clinical trial coming for the minimally invasive approach -- or I should say, for WATCHMAN, the stand-alone approach. And I'm curious as to whether you think that is going to be a boon for the entire market and help actually your appendage management business? Because if I recall back in the days of -- early days of WATCHMAN data, what we actually saw was a class increase across the board for appendage management. So I'd love to hear your views on how that could impact your appendage management business. Michael H. Carrel: Yes. I'd love to say that the data coming out of WATCHMAN, at this point, I think the awareness is out there on appendage management and the importance of managing it, both from what WATCHMAN did. And if you recall, the LAAOS III trial for Afib patients was incredibly positive to reducing stroke and the AtriClip was used in that trial as well. So I'd say that -- and the guidelines have now changed. So there's been a lot of that already in existence in the open kind of, call it, concomitant use of the AtriClip during open heart surgery. I think the bigger move is going to be with LeAAPS because LeAAPS is really going to open up that market, much like I just mentioned with BoxX-NoAF. This is the prophylactic treatment of that appendage, I think, is going to be once we get that data out, which is obviously going to take a little while. And so we're all going to be patient on it. That's going to really move the market and quite frankly, move our volumes quite dramatically at that point in time. Operator: Our next question comes from Matthew O'Brien with Piper Sandler. Unknown Analyst: Mike and Angie, this is Anna on for Matt. Just if I could ask a question on competition, specifically for AtriClip. There's been some concern around future entrants disrupting your position in the space. So if you could speak maybe to the moat around AtriClip and the differentiation of the device based on the competition you've seen in the past, that would be super helpful. Michael H. Carrel: Sure. I mean competition is inevitable in medical devices. As I've mentioned on this call before, we believe competition is good because it means. And it validates the space that we're in as being a very large market, especially when very large strategics decide that they're going to make some level of investment even if it's small and with inferior products. We do believe that they're going to come into the market and compete against us and create validation that managing the appendage is the right thing to do and create that kind of awareness. We feel like we've got the best products in the market. We continue to innovate. The FLEX-Mini device and our FLEX-V device are the best products in the market. We just had clinical data that was published on the V that showed 100% closure using the V clip in 150 patients that was just peer-reviewed and published just recently. That's on top of over 95 peer-reviewed papers and 16,000 patients that have been studied to date in peer-reviewed articles showing exceptional closure of that product, which obviously is incredibly important. The level of evidence that is already out there on top of that and on top of the innovation like the FLEX-Mini, which is the smallest product on the market, creating better visibility, easier to use for physicians when they're using the product. You've also got the LeAAPS trial that is expanding the market and will be the only product in the -- or the only trial in the market that is going to demonstrate stroke reduction prophylactically and it will be only using the AtriClip. So I think that there's a lot of things over the coming years that are going to be out there to help us benefit and show the AtriClip is obviously the best product in the market. But in addition to that, I do welcome competition. I think it's good. It's validated. It shows this is a big market that matters and one that others are very interested in. Unknown Analyst: Then I guess just on the hybrid business, there's obviously been some softness in that segment for a while now. When do you think you'll reach a bottom there and sort of see that growth inflect a bit? Michael H. Carrel: Yes. I mean as I mentioned in my comments, I mean, obviously, there's been a lot of pressure on that with the PFA technologies out there specifically. We're not hiding from that in any way. We know that, that's the case. As I mentioned earlier, kind of what -- when John asked the question about progression, we do see people doing multiple ablations before they move on to hybrid. I do think you're going to start to see some breakthroughs on that. I'm not ready to give a here's the bottom and -- but you're starting to see definitely more cases coming through from sites that used to do a lot, then went to almost 0 and are now starting to do some cases again, not back to their old numbers. But they're definitely starting to see patients that have failed 1 or usually 2 catheters with the PFA and the different technologies that are out there. So we do anticipate that we will eventually see growth coming back to this market because there are just so many patients in this market. And just sheer math on it, if there are 600,000 catheter ablations, about 10% of those that are being ablated every year our long-standing persistent patients, which is like 60,000 patients. And those are the patients where the catheters don't work very well and have the highest rate of reds or having to go back in. And so we anticipate that, that fall-through is going to eventually happen for us. And that they're going to have no other choice but to look for another technology that can help them out epicardial like ours. Operator: Our next question comes from Suraj Kalia with Oppenheimer. [Operator Instructions] I'm showing no further questions at this time. I would now like to turn it back to Mike Carrel for closing remarks. Michael H. Carrel: Sure. Again, everyone, thank you for joining us today on the call. We really do appreciate all of the support and are looking forward to closing the year incredibly strong and having an incredible 2026. Have a wonderful evening. Bye now. Operator: This concludes today's conference call. Thanks for participating. You may now disconnect.

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TMDX 2025 Q3 财报电话会议

Operator: Good afternoon, and welcome to the TransMedics Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded for replay purposes. [Operator Instructions] I would now like to turn the call over to Ms. Laine Morgan from Gilmartin Group for a few introductory remarks. Thank you. Dorothy Morgan: Thank you. Earlier today, TransMedics released financial results for the quarter ended September 30, 2025. A copy of the press release is available on the company's website. Before we begin, I would like to remind you that management will make statements during this call, including during the question-and-answer portion of the call, that include forward-looking statements within the meaning of federal securities laws. Any statements contained in this call that relate to expectations or predictions of future events, results or performance are forward-looking statements. These forward-looking statements address various matters, including, among other things, future events, results and performance, financial guidance and projected expectations, potential market and business conditions, our examination of operating trends, the potential commercial opportunity for our products and services, the potential timing, outcome and impact of new clinical programs, and our potential initiatives, opportunities and plans in the U.S. and globally, including timing and expectations. These statements involve risks and uncertainties that could cause actual results or events to materially differ from those anticipated or implied by the forward-looking statements. Accordingly, you should not place undue reliance on these statements. Additional information regarding these risks and uncertainties appears under the heading Risk Factors of our Form 10-Q filed with the Securities and Exchange Commission on July 30, 2025 and our subsequent SEC filings, which are available at www.sec.gov and on our website at www.transmedics.com. You can also find the company's slide presentation with information on third quarter 2025 results on the Investor Relations section of the TransMedics website. TransMedics disclaims any intention or obligation, except as required by law, to update or revise any financial projections or forward-looking statements. This conference call contains time-sensitive information and is accurate only as of the live broadcast today, October 29, 2025. And with that, I will now turn the call over to Waleed Hassanein, President and Chief Executive Officer. Waleed Hassanein: Thank you so much, Laine. Good afternoon, everyone, and welcome to TransMedics' Third Quarter 2025 Earnings Call. Joining me today is Gerardo Hernandez, our Chief Financial Officer. Organ transplantation remains a key area of focus for policymakers in both the U.S. and around the world. In the U.S., the ongoing national modernization initiative is focused on growing transplant volumes, while streamlining organ donation, coordination and oversight processes. Internationally, efforts are similarly focused on maximizing utilization of donor organs for transplants, while also finding more efficient ways to manage organ procurements and improving post-transplant clinical outcomes. Globally, TransMedics is uniquely positioned as the ideal solution to address these initiatives through our differentiated OCS technology, NOP clinical and logistical services and our proprietary transplant digital ecosystem. As we will outline today, we are seeing strong signals supporting this conviction. We are now laser-focused on capitalizing on our momentum worldwide to provide our unique solutions to promote organ transplantation and save more lives. We are extremely proud of our strong results achieved in Q3 despite the anticipated and typical transient seasonal slowdown seen in the U.S. national transplant volumes as reported by UNOS OPTN data in Q3. Specifically, we're very encouraged by the year-over-year growth trend, which we strongly believe is a more relevant and meaningful performance metric, especially in a seasonal quarter like Q3. Let me share the summary of our results for 3Q 2025. Total revenue for 3Q 2025 was approximately $144 million, or exactly $143.8 million, representing approximately 32.2% growth year-over-year. We experienced year-over-year growth across all 3 organ segments, driven by higher overall utilization and center penetration of OCS NOP in the U.S. Specifically, we saw year-over-year growth of nearly 41% in liver, approximately 14% in heart and approximately 5% in lung revenues in Q3. Our overall gross margins for 3Q was approximately 59%, representing 2.9% growth year-over-year. We delivered operating profit of approximately $23.3 million in 3Q, representing more than 16% total revenue -- of total revenue, up from $3.9 million or approximately 4% of total revenue in 3Q 2024. And finally, we have driven strong cash generation. We have significantly improved our billing processes and have maintained a healthy AR collections, which resulted in the addition of approximately $65.6 million of cash to our balance sheet as we ended 3Q with over $466.2 million in cash. Shifting now to TransMedics' transplant logistics infrastructure and performance. Transplant logistics service revenue for 3Q was $27.2 million, representing approximately 35% year-over-year growth. Throughout 3Q, we owned and operated 21 aircraft before adding our 22nd aircraft in October, which we were targeting to end 2025 with 22 owned aircraft. In 3Q, we maintained coverage of approximately 78% of our NOP missions requiring air transport compared to approximately 61% in Q3 of 2024. Meanwhile, we have continued to add to our pilot crew, enabling us to experiment with double shifting a portion of our fleet by year-end. We are pleased by our strong operational 3Q performance achieved despite the expected transient seasonality. We are confident that this seasonal impact is behind us as we have seen volume rebound in September and into early Q4. Moving now to update on our Next-Gen OCS ENHANCE Heart and DENOVO Lung clinical programs. We are thrilled to report that several U.S. heart and lung transplant centers are approaching the initiation of patient enrollment for the ENHANCE Heart and DENOVO Lung trials. We remain confident that the enrollment will start in Q4 2025. Meanwhile, our team is actively working to complete our responses to the remaining FDA questions and expect that all IDE conditions for both trials will be satisfied by early next year. We're very excited about initiating these 2 programs to demonstrate the potential positive clinical impact of our Gen 2 modification on heart and lung transplantation in the U.S. Importantly, we hope that these programs will catalyze significant OCS Heart and OCS Lung adoption in the U.S. in 2026 and beyond. Now, please allow me to discuss our effort to expand our TransMedics NOP model outside of the U.S., which represents a key midterm growth driver for TransMedics. As I stated before, TransMedics' U.S. NOP success has been highly visible across the global transplant markets. This resulted in many international geographies engaging with TransMedics to explore the potential for replicating all or a portion of our NOP model and our integrated logistics platform to help them grow their transplant programs. Importantly, through these market engagements, we became very aware of their significant needs for a dedicated transplant logistics support for reasons similar to those we've seen and experienced in the U.S. To that end, in September, we were excited to announce our plans to launch our first OUS NOP program in Italy. We are now actively establishing up to 4 hubs to serve as launch points for that program, strategically covering both Northern and Southern Italy. We are also actively staffing up our Italian clinical support teams. Now, it is important to note that we are planning to start building an EU air and ground transplant logistics network similar to the one we have established in the U.S., however, appropriately sized to meet the European needs. Given our current knowledge of the Italian and European transplant logistics need, we see a significant opportunity for TransMedics to capitalize on by replicating our transplant logistics service in Europe. Please allow me to repeat, we -- given our current knowledge, we see a significant business opportunity and revenue-generating opportunity by replicating our transplant logistics service in Europe to meet the growing needs for a dedicated transplant network -- logistics network in European countries. We expect the Italian NOP program to launch in the first half of 2026. We're also currently engaged with several other European countries and also engage with regions outside of Europe to expand our program beyond Italy in the coming years. Stay tuned. This initiative will serve as an additional growth catalyst beginning as early as late 2026 and more meaningfully in '27 and beyond. With that, let me turn to the here and now. We are laser-focused on finishing out 2025 strong to round out another great year for our business and potentially grow the U.S. national transplant volumes for the third consecutive year in a row. We are continuing to drive adoption of our OCS NOP across all organs. We are expanding our OPO partnership to increase organ utilization for transplantation around the United States. Next week, we are hosting our annual transplant leadership forums in Boston with approximately 200 transplant leaders from all transplant market segments expected to participate. We are continuing to strengthen our clinical support staffing to meet the growing demand. And finally, we remain on track to begin double shifting a portion of our aircraft fleet by year-end to enhance operational efficiency. We are confident that all these activities will position us well to end the year strong and be in a good position for the expected ramp in adoption in 2026. Before I conclude, please allow me to provide a status update on our long-term growth initiatives and our planned new global headquarters and manufacturing facility. First, we are very pleased with the preclinical and product development progress of our OCS Kidney program, which is underway and was announced publicly at the World Transplant Congress Scientific Conference in August. We expect to reveal the design of our OCS Kidney device in early 2026 at the American Society of Transplant Surgeons Winter Symposium. Second, the development of our Gen 3 OCS platform is well underway with significant progress already made on many of the advanced technology platforms that will be encompassed in that next Gen 3 OCS platform. We expect to share more detail on Gen 3 OCS platform in the second half of 2026. Third, as Gerardo will outline later, we are actively investing in critical business infrastructure systems to better position TransMedics to scale and grow with strong controls and efficiencies. Finally, we have narrowed down our selection for the new global headquarters of TransMedics to the city of Somerville, a northern suburb of Boston. We are in the final stages of lease negotiations for a state-of-the-art new building to combine all of our functions in one campus, and we expect to announce the location in early January 2026. As you can see, we are not slowing down, and we are growing our technology platform and geographical outreach. As I have stated before, our near-term capital allocation strategy is a growth-oriented strategy. That said, while we expect operating margins to fluctuate somewhat as we deploy capital across these initiatives, we have a high degree of confidence in our long-term ability to deliver substantial top and bottom line growth. Now, let me conclude my remarks by commenting on our expectations for the remainder of 2025, which Gerardo will detail further. Based on our performance to date and our expectation to end the year strong, we are narrowing the range to raise the midpoint of our full year 2025 revenue guidance. We are now guiding to a range between $595 million to $605 million for full year 2025 revenue. This represents approximately 36% growth over the full year 2024 at the midpoint. With that, let me turn the call to Gerardo to cover the detailed financial results for the quarter. Gerardo Hernandez: Thank you, Waleed. Good afternoon, everybody. I am pleased to be here to discuss TransMedics' third quarter results. Please note that a supplemental slide presentation with additional details on our third quarter 2025 results is available in the Investors section of our website. As Waleed highlighted, we sustained momentum through the third quarter with disciplined execution across the entire TransMedics team. Despite the typical seasonal slowdown in the U.S. transplant activity, where Q2 tends to be one of the strongest periods followed by some moderation, our performance remained strong. Continued benefits from our ongoing strategic investments drove solid performance across both product and service lines, along with continued margin expansion and improved profitability versus Q3 of 2024. It's worth noting that in our earlier years, our rapid growth trajectory offset the natural seasonality in the U.S. transplant activity. As we've reached greater scale, our results have started to follow those underlying market dynamics more closely, even as the business continues to expand at a healthy pace. Total revenue for the third quarter was approximately $144 million. U.S. transplant revenue was approximately $139 million, up 32% year-over-year and down 9% sequentially. By organ, liver contributed $108 million, heart with $27 million and lungs with $4 million. OUS revenue was $3.6 million, up 41% year-over-year and down 13% sequentially. OUS revenue by organ was $3.2 million in heart, $0.3 million in lungs and $0.1 million in liver. Product revenue for the third quarter was $88 million, up 33% year-over-year and down 9% sequentially, reflecting continued momentum across both liver and heart programs and solid underlying activity levels compared to 2024. The sequential decline was in line with the typical seasonality moderation in transplant activity during the third quarter. Service revenue for the third quarter was $56 million, up 31% year-over-year and down 8% sequentially. The primary driver of growth was logistics revenue, which increased 35% year-over-year, reflecting continued expansion and strong utilization of our aviation fleet compared to 2024. Sequentially, logistics revenue declined 9%, consistent with the expected seasonal slowdown in transplant volumes during the third quarter. Total gross margin for the quarter was approximately 59%, up nearly 290 basis points year-over-year and down roughly 260 basis points sequentially. The year-over-year improvement was driven by higher fleet utilization, cost efficiencies in logistics and limited unplanned aircraft downtime. We are also starting to see early benefits from spreading the scheduled maintenance more evenly throughout the year. Sequentially, the decline mainly reflects lower activity levels in the quarter and the impact of investments we are making in infrastructure to drive future efficiencies and support our anticipated growth in 2026. Total operating expenses for the third quarter of 2025 were $61 million, up 8% year-over-year, and the increase was primarily driven by a 7% increase in R&D expenses, reflecting continued investment in our innovation pipeline and the ramp-up of our product development capabilities. SG&A expenses grew 8% year-over-year, reflecting ongoing expansion of our IT infrastructure and investments in strategic growth initiatives. Sequentially, total operating expenses were up 2%, primarily driven by an increase in SG&A in support of our ongoing expansion activities. Operating income for the quarter was $23 million, up 494% year-over-year and down 36% sequentially. Operating margin expanded to 16% compared to 4% in the prior year. Net income for the third quarter was $24 million, representing a 477% year-over-year increase and a 30% sequential decrease. Earnings per share were $0.71 and diluted earnings per share were $0.66 for the third quarter of 2025. We ended the quarter with $466 million in cash, up $66 million from June 30, 2025. This increase was driven by strong operating cash generation, supported by continued improvement in our billing processes and healthy collections, reflecting our focus on efficiency and disciplined working capital management. Overall, our third quarter performance reflects the same disciplined execution, efficiency gains and progress across our clinical and innovation programs that we've demonstrated throughout the year. Together with the scalability of our model, these results continue to validate our ability to deliver strong financial performance and sustained momentum through the rest of 2025 and beyond. Looking ahead, as Waleed mentioned before, we are narrowing our full year revenue guidance to a range of $595 million to $605 million. With only 1 quarter left in the year, this reflects our increased visibility and continued confidence in the strength of the business. At the midpoint, this represents roughly 36% growth over 2024, driven by expanding transplant volumes and sustained momentum across our service platform. In terms of gross margin, as mentioned in previous calls, we expect overall margins to remain around 60% over the coming years. This outlook reflects the various factors influencing both product and service margins beyond just mix. As we expand internationally and continue investing ahead of growth, we may experience some near-term pressure on margins. However, we expect those impacts to normalize and margins to recover as volumes scale across markets. In terms of capital allocation, our focus is on driving long-term value. We are concentrating our investments in 3 key areas: first, fueling growth through continued R&D investments and targeted expansion into selected international markets; second, building a stronger foundation by implementing systems that simplify and optimize processes across the business, improving efficiency and scalability as we grow; and third, enhancing our infrastructure to support long-term scalability, including our planned move to a new global headquarters to accommodate growth, ongoing upgrades to expand our manufacturing and product development capabilities, and our continued evaluation of strategic opportunities that could further strengthen our platform for the future. Collectively, these initiatives play an important role in preparing TransMedics for its next stage of expansion as we move towards the 10,000 transplant milestone and beyond and reinforce our global leadership in transplantation. Aligned with our focus on efficiency, we have also made progress on our double shifting pilot program to improve fleet utilization. Pilot hiring and training are advancing well, and we continue to expect early results in the first half of 2026. This insight will help us determine the appropriate fleet size and utilization model to maximize efficiency and capital returns. Recently, in October, we achieved our goals of owning 22 jets by the end of 2025. Looking ahead, we remain open to acquiring additional jets when the right conditions are in place, whether to enhance U.S. capacity or to support our international expansion efforts. Finally, with stronger top line performance, continued efficiency gains and disciplined spending, we expect to deliver at least 750 basis points of operating margin expansion for the full year of 2025 compared to 2024. While there could be additional upside, that will depend on our final sales performance and the timing of our investment plan for Q4 of 2025. We continue to expect operating margins to reach or approach 30% by 2028. While we may see some fluctuations as we expand internationally and invest ahead of growth, we remain confident in the long-term direction and scalability of our model. Our OCS technology, together with NOP platform and integrated logistics network, give us a clear advantage in expanding access to transplantation worldwide. With the scalability of our model and strong execution across the organization, TransMedics is well positioned to sustain growth, expand margins and deliver long-term value, while giving more patients a second chance at life. And with that, I'll turn the call over to Waleed for closing remarks. Waleed Hassanein: Thank you so much, Gerardo. Overall, we're very pleased with our third quarter performance and the significant progress our team continues to make across multiple growth initiatives. Importantly, we are now laser-focused, as I stated earlier, on ending 2025 on a strong note and better position TransMedics for another strong growth year in 2026. It's becoming increasingly clear that TransMedics is uniquely positioned with unparalleled attributes that include OCS technology, NOP clinical services, the transplant logistics network and our proprietary NOP Connect digital platform. All of these collectively enable us to deliver unrivaled life-saving solutions to global transplant markets. Of course, none of this would have happened without our dedicated world-class TransMedics team that are working around the clock to make organ transplantation more accessible to patients who are waiting for a new lease on life in the form of a new organ. We are inspired and committed to continue our drive to expand the access to organ transplantation and improve post-transplant clinical outcomes of organ transplant therapy around the world. With that, I will now turn the call to the operator for Q&A. Operator? Operator: [Operator Instructions] We have the first question from the line of Allen Gong from JPMorgan. K. Gong: I guess, my first is just on the trajectory into 4Q and then after that into 2026. So based on your guide, you're expecting to get to roughly just under 30% in fourth quarter, around [ $155 million-plus ] sales. So how should we think about that as a run rate looking forward into 2026? And should we think about 2025 as being an appropriate year when it comes to seasonality, given we've seen you kind of normalizing more towards market growth as you've grown larger? Waleed Hassanein: Thank you, Allen. Let me start with the second part of the question first, if you allow me. As I've stated publicly before, I think seasonality in organ transplant is something that we all have to be comfortable with and anticipate year after year, especially as we continue to grow and be a dominant player in the U.S. transplant market. As Gerardo mentioned, we see this seasonality every year, and we saw the seasonality every year nearly for the past almost a decade. And so, we should expect that going forward. Now, let me turn to the first part of your question. We plan to issue our guidance for 2026 at our next earnings call. I think 2025, our focus right now is to end 2025 strong and achieve our stated guidance. And then, that gives us time to evaluate our initiatives, the clinical programs that are underway, then we will issue guidance for 2026, which we fully expect to be a growth year for TransMedics over 2025, but allow us the time to state our 2026 expectations with the benefit of finishing the year and adding these data points that will be crucial to providing guidance for the full year 2026. K. Gong: And then, a quick follow-up just on international. I know the Italy announcement was definitely a pleasant surprise. And I guess, when we think about your efforts to expand beyond that to cover the breadth of Europe, I imagine it won't be quite as straightforward as you can call it that as your efforts in the U.S. But what kind of challenges do you anticipate ahead of you for that? And how long do you think it will take before you can get your NOP and your logistics services in Europe to the same level as they are in the U.S.? Waleed Hassanein: Thanks, Allen. Again, Europe is not a homogeneous geography. We have to be respectful and design our NOP to be tailored to each country's specific clinical and regulatory requirements. Italy is going to be a very important first step. We're very encouraged by where we are in Italy right now, and we hope to be able to deliver Italy early -- or in the first half of 2026. We're heavily engaged with other geographies in Europe. And as I said, every geography has its own specific requirements. However, the -- what's universal in Europe is the need for a dedicated transplant logistics network. It's not going to be at the scale of the U.S. for sure. It's going to be smaller. But that has a huge opportunity to even facilitate clinical adoption for the OCS in many of the European geographies that we're engaged with, as well as other regions outside of Europe. So we need to focus on our first kind of beachhead in Italy, deliver on our promises and deliver world-class service, achieve success there. And we believe wholeheartedly, especially in Europe, success delivers success. And if it works in Italy and it works well, this is going to propagate across Europe. And if it works in Italy, it will work anywhere in Europe, just given how the Italian environment is very complicated and very -- has a lot of needs. Operator: We have the next question from the line of Bill Plovanic from Canaccord. William Plovanic: I'm going to just start off -- first, I just wanted to get clarity. So you believe that you'll have the final IDE sign-off from FDA on the ENHANCE and DENOVO and enroll -- when you say enroll, treat the first patients or book the first revenue in the first half of '26, is that what you're saying at this point? Waleed Hassanein: No. Bill, thank you for the question. We are going to enroll the first patients and probably first handful of patients and book the revenue in Q4 of 2025. What we are saying is we have conditional approval for a fairly sizable initiation of the trial, so especially for the heart. So we can -- that's going to happen in Q4. What I'm saying is that limitation or cap is going to be removed or these conditions will be removed once we address all the remaining questions for FDA, and that will come in Q1 of 2026 or early 2026. And then -- and now, the trial will be uncapped and unconditional. It's going to be open. But we're going to enroll and book our first revenue in Q4. William Plovanic: Okay. Perfect. And then, just trying to understand, on the operating margin guide, you're saying 750 bps, which is 16% for the year, which is $96 million, which -- that's like $10 million on the midpoint of the fourth quarter is only 6.5%. So I'm just trying to understand, as you talk about the build-out of Europe logistics, like can you put a dollar amount on this for us? Is this $10 million, $100 million? Like how should we think about the CapEx required and the timing of those investments? Gerardo Hernandez: Bill, this is Gerardo. In terms of CapEx and investment for the European NOP, we will be providing a little bit more color next year in our next call. However, for my anticipated forecast on operating margin in 2025, it assumes that it has certainly space to improve upside. It assumes that we land in the low end of our guidance range and that we actually deliver on our investment plan in the U.S. in Q4. So I believe we have space to surpass what I shared, but we'll see where we land. Operator: We have the next question from the line of Ryan Daniels from William Blair. Matthew Mardula: This is Matthew Mardula on for Ryan Daniels. So I want to touch up with HHS decertifying an OPO in the middle of the year. Have you seen any disruptions from the OPO decertification? And I understand that HHS wants to increase the number of transplants and not have organs go to waste. But could the continued decertification of OPOs impact the number of organ transplants? Or do you just view this as a kind of small minimal risk? Waleed Hassanein: Thank you for the question. At the first part of the question, we do not see any disruption to organ transplantation in the U.S. based on the actions taken by HHS. That's number one. Number two, we believe wholeheartedly that if the stated goals and vision of HHS and HRSA and CMS to be achieved, actually, we believe it actually could provide a tailwind to organ transplant efficiency in the United States by having more performance metrics that everybody could get behind and be held accountable to. So we have to wait and see, and we have to allow the time for these initiatives to materialize, but we are confident in our ability to operate in the current OPO model or any other modernization model that will come -- that may come out from this initiative. And frankly, we see this as a potential opportunity, not a potential risk, but we have to wait and see. Operator: We have the next question from the line of Chris Pasquale from Nephron Research. Christopher Pasquale: Waleed, logistics penetration has been in the high-70s for 3 straight quarters now. Curious how you think about where that goes over time. Is 80% a bit of a ceiling because the other 20% are drivable? Or do you think that, that number could still go higher as you guys continue to roll out the service? Waleed Hassanein: Thank you, Chris. I want to clarify, Chris, that 79% -- or yes, 78% or 79% or 80%, it's our planes for only the mission requiring air transport. So we expect that number to go up definitely in the low-to-mid 80s. I think in 2025, we see a ceiling in the low-80s or 80%, roughly speaking, just because of some of the existing contracts that are supporting other logistics providers in the United States. The other element to that is the long-distance transport. Remember, our planes are short distance or relatively speaking, they're light jets. So any Alaska or Puerto Rico or -- I'm sorry, any Hawaii missions, we have to do it on third-party aircraft because that's a longer jet. But Alaska and Puerto Rico, we can do on our jet. So to summarize, we expect that number to go up in the mid-80s at least in the foreseeable future as we continue to gain market share and we continue to prove to the community that TransMedics logistics is providing not just the safest, the most efficient, but also cost-effective logistics partnership in organ transplant. Christopher Pasquale: And then, sort of related to that, you guys rolled out the new NOP Connect kind of digital ecosystem earlier this year. I'm curious whether we have enough experience with that now to see what impact that's having, either on your collection or sort of cash conversion cycle being simplified or on adoption of the broader services that you put into place? Waleed Hassanein: Chris, that's an excellent question. We are -- not only we feel very excited about the rollout of this new ecosystem, we are already taking some very good feedback from the community, and we are rolling our 2.0 or 0.2 version of it in Q4. We are seeing some great efficiencies. I wouldn't go as far as saying we're seeing the full efficiency or the full impact yet. We expect that to come throughout 2026. Operator: We have the next question from the line of Josh Jennings from TD Cowen. Joshua Jennings: I wanted to circle back just on the 2025 guidance, revenue guidance update and just the increase of $5 million at the midpoint. Waleed, maybe help us think through, and Gerardo, some of the assumptions baked in there. I mean, was 3Q results better than TransMedics' internal expectations with stronger start than expected? In October, you have another plane. But maybe just help us think through what's driving the guidance increase, a little bit more detail. Waleed Hassanein: Thank you, Josh. As you know, we don't give that much detail. All I can say is, we are confident. One, we are pleased by the results of Q3. Two, we are confident in the trends we saw at the end of Q3, into early Q4. But we have to be prudent. We're still early in Q4. We still have 2 more months to go, and we have to be respectful of that. Gerardo, do you want to add anything else? Gerardo Hernandez: Well, no, I think we have a number of tailwinds, as Waleed was mentioning, [ Chris ]. What we're seeing in terms of OCS adoption, organ utilization, it's really fueling the momentum of the OCS. So we're confident to get to the number. Of course, as you know, our philosophy has been to not only achieve, but as much as we can, go above and beyond. But we're confident with where we are right now. Joshua Jennings: Great. And just a follow-up. I think it's clear that there really hasn't been an overhang in terms of some of the headlines that came out on DCD donors and some of the New York Times expose, but wanted to just confirm that. Any impact to donor registrations that you're seeing? And then, maybe give us the status of the wait list for liver, heart and lung transplants. We just anecdotally talked to -- some heavy OCS users have talked about their waitlist going down because volumes have increased dramatically, but I think those have refilled, but maybe help us on those 2 topics. Waleed Hassanein: Thanks, Josh. Let me address the second piece first. We can't comment really on the waitlist because the waitlist is a very dynamic situation, as you know, Josh, and all that data is published. The facts are, for the last 3 years when we were operating NOP, many centers wiped down the waitlist and rebuilt it half a dozen to a dozen times. The growth in the national transplant volume speaks for itself. So the fact that centers are wiping down the waitlist, yes, that's a transient effect. It takes a quarter, maybe sometimes in very -- in large or midsized centers that are efficient with their outreach, they could rebuild it within a quarter, and some centers take a quarter to rebuild. So for that, we don't -- we are actually -- we're focusing on one thing. We're focusing on opening up the supply of available suitable organs for transplants, and we -- and the centers are responsible of rebuilding their waitlist because these are life-saving transplant procedures, as you know. So that's our answer to the second half. For first half, listen, it's a very unfortunate expose that came out. But as we've stated numerous times, we cannot allow either intentional or unintentional bad behavior from certain players in the transplant community to be taken out of context and negatively impact the national transplant volume, which is helping a lot of patients who are waiting anxiously on the waiting list for an organ transplant. So -- and I hope that some of these investigative reporters understand that, that, yes, it's important to highlight some bad acts, but we have to remember that these are very, very few, very, very limited. And ultimately, the #1 focus for us and anybody else who is involved in organ transplantation is to focus on the patients. And it is not in the best interest of the patients to portray transplantation as the Wild Wild West because it isn't. The U.S. organ transplant system remains to be, in my humble opinion, one of the best, if not the best, transplant system on planet Earth. So we have to be cognizant of that. Operator: We have the next question from the line of Suraj Kalia from Oppenheimer & Co. Suraj Kalia: Waleed, can you hear me all right? Waleed Hassanein: I can. Suraj Kalia: So Waleed, one for you and one for Gerardo. So Waleed, I'll start out with you. Look, short-term gyrations aside, you guys have delivered on your numbers. Waleed, there is this pervasive belief that incremental liver share gains are -- will be difficult to come by. Can you argue the reverse is true for FY '26? Or your confidence for FY '26 is you would characterize that it's predicated on heart and lung contribution through the trials, the OUS endeavor that you talked about? Just set the stage for us as how you guys are thinking as you shift gears in FY '26? Waleed Hassanein: Suraj, thank you so much for the thoughtful question. Let me dissect that important question into different pieces. First, it is, in my view, a false assumption propagated by some of the bear thesis out there that the penetration in liver will be difficult to come by. We see it completely different. We think we are early in our liver penetration, and we have a long greenfield opportunity in liver transplant to grow our adoption rate over the next several years, not just 2026. Where is it coming from? It's going to be coming from DBD penetration. It's going to be coming from more DCD penetration. It's going to be coming from more challenging -- from expansion potentially of the DCD wait period. So we are very, very much believers that -- the notion that growth in liver is going to be difficult to come by, we believe that's a false assumption, propagated by the wrong narrative. So that's number one. Number two, we fully believe and expect that the next-gen heart and lung clinical programs will generate significant momentum in the adoption of both DBD and DCD heart and lung. And listen, we are all going to experience that as it materializes throughout 2026. But that is our expectations going into '26. And that's where we stand from a U.S. perspective. Again, the initiation of NOP OUS will be a potential catalyst, albeit in the second half of 2026, but it is going to become a catalyst for us in next year. A lot of publications are in the launching pad or in review that will generate that evidence that will be required or will facilitate the adoption picture that I just described, Suraj. I hope I addressed your question. Suraj Kalia: Fair enough. And Gerardo, if I could, look, our math is your liver shares, you gained by almost 100 bps in the quarter, but your service revenues were obviously down, right? And one of the things that you and Waleed have been telegraphing for some time now is third-party ground transport and third-party flights picked up in the quarter. Gerardo, what -- how should we think about -- is this a blip of the screen? Is this something structural as we look forward? Just help us understand both qualitatively and quantitatively. It would be great. Waleed Hassanein: Suraj, if you allow me, I'll address one point, and then I'll turn it on to Gerardo to address the rest of it. We never telegraphed or articulated or suggested that third-party service or transportation is growing in Q3. That was a misunderstanding, or it is a misunderstanding if somebody thinks that way. All what we wanted to clarify is 2 important points, and I'll repeat them again if you allow me. One, tracking tail numbers alone is not 100% reflective of our revenue within the quarter for a variety of different reasons. Two, there is -- a good portion of our clinical missions are done using car transport alone. This was the only 2 simple facts that we wanted to highlight to the community who are just laser-focused on tracking tail numbers. And so, that's just a clarification. Gerardo, can you please address the rest? Gerardo Hernandez: Yes. Well, in reality, there is not much to add, Waleed, more. Suraj, we didn't see any, I would say, significant change in the, let's say, split between ground and air transportation through the quarter compared to what we've seen earlier in the year. And we are assuming more or less the same thing for Q4. I think that's what I would say, not much more to add. Operator: We have the next question from the line of Patrick Wood from Morgan Stanley. Patrick Wood: Amazing. I'll keep it to one, just given the time. Waleed, you mentioned double shifting twice at the start in the comments. And just curious how you're seeing that as an opportunity, what that means both financially for you guys, but then also for your customers and the ability to potentially service them faster? Is that a valid thought process? Just how do you see that affecting the business overall? Waleed Hassanein: Thank you, Patrick. Double shifting, Patrick, will give us at least -- in '25, we're just experimenting or piloting this program. The concept is to maximize the efficiency of our existing fleet and truly sweat the assets that we have before we think of adding any additional investment in our fleet. So from an impact standpoint, and this is just my perspective, and Gerardo, please correct me if I'm wrong, the idea is, at scale -- at a certain scale, we will start seeing efficiencies in the bottom line and the margin contribution of the service with that model. But Gerardo, please correct me if I'm wrong. Gerardo Hernandez: No, that's right. And basically, what will be happening, Patrick, there is that the same number of planes will fly higher number of missions, maximizing the return on capital. That's basically the concept. Operator: We have the next question from the line of Matthew O'Brien from Piper Sandler. Samantha Munoz: This is Samantha on for Matt. I guess, first, I know the 10,000 transplant target has been out there for a while, but we're now seeing you start to communicate potentially even surpassing that target. I guess, what gives you the confidence that you can get there? And then, how much of that is dependent upon these next-gen heart and lung programs? Waleed Hassanein: Thank you for the question. We have a very high degree of confidence that we will get there. And we -- when we set that target, we set that target without the expectation of acceleration of heart and lung. So our hope is to get to 10,000 transplants even without the contribution of the next-gen heart and lung programs. The contribution of heart and lung transplant, the new programs, will be to accelerate the path or increase the contribution of the heart and lung in the mix. So that's -- we have a very high degree of confidence. And please, I want to reiterate what I've stated before. If we continue on the current trajectory of growth without any catalyzation of growth in U.S. transplant volumes, in 2028, 10,000 transplants will represent approximately 50% to 55% of the national heart, lung and liver volumes, which means we have not saturated the market. The opposite is true. We have another probably approximately half of the market to continue to grow heart, lung and liver through. On top of that, what we said is, the kidney program being introduced in 2027 will give us an access to an additional 23,000 to 25,000 procedures in 2027 and beyond, and that could even catalyze our growth beyond the 10,000 target into 20,000 by 2030. So that's what we stated. So we have a very high degree of confidence reaching the 10,000 transplants. Our results are pointing in that direction. Our growth rates are pointing in that direction. And we are hoping that the next-gen heart and lung clinical programs will accelerate the path to getting there. And again, we remain convinced that 2028, at 10,000 transplant with the current market growth, we would be at approximately half of the U.S. heart and lung and liver transplant market, leaving room for growth even beyond that. Samantha Munoz: That's perfect. If I could sneak in one more also on the next-gen heart and lung programs. It's great to hear that those are going to start enrolling this quarter. How are you thinking about the duration of these trials and how long they're going to take to enroll? Waleed Hassanein: The duration of these trials, for us, it really -- it doesn't really matter what the duration is. We expect it to be somewhere between 12 to 18 months. But what is important for us is to see the trajectory or the impact -- to see the impact of these trials in the form of trajectory of penetration of heart and lung volumes every quarter. Given that these are -- these trials are revenue generating, the numbers will count in our quarterly report. That is what we are excited to see because we will know the impact even before the trial is completed. Operator: We have the next question from the line of David Rescott from Baird. David Rescott: Waleed, I wanted to follow up on some of your comments around the timing of the trial. I'm just looking for maybe some more color on what the -- the difference between starting enrolling the trial in Q4 and having these full conditional limitations, I don't know if limitations, but the full conditions on the trial that gets the IDE fully cleared in Q1. Is it something similar for both heart and lung? Would it be fair to assume maybe the Part A of the heart trial is good to go and start enrolling in Q4 and maybe it's Part B that comes in, in 2026? Just trying to understand what's going on there and maybe whether or not there is any change in the contribution you have baked in from clinical trials in Q4. Waleed Hassanein: David, thank you for the question. I just want to remind you that we really didn't account for much contribution in Q4 from the trial, pretty much 0 contribution for the trial. We're actually -- we appear to be ahead of schedule. So let me clarify, however, the difference between the 2 trials as we know them today. The heart conditional approval is for both Part A and Part B. We have a sizable conditional approval, so we can start enrolling in both Part A and Part B in Q4. The lung is slightly different. It's more a limited -- the lung is one part, so it's not 2 parts. And it's a fairly limited condition for approval because the questions that are asked for the lung is pretty straightforward, and we think we will overcome it fairly quickly. And the FDA conditions were limiting, given that the questions are fairly straightforward. So what I'm saying on this call is, we should -- we are expecting to enroll our first patients or cohort of patients in heart and lung in Q4 and hoping that by early Q1, we will remove all conditions from both IDEs and now will be -- the trials will be wide open across all indications, across the 2 parts for heart and the 1 part for lung. And then, we will not be capped. That's really the message I was telegraphing in the prepared remarks. David Rescott: Okay. That's very helpful. And maybe on Europe, a 2-part question. I know you provided some comments on it already. But I know the market in Europe is pretty fragmented and there's different agencies, maybe we'll say, that control organ donation and allocation across different end markets, so I guess -- or different countries. I guess, the first part, for Italy, is the assumption that organs that are transplanted through the new service in Italy will likely stay in Italy? Or is it possible that those are going to get moved around transplants in Europe? And then, as it relates to the margin comments there, I know you called out gross margins staying in this 60% range in general, but maybe some near-term headwinds as you expand in Europe. I'm just trying to get a context for the timing of this maybe step-down in margins and step back up in margins and still staying consistent in the 60% range. Maybe there's a difference between gross and operating, but any clarity there would be helpful. Waleed Hassanein: Sure. Thanks, David. So I'll address the first part, and Gerardo will address the part around the margins. So we are not planning, at least early on, to impact the movement of organs at all within each geography in Europe that we will be operating on. Everybody needs to be aware that -- and let me be very specific about Italy. Italy today, there is movement of organs across Italy. There's movement of organs from Switzerland to Italy. There's movement of organs from Italy to Switzerland. The same for some select other European countries. Our role is not to change any of the current dynamics that are routinely happening today. Our role is to facilitate the utilization of these organs to actual transplant successfully. Our role, even if it's a local transplant within Italy, based on our knowledge today, David, that they are having significant challenges of even securing logistics to move organs even within Italy. So for us, that's a huge opportunity and a huge business opportunity to solve that problem as we've solved it here in the U.S. at a much bigger geographical scale. And now, I'll turn it to Gerardo to address the margin question. Gerardo Hernandez: David, in our Q4 call, we're going to be providing a little bit more details on what to expect in the margin. But what I can confirm to you is, I remain confident that our long-term margin is around 60%. I believe that, that's the level that we're going to be seeing as volumes scale across in the U.S. already, but mostly outside of the U.S. But more importantly, we are laser-focused on the operating margin. That is -- because of the way we operate, operating margin is more relevant than the gross margin. Yes, so Q4 is when we're going to provide a little bit more details. Operator: We have the next question from the line of Mike Matson from Needham & Company. Michael Matson: So I had a question on the heart trial design, and this may apply to lung, too, but I wasn't able to find lung in the clinicaltrials.gov yet. But the endpoint is patient and graft survival at 30 days. And so, my understanding is that that's typically, even without using TransMedics in the -- well into the 90s. So -- and I think you're running this study with the intention of showing superiority. So are you going to have -- I mean, is this trial powered enough to actually show superiority from a high-90s number or mid-90s number versus what you're actually going to get with your -- using OCS for those organs? Waleed Hassanein: Thank you, Mike, for the question. I want to clarify one important point. The primary effectiveness endpoint is not actually patient and graft survival at 30 days alone. It's patient and graft survival at 30 days with freedom of primary graft dysfunction within the first 72 hours after heart transplant. When you combine these 2, you end up not in the high-90s as just a patient survival, but probably in the low-to-mid 80s. And that gives us the signal, the wider signal to enable us to power the study appropriately to aim for superiority. So a great point you raised, however. I think the clarification is that we are not -- that primary endpoint is not just patient and graft survival. It's patient and graft survival with freedom of primary graft dysfunction. That -- these 2 combination is what makes this powered enough for -- to hopefully demonstrate superiority. So we're very excited getting the trial launched. And both lung and heart are of the same design or the same selection of primary effectiveness endpoint to exactly achieve the goal and avoid the statistical anomaly of the very high patient survival numbers in the United States. Michael Matson: Okay. That makes a lot of sense. And then just for kidney, I think you said you're going to unveil the design in early '26. But I imagine you're going to have to run a trial there as well, so -- before you can get it approved. So just can you talk about the timing of that? And then, is that also a trial where you would -- when you started, you would actually get paid for those organs as well, like we are with the heart and lung trials? Waleed Hassanein: Yes. Mike, excellent question. Yes, we are unveiling the design of the technology and the product. There will be a significant trial in the United States and maybe even international trial. But this is all going to be revenue-generating trial. And we're excited about that trial because this trial is also going to be powered for superiority, and it will have a huge ramification not only on the clinical outcome for patients, but also financial ramification, given that CMS is the sole payer for end-stage renal failure expenses in the United States. So this is a trial that I hope and I believe CMS will be watching very keenly, and they will support it because it will have huge cost efficiencies, given the increased -- improved outcomes and higher utilization of kidneys that should be afforded by this. Operator: We have the next question from the line of Daniel Markowitz from Evercore. Daniel Markowitz: The first one, you mentioned that the prior guide wasn't assuming anything for 4Q from next-gen heart and lung trials. It's nice to hear that's running a bit ahead of schedule. Just confirming, does the new guide assume some contribution since that's running ahead of schedule now that you're closer and have visibility to it? Waleed Hassanein: That's an excellent question. Yes and no. The answer is, from a contribution, no. Yes, we're ahead of schedule. But realistically speaking, if we start enrolling in November, the impact is going to be miniscule. That's why we always guided without any meaningful contribution. All what we want to achieve is having the first handful of patients enrolled gives us an early signal of how the trial is rolling out and really teeing up to early 2026. Daniel Markowitz: Got it. Okay. And then, the second one, I wanted to ask on recent industry news. We had OrganOx takeout announcement. I just wanted to give you an opportunity to kind of react to this announcement. What do you think this means for the market and more specifically for TransMedics over the coming years? Waleed Hassanein: Thank you, Daniel. This is an excellent question. As I stated publicly before on my call with investors, we're very, very pleased, and congratulations to OrganOx and the OrganOx team about this acquisition. We're very pleased because it shows 3 things. One, it shows that TransMedics have created a multibillion-dollar industry in organ transplantation that didn't exist before. We're very pleased because it shows how undervalued TransMedics stock is, given the huge difference and improvement in OCS Liver and market share that OCS Liver have over any other platform in the market in the U.S. And number three, it validates that this is an area of the market that is now becoming an exciting opportunity for med tech industry. So again, congratulations to OrganOx, but we feel very confident in our position. We feel very confident that we are way undervalued, given our leadership position, given our outcomes, given our numbers, given our market share, and we are determined to go and continue to execute and grow our market share in liver, heart, lung and soon kidney. Operator: We have the next question from the line of Tom Stephan from Stifel. Thomas Stephan: Apologies if any of this has been asked; jumping between calls. But maybe just one for me. Waleed, market slowed in the third quarter for the second straight year, and we saw somewhat of an accompanying deceleration in OCS. So maybe can you talk about why OCS seemingly faces, I'd just say, a bit of incremental pressure during times when the U.S. transplant market seems to slow down? And then, how should we be thinking about that dynamic maybe if market softness persists? Waleed Hassanein: I'm sorry, I missed the second part of the question. Thomas Stephan: Yes. I was just wondering how we should think about that dynamic, I guess, if market softness persists. Waleed Hassanein: That's an interesting question. So we believe that the market softness and the seasonality, as I stated before, this is something that is endemic in organ transplants, and we've seen this for several years. I think what's changing is, TransMedics is taking a bigger market share in the market. And that market share is not -- is spread between top users and the current users, and we're expanding organically to newer centers. And when we look at Q3 this year, what we saw is our market share within our repeat users and top 20 accounts and consistent users was maintained, was well maintained within the institution. Any variability happens with the centers that are still coming new to the NOP or not constant users in NOP, we're tracking that dynamic. And again, we are not too concerned about it because we are maintaining our growth year-over-year. That's why I said it's much more relevant for us to look at our growth year-over-year. It's very relevant to us to track our penetration within DBD and DCD. And all of these metrics are pointing in the right direction. It's just we're becoming a bigger player in the market, and that's why it impacts us on the Q-to-Q variability. That's all I can comment on at this point. And again, we should expect this variability every year and especially in Q3, especially if we see a significant uptick in Q2. Usually, this variability happened after a very strong Q2. Operator: We have the next question from the line of Young Li from Jefferies. Young Li: I'll just keep it to one. So I appreciate all the clarifications and color on the trial enrollment. I guess, I'm kind of curious what factors allow you to enroll these trials faster than the prior trials that you have run? Waleed Hassanein: I think we're not saying it's going to enroll faster. I think our fastest enrolling trial was the DCD Heart trial when we enrolled 90 patients in 9 months. We're not saying it's going to be faster. And all what we're saying is, given the impact, given the anticipated impact, given the momentum we're seeing in centers, how rapidly they're going through the initiation process, demonstrating their excitement about these trials that usually -- that excitement, that momentum is usually coupled with rapid enrollment. That's all what we're saying. We need to go and execute it. We need to go and deliver on that. That's all what we're saying. It's all a reflection of how successful the program is. And we're looking forward to launching this program. And again, we'll be looking at the execution as it happens. Operator: Any follow-up question, Young Li? Young Li: I'm okay. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Waleed Hassanein for closing remarks. Waleed Hassanein: Thank you all very much, and look forward to chat again early next year. Thank you very much. Have a great evening. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

88天前Insight Analytics约5分钟阅读

VNDA 2025 Q3 财报电话会议

Operator: Hello, and thank you for standing by. My name is Mark, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 Vanda Pharmaceuticals Inc. earnings conference call. [Operator Instructions] Now I would like to turn the call over to Kevin Moran, Vanda's Chief Financial Officer. Please go ahead. Kevin Moran: Thank you, Mark. Good afternoon, and thank you for joining us to discuss Vanda Pharmaceuticals' third quarter 2025 performance. Our third quarter 2025 results were released this afternoon and are available on the SEC's EDGAR system and on our website, www.vandapharma.com. In addition, we are providing live and archived versions of this conference call on our website. Joining me on today's call is Dr. Mihael Polymeropoulos, our President, Chief Executive Officer, and Chairman of the Board; and Tim Williams, our General Counsel. Following my introductory remarks, Mihael will update you on our ongoing activities. I will then comment on our financial results before we open the lines for your questions. Before we proceed, I would like to remind everyone that various statements that we make on this call will be forward-looking statements within the meaning of federal securities laws. Our forward-looking statements are based upon current expectations and assumptions that involve risks, changes in circumstances and uncertainties. These risks are described in the cautionary note regarding forward-looking statements, risk factors, and management's discussion and analysis of financial condition and results of operations sections of our most recent annual report on Form 10-K as updated by our subsequent quarterly reports on Form 10-Q, current reports on Form 8-K, and other filings with the SEC, which are available on the SEC's EDGAR system and on our website. We encourage all investors to read these reports and our other filings. The information we provide on this call is provided only as of today, and we undertake no obligation to update or revise publicly any forward-looking statements we may make on this call on account of new information, future events, or otherwise, except as required by law. With that said, I would now like to turn the call over to our CEO, Dr. Mihael Polymeropoulos. Mihael Polymeropoulos: Thank you very much, Kevin, and good afternoon, everyone. Thank you for joining us to discuss Vanda's Third Quarter 2025 Results. This quarter reflects strong commercial execution with total net product sales reaching $56.3 million, up 18% year-over-year, led by a 31% increase in Fanapt sales and 35% growth in prescriptions. HETLIOZ continues to deliver stable performance with $18 million in Q3 sales. We are particularly encouraged by our advancing pipeline, with multiple near-term regulatory milestones. The tradipitant NDA for motion sickness under FDA review with a PDUFA target action date of December 30, 2025; the Bysanti NDA for bipolar I disorder and schizophrenia, also under FDA review with a PDUFA target action date of February 21, 2026; and the anticipated Q4 submission of the imsidolimab BLA for generalized pustular psoriasis. We're also investing strategically in our commercial infrastructure, including increased brand visibility through targeted sponsorships with the goal of supporting long-term market leadership and future commercial launches. We believe that these milestones, combined with our collaborative framework with the FDA will position Vanda for sustained growth and expanded therapeutic impact in 2026 and beyond. On commercial updates. During the third quarter, our Fanapt sales force further expanded their efforts, and we continued our broad awareness campaign. Fanapt revenue increased by 31% compared to the same period in the prior year, driven by the launch of the bipolar I indication. Fanapt is now promoted in the U.S. across all 50 states with a dedicated sales force of approximately 300 representatives. With the expansion of the sales force that was largely completed during the second quarter, we observed a significant increase in activity with the total number of calls growing by more than 20% as compared to the second quarter of 2025 and growing by over 100% compared to Q3 of 2024. Since the bipolar launch, demand is measured by total prescriptions, TRx, new prescriptions, NRx and new-to-brand prescriptions NBRx reached new highs in the third quarter. The commercialization of Fanapt is also supported by a broad speakers program operating across the country that educates prescribers on the profile of Fanapt and how to use it. We're excited by the progress our commercial organization has made as we continue to support the commercialization of Fanapt, aiming for further growth in the coming periods. Total revenue from our 3 commercial branded products Fanapt, HETLIOZ, and PONVORY reached $158.9 million in the first 9 months of 2025. HETLIOZ continues to be the market share leader despite the availability of 3 generic products, a testament to the brand loyalty of our patient customers over the last 11 years. We're continuing to build out and training of our dedicated PONVORY sales force team addressing prescribers for multiple sclerosis. In the last 2 quarters, we saw an increase in underlying patient demand as we intensified our consumer and prescriber awareness programs. During the first 9 months of 2025, our direct-to-consumer campaign launched in the first quarter continued to drive meaningful gains in brand awareness for the company and our products, Fanapt and PONVORY. We maintain strategic investments in our commercial infrastructure, including increased brand visibility through target sponsorships with the goal of supporting long-term market leadership and future commercial launches. Key regulatory clinical updates, collaborative framework for resolution of disputes with the FDA. On October 1, 2025, we announced a collaborative framework with the U.S. Food and Drug Administration for the resolution of certain disputes regarding HETLIOZ and tradipitant. Pursuant to the agreement, the FDA will conduct an expedited rereview of the partial clinical hold preventing long-term clinical status of tradipitant for the treatment of motion sickness by November 26, 2025. The FDA will continue its review of Vanda's new drug application for this indication with the existing Prescription Drug User Fee Act target action date of December 30, 2025. The FDA will conduct an expedited rereview of Vanda's supplemental new drug application, sNDA, for HETLIOZ for the treatment of jet lag disorder by January 7, 2026, including consideration of alternative or narrowed indications focusing on the sleep-related aspects of jet lag disorder. Bysanti, the NDA for Bysanti for the acute treatment of bipolar I disorder and the treatment of schizophrenia is under review by the FDA with a PDUFA target action date of February 21, 2026. If approved, exclusivity for Bysanti, including pending patent applications could extend in the 2040s. Bysanti is a new chemical entity, which was initially identified as an active metabolite of iloperidone. Vanta discovered that milsaperidone when administered orally, quickly interconverts to iloperidone. In clinical studies, milsaperidone and iloperidone have been shown to be bioequivalent at both low and high doses administered both in single and multiple dose studies. The results of these clinical studies were presented in late May at the 2025 American Society of Clinical Psychopharmacology Annual Meeting in Scottsdale, Arizona. The Bysanti Phase III clinical study for use as once-daily adjunctive treatment for major depressive disorder is ongoing and enrolling patients. Results are expected in 2026. We plan to randomize approximately 500 patients into the clinical study across approximately 50 sites. And as the number of patients randomized increases, we'll be in a better place to estimate the time to completion. Tradipitant, the NDA for tradipitant for motion sickness is under review by the FDA with a PDUFA target action date of December 30, 2025. In the fourth quarter of 2024, Vanda initiated clinical trial study tradipitant in the prevention of vomiting induced by GLP-1 analog, Wegovy, semaglutide. The trial is now complete, and results are expected in the fourth quarter of 2025. Iloperidone long-acting injectable. The Phase III study of the long-acting injectable formulation of iloperidone in the treatment of schizophrenia and relapse prevention is ongoing and enrolling patients. We plan to randomize approximately 400 patients into the clinical study across approximately 60 sites. In general, we have seen similar clinical studies run by other organizations, and they take around 2 years to complete. As the number of patients randomized increases, we'll be in a better place to estimate completion of that study. A clinical study of the long-acting injectable formulation of iloperidone in people with treatment-resistant hypertension is now ongoing and Vanda plans to begin enrolling patients soon. Imsidolimab, a BLA for imsidolimab in the treatment of the rare or orphan disorder, generalized pustular psoriasis is expected to be submitted to the FDA in the fourth quarter of 2025. PONVORY, investigational new drug applications for PONVORY in the treatment of psoriasis and ulcerative colitis were accepted by the FDA in the fourth quarter of 2024. Vanda has initiated the psoriasis study and plans to initiate the study in ulcerative colitis in early 2026. Early-stage program highlights. VQW-765, an alpha-7 nicotinic acetylcholine receptor partial agonist is currently in clinical development for the treatment of acute performance anxiety in social situations. Vanda has initiated the Phase III program and is enrolling patients. We plan to randomize approximately 500 patients into the clinical study across approximately 30 sites. And as the number of patients of randomization increases, again, we'll be able to estimate time to completion. The IND for VCA-894A in the treatment of Charcot-Marie-Tooth disease, axonal type 2S or CMT2S, an inherited peripheral neuropathy for which there is no available treatment, was accepted by the FDA in 2024. Previously, in 2023, VCA-894A was granted orphan drug designation for the same indication. The Phase I clinical study for VCA-894A enrolled the patient who has already received several doses of VCA-894A. With that, I'll turn now to Kevin to discuss our financial results. Kevin? Kevin Moran: Thank you, Mihael. I'll begin by summarizing our financial results for the first 9 months of 2025 before turning to discuss the third quarter of 2025. Total revenues for the first 9 months of 2025 were $158.9 million, a 9% increase compared to $145.6 million for the same period in 2024. The increase was primarily due to growth in Fanapt revenue as a result of the bipolar commercial launch. Fanapt net product sales were $84.1 million for the first 9 months of 2025, a 24% increase compared to $67.6 million in the same period in 2024. This increase to net product sales relative to the first 9 months of 2024 was attributable to an increase in volume, partially offset by a decrease in price net of deductions. Turning to HETLIOZ. HETLIOZ net product sales were $55 million for the first 9 months of 2025, a 3% decrease compared to $56.6 million in the same period in 2024. The decrease in net product sales relative to the first 9 months of 2024 was attributable to a decrease in volume. Of note, through the third quarter of 2025, HETLIOZ continues to retain the majority of market share despite generic competition for now over 2.5 years. And finally, turning to PONVORY. PONVORY net product sales were $19.8 million for the first 9 months of 2025, a 7% decrease compared to $21.3 million in the same period in 2024. The decrease in net product sales relative to the first 9 months of 2024 was attributable to a decrease in price net of deductions. For the first 9 months of 2025, Vanda recorded a net loss of $79.3 million compared to a net loss of $14 million for the same period in 2024. The net loss for the first 9 months of 2025 included an income tax benefit of $21.4 million as compared to an income tax benefit of $2.4 million for the same period in 2024. Operating expenses for the first 9 months of 2025 were $269.7 million compared to $176 million for the same period in 2024. The $93.7 million increase was primarily driven by higher SG&A expenses related to spending on Vanda's commercial products as a result of the commercial launches of Fanapt in bipolar disorder and PONVORY and multiple sclerosis and higher R&D expenses primarily related to the exclusive global license agreement with Anaptys for the development and commercialization of imsidolimab, which was entered into during the first quarter of 2025. During 2024 and 2025, we commenced a host of activities as a result of the commercial launches of Fanapt in bipolar disorder and PONVORY in multiple sclerosis, including an expansion of our sales force and the development of prescriber awareness and comprehensive marketing programs. During the first 9 months of 2025, our direct-to-consumer campaign launched in the first quarter continued to drive meaningful gains in brand awareness for the company and or products, Fanapt and PONVORY. We maintained strategic investments in our commercial infrastructure, including increased brand visibility through targeted sponsorships with the goal of supporting long-term market leadership and future commercial launches. Vanda's cash, cash equivalents, and marketable securities, referred to as cash, as of September 30, 2025, was $293.8 million, representing a decrease of $80.9 million compared to December 31, 2024, and a decrease of $31.8 million compared to June 30, 2025. The change in cash during the third quarter of 2025 as compared to the second quarter of 2025 was driven by the net loss in the third quarter of 2025 as well as timing of cash received from customers for revenue and related payments of rebates to the payers as well as the timing of cash paid to third parties for services related to operating expenses. Turning now to our quarterly results. Total revenues were $56.3 million for the third quarter of 2025, an 18% increase compared to $47.7 million for the third quarter of 2024 and a 7% increase compared to $52.6 million in the second quarter of 2025. The increase as compared to the third quarter of 2024 was primarily due to growth in Fanapt revenue as a result of the bipolar commercial launch. The increase as compared to the second quarter of 2025 was due to both growth in Fanapt revenue as a result of the bipolar launch and higher HETLIOZ revenue. Let me now break this down by product. Fanapt net product sales were $31.2 million for the third quarter of 2025, a 31% increase compared to $23.9 million in the third quarter of 2024 and a 7% increase compared to $29.3 million in the second quarter of 2025. Fanapt total prescriptions, or TRx, as reported by IQVIA Xponent in the third quarter of 2025 increased by 35% compared to the third quarter of 2024 and 11% compared to the second quarter of 2025. Fanapt new patient starts in the third quarter of 2025 as reflected by new-to-brand prescriptions, or NBRx, increased by 147% compared to the third quarter of 2024 and by 14% compared to the second quarter of 2025. The increase in Fanapt revenue between the third quarter of 2025 and the third quarter of 2024 was primarily attributable to an increase in volume, partially offset by a decrease in price net of deductions. The increase in Fanapt revenue between the third quarter of 2025 and the second quarter of 2025 was attributable to an increase in volume, partially offset by a decrease in price net of deductions. These increases in volume were primarily driven by increased total prescription demand as well as increased wholesaler inventory levels. Historically, Fanapt's inventory at wholesalers has ranged between 3 and 4 weeks on hand as calculated based off trailing demand. As of the end of the third quarter of 2025, Fanapt inventory at wholesalers was just above 4 weeks on hand, which was consistent with the level of inventory weeks on hand as of the fourth quarter of 2024, but slightly above the historic range. Turning to HETLIOZ. HETLIOZ net product sales were $18 million for the third quarter of 2025, a 1% increase compared to $17.9 million in the third quarter of 2024 and an 11% increase compared to $16.2 million in the second quarter of 2025. The increase in net product sales relative to the third quarter of 2024 was primarily attributable to an increase in volumes sold, almost entirely offset by a decrease in price net of deductions. The increase in net product sales relative to the second quarter of 2025 was primarily attributable to an increase in price net of deductions, partially offset by a decrease in volume. HETLIOZ net product sales continue to be impacted by changes in inventory stocking at specialty pharmacy customers from period to period. Going forward, HETLIOZ net product sales may reflect lower unit sales as a result of reduction of the elevated inventory levels at specialty pharmacy customers or may be variable depending on when specialty pharmacy customers need to purchase again. Further, HETLIOZ net product sales may decline in future periods, potentially significantly, related to continued generic competition in the U.S. Additionally, the company constrained HETLIOZ net product sales for the first 9 months of 2025 and for the years ended December 31, 2024, and 2023 to an amount not probable of significant revenue reversal. As a result, HETLIOZ net product sales could experience variability in future periods as the remaining uncertainties associated with variable consideration related to inventory stocking by specialty pharmacy customers are resolved. And finally, turning to PONVORY. PONVORY net product sales were $7 million for the third quarter of 2025, an increase of 20% compared to $5.9 million in the third quarter of 2024 and a decrease of 1% compared to $7.1 million in the second quarter of 2025. The increase in net product sales as compared to the third quarter of 2024 was attributable to an increase in volume. The decrease in net product sales as compared to the second quarter of 2025 was attributable to a decrease in volume sold, almost entirely offset by an increase in price net of deductions. During the second quarter of 2025, there was an increase in net product sales as compared to the first quarter of 2025, which was attributable to an increase in volume sold, a portion of which was driven by increased underlying patient demand, albeit modest, but was also impacted by increased specialty pharmacy and specialty distributor inventory on hand levels above the historic range. The inventory on hand levels remained elevated as of the end of the third quarter of 2025, but had decreased closer to the historic range. As a reminder, we completed the acquisition of the U.S. and Canadian rights to PONVORY in December 2023 and initiated the commercial launch of PONVORY in the third quarter of 2024. As such, this represents the fourth full quarter of PONVORY revenue recognition since the initiation of commercial launch activities and significant progress in diversifying our product mix with innovative and value-generating products. Of note, an amount of variable consideration related to PONVORY net product sales is subject to dispute, of which approximately $3 million was recognized for the 3 months ended December 31, 2024. For the third quarter of 2025, Vanda reported a net loss of $22.6 million compared to a net loss of $5.3 million for the third quarter of 2024. From an income tax perspective, the net loss for the third quarter of 2025 included an income tax benefit of $5.8 million as compared to an income tax benefit of $0.9 million for the third quarter of 2024. Of note, on the tax side, the company assesses the need for a valuation allowance against its deferred tax assets each quarter through the review of all available positive and negative evidence. The company generated a pretax loss for the quarter ended September 30, 2025. If the company continues to generate pretax losses and/or if the company's projections indicate pretax losses in future periods or if there are meaningful changes to our business operations, the conclusion about the appropriateness of the valuation allowance could change in the future. An increase in the valuation allowance would result in a noncash income tax expense during the period of change. The current deferred tax assets reflected in the balance sheet as of September 30, 2025, amount to $103.1 million. If it is determined that the company needs a valuation allowance against its deferred tax assets in a future period, the noncash income tax expense recorded during the period of change could be equal to the significant majority of the $103.1 million balance. Operating expenses in the third quarter of 2025 were $87.5 million compared to $58.7 million in the third quarter of 2024. The $28.9 million increase was primarily driven by higher SG&A expenses related to spending on Vanda's commercial products as a result of the commercial launches of Fanapt in bipolar disorder and PONVORY in multiple sclerosis and higher R&D expenses. During 2024 and 2025, we commenced a host of activities as a result of the commercial launches of Fanapt in bipolar disorder and PONVORY in multiple sclerosis, including expansions of our sales force and the development of prescriber awareness and comprehensive marketing programs. During the first 9 months of 2025, our direct-to-consumer campaign launched in the first quarter continued to drive meaningful gains in brand awareness for the company and our products, Fanapt and PONVORY. We maintained strategic investments in our commercial infrastructure, including increased brand visibility through targeted sponsorships with the goal of supporting long-term market leadership and future commercial launches. With regards to the launches of Fanapt in bipolar disorder and PONVORY in multiple sclerosis, as I mentioned, the launches were initiated in 2024, and we expect to continue the build-out of our commercial infrastructure with the impact of these commercial efforts expected to contribute to revenue growth in 2025 and beyond. We have already seen significant growth in our commercial activities. Several lead indicators suggest a strong initial and continued market response to our commercial launch of Fanapt for bipolar disorder, including new patient starts as reflected by NBRx, increasing by 147% in the third quarter of 2025 as compared to the third quarter of 2024. In the third quarter of 2025 as compared to the third quarter of 2024, total prescriptions or TRx increased by approximately 35%. Of particular note, Fanapt was one of the fastest-growing atypical antipsychotics in the market through the first 9 months of 2025 based on several prescription metrics. Our Fanapt sales force size continues to expand. As of the end of the third quarter of 2024, our sales force numbered approximately 150 representatives. And currently, we have approximately 300 representatives following our additional expansion during the second quarter of 2025. These expansions have allowed us to significantly increase our reach and frequency with prescribers. To that end, face-to-face calls in the third quarter of 2025 were more than 20% higher than face-to-face calls in the second quarter of 2025. And face-to-face calls in the third quarter of 2025 were more than twice the face-to-face calls in the third quarter of 2024. In addition to our Fanapt sales force, we have established a specialty sales force to market PONVORY to neurology prescribers around the country. We have grown this sales force to approximately 50 representatives in the third quarter of 2025. Of particular note, PONVORY underlying patient demand increased, albeit modestly, for the second consecutive quarter. Before turning to our financial guidance, I would like to remind folks that with Fanapt, HETLIOZ, and PONVORY already commercially available, and with HETLIOZ for jet lag currently being rereviewed by the FDA and the tradipitant NDA for motion sickness under review by the FDA, the milsaperidone or hopefully to be known under the brand name Bysanti NDA for bipolar I disorder and schizophrenia under review by the FDA and a biologics license application or BLA for imsidolimab expected to be submitted later this year, Vanda could have 6 products commercially available in 2026. Turning now to our financial guidance. Vanda is providing an update to its prior 2025 guidance. Vanda expects to achieve the following financial objectives in 2025. Total revenues from Fanapt, HETLIOZ, and PONVORY of between $210 million and $230 million. This compares to prior guidance of between $210 million and $250 million, year-end 2025 cash of between $260 million and $290 million. This compares to prior guidance of between $280 million and $320 million. This revised revenue range narrowed to the lower end of the original revenue range reflects strong Fanapt revenue growth in 2025 that is expected to grow on a quarterly basis and potentially accelerate with the full impact of the expanded sales force. The revised and lowered year-end 2025 cash guidance reflects the impact of the significant investments that Vanda is currently making to facilitate future revenue growth, both in the form of R&D investments and strategic investments in commercial infrastructure, including Vanda's direct-to-consumer campaign launched in the first quarter, which continued to drive meaningful gains in brand awareness for the company and its products as well as increased brand visibility through targeted sponsorships with the goal of supporting long-term market leadership and future commercial launches. With that, I'll now turn the call back to Mihael. Mihael Polymeropoulos: Thank you very much, Kevin. At this point, we will be happy to answer your questions. Operator: [Operator Instructions] And your first question comes from the line of Raghuram Selvaraju with H.C. Wainwright. Raghuram Selvaraju: I was wondering if you could first and foremost comment on some hypothetical scenarios with respect to the interactions with the FDA. And if these ultimately result in approval decisions, particularly as this pertains to tradipitant, when those approvals might occur? Should we expect potential -- the possibility of tradipitant approval sometime in the first half of 2026, if ultimately the interactions with the FDA proceed positively? Mihael Polymeropoulos: Yes. Thank you very much, Ram. First of all, I would say and I reiterate that we're very pleased with the new collaborative framework that has been established with the FDA. And just as a background, that comes after the significant development of a win in the appellate court by Vanda in August of this year, where we challenged the decision of rejection of HETLIOZ for jet lag without a hearing. And the court canceled the rejection by the FDA and sent it back to the FDA for further proceedings. This was one of the precipitating factors alongside with the new management at the FDA, where we sat down with them to develop a path forward. And we're very quickly able to agree on several initial steps. And the first one, as we mentioned, is the rereview of the HETLIOZ sNDA for jet lag and a promise to be completed by early January of 2026. On your question on tradipitant, tradipitant review is ongoing. And we expect the decision by December 30, 2026. The reason we are optimistic is that so far there have been no issues raised with the efficacy of the drug. And therefore, we are encouraged that this could lead to approval. One area that's very relevant with the collaborative framework to tradipitant is the reconsideration of the partial clinical hold. And to give context, this is a clinical hold on a longer-term motion sickness study. The initial study lasted 12 months and people could take up to 90 doses. We asked for an extension of that study with an amendment to further study tradipitant for an additional 12 months and an additional 90 dose within that period. And that is when, about a year ago or so, the FDA objected to that additional extension, suggesting that an additional long-term 6-month dog toxicity study is needed. And of course, we have contested that. But now the FDA was willing to reconsider that decision, and that is now with CDER with a promise to issue a decision by end of November. So with that, if cleared, alongside what is almost agreed upon, I would say, efficacy demonstrated for tradipitant motion sickness, we'll be optimistic for an approval by end of this year. Raghuram Selvaraju: Secondly, I wanted to ask about PONVORY performance and what you look for in terms of future quarterly growth rate pickup in revenue from this product, particularly given the current investment that you are making in sales and marketing behind the product at this point. Maybe you can give us a sense of what kind of quarterly growth you would expect in terms of net sales for PONVORI over the course of the next 2, 3 quarters? That would be helpful. Mihael Polymeropoulos: Yes. I will let Kevin comment on the future growth. But I would say, we're still in the early phase. The sales force that was built to about 50 people is actually a very recent event, in the last quarter or so, fully staffed. The speaker programs are just starting. And PONVORY has been a smaller piece of our direct-to-consumer campaign so far. That being said, these are significant investments, and we're investing towards future growth. But I will pass it on to Kevin for his comment. Kevin Moran: Thanks, Mihael. Thanks, Ram, for the question. Just as a bit of reminder on the background here. So we acquired the product from J&J at the end of 2023. And at that point, J&J had ceased support for the product a little over a year prior to that. We completed the transition of the PONVORY product from J&J right at the end of the third quarter of last year, so about a year ago. And what we saw during that period from when J&J ceased commercial support through the first quarter of this year was a decline in the underlying patient demand. And that would be expected given that there wasn't any active support in the market from essentially the end of 2022 through roughly the end of the third quarter of last year. What we've seen in the last 2 quarters that's very encouraging to us is we've seen increases in the underlying patient demand, both from the first quarter to the second quarter and then again from the second quarter to the third quarter. There's been some buying patterns from the SPs and SDs that have made the quarterly revenue a little bit up or a little bit down depending on the timing of their purchases, but the underlying demand during those 2 periods is up. And so for us, that's an encouraging sign that our commercial strategy and support for the product is beginning to take hold. And as Mihael had mentioned, with the recent investment in the commercial sales force that, as I mentioned in my script, was completed during the third quarter of this year, we're hopeful that we'll begin to see that trend continue and potentially increase as we exit this year and head into next year, where we not yet have provided guidance beyond 2025. Raghuram Selvaraju: And then just very quickly, 2 other time line aspects. I was wondering if you could, A, comment on the perspectives for the imsidolimab BLA to receive priority review once it has been submitted to the FDA? And secondly, if you could give us any sense of whether you have revised or more specific timing guidance to provide on the MDD study? Kevin Moran: So Ram, I think your 2 questions were on the imsidolimab priority review. Mihael Polymeropoulos: Yes. I will address that. But go ahead, Kevin. Kevin Moran: And then on the timing for the MDD study, Ram, so maybe I'll take that one second, is what we communicated at this point is that we expect results by the end of next year. But given that we've enrolled patients over the last few quarters, we'd like to see a bit more of kind of a run rate before we provide an exact timing on what period we expect to see the results in. But at this point, we've communicated results by the end of next year and hope to be able to share more as we get a few more quarters under our belt. Mihael Polymeropoulos: Yes, that's right. And sites are coming up in the U.S., but also very recently, we got approval for initiation for a number of sites in Europe. So hopefully, that will accelerate recruitment. Regarding imsidolimab, of course, this is a rare or orphan disorder, and we expect a 6-month priority review. Operator: And your next question comes from the line of Olivia Brayer with Cantor. Olivia Brayer: Can you talk a little bit about the guidance change this quarter? I mean at the midpoint, it still implies growth for 4Q, but at the lower end of the range, it wouldn't necessarily. So maybe just thoughts around the pushes and pulls of that guidance change and what you're seeing so far into October that helped inform today's update? And then I've got a couple of questions on Bysanti. Kevin Moran: Yes, absolutely. Thanks, Olivia, for the question. So a couple of pieces there. And one thing that I commented on in my script was that underlying the guidance for this year is strong Fanapt revenue growth for the year, right, which is, I think, an underpinning of our guidance. But the other thing that's a variable in that consideration is the HETLIOZ revenue, which we've commented on, can be very variable from quarter-to-quarter depending on the timing of our customers' purchases. So what we see there is that the actual underlying demand for HETLIOZ is pretty consistent. As we've mentioned, we maintain the majority of the market share still at this point, even 2.5 years post generic launch. But the actual buying patterns, which translate to the revenue patterns for HETLIOZ can vary from quarter-to-quarter. And if we saw customers not need to buy as much in the fourth quarter, that could put us on the lower end of the revenue range. So that's kind of the dynamic there. But for Fanapt, what we've seen in the last 2 quarters is both revenue meaningful growth in both quarters and the underlying demand, which we're highly focused on, right, from a quarter-to-quarter perspective, growing sequentially very strong. So we saw 14% growth Q1 to Q2 and 11% growth Q2 to Q3 from a script perspective. And so we expect to see that continue to grow in Q4 to increase relative to Q3 would be our expectation underlying that guidance. Olivia Brayer: Super helpful, Kevin. And then is there anything you guys can tell us at this point around just the engagement that you're having with the FDA for your ongoing Bysanti review? Have they indicated wanting to see any additional information as part of your submission package? And anything you can tell us on when you might enter into label discussions for that asset? And then just kind of as a -- I know there's a couple of questions in there, but as a follow-up on the commercial side, as you look out to your PDUFA next year, what's the commercial strategy for actually convincing patients to switch from Fanapt over to this newer product? Is there a commercial hook or an incentive that would actually incentivize patients to make the switch before a generic version of Fanapt becomes available? Mihael Polymeropoulos: Maybe I'll start off with the regulatory update, and I'll let Kevin comment on the commercial strategy. The -- I think we have given an update that so far, the interactions with the division have been quite positive in that there have been no issues raised on the efficacy and the safety of the drug. So that is progressing well. Now in terms of label negotiations, we don't comment if they have started or about to start. But typically, those will precede the PDUFA date by a couple of months or so. Kevin Moran: Yes. And then, Olivia, on the commercial strategy, we haven't shared, I would say, some key elements of our commercial strategy for Bysanti and the potential transition for Fanapt to Bysanti. But what I would tell you is, as we've talked about in the past, the atypical antipsychotic class is both a highly promotionally sensitive class and also a high switch class. So products that are actively promoted out there, as you know, will do significantly better than products that are not actively promoted. And as part of that, with it being a high switch class, if there are certain commercial tools that are available to prescribers, namely starter packs or titration packs in our case, or commercial co-pay programs, if those programs are available to patients that are starting, they'd be more likely to start on a product that offers those programs versus a product that doesn't. So I think both the nature of the class being highly promotionally sensitive and the potential support that could be available for patients, I think will lead to meaningful success on Bysanti when we decide to pull that trigger. Mihael Polymeropoulos: And I will add, Olivia, that the longer commercial plan is the addition of indications starting with the adjunct treatment of major depression with actually a key differentiator of how Fanapt has been used so far with a once-a-day dosing, increasing the convenience and hopefully compliance. Operator: And your next question comes from the line of Andrew Tsai with Jefferies. Unknown Analyst: On the quarter. This is [ Matt Marcus ] on for Andrew Tsai. First off, for tradipitant in motion sickness, it could be approved on December 30, and then HETLIOZ jet lag could be approved January 7. What would your marketing strategy be for these? And what would the shape of the launch curve look like for these drugs? Mihael Polymeropoulos: Yes. Thank you. We're actually very excited for both of these potential approvals because they share in common the consumer-centric focus, both in HETLIOZ in jet lag and tradipitant for motion sickness. We're developing a quite elaborate strategy that will become very consumer-centric, focusing on concierge service for supplying the drug to both of them. And our recent experiences with direct-to-consumer campaigns, but also the elevation of brand awareness of the company are going to be very important and have been strategically designed to be in place in advance of those launches. We expect if both of them approved in that time frame you mentioned, that we should be able to be in the market by the first half of 2026. And in subsequent interactions, we can discuss a little more about the latest on the total addressable market for both indications. But I will highlight, it is significant and expanded, both of increased travel, but also the unmet need in motion sickness that has not seen a treatment -- a new treatment in the last 45 years. Unknown Analyst: And then for your GLP vomiting study, can you describe that study? Like what does the positive efficacy data look like? And what would be the next steps for the program? And then similarly, for Bysanti, should have like Phase III data in 2026. What kind of measures to efficacy separation do you hope to achieve in that study? Mihael Polymeropoulos: Yes. So I will start with the last question. On MDD, like any other study, there is not a threshold of response. We are looking for a positive primary endpoint on the typical clinical scales that will be used. And of course, subsequently, people are doing a responder analysis, trying to identify a portion of patients responding to a certain effect. But there is no threshold that is required. But of course, the study is powered to detect a significant minimal threshold of efficacy. Your other question was on the use of tradipitant in preventing the GI, specifically vomiting side effects of Wegovy, semaglutide. And we know that GLP-1 analogs have to be titrated slowly because of the very frequent nausea and vomiting side effects, which actually limits the efficacy at least for a certain period of time. And for a number of patients, around 15% or so, may actually drop out of treatment and obviously the benefit of GLP-1 analogs. So this is a well understood and very significant therapeutic issue. The study we have designed, administers tradipitant for a few days prior to initiating a Wegovy injection, which is administered at a much higher dose than the recommended titration dose. Titration dose begins at 0.25 milligrams and escalates in 4-week increments. The dose we're using in the study is 1 milligram. And patients are randomized to receive either Wegovy or placebo. And what we do is we follow these people and measure the efficacy with the number of vomiting episodes and other secondary endpoints like nausea, duration of nausea, et cetera. And as I said, this study has completed now. The sites and data are being monitored and data clean, and we hope soon to be able to analyze the top line results. Operator: That concludes our question-and-answer session. I will now turn the call back over to the management for closing remarks. Mihael Polymeropoulos: Thank you very much for joining this call. We'll see you at a later time. Operator: This concludes today's call. You may now disconnect.

88天前Insight Analytics约5分钟阅读

ROG 2025 Q3 财报电话会议

Operator: Good afternoon. My name is Alicia, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Rogers Corporation Third Quarter 2025 Earnings Conference Call. I will now turn the call over to your host, Mr. Steve Haymore, Senior Director of Investor Relations. Mr. Haymore, you may begin. Stephen Haymore: Good afternoon, and welcome to the Rogers Corporation Third Quarter 2025 Earnings Conference Call. The slides for today's call can be found in the Investors section of our website, along with the news release that was issued earlier today. Please turn to Slide 2. Before we begin, I would like to note that statements in this conference call that are not strictly historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and should be considered as subject to the many uncertainties that exist in Rogers' operations and environment. These uncertainties include economic conditions, market demands and competitive factors. Such factors could cause actual results to differ materially from those in any forward-looking statement made today. Please turn to Slide 3. The discussions during this conference call will reference certain financial measures that were not prepared in accordance with U.S. generally accepted accounting principles. A reconciliation of those non-GAAP financial measures to the most directly comparable GAAP financial measures can be found in the slide deck for today's call, which are available on our Investor Relations website. With me today are Ali El-Haj, Interim President and CEO; and Laura Russell, Senior Vice President and CFO. I'll now turn the call over to Ali. Ali El-Haj: Thanks, Steve. Good afternoon, everyone, and thank you for joining us today. I'll begin on Slide 4 with the key messages for the quarter. First, since taking on this role in mid-July, I have engaged extensively meeting with Rogers' employees and customers in Asia, Europe and the United States. These meetings and discussions have reinforced Rogers' core strengths and the key growth opportunities ahead. They have also shown the areas where we must improve to achieve renewed growth and sustainable operating performance. To capitalize on these opportunities and to deliver greater returns to shareholders, we are executing on a plan with several critical focus areas. I will cover these in detail and share the progress we have made thus far. Turning to our Q3 results. Our sales, gross margins and adjusted EPS results were all at the upper end of the guidance and exceeded Street consensus. Sales increased by 6.5% from prior quarter, led by improvements in portable electronics, industrial, aerospace and defense end markets. Compared to the prior year, sales increased by 2.7%. Q3 results benefited from delivering on cost and expense reduction actions. For the fourth quarter, we expect sales and earnings to improve versus the prior year, while typical seasonal factors will lead to a sequential decline. With expense reduction actions completed, adjusted EBITDA margin should improve around 300 basis points versus the prior year. Laura will cover both the Q3 financials and fourth quarter outlook in more detail. On Slide 5, I will discuss the critical initiatives we are advancing in the near and midterm. First, we are committed to improving Roger's top line growth potential. To achieve this, we are intensifying our customer focus with actions underway to better anticipate their needs and improve service levels. As we work to delight our customers, we will leverage our global manufacturing capabilities to increase our competitiveness and market share in each region. We have recently expanded this capability as we have started production in the new curamik facility in China. With a localized supply chain and a regionally competitive cost structure, we are positioned to compete effectively. Delivering innovative new products is also key to achieving our growth objectives. There are compelling opportunities in the technology pipeline and significant future potential applications. In the coming quarters, Rogers will be introducing new products in all business units, targeting new and adjacent market segments. The next critical priority is to maintain a lean and efficient cost structure. Expense reduction actions and footprint optimization efforts that were started in recent quarters are taking hold, improving EBITDA margins and cash flow. We are making significant progress on the previously announced restructuring of curamik operations in Germany. Cost savings from this initiative will begin in the fourth quarter with $13 million of annualized savings targeted by late 2026. We will continue to evaluate our global footprint and make refinements as needed. This may include selective investments to support growth opportunities that meet certain return criteria. These investments will be carefully balanced with vigilant cost control. Operational excellence will remain a top priority, focused on creating a more flexible and dynamic organization. Actions already completed include changes made to the commercial, R&D and operations organizational structure in both business units. These changes were implemented to increase the speed of execution, improve accountability and simplify how we operate. We already are seeing results with significant reduced lead times, some by as much as 60% while reducing inventories and improving working capital. Our revised operating model will continue to drive these types of improvements. As we reshape our structure into a customer-centric organization, we expect to see more consistent performance and improved returns to shareholders. Lastly, we are also intensely focused on critical initiatives to grow and strengthen Rogers over the long term. While these objectives are not part of today's discussion, we will share our plans at the appropriate time. On Slide 6, we'll discuss our sales for the third quarter by end market. Beginning with industrial markets, sales were higher versus the prior quarter in both AES and EMS business units. In Q3, the improvement was broad-based with sales increasing across all regions. This marks the third consecutive quarter of higher industrial sales and on a year-to-date basis, we have continued to show growth. Aerospace and Defense sales also improved sequentially. EMS sales increased driven by stronger commercial aerospace demand in the North American market. AES defense sales remained strong and were in line with the prior quarter. On a year-to-date basis, total A&D sales have increased at low double-digit rate. EV and HEV sales were relatively unchanged versus the prior quarter. AES sales increased from improved power substrate demand. Year-to-date, sales remained well below the prior year. We anticipate further growth in this market, supported by the recent curamik expansion in China and the recovery in demand from the Western power module manufacturers. As anticipated, ADAS sales decreased sequentially. The sales decline tracked lower light vehicle production in Q3. Year-to-date sales remained solidly ahead of 2024. Lastly, portable electronics was the largest driver of the sequential improvement in revenue. The double-digit increase versus the prior quarter was in line with expected seasonal patterns. I will now turn it over to Laura to discuss our Q3 financial performance and Q4 outlook. Laura Russell: Thank you, Ali. Starting on Slide 7, I'll begin with a summary of our third quarter financials. Q3 results improved meaningfully from the prior quarter with all financial metrics at the top end of guidance. Sales increased across most end markets with the largest increase in portable electronics and industrial. AES revenues increased by 5.2% and EMS revenues were 8.7% higher on a quarter-on-quarter basis. GAAP EPS of $0.48 improved significantly from the prior quarter, mainly due to lower restructuring-related expenses. Adjusted earnings per share in Q3 increased to $0.90 from $0.34 in Q2, a result of the improvement in sales and gross margin and reductions in G&A expenses. Turning to Slide 8. Q3 adjusted EBITDA was $37.2 million or 17.2% of sales. The 540 basis point improvement from the prior quarter was driven by multiple factors. First, gross margin increased 190 basis points to 33.5% due to higher volumes, favorable product mix and reductions in manufacturing costs. Late in the third quarter, we started production in our curamik facility in China. Cost for the initial factory ramp had only a slight impact on Q3 margin. The impact of tariffs on gross margin was minor in Q3. This was a result of continued mitigation efforts and the agreement between the U.S. and China to delay tariff rate increases. Next, adjusted operating expense, excluding stock-based compensation, decreased by $2.5 million quarter-on-quarter. The lower OpEx resulted from reductions in professional services and global workforce restructuring. Lastly, other income improved $2.6 million due to favorable quarter-over-quarter changes in foreign currency transaction. Continuing to Slide 9, I'll discuss cash utilization for the quarter. Cash at the end of Q3 was $168 million, an increase of $10.6 million from the end of the second quarter. Cash provided by operations was $20.9 million and improved due to higher sales and operating income. In addition, we improved working capital, particularly inventory through continued focus. Uses of cash in the quarter included share repurchases of $10 million and capital expenditures of $7.7 million. For the full year, we forecast capital expenditures in the range of $30 million to $40 million. Returning capital to shareholders will remain a priority. Our current view is that share repurchases in Q4 will exceed Q3 levels. Following our purchases in Q3, we have approximately $66 million remaining on our existing share repurchase program. Next, on Slide 10, I'll review our guidance for the fourth quarter. Beginning with sales, we expect Q4 revenues to be between $190 million and $205 million. The midpoint of the range is a 3% increase in sales year-over-year and a 9% decline quarter-over-quarter. The guidance reflects the normal sequential decline in portable electronics sales from Q3 to Q4 and slower order patterns across most end markets as customers manage year-end inventory. We are guiding gross margin in the range of 30% to 32%. The midpoint of this range is 110 basis points lower than the prior year with an 80 basis point headwind from the ramp of our curamik factory in China. Compared to the prior quarter, gross margin is 250 basis points lower due to volume and mix. We expect adjusted operating expenses to decrease from third quarter levels, primarily from lower start-up costs, which have moved into gross margin following the start of production at the curamik facility. EPS is projected to range from breakeven to earnings of $0.40. The adjusted EPS range is $0.40 to $0.80 of earnings. We expect adjusted EBITDA margin between 13.5% and 16.5%, a roughly 300 basis point improvement versus the prior year at the midpoint of the range. The margin and EPS guidance assumes that tariff policies in place today remain unchanged for the quarter. Adjustments to arrive at our non-GAAP EPS and adjusted EBITDA are mainly comprised of restructuring costs related to the curamik actions in Germany. As communicated last quarter, the restructuring costs associated with this action will be incurred from Q4 of 2025 to Q3 of 2026. We anticipate savings, albeit small to start in late Q4 of '25. The program is still anticipated to deliver $13 million of annual run rate savings. Lastly, we project our non-GAAP full year tax rate to be approximately 35%. The higher expected tax rate is mainly due to certain loss jurisdictions where no tax benefits can be realized. I will now turn the call back over to Ali. Ali El-Haj: Thanks, Laura. In summary, there is a clear focus on the key initiatives to grow the top line, improve the cost structure and further operational excellence. Combined with a renewed customer focus and new product introductions, we see significant opportunity to improve Rogers' performance over the near and long term. That concludes our prepared remarks. I will now turn the call back to the operator for questions. Operator: [Operator Instructions] Our first question comes from the line of Daniel Moore with CJS Securities. Dan Moore: I'll start with the top line and just kind of general revenue trends. Guidance for Q4 implies 2% to 3% growth at the midpoint year-on-year. Just talk about the confidence in demand continuing to build in those key end markets that you called out like industrial, aerospace and defense and some of your larger end markets. And as we look out to the first half of '26, would you expect similar, if not improved year-on-year growth, particularly given some of the easier comps that we have in the first half of the year? Ali El-Haj: Dan, it's Ali. Look, we're confident in the range that we've given you based on what we see today. Absent macroeconomics change, we're very confident with the range that we've given you for Q4. So we expect the market to continue strong for us in all activities -- the only one that we -- all market segments. The only one we're probably still hesitant is the EV market and how far can it recover for us. That's the only concern. But that's baked into the forecast that we -- or the guidance that we provided. As for the first 6 months of 2026, we actually have high confidence in better performance and continued growth in all business segments. Dan Moore: Very helpful. And maybe for Laura, the gross margin recovered to 33.5% this quarter. Obviously, mix helps. It's a seasonally stronger quarter. But as we look out, 2 questions. One, the 80 basis point headwind in Q4, how should we think about that kind of dissipating as we move into the first half of next year? And two, what in your mind is sort of a baseline for gross margins on an annualized basis? And what could an upside scenario look like? And I'll jump back in queue with any follow-ups. Laura Russell: Okay. Sounds good. So let me address the first half of your question, Dan. So the 80 basis points headwind that we're going to face in the fourth quarter associated to the ramp of the curamik facility in China is pretty typical of what we would anticipate as we begin production in that facility. I think as Ali mentioned in the prepared remarks, we have activities ongoing with many customers, and we're looking to qualify and ramp those customers into full manufacturing production volumes, which will facilitate us getting ahead of that headwind and turn into return from that facility, which correlates with the investment we undertook to build out our regional capability and capacity and allow us to be far better positioned to compete locally in that market. So what I would anticipate is it will take time to fully ramp the capacity through 2026, not necessarily because of our readiness, but because of the time it takes to qualify the customers' product and their solution directly from our factory. So those activities are ongoing. And we would anticipate as we reach the back end of next year to not be facing the same extent of headwind to the margin from that operation. In terms of thinking about the potential for the business and the margin optimized, Ali spoke about the initiatives and the objectives that we have. A lot of them will crystallize and improve financial results as we embed the new operator model and deliver improved operational effectiveness and grow the top line. I spoke previously about our current investments and the capacity being in place. So now we're turning our attention to optimizing that capacity and utilizing it to serve the demand and the potential that we see. Operator: Our next question comes from the line of Craig Ellis with B. Riley Securities. Craig Ellis: Laura, I'll just start on the theme that Daniel is on and just take the cost and margin dynamics a step further perhaps. So my sense from your characterization as you walk through some of the slides and the cost savings, which I think are targeted at $25 million this year with a $32 million run rate, and then we've got $13 million coming from the German facility next year. Is that there may be other cost benefits that could be executed against beyond things that are in progress and the German facility benefit, one. Is that correct? And two, how material could those things be? And when could they start to be things that would be actionable as we look at where profitability and cash conversion can ultimately go for the business? Laura Russell: Okay. So let me start, and Ali can add additional comment as he sees fit. So in terms of the plans that we've already outlined, Craig, and where we're at in executing those. The $25 million savings in $25 million that I've spoken to, you can see that crystallizing in the P&L at the moment based on the guide that we've given. If you look on a year-on-year basis, if you look at the OpEx in totality, we were roughly $210 million last year. And with our guidance, we're probably about $18 million to $20 million below that in our update for 2025. So you can see that coming to fruition. From a full year basis -- and sorry, just to give clarity, that's because of the 70% of the $25 million is in OpEx and the residual is in gross margin. If you look on an annualized basis, as you stated, that should be more like $32 million benefit across both P&L geographies in '26. And in addition to that, as we announced last quarter and as you correctly commented, the restructuring in Germany has commenced. The program is largely on track, and that's set to deliver $13 million on an annualized run rate basis. Just to remind you, that $13 million, though is a COGS saving, not an OpEx saving. We won't see that fully materialize until later into 2026, just as we go through the ramp down of the capacity and the ramp-up in servicing some of those customers in the new geography in China. So that's what we have there. In terms of incremental opportunity beyond that, what I would tell you is you hear us talk about efficiency in the operating model, and we will look to optimize the financial performance of the business month-to-month, and that's exactly the discipline that we have, but with an increased intensity of that discipline with the processes and the approach that is now being deployed. So with that, we will evaluate the business and the market opportunities as they present themselves and make appropriate investments or savings as is needed. In terms of defined plans at the moment, it's the ones that we've already shared, and I've just walked through just now. Craig Ellis: That's very helpful. And I think the execution on cost and other things have been quite notable over the last 3 to 4 quarters, Laura. So it will be nice to see those continue. Ali, I'll turn my second question to you. You noted in your prepared remarks that the industrial end market, which is our biggest, was an area of strength. My question is, as you look at the dynamics in that end market, what is it that drove that strength? And as you think about growth in that large end market, what are the opportunities specifically to drive growth? And do you think that we're at a point where supply chain inventories are no longer a headwind to that business? Ali El-Haj: Yes, thanks. I'll answer the question kind of backwards from inventory and supply chain issues, I think that's way behind us now. So that's all kind of cleared up. I think we're looking forward and the potential for growth. So we have 3 elements that we're targeting or we're working on. One is we're capturing more market share from products and customers that we already have and customers that we didn't have in the past. So increasing market share, this is key for us. And again, this is for assets that we have. So we can utilize these assets. We have the capacity to supply these type of products. In addition to that, and this is significantly important, I think our customers started to see our improvement in response and service and for their demand and need. So we're seeing a lot more demand and a lot more of these volumes shifted back to us. The third element is introduction of new products. So as I indicated, we would be launching. We actually started this in Q4 of this year going forward, several new products that will allow us to even penetrate markets that we have not participated in, in the past. So I think all those 3 elements were really given us a lot more confidence that we will continue to grow the top line. Craig Ellis: That's very helpful. And if I could just ask a clarification on the heels of those 3 drivers, Ali. As you've interacted with the internal team, as you've interacted with partners and customers, do you feel like pricing is at the right level for the high value that Rogers products bring to market? Or is there opportunity to do things tactically with pricing so that more of the functional value that Rogers provides come home to the top line and down to the bottom line? Ali El-Haj: I think the simple answer is a combination of both. So I think Rogers brand name and quality and commands obviously a premium pricing. In certain markets, certain applications, that's been a key for us. However, there's other markets and areas where really the market commands the pricing. And in this case, what we're doing internally is we need to make sure we're focused on the cost structure that we have today to be able to compete effectively in these markets and be able to realize the margins and the returns that we expect to get. Laura Russell: Just one point of clarification just before we jump off, Craig. Naturally, what I was discussing in the OpEx bridges was adjusted OpEx. Operator: Our next question comes from the line of David Silver with Freedom Capital Markets. David Silver: First question would be for Ali. And I took note in your opening remarks that your first task, I guess, upon becoming interim CEO was to visit with a number of your key customers, I guess, you mentioned globally. So I guess your company has gone through an extended -- or the industry has gone through an extended period of kind of softer demand. There's been inventory issues. There's been more recently tariff issues. Would you say that the relationships with your key customers remain as strong as they were, let's say, 18 months ago? Or due to some of those changes, does Rogers need to take maybe some further steps to even more closely align with your key customers and collaboration partners in order to meet your goals? So what is the status of the relationships over an extended period of reduced demand? And then the significant steps you've taken thus far to reduce costs and tighten your alignment, are there further steps tactically or strategically that you need to undertake? Ali El-Haj: Yes. Thank you for the question. I think, again, I think the relationship with our customers is very strong. I think it's solid. There's a lot of history here behind some of those customers, especially the key customers. I think my objective was really to develop some deeper understanding of the needs, listen to their voice and understand their needs, expectations from Rogers and making sure we're really paying attention to that and addressing those issues. So this communication really improved our understanding of their expectations. That could have been, in some cases, maybe because of outside factors, whether it's supply chain interruptions, raw materials that we went through in the past 3, 4 years. And obviously, that caused some hiccups and that or some -- I would say, minor disruption and caused some pain to some of those customers. So I think we -- this understanding really now is very clear. Our understanding of their needs is very clear. And we aligned the organization itself internally to make sure we address those issues day in and day out across the whole spectrum throughout the whole organization, not just the sales of the R&D, but when it comes to service, and we've mentioned some of the improvements we've made internally, cutting lead time to 60 in some plants even higher than that. So we're responsive. We're being more responsive. We think now -- we expect by the end of 2026, hopefully to be the benchmark in the industry when it comes to the service level and quality and these type of activities. With regard to the second half of your question, continuous improvements never stop. So this is going to be an ongoing effort to continue to work on our operations and continue to improve our processes, whether it's in the manufacturing processes or, again, the customer service area, the sales area, the development processes. We're looking to reduce our development time in engineering significantly to be able to introduce products faster and because we need to be, again, expecting the demand and need of the customers and be up there and upfront and be there when they need us. Not react and supply them stuff beyond or delaying their expectations and delaying their introductions. So these are things we continue to focus on. A lot of it is in our -- within our control, and therefore, we -- I'm very confident we're going to get these things accomplished. David Silver: Okay. I did want to maybe ask a question about your philosophy about share buybacks and returning cash to shareholders in general. But the funds, I guess, over the past few quarters, including the current one, I mean, the funds allocated to buybacks have increased significantly over, let's say, the trend over the past several years. And I think Laura indicated there'll be further repurchase activity in the fourth quarter. Just philosophically, is this a decision by management to act opportunistically because of maybe where the share price was earlier this year? Or would you say it's more programmatic and share repurchases are likely to continue at a higher level than has been the typical levels over the past several years? Laura Russell: David, so let me start with that. So yes, it would be fair to say that it's been somewhat opportunistic. It's an indication of our belief in our potential with the share repurchases that we had undertaken this year when our stock price was where it was. We did do a further $10 million in Q3, and I had indicated in our call that we would likely do a little more than that in the fourth quarter. What I think is critical, though, is you asked about the philosophy around share buyback. And really for us, it's about looking for optimizing returns to our shareholders as part of our capital allocation structure. And what we had seen through '25 is whilst we were still active in evaluating M&A and potential opportunities, there hasn't been presented opportunity or target that met our investment and return criteria. And we had already explained we were largely through the organic investments that we saw for expanding the company in its existing structure with its existing technologies. So that's what resulted in the pivot to the share repurchase activity. Now as with every quarter, we'll continue to evaluate the investment potential and seeking to optimize those returns, and we'll balance what we do on a go-forward basis between all 3 legs of those the capital allocation structure. Operator: [Operator Instructions] Our next question comes from the line of Daniel Moore with CJS Securities. Dan Moore: First couple of questions, more high level looking out to next year. But just in terms of Q4, you came in at the top end of the range this quarter. Guidance for Q4 again implies a pretty wide range. Just talk about the puts and takes that could cause you to come in toward the lower or higher of that range this quarter. Ali El-Haj: Do you want to take that? Laura Russell: So Dan, it's Laura. Let me start. So we guided based on our current visibility. And we stated in the prepared remarks, really, what we typically experience and what we've incorporated is the slowdown in portable electronics into the fourth quarter versus the third and the customer management of inventories. Now we may see some change in that inventory management. We may see some -- we've got a substantial exposure in the industrial space. If we see those indices shift and increased investments, then we have capability to respond to demand as it comes in. And if we go the other way and there's any weakness, which is not anticipated based on the guide, then we would manage the way we do week-to-week, month-to-month on our activity. So at the moment, with the visibility we have, the guidance is as it stands. Operator: [Operator Instructions] Our next question comes from the line of Craig Ellis with B. Riley Securities. Craig Ellis: I was hoping to go back and just get a real long-term perspective on what the view is with the China curamik facility, both with respect to the diversity of customers that you think you can have in that facility? How you're thinking about being able to ramp up that facility beyond the very near-term gating factors like the specific customer and program costs that would start product? But what are the strategies the company has to engage with customers and grow both domestics and internationals that might need manufacturing autos there? And then anything else that would help us form an insightful view on what you think is possible over the next 2 to 3 years with that facility? Ali El-Haj: Yes. Okay, Craig. I think, obviously, we did not build this plant. So we were engaging with customers before we started the facility and started building the facility and restructuring. So from a customer activities and potential, it's all available to us is there. So I can assure you that we already have several programs that were being sourced and committed by some of our customers. So what we're going through is what we indicated earlier. We have some qualification that product qualification, process qualification that we're going through with our customers. And that's probably the gating item here. As some of these things get approved, they will launch because the demand is there. We -- and it's multiple customers, some existing customers and a few additional newer customers and newer applications for us. So the future for the curamik facility in China is very bright as we see it today. We expect significant growth in the facility and in the overall curamik business. So we still believe that the growth there is very solid, and we can forecast it. Craig Ellis: And to follow up on one of the points that you made and understand it more deeply, if the gating factor near term is just the quals that we're doing, whether it be product or process, what are the levers that the company has to maximize the speed at which that can happen, whether it be how you're staffing the facility, the shifts that may be running or just technical things that need to be done? Just any further color there would be helpful. Ali El-Haj: Yes. I mean the facility is already staffed for the current volume and for the expected forecasted volume for the next quarter. With regard to the expertise and experts and all the staffing that we need the support function, the functions, they're already available and it's already staffed. I think some of the issues that I've mentioned is these type of qualification is really at the customer's end. We've done all the work internally for most customers. And now the next phase is their own qualification of the product itself. And we're trying to assist some of those customers actually doing some testing for them to speed up that process. So I think overall, we believe we're on track to hit the numbers that we are forecasting for 2026. Operator: Thank you. There are no further questions at this time. And with that, this concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

88天前Insight Analytics约5分钟阅读

PI 2025 Q3 财报电话会议

Operator: Andy Cobb: Thank you, Gary. Good afternoon, and thank you all for joining us to discuss Impinj's third quarter 2025 results. On today's call, Chris Diorio, Impinj's Co-Founder and CEO, will provide a brief overview of our market opportunity and performance. Cary Baker, Impinj's CFO, will follow with a detailed review of our third quarter financial results and fourth quarter outlook. We will then open the call for questions. You can find management's prepared remarks plus trended financial data on the company's Investor Relations website. We will make statements in this call about financial performance and future expectations that are based on our outlook as of today. Any such statements are forward-looking under the Private Securities Litigation Reform Act of 1995. Whereas we believe we have a reasonable basis for making these forward-looking statements, our actual results could differ materially because any such statements are subject to risks and uncertainties. We describe these risks and uncertainties in the annual and quarterly reports we file with the SEC. We do not undertake and expressly disclaim any obligation to update or alter our forward-looking statements, except as required by law. On today's call, all financial metrics, except for revenue, or where we explicitly state otherwise, are non-GAAP. All balance sheet and cash flow metrics, except for free cash flow, are GAAP. Please refer to our earnings release for a reconciliation of non-GAAP financial metrics to the most comparable GAAP metrics. Before turning to our results and outlook, note that we will participate in the Baird 2025 Global Industrial Conference on November 11 in Chicago, the UBS Global Technology and AI Conference on December 3 in Scottsdale, and the Barclays 23rd Annual Global Technology Conference on December 10 in San Francisco. We look forward to connecting with many of you at those events. I will now turn the call over to Chris. Chris Diorio: Thank you, Andy, and thank you all for joining the call. Our third quarter results were strong with revenue and adjusted EBITDA exceeding the upper end of our guide range. Record endpoint IC volumes and better-than-anticipated reader volumes drove product revenue to a new quarterly record, with Gen2X's success solving challenging industry use cases behind a growing portion of that product revenue. We delivered that revenue outperformance despite weak retailer buying patterns and tariff headwinds, highlighting our strong market position and technical and product leadership. Starting with silicon, third quarter endpoint IC revenue exceeded our expectations. Supply chain and logistics led the way with our second large North American end user now fully deployed in domestic parcel delivery. Retail volumes grew modestly, buoyed by the upcoming holiday season, but with a cautious note as our partners and end users buy into demand rather than ahead of it. We expect third quarter to mark the seasonal peak for both supply chain and logistics and retail endpoint IC volumes, with fourth quarter volumes stepping down modestly. Partner channel inventory remains healthy, declining slightly in third quarter. Turning to reader ICs. Third quarter revenue met expectations with the richest E Family mix to date. Looking to fourth quarter, conservative ordering by our Chinese reader IC partners will push revenue lower. Longer term, we see strong E Family growth, including from multiple overhead reading deployments and pilots that leverage Gen2X, creating pull for our M800 endpoint ICs. In solutions, we saw strong third-quarter revenue led by our Lighthouse accounts. We delivered more readers to our second large North American supply chain and logistics end user in the quarter than we expected, as they continue driving new use cases. Those use cases should generate meaningful fourth-quarter reader revenue as well, as deliveries will step down as rollouts stretch into 2026. We also saw meaningful third-quarter reader revenue from the visionary European retailer, but here again expect a step down in the fourth quarter due to project phasing. To be clear, the size and scope of these rollouts remain intact, but timing will nudge fourth quarter systems revenue down slightly sequentially, bucking the typical seasonal growth trend. Despite the stretched time lines, our end users, both current and new, continue asking for our help with their business challenges. Solving those challenges requires not just radio know-how, but also software from ML at the edge to cloud services. So we are aggressively hiring technical and business talent to develop that software and win the recurring revenue opportunity. Last week, we hired an SVP of SaaS and Cloud Services to lead our development, heartwarming for me because he was a student of mine at the University of Washington 25 years ago. He, our CTO, and others across the company are digging into opportunities, including e-commerce, leveraging the strong foundation of our platform, endpoint ICs, and Gen2X uniquely offer for solving those challenges. I'd like to again say a few words about Gen2X. Years ago, when we spearheaded developing the industry's radio protocol, we and others recognized that we couldn't create one single overarching protocol that addresses all market verticals and use cases. So we built into the final protocol the flexibility for customizations. We have now proved the foresight in that choice with Gen2X, which is native in our M800 endpoint ICs, E Family reader ICs, R700 readers, and adopted by many of our industry partners. Our Gen2X customizations have helped us deliver retail loss prevention, supply chain and logistics conveyor sorting, and now partners are using them for overhead retail reading. We are today enhancing Gen2X for food and e-commerce and will, over time, introduce differentiated endpoint ICs that help solve key use cases and win those markets. Turning to food, which is by far our largest opportunity, product freshness and supply chain efficiencies are driving pallet, case, and item level deployments with 2 opportunities now public. There are others, including pilots at point of sale and for assisted self-checkout. Although we still expect food endpoint IC volumes to be modest this year and in the first part of next, our engineering and go-to-market organizations are forging silicon, software, and business innovations to help unlock the food opportunity. We are well-positioned to do so. And as the leading grocers adopt, we expect other grocers to follow. On the organizational front, I'm thrilled to welcome Arthur Valdez to our Board. Arthur has more than 30 years of experience leading global supply chain and logistics operations for major e-commerce, retail, and consumer enterprises. His expertise transforming and optimizing supply chain and logistics networks for large consumer-facing companies will be invaluable as we continue advancing our vision of connecting everything. Arthur, welcome to Impinj. In closing, our solutions and Gen2X focus continue paying dividends in revenue, adjusted EBITDA, recurring endpoint IC volumes, and market leadership. Our market opportunity continues expanding with more opportunities for secular growth in retail, supply chain and logistics, food, and a long tail of other applications. As we continue driving our bold vision, I remain confident in our market position and energized by the opportunities ahead. As always, before I turn the call over to Cary for our financial review and fourth quarter outlook, I'd like to again thank every member of the Impinj team for your tireless efforts. I feel honored by my incredible good fortune to work with you. Cary? Cary Baker: Thank you, Chris, and good afternoon, everyone. Third quarter revenue was $96.1 million, down 2% sequentially from $97.9 million in second quarter 2025 and up 1% year-over-year from $95.2 million in third quarter 2024. Third quarter endpoint IC revenue was $78.8 million, down 7% sequentially from $84.6 million in second quarter 2025 and down 3% year-over-year from $81 million in third quarter 2024. Excluding the $16 million second-quarter licensing revenue, endpoint IC revenue grew 15% sequentially. Looking forward, we expect fourth quarter endpoint IC revenue to decline sequentially, but on the favorable side of normal seasonality. Third quarter systems revenue was $17.3 million, up 30% sequentially from $13.3 million in second quarter 2025 and up 21% year-over-year from $14.2 million in third quarter 2024. Systems revenue exceeded our expectations, driven by reader strength in supply chain and logistics. Looking forward, we expect fourth quarter systems revenue to decline slightly sequentially, driven by project timing, as Chris already noted. Third quarter gross margin was 53% compared with 60.4% in second quarter 2025 and 52.4% in third quarter 2024. The sequential decline was driven primarily by licensing revenue. The year-over-year increase was driven primarily by lower indirect costs. Excluding licensing revenue, third-quarter product gross margin increased 40 basis points sequentially, driven primarily by endpoint IC product margin, including M800. Looking forward, we expect fourth quarter gross margin to increase sequentially. Total third-quarter operating expense was $31.8 million compared with $31.5 million in second quarter 2025 and $32.5 million in third quarter 2024. Operating expense was below expectations as our team exercised good fiscal discipline. Research and development expense was $17.8 million, sales and marketing expense was $7 million. General and administrative expense was $6.9 million. Looking forward, we expect fourth quarter operating expense to increase sequentially. Third quarter adjusted EBITDA was $19.1 million compared with $27.6 million in second quarter 2025 and $17.3 million in third quarter 2024. Third quarter adjusted EBITDA margin was 19.8%, a new quarterly record on a product revenue basis. Third quarter GAAP net loss was $12.8 million. Third quarter non-GAAP net income was $17.7 million or $0.58 per share on a fully diluted basis. Turning to the balance sheet. We ended the third quarter with cash, cash equivalents, and investments of $265.1 million compared with $260.5 million in second quarter 2025 and $227.4 million in third quarter 2024. Inventory totaled $92.6 million, down $3.6 million from the prior quarter. Third quarter capital expenditures totaled $2.9 million. Free cash flow was $18 million compared with $4.7 million in third quarter 2024. Before turning to our guidance, I want to highlight 2 items specific to our results and outlook. First, in September, we issued $190 million of 0% convertible notes while simultaneously repurchasing $190 million of our 1.125% convertible notes. This transaction reduces our interest expense, lowers our underlying share dilution, and breaks our maturity profile into smaller tranches, the latter increasing our ability to leverage our balance sheet in managing that convertible debt. Second, we have consistently projected gross margin leverage in our long-term model. We expect that leverage to be on display in the fourth quarter, where we have embedded more than 100 basis points of sequential gross margin accretion in our guidance. Turning to our outlook. We expect fourth quarter revenue between $90 million and $93 million compared with revenue of $96.1 million in third quarter 2025, a quarter-over-quarter decrease of 5% at the midpoint. We expect adjusted EBITDA between $15.4 million and $16.9 million. On the bottom line, we expect non-GAAP net income between $14.7 million and $16.2 million, reflecting non-GAAP fully diluted earnings per share between $0.48 and $0.52. In closing, I want to thank the Impinj team, our customers, our suppliers and you, our investors, for your ongoing support. I will now turn the call to the operator to open the question-and-answer session. Gary? Operator: [Operator Instructions] Our first question is from Ezra Weener with Jefferies. Ezra Weener: The first one would be about readers. Q3 is much stronger. You're talking about a little bit weaker Q4 versus seasonal up. Can you just talk a little bit about what that timing means? Was it pull into Q3? Is there a push out to Q4? And then assuming it is pull in, what does that mean for endpoint IC ramp timing? Cary Baker: Ezra, this is Cary. Thanks for the question. I'll take the first part of that. So originally, we thought we would grow revenue -- systems revenue in the fourth quarter, but probably not achieve kind of normal seasonality because we guided our Q3 systems so strong. Q3 actually turned out stronger than we anticipated. So there's going to be a natural step down as we move from Q3 to Q4. We also saw, as Chris alluded to in the prepared remarks, some of the project timing just shift to the right, which is just exacerbating that a little bit. So instead of growing as we typically would, systems revenue in the fourth quarter, we're down slightly sequentially. Chris Diorio: Yes. And Ezra, I'll just add that, as I said in the prepared remarks, the size and scope of the rollouts remain intact. What we're seeing is some of the end users adapting in real time to the market environment and adjusting how they phase their rollouts and kind of where they put their emphasis. And so we're seeing a little bit of push in the fourth quarter as a consequence of that internal adjustment. I wouldn't read -- there's nothing to read into it in terms of pullbacks -- these are not pullbacks. They're just real-time adjustments at the end-user level to what's going on in the macro environment. Ezra Weener: And then the second would be, I think we all saw the Walmart announcement with Avery. Can you talk a little bit about what that means in terms of timing and sizing for you guys? Chris Diorio: Yes. Why don't I start, Cary, and then you jump in? So, I presume you're alluding to the food news. Grocery -- Walmart. Yes, the grocery. So I'm going to start by saying we're very excited by that news. It's not a surprise to us, but we're very excited that it's out there. The theme in this announcement and the prior Kroger announcement are to improve product freshness, reduce waste, and lower costs. And that's an important theme for the industry. As I mentioned in our prepared remarks, we highlighted another longer-term theme, which is improving the shopping experience. But there are no public announcements yet on that front. But you combine the 2 of those, the freshness opportunity and the customer shopping experience opportunity, and we're very excited about food. We expect modest food volumes through first half '26 and accelerating from there. The pacing really is set by the complexity of rolling out at scale. And you think about it, you've got thousands of stores, got a lot of categories of items. You literally have tens of thousands of employees who need to train. You got to change how you do your operations. You got to build the back end out. These kinds of deployments at this kind of scale at any major enterprise take time. But as we've seen in some of the others, aviation, retail, and others, once retailers move forward and see the successes, they continue to go forward, and other parts of the industry adopt. So we feel good about where we are. We feel about the opportunities for rollout. M800 and Gen2X are very well positioned, and we will be driving hard into the food opportunity in 2026. Cary, anything you'd add? Cary Baker: Yes, Ezra, I'd just add that the volume estimates that are out there are not unreasonable. We view this as a multibillion-unit annual opportunity when it's fully ramped. But to Chris' point, it's just always difficult to judge the pace of deployments, especially one of this size, until we get into it. So give us a little time to figure out what the pacing looks like. But I'll just reiterate what Chris said. We're very excited not only about what this opportunity means with Walmart, but what it means to the rest of the grocery community, who can leverage the work that Walmart is doing. Operator: The next question is from Harsh Kumar with Piper Sandler. Harsh Kumar: Congratulations on very good results. Chris, I had a multipart for you for starters, and then I have one for Cary. So we hear about the announcement that was just talked about with Walmart, bakery, meats, et cetera, and tagging. Is there a fundamental problem in tagging vegetable grocery, leafy greens, and other things that compromise the other vast majority of the volume? Or is that just the next step of the evolution? And part 2 of my question is, Chris, I'm hearing you use the word e-commerce a lot all of a sudden in this call. I've never heard you say that in this much detail. Is there something that -- I guess I'm trying to understand the significance of it, or if you're trying to take the enterprise strategy to the next level and help with e-commerce in some way? Chris Diorio: Yes. So thank you, Harsh. Thanks for your questions. I will address both of them in order. So on the grocery side, you're seeing announcements in bakery, deli, and meat products. There are very significant expansion opportunities beyond that. As you've alluded to with produce, you should look at first at perishable categories as being the areas where grocers will see the most immediate opportunity. But then, of course, as I alluded to in the prepared remarks, there are also opportunities for the consumer experience, which requires tagging all the items. Specifically around produce, fruits, and vegetables, there is no fundamental limit that prevents us from tagging those items. It simply is a call mechanical limit or just kind of a functional limit, specifically, how do you do the tagging? What we're seeing some of already is grocers put some of the items in bags, and you can tag the bag fairly easily, or in spring containers, or other things. Individual items are just harder because getting the tag on and keeping it on. You will see innovation on the tagging front, but I think you're also going to see innovation on the packaging front to make that produce tagging possible. Turning to e-commerce. I use that word intentionally. Yes. I don't want you to read too much into it right now, but we are seeing 2 significant trends. One is an interest across many of our customers, enterprise end customers for a direct from DC or warehouse to consumer, and that's in the retail space, in the supply chain and logistics, and other areas. And the second one is 3PL opportunities. And so enterprises acting as 3PLs for other enterprises. The net of those I'm using is a broader e-commerce term. You are correct. It's the first time I've meaningfully used that term, and it was intentional and expect us to push forward hard into that e-commerce and attempt to expand and grow there. And as I said in our prepared remarks, I see opportunities for differentiation at the endpoint IC level, the reader IC level, and the software level to address those opportunities, both grocery and e-commerce. Harsh Kumar: And my follow-up question to Cary is pretty impressive. I think you're implying 100 basis points of margin increase in the fourth quarter, Cary, if I heard you correctly, -- and is that all from M800? Or is there some other stuff at play over here? Cary Baker: It's a lot of M800. We're also now fully selling the 2025 costed wafers. So we're getting the benefit of wafer costs matched to 2025 pricing. But you're starting to see us flex the M800 muscle that we've been talking about for a while. Now I think the M800 ramps to volume runner in Q4. I don't think we reach the terminal mix though of the M800 until 2026 sometime. Operator: The next question is from Christopher Rolland with Susquehanna. Christopher Rolland: There was a press release by what appears to be a competitor of yours talking about getting some traction using Bluetooth as RFID or like RAIN alternative. So I'd love to know, Chris, in particular, your take on this technology? Is it disruptive? Or conversely, does it have significant drawbacks, and what those are? And if it was a compelling technology, would you guys or could you offer this Bluetooth alternative as well? Chris Diorio: Okay. Thanks, Chris. I'll do my best to answer the question. I'll give -- I'll say some things. And then if you have a further question on that, I'm happy to engage back and forth. So RAN RFID is ideal for item tagging with huge volumes and a huge opportunity. We've talked multiple times in the past about other technologies like vision, and now with Bluetooth beacons here that can help fill in the gaps. Yes, we can make RAIN RFID ICs, sense pallet temperature or humidity. In fact, our industry standardized those capabilities in the radio protocol back in 2012, 13 years ago. But the volumes to date have been tiny and are still small. So we're focused where the volumes are right now. I would say that some complementary technologies filling in the gaps is helpful for enterprise adoption. If the volumes become large, we can look at either that technology or using RAIN RFID to accomplish the same objective. But given the size of the volumes right now, we are focused on the food opportunity, the e-commerce opportunity, supply chain and logistics, the big opportunities where the volumes are orders of magnitude larger, and we'll stay focused there until we see some meaningful change. So I view them as gap fillers. Did that answer your question? Christopher Rolland: That did, Chris. Perhaps just following up kind of on a couple of comments you made. The first was about the second large North American supply chain logistics vendor. You said that they were now fully deployed in parcel delivery. So does that mean -- sorry, say that again? Chris Diorio: Yes. Domestic parcel deliveries, not international, but you keep going. I interrupt you, I apologize. Christopher Rolland: So does that mean that the full infrastructure is fully deployed? Like do they have readers everywhere they basically need them? And then in terms of tagging individual items, has this reached an attach rate that you think is normal? Or do you think they grow from here as, call it, a percentage of parcels? Chris Diorio: So I'm going to start with the first question first. For all of our Lighthouse enterprise, including that one, they're never fully deployed. They always have new use cases. They're always coming to us with new opportunities. They're always thinking and inventing, and they're looking to us to help them think and event and event. So you should look to us to continue talking about fixed reading opportunities, mobile reading opportunities, new tagging opportunities, and just more. I view our engagement with them as a true partnership, a close partnership, a partnership among friends. They trust us to not let them down. We will not let them down, and we will be there to support them. In terms of the actual tagging volumes, yes, they're fully deployed in domestic parcel delivery, but that's just domestic parcel delivery. There are opportunities in other areas of their business in international, and then in their expansion opportunities, including in e-commerce opportunities for them. So we see growth opportunities on the endpoint IC side, on the reader side, on software side, on helping them as a Lighthouse partner win in their respective market opportunity. Cary Baker: And Chris, this is Cary. I would just add that while they're fully deployed domestically right now, as Chris said, they haven't been that gateway for the entire year. So there's potentially opportunity on a year-over-year basis just as they're fully deployed next year. Operator: The next question is from Scott Searle with ROTH Capital. Scott Searle: Great job on the quarter. Maybe to dive in on some of the gross margin commentary, but specific to Gen2X and some of the software investment. I'm wondering a couple of things on the Gen2X front. Is it delivering shares now that is demonstrable that you're seeing in terms of your customer buying patterns? And in terms of the customization opportunity then from an endpoint IC standpoint, does this permanently move you guys into a different gross margin realm on the endpoint IC? And then maybe as a follow-up to that, talking a little bit more about software and recurring revenue, Chris, I'm wondering if you could flesh that out a little bit more in terms of what that means and where it goes. In the past, we've talked about things like authenticity. But how does that evolve? How does that look in the future? Cary Baker: Scott, this is Cary. I'll take the first part of that. So from -- does Gen2X drive share to Impinj? We sure hope so. It's too early to say and comment specifically on share, but this is exactly why we launched Gen2X. This is exactly why we licensed Gen2X to the reading community for free is so that we can not only solve previously unsolvable opportunities for our end customers, but we can also drive endpoint IC share to Impinj. So give us until kind of February, March time frame next year, we'll comment on whether or not we were able to grow share again in 2025. From a gross margin accretion perspective, think of Gen2X as native in the M800. So not driving any more gross margin than the M800 was already slated to, but helping to drive adoption of the M800. Chris Diorio: And, I will try and answer your question. So the genesis of a lot of our Gen2X customizations was Lighthouse Enterprises coming to us and asking for -- basically presenting us with a problem that they've got a challenge and us addressing that challenge. And so our Lighthouse Enterprise accounts use Gen2X because we actually invented some of the capabilities in it to enable them to deploy. So we view it as very least helping us maintain those accounts for us going forward, expand from that basis into other accounts. Now in terms of diversification, we see further opportunities in Gen2X to innovate on the endpoint IC, as I said, the reader IC, and in the software. As we migrate down Moore's Law and get to more advanced process nodes for the endpoint IC, we have access to more digital capabilities. Those capabilities allow us to add features to the endpoint IC that we just couldn't do in the past. And you mentioned some of them, the cryptographic authentication, but there's more. There's lots more. We've only scratched the surface. And so expect us to continue advancing those Gen2X capabilities in concert with our lighthouse enterprises. They present us problems. We solve them. We roll it into Gen2X, and we continue from there. I'm not going to cite any specific additional opportunities right now. Just please note that they're there. Now in terms of what it means for software specifically, I guess that was the last part of your question. I'm going to take a minute to answer that question. In every information industry, if you go back decades, that industry first has to build the hardware foundation. Think about mobile phones for 20 years. We spent the '80s and the '90s building the hardware foundation. So by the 2000s, early 2000s, we flip phones. But there was no -- there was just phones, you made calls. Only when the foundation is sufficiently mature, can you really start monetizing the information in apps and data services, solution management, AI, and just a whole bunch of stuff. So our industry is close enough to that maturity point that it's time to invest in that information. We get there by investing in every layer of the stack, the endpoint IC, the reader IC, and the software. Now there's a fun twist with the endpoint ICs and that they're recurring silicon. But even there, think of the endpoint IC as a data carrier on which to build those SaaS and cloud services. So we -- as we add Gen2X innovations in the endpoint IC, we will leverage those innovations in the reader IC. We will build software solutions on top of it that look more and more like apps today for enterprises in the future for consumers, and create a virtuous cycle by which our platform enables that information economy on the Internet of Things. That is our vision, and it stems from the significant enhancements we're making around Gen2X. Scott Searle: And Cary, if I could just throw out typical pricing negotiations and decreases as we go into the first quarter, kind of early thoughts in terms of how we should be thinking about endpoint IC pricing in the first quarter and traditional seasonality. Cary Baker: Yes. We are just getting into endpoint pricing conversations right now. So I don't have a lot of color to provide at this point. We'll definitely provide insight next quarter. Operator: The next question is from Jim Ricchiuti with Needham & Company. James Ricchiuti: Chris, I'm not sure if you can elaborate on this, but you were just kind of touching on it. But when you talk about enhancing Gen2X for food and e-commerce applications, can you help us understand a little bit more about what that might entail and what challenges you might be solving or addressing? Chris Diorio: Thanks, Jim. Thanks for the question. thinking how I want to answer it. Jim, I can't -- I'm going to tell you upfront, I'm not going to be able to give you a sufficient answer to -- because I don't want to disclose our product plans. What I'm going to say is this, the radio link, the over-the-air link, is for all practical purposes an endpoint IC talking over-the-air to a reader IC with software controlling the reader IC. Think of it that way. What we've learned from our Lighthouse accounts is that we need to customize all 3: the endpoint IC, the reader IC, and the software. And there are major opportunities to customize all 3, not just to improve the radio performance, think beyond that, to really drive apps to drive additional information, to drive use cases. And I guess I'll do it by analogy. So again, going back to the mobile phone analogy, by the early 2000s, a lot of the infrastructure was built out. Then it took Apple really to come up with the touchscreen to enable apps that consumers could use to drive the industry forward. That was one of the key innovations that turned a hardware-based technology into something that was an information-based technology that people could use. We have that level of opportunity in terms of driving information value around RAIN RFID in our future. I'm not going to say more about how we get there, the time frame in which we're going to get there, what the innovations are going to be, how many there are, but they're in there. And I believe, fundamentally, we're just scratching the surface on what we can do. James Ricchiuti: Well, we'll have to stay tuned on that. Cary, a question for you. As we think about these opportunities, it sounds like -- and correct me if maybe I'm just misinterpreting it, but how might we be thinking about operating expense? It sounds like do we -- should we be thinking about higher investments in R&D? You're getting a nice lift from gross margins, but I'm wondering how do we think about OpEx going forward in light of some of the opportunities you're going after? Cary Baker: Yes. So expect us to continue investing. Our OpEx is going to increase in the fourth quarter. We've held it fairly flat throughout most of the year. But it's going to increase in the fourth quarter. And then you know you've been following the story long enough that there's seasonal increase of OpEx in the first quarter and then that kind of increases again in the second quarter, then moderates thereafter. I don't see any change to the seasonal spend patterns that we've had in the past. But we will always stay true to the long-term model that we put together a few years back, and that is every single line item that we have in our spend will deliver leverage, less so in engineering, because that's our primary focus of investment. But still, we will have leverage in the R&D line. We'll have leverage in sales and marketing, and clearly leverage in the G&A line. Operator: The next question is from Guy Hardwick with Barclays. Guy Hardwick: I think you said earlier, you're fairly comfortable with some of the numbers discussed out there in terms of volumes. But in terms of some of the numbers I've seen is the Walmart opportunity alone could be as much as 5 billion labels over the, say, once fully ramped over, say, 2 to 3 years. And since Kroger is maybe half the size of Walmart or maybe better bigger than that, we're talking about maybe a $7.5 billion combined between the 2. First question is, are you comfortable with those sort of numbers? And secondly, I understand that Impinj is the sole provider in the pilots of, say, 40 to 60 stores at Walmart. But how long would you expect to remain the sole provider as typically customers suppliers over time? Chris Diorio: Why don't you take the volumes? I'll take the first. Cary Baker: So Guy, we -- as I said earlier, we think this is a multibillion unit opportunity on an annual basis once it's ramped. There's a lot of categories within freshness in food. There's a lot of SKUs. So we really need to see what the rollout timing is for each of those categories, each of those SKUs to give a sense of what the final number in terms of units are. But under any scenario that we envision, it's a multibillion-unit opportunity per year. Chris Diorio: And then, Guy, you had asked about our current position in those rollouts and pilots and whether we are able -- and essentially, how are you going to sustain that position? So we feel today we are very well positioned in many, if not all, of the ongoing pilots and deployments. We believe that's a result of the performance of our products, the quality of our products, the effort that we have put in with others, and a healthy dose of Gen2X. What we also see is a set of -- I'm not going to use the word challenges. I'm going to use the word opportunities, a set of opportunities in the food space for continued innovation. And we will be driving those innovations, pulling them into Gen2X, and put distance between us and our competition in terms of readability, in terms of findability of items, in terms of scanability, in terms of the data that we and they provide in terms of the reliability of the overall solution. So look to us to drive those innovations, measure us against our success, creating and building those innovations. And if we're successful in so doing, which I have every intention of being, look to us to hold good share in the food space. Operator: The next question is a follow-up from Ezra Weener with Jefferies. Ezra Weener: Yes. Just a very quick one. I know the last couple of quarters, you've talked about not guiding any turns. I didn't see that in the prepared remarks this time. Could you just comment on that? Cary Baker: Yes. Ezra, this is Cary. So I'll take a shot at that. So we continue operating in a very dynamic market. In the third quarter, we saw more turns than expected, but we also saw the same trend of partners requesting changes to delivery timing and location continue. In a typical quarter for endpoint IC, we have 2 to 3 weeks following earnings to turn business given -- turn business for the quarter, given our current lead times. Since we've not seen a standard environment all year, we're not -- we're going to take a similar approach to our guidance that served us well in the second and third quarter. So looking into Q4 for endpoint ICs, we've assumed very minimal turns, less than a week's worth. And then on the systems side, we've assumed more normal turns to reflect the typical end-of-year enterprise hardware buying patterns of the channel portion of our systems business. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Chris Diorio, Co-Founder and CEO, for any closing remarks. Chris Diorio: Thank you, Gary. I'd like to thank you all for joining the call today. And I'd especially like to thank you for your ongoing support. Thank you, and bye-bye. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

88天前Insight Analytics约5分钟阅读

AMFPF 2025 Q3 财报电话会议

Operator: Good evening. This is the Chorus Call conference operator. Welcome, and thank you for joining the Amplifon Third Quarter and 9 Months 2025 Results Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Francesca Rambaudi, Investor Relations and Sustainability Senior Director of Amplifon. Please go ahead, madam. Francesca Rambaudi: Thank you. Good afternoon, and welcome to Amplifon's conference call on third quarter and first 9 months 2025 results. Before we start, a few logistic comments. Earlier today, we issued a press release related to our results, and this presentation is posted on our website in the Investors Section. The call can be accessed also via webcast and dial-in details are on Amplifon's website as well as on our press release. I have to bring your attention to the disclaimer on Slide 2. As some of the statements made during this call may be considered forward-looking statements. With that, I am now pleased to turn the call over to Amplifon, CEO, Enrico Vita. Enrico Vita: Thank you, Francesca. Good afternoon, everyone, and thank you for joining us once again today. As usual, let's begin with a general overview of the global market performance. Starting with the European markets. In France, the market continued to record solid volume growth, though at a slower pace compared with Q2. Official data indicate a volume growth of around 6%, which we believe reflects the impact of the recent political events you are all aware of. On the other side, on a positive note, Spain and Italy, 2 of our key markets improved versus the second quarter, showing encouraging trends. As we mentioned during our last update, the second quarter was the most affected by the 5 years anniversary of the strict COVID lockdowns in 2020, which had significantly reduced the returning customer base. Germany also delivered a positive performance. Overall, we estimate that the European market growth in Q3 was around 2%, 2.5% in volume terms, less in value because of the category mix in France. Given these dynamics, we expect the gradual recovery in Europe to continue moving forward and particularly in 2026. When we will see the anniversary of the market rebound of 2021, impacting positively on our returning customer base, particularly in Southern Europe. In the U.S., the market growth was around 2% in the third quarter, which is still below historical average. In particular, the private pay channel was more positive, while the insurance channel was around minus 1%. Over the first 9 months, the overall U.S. market was flat as recent uncertainties clearly impacted the consumer behavior, especially in the first quarter, but also and mainly due to the insurance channel decreasing by approximately minus 4% over the period, driven by a reduction in hearing benefits offered by health plans after a strong push in past years. That said, we continue to expect a gradual improvement in the coming months, driven primarily by the Private Pay segment. Moving to APAC. Here, we have yet to see a clear improvement in trends, both markets in Australia and in New Zealand remained in negative territory. All in all, we estimate that the global market grew by around 2% in volume in Q3, and by slightly less than that in value according to market weights. Let's now turn to our performance within this market context. Our sales grew by 2.4% at constant exchange rates, while the appreciation of the euro versus nearly all major currencies in our footprint had an impact of around minus 3%. Organic growth showed a material improvement of 250 basis points versus Q2, returned to positive territory, close to plus 1%, and we believe that we have consistently outperformed across most of our key markets. This growth was mainly driven by EMEA's return to positive organic growth, thanks to a significant improvement in the performance in Southern Europe, Italy, Spain and despite a lower contribution coming from France versus Q2. It is also important to highlight our strong performance in the U.S., in particular with Miracle-Ear’ Direct Retail where we continue to outperform the market. In Australia and New Zealand, too, despite respectively, a flattish and the negative organic growth, we believe we have outperformed both markets. The contribution from M&A activity was plus 1.6%, reflecting here the net effect of the acquisitions and the selective closures carried out as part of our Fit4Growth program. Turning to profitability. Our adjusted EBITDA margin was 19.1%, down 110 basis points year-over-year. This reflects an improving trend compared to Q2 and was primarily driven by lower operating leverage, our continued marketing investments to support our brands and still though to a lesser extent than in Q2, less favorable geographical mix. Finally, we reported an adjusted net profit of approximately EUR 19 million, reflecting the seasonally smallest quarter of the year. Let me now provide a brief update on our Fit4Growth program, which, as you know, aims to deliver a run rate improvement of approximately 150 to 200 basis points in adjusted EBITDA margin by 2027. This program is progressing well and is currently ahead of the initial plan, particularly with regards to the optimization of our store network. We continue to track progress closely and remain fully confident that these actions will position us for the next phase of sustainable growth. With that, I will now hand it over to Gabriele, who will provide more details on our financial results. Gabriele Galli: Thanks, Enrico, and good evening to everybody. Moving to Slide #4, we have a look at our group financial performance in Q3, already summarized by Enrico. Revenues grew 2.4% at constant FX, with organic growth back to positive at circa 1%. Posting a 250 basis point improvement compared to Q2 '25. Despite the reduced growth of the French market, the global market growth is still below historical level and a strong comparison base as in Q3, '24, revenues grew at constant FX by 8% versus Q3 '23. M&A contribution remained sustained at plus 2%, while the network optimization related to Fit4Growth had an impact of around minus 50 basis points due to the carryover from H1 and the further selected closures in U.S., France, Germany, Canada and Australia in Q3, thus leading to M&A and a perimeter change of around 1.6 percentage points. FX was a significant headwind of minus 3.1% due to the appreciation of the euro versus the U.S., Australian and New Zealand dollars, bringing growth at current FX to minus 0.7%. Adjusted EBITDA came in at EUR 107 million, with margin at 19.1%, a decrease of 110 basis point for the lower operating leverage, the higher marketing investments and the dilution from the fast growth of Miracle-Ear Direct Retail. Moving to Slide 5. We have a look at our financial performance in the first 9 months of the year. Revenues were up 1.8% at constant FX versus 9 months '24, with organic performance at minus 0.3%, reflecting the very high comparison base and 1/3 in day less versus last year and the global market demand below historical growth levels. M&A and perimeter change contribution was 2.1% with around 230 locations acquired year-to-date and selected closures following Fit4Growth implementation. FX was a headwind for minus 1.9%, increasing throughout the period. Adjusted EBITDA was EUR 395 million with margin at 22.7%, 90 basis points below prior year, primarily due to lower operating leverage and the fast growth of Miracle-Ear Direct Network in the U.S. Moving to Slide 6. We have a look at EMEA performance. In the quarter, revenue grew at constant FX by 2.3% with organic performance at plus 0.3% with an improvement of 280 basis points compared to Q2 '25. Despite a lower contribution of the French market, which grew around 6% between July and August, while Southern European markets showed a gradual improvement in the quarter. In this context, we posted a strong and above market growth in France and an improved organic performance in both Italy and Spain. M&A and perimeter change was plus 2%, reflecting M&A mainly in France, Germany and Poland and select the closures of nonperforming locations in France and Germany. Adjusted EBITDA was EUR 82.2 million with margin at 23.3%, 70 basis points below Q3 '24 due to lower operating leverage and still less favorable geographic mix, although to a lesser extent. In the 9 months, revenue growth was 1.4%, with organic performance at minus 1% and M&A contribution at plus 2.4%. Adjusted EBITDA was circa EUR 305 million with margin at 27.3%, 80 basis points below last year. Moving to Slide #7. We have a look at the performance in Americas. Revenue growth in the quarter was plus 5.6% at constant FX, while FX headwind was a significant minus 8%. Organic growth was strong and above market at 4.3% despite the very high comparison base, as in Q3 '24, organic growth was plus 12% versus Q3 '23. And the market performance is still below historical levels at circa 2%. M&A and perimeter change was positive for 1.3%, reflecting the acquisitions in the U.S., including the 24 locations acquired in Arizona back in April, and some selected closures of nonperforming locations, both in the U.S. and Canada. Adjusted EBITDA was EUR 25.5 million with margin at 20.7% versus 22.7% last year due to the fastest functional Miracle-Ear Direct Network in the U.S. The integration of the recent acquisitions and the adverse FX translative effect. In the 9 months, revenues were up 4.8% at constant FX, driven by a solid and above market organic growth despite the remarkable '24 comparison base. Adjusted EBITDA was EUR 82.7 million with margin at 22.6%, 170 basis points below prior year for the reasons I just mentioned. Moving to Slide 8. We have a look at Asia Pac performance. In the quarter, revenue performance was minus 1.5% at constant FX, reflecting minus 1.9% organic growth due to the high comparison base. As in Q3 '24, the growth at constant FX was around plus 7% versus Q3 '23 as well as the negative market development in the region on consumer caution. In this context, our organic performance was negative in New Zealand and flattish in the other countries in the region. M&A and perimeter change was positive for 0.4%, thanks to the acquisitions mainly in China and Australia, which more than offset the exit of the non-core wholesale business in China in Q1 and the selected closure of nonperforming locations in China in Q2 and in Australia in Q3. FX headwind was a significant minus 8%, driven by the depreciation of all the regional currencies versus the euro. Adjusted EBITDA reached EUR 21.4 million, with a margin of 24.3% versus 26.7% in Q3 '24 due to lower operating leverage. In 9 months, '25, both organic performance and perimeter change were flattish, while FX was a headwind for 5.7%. Adjusted EBITDA was EUR 65 million with margin of 25.1%, 140 basis points below 9 months '24, due to lower operating leverage. Moving to Slide #9. We appreciate the Q3 income statement, reflecting the seasonality of our business being the Q3 the smallest quarter of the year. In the quarter, total revenues increased by 2.4% at constant FX to EUR 563 million. Adjusted EBITDA came in at EUR 107 million, with margin at 19.1%, 110 basis points below Q3 '24 for the reasons just mentioned. D&A, excluding PPA, were at EUR 64.6 million versus EUR 62.5 million in '24, increasing around EUR 2 million in light of the investment in the network, digital transformation and innovation. Thus, the less pronounced growth rate compared to the increase recorded in '24 versus '23. This leads the adjusted EBIT to EUR 42.8 million versus EUR 52.1 million last year. Net financial expenses amounted to EUR 16.7 million versus EUR 15.9 million in Q3 '24, primarily due to interest on higher financial debt, including higher interest rates for lease liabilities following the strong M&A and network expansion as well as FX differences. Tax rate posted a 10 basis point reduction versus '24, leading adjusted net profit at around EUR 19 million versus EUR 26 million in Q3 '24, reflecting the higher seasonal weighting of D&A and financial expenses in the smallest quarter of the year. Moving to Slide #10. We see the 9 months profit and loss evolution. Total revenues increased by 1.8% at constant FX to EUR 1.74 billion, adjusted EBITDA was EUR 395 million, with margin at 22.7%, 90 basis points below 9 months '24. D&A, excluding PPA, increased by around EUR 13 million, leading to the adjusted EBIT to around EUR 199 million, with margin at 11.4%. Net financial expenses increased by EUR 44 million to EUR 48 million, leading profit before tax to around EUR 151 million. Tax rate ended up 27.3%, leading adjusted net profit to EUR 110 million versus EUR 134 million last year. Moving to Slide 11. We appreciate the cash flow evolution. Operating cash flow after lease liabilities was in the period equal to EUR 119 million, EUR 31 million below the EUR 150 million achieved in '24, mainly in light of the lower EBITDA contribution, higher rents. Net CapEx decreased by around EUR 9 million to circa EUR 90 million, leading free cash flow to EUR 28.4 million. Net cash out for M&A was EUR 59 million versus the exceptional level of EUR 184 million in the 9 months '24. The cash out for the share buyback program was EUR 108 million. NFP ended slightly over EUR 117 billion after strong investment for over EUR 320 million in CapEx, M&A, dividends and buyback. Moving to Slide 12. We have a look at the debt profile trend and the key financial ratios. As mentioned, the net financial debt ended at EUR 1.17 billion, with liquidity accounting for EUR 240 million, short-term debt accounting for around EUR 300 million and medium long-term debt accounting for around EUR 1.11 billion. Following the IFRS 16 application, lease liability were around EUR 496 million, leading the sum of net financial debt and lease liabilities to EUR 1.67 million. Equity ended at around EUR 970 million, mainly due to share buyback, FX translation differences and dividends. Looking at financial ratios. Net debt over EBITDA ended at 2.09x versus 1.63x at December last year. After the strong investment in CapEx, M&A, share buybacks and dividends. Net debt over equity ended up 1.31x. I will now hand over to Enrico for the outlook and final remarks. Enrico Vita: Thank you, Gabriele. So we have come to the end of today's presentation. And while the global market is still growing below historical levels. We believe that the factors causing this softness peaked in the second quarter. And there are no structural reasons to be anything, but optimistic about the solid growth prospects of our sector. In fact, the third quarter confirmed this improvement in trend across several of our key markets. Looking ahead to the coming months, we expect that the global market demand to continue to gradually normalize. And in fact, in the U.S., the Private Pay segment is expected to remain the main growth driver, supporting a steady recovery of the overall market. In Europe, we anticipate a progressive improvement, supported by sustained volume growth in France, continued a solid performance in Germany and the gradual recovery across the rest of the region, particularly in Italy and Spain as observed in the third quarter. Looking further ahead to 2026, we expect the anniversary effect of the 2021 rebound to positively impact on our returning customer base, particularly in Southern Europe. Moreover, in response to the current global context, we have launched the Fit4Growth, our comprehensive program, which aims to deliver a run rate improvement of approximately 150 to 200 basis points in adjusted EBITDA margin by 2027. The program is progressing decisively and is currently ahead of the initial plan, particularly regarding the network optimization initiative, which will lead to an impact in the year of approximately minus 0.5% on the M&A perimeter change item and consequently on total growth. Based on all these elements and reflecting the impact from the accelerated store closure, we now expect for the full year 2025, revenues at constant ForEx to grow between 2% and 2.5%. Adjusted EBIT margin in the region of 23%. With that, I would like to thank you for your attention, and now we look forward to taking your questions. Francesca, over to you. Francesca Rambaudi: Thanks, Enrico. I kindly ask operator to open Q&A session. Please kindly limit your questions to maximum 2 initially in order to give everybody the opportunity to ask questions. Now I turn the call over to Alekhya in order to open for the Q&A. Operator: [Operator Instructions] First question is from Andjela Bozinovic, BNP Paribas. Andjela Bozinovic: I have -- I'll start with the first one, and then I'll ask the follow-up. First, in France, do you still believe that the market will grow 10% in volumes in 2025? And if not, what are your new assumptions for the growth? And more broadly, do you think that we can see the tailwinds from the reform in 2026 and for how long? And finally, just a comment on your market share in the country. Enrico Vita: Thank you for your questions. So first of all, with regards to France, as you know, we have seen a very strong growth in terms of volume in Q2. In Q2, we have seen a growth in mid-teens region. In Q3, we have seen a much lower growth in the first month of the quarter, the average was in the region of 6%. And as you can imagine, in our view, there are no other reasons than the political turmoil and all the different events that we have seen occurring in France during the third quarter. So now going to the expectation for the year-end, of course, it's very difficult to predict because for sure, we were also expecting a better French market in the third quarter. We were not expecting all the events that characterized the third quarter. However, what I can tell you is that we are still, of course, very positive. Also in this case, we don't think that this kind of lower growth in Q3 led to some demand which is -- has been canceled. We expect actually this demand to come back in the next month, in the next quarters. What I can tell you is that what we see today in terms of activation is quite a positive activation in October in the region of high single digits. So we have seen some improvement in trend in October. With regards to next year, well, as I said, we don't think that this kind of demand has disappeared, so will be released. And we expect actually the impact of the reform to continue also in 2026. In particular, we expect the effect of the reform to continue at least up to April, May next year. With regard to the different market performance, I must say that in this quarter, I'm happy about our performance in relative terms to our competition. What I mean is that if I take all -- basically all our major markets that we have performed. We think that we have performed better than the market, starting from the U.S. As I mentioned, the U.S. in the third quarter in terms of market, the data say that the market is growing -- has grown in the region of 2%. We have grown more than that especially, particularly in Miracle-Ear Direct Retail. But also if you take Asia Pacific and in particular, if you take, for example, Australia, our market -- our organic growth in Australia was flattish, while the market in Australia was negative in the region of 3.5%. So that we have also there outperformed the market. So I'm pretty confident that in basically all -- also in Italy, our performance has improved significantly, also in Spain with -- in comparison with Q2, also in Spain, our performance has improved significantly. So that I feel pretty good about our performance in comparison with the market growth. Andjela Bozinovic: Amazing. And just a second one on your margins, given all the moving parts in 2026 and the top line that we discussed and also the Fit4Growth program, how comfortable do you feel about consensus forecasting around 60 basis point margin improvement for next year? Enrico Vita: Well, we are not guiding for with regards to next year. What I can tell you is that I'm very confident that we have mobilized our organization on the Fit4Growth program. As I said, actually, we are going faster. And most -- and we are also finding a pocket of further efficiencies in all our areas of the business. So today, I feel very confident that the target that we set for run rate impact in terms of profitability, full year 2027 will be achieved. Operator: Next question is from Hassan Al-Wakeel, Barclays. Hassan Al-Wakeel: A couple of questions for me, please. Firstly, just on Fit4Growth. Can you talk about the acceleration in the initiative here and where clinic closures have focused? And given these underperforming clinics, what was the margin benefit in the quarter from these exits? And what are your current plans for future clinic closures versus the 100 thus far? And any potential impact on perimeter changes in '26? And then secondly -- do you want to go ahead, Enrico? Enrico Vita: No, no. Please, go ahead with the second question. Hassan Al-Wakeel: So then the second question is, if you could please quantify the mix of returning customers in Q3 in Southern European countries, how that compares to Q2 and your expectations of this changing into next year, and how that would translate to growth overall? Enrico Vita: Thank you, Hassan. So with regards to the first question and the Fit4Growth. As I said, I'm very happy about the kind of execution that our organization is implementing in all the different levers. And I'm very confident that the plan that we shared with you will be delivered according to plan and even faster. In particular, as you said year-to-date, we have already closed 100 shops. We mentioned also last quarter that in terms of location, initial target was to close or to merge around 250 locations, which means more or less 4% of our network, excluding, of course, shop-in-shops and franchisees. This target, I feel very confident that we can definitely achieve it. In terms of -- in terms of FTE, the reduction in terms of the closures of the stores actually led to a reduction in a number of FTE of about 260 FTEs so far. So on this, we are progressing very well. We will not see any impact from these closures in 2025 because also in relation with these closures, there will be some associated costs so that we will see the benefit of these closure starting from 2026. With regards to the second question and the mix of returning customers, as we said during the last quarter, quarter 2 was affected quite significantly from the anniversary of the COVID in quarter 2, 2020, we had a huge drop in sales around 200 -- around minus 50%, in 45%, something like that in Q2 2020. In March 2020, we had minus 90%. So we expect that the impact of this drop in sales on our returning customer base as peaked in Q2. In Q3, Q4, the impact will be much less than -- of course, looking at 2026, we are confident that our customer base will be increasing on the back of the rebound that we had in sales in 2021. So we should see a much larger customer base on our numbers. Operator: Next question Is from Anchal Verma, JPMorgan. Anchal Verma: I'll go with the first question is again on France. Just trying to understand what else you've been seeing in France. So the market grew 6% in terms of volume. But can you please give us an idea on what you've seen in terms of pricing in France? And also, are you able to quantify the sales growth in France for you for the quarter? I'll ask that, then I'll go into my second question. Enrico Vita: Yes. So with regards to France, yes, we estimated that in the third quarter, the growth will be in the region of 6%. In my opinion, of course, this is lower than we expected. But in my opinion, there is not a lot to be worried. What I mean is that, of course, the growth was driven mainly by the anniversary of the RAC 0 reform, which basically gives for free hearing aids. Of course, given all what happened in France in Q3, consumers were a bit worried. But I'm confident that the kind of demand that is underlying the anniversary of the RAC 0 reform has not disappeared. So this will come back sooner rather than later, as I say, that we see some encouraging trends already in October. With regard to price, yes, of course, the average of our sales now as led to an increase of the category one mix. So there was also a negative, let's say, a lower growth in terms of volume. But what is important, in my opinion, also to underline is the fact that also in France according to our number and estimations, we have performed better than the market, thanks to all the work and all the job that we have done in the past. Anchal Verma: And are you able to quantify the pricing impact at all for France? Enrico Vita: Well, it will be just a very limited, few percentage points. Anchal Verma: Perfect. And then the second question was if we can maybe dive a bit deeper into Americas, and how sustainable do you think is the U.S. growth that you saw in Q3 to continue? And then if you could even pull out essentially what you saw in the U.S. specifically in terms of sales growth? And I appreciate it's only been a month into Q4. But are you able to share any color on how the markets develop and whether these Q3 dynamics could continue for the rest of the year? Enrico Vita: Yes. Let's say that with the quarter 3, we had a clear consolidation of 2 different trends. One trend is related to the insurance channel. The insurance channel was in the 9 months negative by about 4%. This because of the reduction in coverage on hearing benefits from insurances after a very strong push in the last years. So our view is that the insurance channel, of course, will be the channel growing the most -- the least also in the future. And we expect that some of the clients will migrate from the insurance channel to the private channel. The picture on the private channel is more positive, both in the quarter 3 and also in the year-to-date because in the quarter 3 and in the year-to-date, the growth of the private channel was more positive, more in the region of 2%. So when we look at the total U.S. market being flat in the 9 months, this flattish performance was mainly driven by the insurance channel, whilst the private channel, which is the channel in which, of course, we are focusing the most, it's more strategic for us, performed better. With the Q3, I think that we had a clear consolidation of this kind of trend. Operator: Next question is from Veronika Dubajova, Citi. Veronika Dubajova: I'm going to go a little bit bigger picture. And I guess -- I know I ask you this question every quarter, but I'm going to ask you again. We are now in year 3/4 of subdued global market growth. I know that at times, there have been valid explanations for specific softness in select regions. But this now feels a pretty persistent headwind. And I'm just curious sort of if you are at all entertaining that maybe there is a structural change that could be driving this slower market outlook, maybe penetration has reached a certain level, which is still high, maybe consumers are just changing their replacement behavior. Just curious if you see anything at all that could explain that because obviously, it's curious where we've been here for a while now. Enrico Vita: Yes. Well, let me answer in this way, Veronika. I think that in order to, of course, I mean, I don't think that there is only one explanation. But let's take the U.S. which is, by the way, the biggest market in the world, representing about 40-plus percent of the total market. So in my opinion, is very meaningful as an example. In the U.S., we had plus 10% in 2023. We had plus 6% to 7% in 2024. And then all of a sudden, starting from Q1, we had minus 5%, plus 3%, plus 2%. In my opinion, if there was anything structural you don't have this kind of, let's say, steps, this kind of big swings in terms of market growth. Up to December, in the last quarter of last year, we had a market growing by 6%, 7%. First quarter of 2025, we had minus 5. No structural trends can make this change up and so fast in my opinion. In my opinion, there is an element which is related to consumers, which are definitely more cautious, which are concerned about the external environment and which maybe the purchase power has reduced because of the inflation. And therefore, they are postponing their decision to acquire a hearing aid or a new hearing aid or maybe they are postponing their decision to renew their hearing aid. This is the best picture that I can give you, then we can speculate on many different things. I don't think that there is anything structural also because it is true that penetration has increased, but I'm confident also that it will continue to increase, given the awareness on wellness increasing, given the technology, which is making hearing aids always more discrete, more performing, aging population is still there. So I'm pretty confident that there are no meaningful structural changes that can drive such kind of performance. For example, in the U.S. -- I think the U.S. because, in my opinion, is the biggest market and is the one that can give us some explanation given the fact that the swing in terms of grown has been pretty massive. Veronika Dubajova: And then maybe just sticking with the U.S. theme, obviously, you've touched upon this change in the commercial market when it comes to Private Pay and insurance. Can you just maybe remind us for your own business, what your exposure to managed care is, how profitable that is? And so how should we think about the impact of the structurally slower growing managed care market as it translates to your business? Enrico Vita: Yes. With regards to managed care, this is a very good question because now we are also reflecting on the prospect of growth of the managed care now because we don't see actually, the managed care to continue to grow at the same pace that we had -- that we saw in the past because many insurances have decided actually to scale back their hearing benefits in their France. So we do not expect the channel to continue to grow faster. We expect the market now to stabilize at the current level, so that we expect some of the customers migrating from the insurance channel to the private channel. Veronika Dubajova: So your view would sort of be it kind of -- the overall market growth is unchanged, but the mix changes. And from your perspective, just remind us how big managed care is for you and whether it has an average or below average margins in North America? Enrico Vita: Less than 20% of the U.S. Veronika Dubajova: Okay. And profitability-wise? Enrico Vita: Well, you're asking too -- no, we don't provide this by... Operator: Next question is from Domenico Ghilotti, Equita. Domenico Ghilotti: I have 2 questions. The first is on the American market. So in particular, on the profitability because you are still largely down year-on-year despite a lower M&A contribution and quite interesting growth performance. You were mentioning the DOS contribution. So can you give us a sense of what -- if you are seeing an improvement in profitability at the channel level, at the U.S. level, and if you see some kind of stabilization approaching on profitability for the U.S. market? The second is on Italy, Spain, you had been flagging an improvement. I don't understand if still negative, but improving compared to Q2, that was a bit surprise. And if you have been able to better understand what happened there. And so if you see the situation in Italy, Spain, just related to heat wave, as you mentioned or something more? Enrico Vita: Yes. So with regards to the profitability of the U.S., the profitability of the U.S. has been affected mainly by on one side, the lower operating leverage because, of course, we had definitely a much higher growth -- organic growth than the market, but of course, we were expecting a better market than the 2%. But it is also due to the impact related to the growth of the direct retail in the U.S. also because direct retail in terms of growth has been the driver of the growth of the overall U.S. So let's say, that the lower channel in terms of profitability is the one, which is growing the less -- the least -- the most within the U.S. Then with regards the Italian and the Spanish market, both the markets, in particular, the Italian one in Q2 was pretty negative. Now we are back to a flattish performance in particular in Spain, while in Italy was slightly negative, but significantly improving versus Q2, just to be sure I'm speaking about market. In terms of our performance, there was a massive improvement in terms of performance in Spain and also a very important improvement in performance also in Italy. Operator: Next question is from Andjela Bozinovic, BNP Paribas. Andjela Bozinovic: I just wanted to ask about APAC. And if you can give us any details on the dynamics that you're seeing in Australia and China in particular, because I understand these 2 markets are the biggest in APAC. And do you foresee any change in market dynamics going forward because the market has been subdued for quite some time. Enrico Vita: Yes. No. Unfortunately, the Australian market was negative in quarter 3, low single digit, while actually the second largest market for us is New Zealand, which was negative by mid-single digit. Both, in this case, no structural reason can determine such kind of negative performance than just consumer caution and consumer confidence. In both markets, we believe that we have done better than the market. I feel pretty good about that. I think that in Australia, we are gaining share. So I think that our performance in relative terms was above the market. With regards to China, the Chinese market was flattish basically stabilized finally. And also there our performance was pretty good in terms of market share. Operator: Next question is from Julien Ouaddour, Bank of America. Julien Ouaddour: So I had a couple as well. The first one is on '26. I mean, have you done any math around like the renewal tailwind from the 2021 patients, which may return next year, like in particular for Spain and Italy. I mean should we expect these markets maybe to grow single digit, double digits? So any color here would be super helpful? And second question is on Chinese manufacturers, we went to the UIH Congress a couple of weeks ago and we met with United Imaging who basically said they're going to have products in the U.S. and Europe in '26. So I was just wondering if you review these kind of products, if you think of maybe using them also for Europe or the U.S.? And could it be a driver for the gross margin over the midterm? Enrico Vita: Thank you. So with regards to the first question, at the moment, we don't provide any indication about the positive effects that we might have resulting from the anniversary of the significant growth in the market in 2021. But as I said, on a qualitative basis, we expect that our customer base in 2021, in particular, in 2 of our key markets like Italy, Spain will be supporting the continued improvement of these 2 markets, but also in Portugal, for example. With regards to the second question, of course, we are always monitoring any kind of manufacturer in the hearing space. At the moment, we have no plans with regards to Chinese manufacturers. Julien Ouaddour: Maybe the other way of asking this question, I mean, have you reviewed their products, which I think is only available in China right now? And just what do you think overall about this product if you have. Enrico Vita: Yes, yes, of course, we have seen their products, but I think that still our sourcing strategy will be focusing on, let's say, the main 5 ones. Of course, they will improve over time. But for the time being, we are very focused on our supplier base. Operator: Next question is from Oliver Metzger, ODDO. Oliver Metzger: One is also a follow-up on China. So you already made a comment versus your performance versus the market. But given -- there seems to be a more profound weakness of the market compared to some years ago. So do you still see for the Chinese market, some return to, let's say, the old high single-digit, low teens performance for the overall market, or do you think that fundamentals have changed that it's just for a Western company, not possible to achieve this growth anymore. Second question is about your general view on pricing. We also heard some comments over the last week about there was some increasing down-trading towards lower-priced hearing aids, meaning from premium to business, business to basically reported. Potentially, you can share your experience from that what you see regarding that? Enrico Vita: Yes. Well, thank you for the questions. So with regards to the Chinese market, I think that our sector in China in the last couple of years, has suffered from the same reasons of many other sectors, which is about a slowdown in the economy, consumer confidence, et cetera. In terms of fundamentals, the fundamentals, in our opinion, are definitely still there. I mean the aging of population is a big wave that is coming that the people aged 65-plus will increase in the next 10 years by more than 100 million people so which means that there will be some very, very important aging trend supporting the growth of the market which remains definitely a strategic market for us. In terms of the second question and about pricing and down trading, what we -- I can tell you what we are working on more than, let's say, reducing price or something like that. Now we wanted to maybe offer more flexible payments to our clients may be offering financing at better terms, et cetera, et cetera because clearly, in a moment in which consumer confidence is lower, I think that these kind of things can definitely help them to take a decision. Francesca Rambaudi: One last question, please operator. Operator: The final question is from Domenico Ghilotti, Equita. Domenico Ghilotti: Very quickly. On the marketing investments, if you can give us a sense of what has been so far compared to last year or particularly in Q3. And last on the free cash flow generation. I was surprised to see some significant absorption from working capital, so higher than last year. So any specific reason for that? Enrico Vita: Yes. Thank you, Domenico. So with regards to the marketing investments in Q3 we have accelerated on our marketing investments. Our marketing investments grew a bit more than in the first 6 months. In the first 6 months, our marketing investments more or less grew in line with our revenues, so while -- now we have taken the decision that in a moment like this, I think that we must leverage on our leading position in the market. We wanted to invest more than the others. We wanted to convince customers about Amplifon, we want to continue to strengthen our brands, et cetera, et cetera. So in Q3, we have over invested versus the first half of the year. Domenico Ghilotti: Have you seen also better traction, sorry, so better traction... Enrico Vita: Of course, I mean, if you -- since you are in Italy, you have seen that we have been very present in TV. We have been very present in radio. We have been very present in digital, et cetera, et cetera. So of course, these are investments, which, of course, we believe will deliver good return on the investment and will deliver sales. Clearly, it's not something that you invest today, you see the next day. But for sure, for sure, we want to really stick to our strategy of investing on our brands, on our stores, et cetera, et cetera. With regards to the second question on the free cash flow, I will leave to Gabriele. Gabriele Galli: The most important component of the underperformance in terms of free cash flow Domenico and operating cash flow was clearly driven more by the economic performance than [indiscernible]. If you look at the EBITDA we lost something in the range of EUR 16 million. If you look at the financial expenses, we are higher by around EUR 5 million. This includes also the IFRS 16. And then to the EBITDA, you have to adopt the higher rent cash out. So adding up these 3 components, you sum up around EUR 30 million, which we are behind in terms of operating cash flow. Domenico Ghilotti: On working capital, nothing to mention. Gabriele Galli: Nothing capital -- working capital, nothing to mention. I mean moving forward, you can see some ups and downs, of course, I mean, we worked a lot in the past in order to optimize. So maybe that one year, you compare with another year where, I mean, you had improvement in payable, receivable, inventory, but this quarter -- particularly, this quarter, the most important component are the economic one. Francesca Rambaudi: Thank you. Enrico Vita: Thank you, everyone. Francesca Rambaudi: This concludes our call. Thank you for interest and attendance, and I kindly ask operator to disconnect. Thank you. Enrico Vita: Thank you, bye. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.

88天前Insight Analytics约5分钟阅读

GOOGL 2025 Q3 财报电话会议

Operator: Welcome, everyone. Thank you for standing by for the Alphabet Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to hand the conference over to your speaker today, Jim Friedland, Head of Investor Relations. Please go ahead. James Friedland: Thank you. Good afternoon, everyone, and welcome to Alphabet's Third Quarter 2025 Earnings Conference Call. With us today are Sundar Pichai, Philipp Schindler, and Anat Ashkenazi. Now I'll quickly cover the safe harbor. Some of the statements that we make today regarding our business, operations and financial performance may be considered forward-looking. Such statements are based on current expectations and assumptions that are subject to a number of risks and uncertainties. Actual results could differ materially. Please refer to our forms 10-K and 10-Q, including the risk factors. We undertake no obligation to update any forward-looking statement. During this call, we will present both GAAP and non-GAAP financial measures. A reconciliation of non-GAAP to GAAP measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at abc.xyz/investor. Our comments will be on year-over-year comparisons unless we state otherwise. And now I'll turn the call over to Sundar. Sundar Pichai: Thank you, Jim. Good afternoon, everyone, and thanks for joining us. This was a terrific quarter for Alphabet, driven by double-digit growth across every major part of our business. We are seeing AI now driving real business results across the company. We delivered our first ever $100 billion quarter. 5 years ago, our quarterly revenue was at $50 billion. Our revenue number has doubled since then, and we are firmly in the generative AI era. In parallel, we've built for the long term and diversified with successful businesses in cloud, YouTube and subscriptions. Our momentum is strong, and we are shipping at speed. As just a few examples: our first-party models, like Gemini, now process 7 billion tokens per minute via direct API used by our customers. The Gemini app now has over 650 million monthly active users, and queries increased by 3x from Q2. Cloud had another great quarter of accelerating growth with AI revenue as a key driver. Cloud backlog grew 46% quarter-over-quarter to $155 billion. And we crossed $300 million paid subscriptions led by growth in Google One and YouTube Premium. Today, I'll discuss progress in our full stack approach to AI and then share highlights from search, cloud, YouTube and Waymo. As a reminder, our full stack approach spans AI infrastructure, world-class research including models and tooling, and our products and platforms that bring AI to people everywhere. First up, AI infrastructure. Our extensive and reliable infrastructure, which powers all of Google's products is the foundation of our stack and a key differentiator. We are scaling the most advanced chips in our data centers, including GPUs from our partner, NVIDIA, as well as our own purposeful TPUs. And we are the only company providing a wide range of both. As we announced yesterday at NVIDIA GTC, we are now shipping the new A4X Max instances powered by NVIDIA GB300 to our cloud customers. Our highly sought-after TPU portfolio is led by our 7-generation TPU, Ironwood, which will be generally available soon. We are investing in TPU capacity to meet the tremendous demand we are seeing from customers and partners, and we are excited that Anthropic recently shared plans to access up to 1 million TPUs. Next world-class AI research, including models and tooling. Our models are world-leading. GEMINI 2.5 Pro, Veo, Genie 3 under viral sensation Nano Banana are among the very best in class. Over 230 million videos have been generated with Veo 3, and more than 13 million developers have built with our generative models. We are looking forward to the release of Gemini 3 later this year. Our research leadership is advancing next frontier technologies. Last week, we announced that our Willow quantum chip achieved a major breakthrough, running an algorithm 13,000x faster than 1 of the world's best supercomputers, and the result is verifiable, paving the way to future practical applications. Speaking of quantum, let me congratulate Michel Devoret, our Chief Scientist for Quantum Hardware. He received a Nobel in physics for early research he did in the 1980s. Three Nobels awarded to current Googlers in 2 years, incredible. And third, our products and platforms. We are bringing AI to more people and developers than anyone else. In July, we announced that we processed 980 trillion monthly tokens across all our surfaces. We are now processing over 1.3 quarterly and monthly tokens, more than 20x growth in a year, phenomenal. This quarter, we took big steps to reimagine Chrome as a browser powered by AI through deep integrations with Gemini and AI Mode in search with more agentic capabilities coming soon. In August at Made by Google, we unveiled our Pixel 10 series of devices. They are the first with our most powerful chip designed to run on Gemini Tensor G5. They're our best reviewed devices ever. And last week, we launched Android XR, our new operating system at Samsung's Galaxy XR device. It brings new ways to use headsets and glasses with Gemini at the core. Now turning to highlights from Search. AI is driving an expansionary moment for Search. As people learn what they can do with our new AI experiences, they're increasingly coming back to Search more. Search and its AI experiences are built to highlight the web, sending billions of clicks to sites every day. During the Q2 call, we shared that overall queries and commercial queries continue to grow year-over-year. This growth rate increased in Q3, largely driven by our AI investments in Search, most notably AI Overviews and AI Mode. Let me dive into the momentum we are seeing. As we have shared before, AI Overviews drive meaningful query growth. This effect was even stronger in Q3 as users continue to learn that Google can answer more of their questions, and it's particularly encouraging to see the effect was more pronounced with younger people. We're also seeing that AI Mode is resonating well with users. In the U.S., we have seen strong and consistent week-over-week growth in usage since launch and queries doubled over the quarter. Over the last quarter, we rolled out AI Mode globally across 40 languages in record time. It now has over 75 million daily active users, and we shipped over 100 improvements to the product in Q3, an incredibly fast pace. Most importantly, AI Mode is already driving incremental total query growth for Search. Philipp will talk more about monetization and share how AI is helping people connect with businesses and shop on Search. Next, Google Cloud. Our complete enterprise AI product portfolio is accelerating growth in revenue, operating margins and backlog. In Q3, customer demand strengthened in 3 ways. One, we are signing new customers faster. The number of new GCP customers increased by nearly 34% year-over-year. Two, we are signing larger deals. We have signed more deals over $1 billion through Q3 this year than we did in the previous 2 years combined. Third, we are deepening our relationships. Over 70% of existing Google Cloud customers use our AI products, including Banco BV, Best Buy and FairPrice Group. As we scale, we are diversifying revenue. Today, 13 product lines are each at an annual run rate over $1 billion. And we are improving operating margin with highly differentiated products built with our own technology. This deep product differentiation starts with our AI infrastructure. We have a decade of experience building AI accelerators and today, offer the widest array of chips. This leadership is winning customers like HCA Healthcare, LG AI Research and Macquarie Bank, and it's why 9 of the top 10 AI labs choose Google Cloud. We are also the only cloud provider offering our own leading generative AI models including Gemini, Imagen, Veo, Chirp and Lyria. Adoption is rapidly accelerating. In Q3, revenue from products built on our generative AI models grew more than 200% year-over-year. Over the past 12 months, nearly 150 Google Cloud customers each processed approximately 1 trillion tokens with our models for a wide range of applications. For example, WPP is creating campaigns with up to 70% efficiency gains. Swarovski has increased e-mail open rates by 17% and accelerated campaign localization by 10x. Earlier this month, we launched Gemini Enterprise, the new front door for AI in the workplace, and we are seeing strong adoption for agents built on this platform. Our packaged enterprise agents in Gemini Enterprise are optimized for a variety of domains, are highly differentiated and offer significant out-of-box value to customers. We have already crossed 2 million subscribers across 700 companies. Next, YouTube. In the living room, YouTube has remained #1 in streaming watch time in the U.S. for more than 2 years, according to Nielsen. Last month marked YouTube's first time as a live NFL broadcaster. This exclusive global broadcast live from Brazil drew more than 19 million fans and set a new record for most concurrent viewers of a live stream on YouTube. YouTube Shorts also continues to perform well. In the U.S., Shorts now earn more revenue per watch hour than traditional in-stream on YouTube. At our Made on YouTube event, we rolled out a number of AI-powered features that are helping create a supercharged creation and build their businesses. AI is now streamlining the entire content creation workflow from generated video tools and more efficient editing to AI-powered insights that help creators optimize their channels. We are also using AI to expand monetization, automatically identifying products to make their videos more shoppable. Philipp will discuss in more detail. And finally, Waymo, next year Waymo aims to open service in London, and they are working to bring service to Tokyo. They've also announced expansions to Dallas, Nashville, Denver and Seattle and secured permission to operate fully autonomously at San Jose and San Francisco Airports. Autonomous testing continues to scale in New York City. The new Waymo for Business allows enterprises to offer Waymo as a work travel option. And we launched Waymo teens accounts in Phoenix this summer. We are pleased to see usage steadily increase with positive feedback from teens and their parents alike. Waymo's growth and momentum are strong, and 2026 is shaping up to be an exciting year. Overall, a milestone quarter, the incredible work of our teams is driving momentum across the board and our leadership in AI positions us so well for the opportunity ahead. I want to thank all of our partners and our employees for their hard work and an excellent Q3. With that, I'll turn it over to Philipp. Philipp Schindler: Thanks, Sundar, and hello, everyone. I'll quickly cover performance for Google Services for the quarter, then structure the rest of my remarks around the great progress we're delivering across search, ads, YouTube and partnerships. Google Services revenues were $87 billion for the quarter, up 14% year-on-year driven by accelerated growth in Search and YouTube, partially offset by year-on-year decline in network revenues. Adding some further color to our results. The 15% increase in Search and other was led by growth across all major verticals with the largest contributions from retail and financial services. YouTube saw similar performance across verticals. Its 15% growth in advertising revenues was driven by direct response followed by brand. Starting with Search and other revenues, which delivered over $56 billion in revenue for the quarter. As Sundar mentioned, AI is driving an expansionary moment and transforming how people use Google Search. Our investments in new AI experiences, such as AI Overviews and AI Mode, continued to drive growth in overall queries, including commercial queries, creating more opportunities for monetization. These AI experiences are enhancing how people connect with businesses and shop on Search. We recently added shopping capabilities in AI Mode, which now help people shop conversationally in Search, and we expanded try-on capabilities to more clothing items, now available to anyone in the U.S. Lastly, we're making it easier for consumers to benefit from deals through new loyalty offerings like personalized annotations on organic results and ads. Looking at monetization. Businesses can now tap into our most powerful AI search experiences. Using our most advanced AI models, we can understand and predict intent like never before, unlocking entirely new commercial pathways to provide valuable new consumer connections and helping us monetize even more efficiently. Rolled out globally in September, AI Max and Search is already used by hundreds of thousands of advertisers, currently making it the fastest-growing AI-powered search ads product. In Q3 alone, AI Max unlocked billions of net new queries. By delivering the most relevant ad across surfaces and matching advertisers against additional queries they weren't reaching before, AI Max helps advertisers discover new customers at the exact moment they need their product or service. Kayak, for example, look to grow conversions while staying within their ROAS goals. After turning on AI Max and Search, they grew their conversion value by 12% in early tests. We continue to infuse generative AI capabilities at every step of the marketing process. We rolled out Imagen 4 in Asset Studio and Product Studio, helping businesses produce more and better creatives. On the measurement front, we enriched the model supporting Meridian, our marketing mix model, with additional variables, and more granular reporting in PMax is making bidding more effective. Financial services company SoFi has been using PMax to meet its ambitious growth targets and help drive a 39% improvement in its conversion volume year-over-year. Moving to YouTube, where we saw accelerated revenue growth. Our recommendation systems are driving robust watch time growth in our key monetization areas like shorts and living room. As we leverage Gemini models, we're seeing further discovery improvement. On direct response, we're excited about the growth in revenue we're seeing, especially from small and medium advertisers adopting demand gen. We also improved performance on demand gen with over 100 launches helping to increase conversion value by more than 40% for advertisers using target-based bidding on YouTube. The retail vertical continues to lead our growth on YouTube with demand gen helping us further monetize shopping-related categories. Looking at the living room, our long-term bet, more advertisers are adopting interactive direct response ads, leading to an annual revenue run rate exceeding $1 billion globally for this format. For our viewers, we continue to give fans greater access across sports, while tapping into the best of YouTube's product innovation and creator-led content. Sundar mentioned that we expanded our NFL partnership with our first-ever exclusive global broadcast of an NFL game. Brands love the opportunity, and we sold all our ad inventory within a couple of weeks. Looking at creators. A significant force behind the thriving YouTube creator economy is the collaboration between creators and brands. Tools like direct linking to deals, websites and shorts and swappable brand segments in long form will soon help creators show how they deliver great value for brands. Thanks to a collaboration with Dude Perfect, Comcast, Xfinity drove an 8% search lift, beating other Xfinity ads, recall lift on shorts by 34%. At the same time, it decreased the cost per lifted user by 50% when compared to the next most efficient ad. We continue to invest in AI-powered features that are helping creators supercharge creation and build their businesses. with Veo 3 integration and speech to song, creators go from idea to iteration quicker, and new channel insights help them better understand performance. Ending on YouTube with our subscriptions product. We're also seeing momentum with strong growth in offerings such as YouTube Music and Premium and YouTube TV. We're also applying Gemini internally to help us serve customers with increased speed, intelligence and efficiency. Our sales teams use Gemini enriched with ads knowledge to streamline customer interactions. This increased productivity by over 10% led to hundreds of millions in incremental revenue and frees up sellers to engage with more customers at a deeper, more strategic level. In our customer support division, Gemini-powered solutions have managed over 40 million customer sessions so far this year and resolved hundreds of thousands of customer inquiries, and we're just getting started. As always, I'll wrap with the progress we're seeing across partnerships where our customers tap into the strength and breadth of Google's products to accelerate their transformation. Revolut, the global financial services company, leverages Google Cloud's Vertex AI platform and Gemini models to help power its advanced customer service chatbot, develop new hyper-personalized financial products and offer predictive insights. Revolut is also increasing its presence on YouTube adopting Veo 3 for personalized creatives, making Google a key ads partner for delivering growth and launching new markets. In closing, I'd like to thank Googlers everywhere for their contributions to our success and as always, to our customers and partners for their continued trust. And of course, a huge thanks to all of you as we celebrate 25 years of Google Ads. Anat, over to you. Anat Ashkenazi: Thank you, Philipp. My comments will focus on year-over-year comparisons for the third quarter, unless I state otherwise. I will start with results at the Alphabet level and will then cover our segment results. I'll end with some commentary on our outlook for the fourth quarter of 2025. We had an outstanding quarter in Q3, continuing the strong momentum we've had throughout the year, delivering double-digit revenue growth across Search and YouTube advertising, subscriptions, platforms and devices, and Google Cloud. Consolidated revenue reached $102.3 billion, a 16% year-over-year increase or 15% in constant currency. Total cost of revenue was $41.4 billion, up 13%. TAC was $14.9 billion, up 8%. Other cost of revenues was $26.5 billion, up 16%, with the increase primarily driven by content acquisition costs largely for YouTube, followed by depreciation and other technical infrastructure operations costs. Total operating expenses increased 28% to $29.7 billion. R&D expenses increased by 22%, driven by compensation, depreciation expenses related to our AI efforts. Sales and marketing expenses were flat, and G&A expenses increased meaningfully, primarily due to the $3.5 billion charge related to the European Commission fine mentioned in the earnings press release. Operating income increased 9% this quarter to $31.2 billion, and operating margin was 30.5%. Excluding the EC fine, operating income increased 22%, and operating margin was 33.9%. Operating margin benefited from strong revenue growth and continued efficiencies in our expense base, offset by the legal charge and a significant increase in depreciation expense. Other income and expenses was $12.8 billion, primarily due to unrealized gains in our nonmarketable equity securities portfolio. Net income increased 33% to $35 billion, and earnings per share increased 35% to $2.87. We generated free cash flow of $24.5 billion in the third quarter and $73.6 billion for the trailing 12 months. Free cash flow in Q3 benefited from strong operating cash flow and recent tax changes regarding the timing of when research and development costs are expensed and assets are depreciated. This was partially offset by higher CapEx. We ended the quarter with $98.5 billion in cash and marketable securities. Turning to segment results. Google Services revenues increased 14% to $87.1 billion, reflecting strength in Google Search, YouTube advertising and subscriptions. Google Search and other advertising revenues increased by 15% to $56.6 billion, representing another robust quarter with continued growth across all major verticals with the largest contributions from retail and financial services. YouTube advertising revenues increased 15% to $10.3 billion driven by direct response advertising, followed by brand. Network advertising revenues of $7.4 billion were down 3%. Subscriptions, platforms and devices revenues increased 21% this quarter to $12.9 billion, driven by very strong growth in both YouTube and Google One subscriptions. Google Services operating income increased 9% to $33.5 billion. Operating margin declined year-over-year to 38.5% as healthy revenue growth and continued efficiencies in our expense base were offset by the impact of the EC fine, which was fully reflected in the Google Services segment. Turning to the Google Cloud segment, which again delivered very strong results this quarter as cloud continued to benefit from our enterprise AI optimized stack, including our own custom TPUs and our industry-leading AI models. Cloud revenue increased by 34% to $15.2 billion in the third quarter, driven by strong performance in GCP, which continued to grow at a rate that was much higher than Cloud's overall revenue growth rate. GCP's growth was driven by enterprise AI products, which are generating billions in quarterly revenue. We had strong growth in enterprise AI infrastructure and enterprise AI solutions, which benefited from demand for our industry-leading models, including Gemini 2.5. Core GCP was also a meaningful contributor to growth. And we had double-digit growth in Workspace, which was driven by an increase in average revenues per seat and the number of seats. Cloud operating income increased by 85% to $3.6 billion, and operating margin increased from 17.1% in the third quarter last year to 23.7% this quarter. The expansion in Cloud operating margin was driven by strong revenue performance and continued efficiencies in our expense base partially offset by higher technical infrastructure usage costs, which includes depreciation expense and other operations costs such as energy. Google Cloud's backlog increased 46% sequentially and 82% year-over-year, reaching $155 billion at the end of the third quarter. The increase was driven primarily by strong demand for enterprise AI. As Sundar mentioned earlier, Cloud has signed more billion-dollar deals in the first 9 months of 2025 than in the past 2 years combined. In Other Bets, revenues were $344 million, and operating loss was $1.4 billion in the third quarter. Within Other Bets, we continue to allocate more resources to businesses like Waymo, where we see opportunities to create substantial value. With respect to CapEx, in the third quarter, our CapEx was $24 billion. The vast majority of our CapEx was invested in technical infrastructure with approximately 60% of that investment in servers and 40% in data centers and networking equipment. In Q3, we returned capital to shareholders through repurchases of stock of $11.5 billion and dividend payments of $2.5 billion. Turning to our outlook. I would like to provide some commentary on factors that will impact our business performance in the fourth quarter of 2025 as well as an updated outlook for CapEx for the year. First, in terms of revenues, we're pleased with the overall momentum of our business. At the current spot rates, we could see an FX tailwind to our revenues in Q4. However, the volatility in exchange rates could affect the impact of FX on Q4 revenues. As for our segments, in Google Services, year-over-year comparisons in advertising will be negatively impacted by the strong spend on U.S. elections in the fourth quarter of 2024, particularly on YouTube. In Cloud, demand for our products remains high as evidenced by the accelerating revenue growth and the $49 billion sequential increase in Cloud backlog in Q3. In GCP, we see strong demand for enterprise AI infrastructure, including TPUs and GPUs, enterprise AI solutions driven by demand for Gemini 2.5 and our other AI models, and core GCP infrastructure and other services such as cybersecurity and data analytics. As I've mentioned on previous earnings calls, while we have been working hard to increase capacity and have improved the pace of server deployments and data center construction, we still expect to remain in a tight demand-supply environment in Q4 and 2026. Moving to investments. We're continuing to invest aggressively due to the demand we're experiencing from Cloud customers as well as the growth opportunities we see across the company. We now expect CapEx to be in the range of $91 billion to $93 billion in 2025, up from our previous estimate of $85 billion, keeping in mind that the timing of cash payments can cause variability in the reported CapEx number. Looking out to 2026, we expect a significant increase in CapEx, and we'll provide more detail on our fourth quarter earnings call. In terms of expenses, first, as I've mentioned on the previous earnings calls, the significant increase in our investments in technical infrastructure will continue to put pressure on the P&L in the form of higher depreciation expenses and related data center operations costs such as energy. In the third quarter, depreciation increased $1.6 billion year-over-year to $5.6 billion, reflecting a growth rate of 41%. Given the overall increase in CapEx investments, we expect the growth rate in depreciation to accelerate slightly in Q4. Second, we expect sales and marketing expenses to be more heavily weighted to the end of the year in part to support product launches and the holiday season. Q3 was a strong quarter, and we're excited with the adoption of our AI products helped by a rapid pace of innovation and great execution by our teams. This translated into strong momentum in Search, YouTube ads, subscription, platforms and devices in Cloud, resulting in our first $100 billion-plus quarter. Now Sundar, Philipp and I will now take your questions. Operator: [Operator Instructions] Our first question comes from Brian Nowak with Morgan Stanley. Brian Nowak: The first one maybe for Philipp or Sundar. It's on agentic e-commerce and agentic travel. There's a lot of external Wall Street discussion about agentic e-commerce potentially monetizing at a lower rate than search. So the question is what factors are you most focused on to sort of ensure a smooth transition for your search business and for your advertisers as you move over to a more agentic world? And the second one, Sundar, is on Waymo. How far are we from an integration of Waymo into more of the core Gemini capabilities and the users on the platform taking your user data of where I'm going, what hotel I'm staying at, what airport I'm staying at and having integrated that into Waymo? If you can actually have users use their profiles to pre-schedule Waymos, how far off is that? What do we have to do? Philipp Schindler: Brian, great question. This is all early, but we see agentic experiences really as additive to the way people seek information. It helps us answer people's tough questions. It helps us -- it helps people get stuff done, and it helps businesses in the process. And we're working on multiple agentic experiences across key verticals such as travel, commerce, shopping and so on, and we're paying a lot of attention to creating a seamless user experience but also to the fact that we need to integrate different partner ecosystems in a way that it creates value for them. And by the way, we're also working closely with a lot of our partners on the other side through our cloud services to improve their own agentic experiences. And so maybe we go a little deeper on the shopping side where we actually use AI already very actively to improve the shopping experience. As you know, we launched a more visual experience on AI Mode. That gives people a much more intuitive conversational way to shop. You can simply describe what you're looking for now like the way you talk to a friend, and we'll show you the visual shopping results. And then we think about building an agentic shopping future and it has to be one, again, that benefits both users and merchants here. And you know that AIO, we also introduced new agentic checkout, which will let shoppers use like agentic AI to buy products from merchant sites and so on. We have a partnership with PayPal to help merchants build agentic commerce experiences. We have a new open protocols for agent-to-agent transactions and so on and so on. Sundar Pichai: And Brian, on Waymo, a great question. I was reflecting, I think, on the exact same topic. I'm scheduled to meet with the team to do a review on it in a few weeks out. Look, it is an exciting time. Waymo clearly is scaling up, particularly in 2026. And I think the possibility, as you said, of Gemini, particularly with the multimodal experience as well as services like YouTube, I think there's a real opportunity to make the in-car experience dramatically better. Definitely something we are excited about, and you'll see newer experiences in 2026 for sure. Operator: Our next question comes from Doug Anmuth with JPMorgan. Douglas Anmuth: Philipp, maybe you can just talk more about some of the drivers of the core search strength. And I guess, in particular, when you think about AI Overviews and AI Mode, we know that query growth is accelerating. But can you help us understand from there kind of what happens in terms of clicks per query and conversion rates and pricing in these AI-driven search formats? And then, Anat, can you talk about where you see opportunities in the core cost base as you look to make room to absorb the rapid growth in infrastructure and depreciation going forward? Philipp Schindler: So let me give you a bit of vertical color first. In Q3, Search and other revenues again delivered growth across all major verticals, as we said, was from retail and financial services. Health care was also a contributor to the growth here. Our new AI experiences, you mentioned the AI Overviews, AI Mode, continued to drive growth in overall queries, including commercial queries, really creating more opportunities for monetization. AI Overviews is scaling up and working for our entire user base. We're now scaled to over 2 billion users here, and we're continuing to expand ads in AI Overviews in English to more countries, across desktop, mobile and so on. And as I've shared before, for AI Overviews, even at our current baseline of ads below and within the AI's response, overall, we see the monetization at approximately the same rate. So over time, we're excited about the opportunity of richer experiences in AI Mode and AI Overviews to basically open up then the opportunity for also much richer placements. And I think as I've said on a prior call, we manage the business to drive great outcomes for our users and an attractive ROI for advertisers. We don't really manage to paid clicks and CPC targets. But as you will see in the 10-Q, paid clicks were up 7% year-on-year and CPCs were up 7% year-on-year. Anat Ashkenazi: Doug, and to your question around where else can we see more opportunity for efficiency and productivity, and I think you heard me say before, this is not a onetime type of effort but rather an ongoing way in which we manage the business, and the key here is that the more we drive productivity across our business, the more we can invest in the business for growth and obviously continue to drive improvement in the P&L. Some of the areas are things that you've heard us talk about in the past such as moderating the pace of head count growth, optimizing real estate footprint but also as we invest more and more in our technical infrastructure, ensuring that we are optimizing that build-out and the overall technical infrastructure we have that a lot of the data centers, for example, that we build ourselves, so they're optimized and we make sure we do them in the most efficient way. Sundar mentioned on one of the previous calls the productivity associated with leveraging AI for Google. So this -- the example, the percent of code, now nearly half of all code generated by AI, that's a way for us to leverage AI to drive further productivity across the business. And obviously, we always look at making sure that when we provide services or products that we get the right economics and the right value for what we provide. So the one good example is Shorts, which has a lower revenue share than in stream that helps to improve some of our gross margins. So this is an effort. We have ongoing -- I've mentioned in the past that we have a headwind with depreciation, obviously, increasing alongside our CapEx increase. So we're -- we have efforts across the organization to ensure we run the business in the most disciplined and productive way while continuing to invest for future growth. Operator: Our next question comes from Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe 2 if I could. Sundar, when you think about your custom silicon efforts across the organization, can you reflect a little bit about the opportunity set you see with each passing generation of custom silicon both in terms of driving operating efficiencies inside the organization and potentially increased monetization efforts around those outside of the organization? Second question would be for Philipp. Obviously, we could see the YouTube advertising revenue number in the reported results. Can you reflect little bit about the scaling of the subscription side of YouTube offerings and how the 2 parts together maybe represent an interesting framework in thinking about the monetization side of YouTube increasingly being a mix of both ads and subscription? Sundar Pichai: Eric, overall, I would say, we are seeing substantial demand for our AI infrastructure products, including TPU-based and GPU-based solutions. It is one of the key drivers of our growth over the past year. And I think on a going-forward basis, I think we continue to see very strong demand, and we are investing to meet that. I do think a big part of what differentiates Google Cloud effectively, we are the -- we have taken a full -- deep full stack approach to AI. So we are -- and that really plays out, right? We are the only hyperscaler who is really building offerings on our own models, and we are also highly differentiated on our own technology. So to your question, I think that does give us the opportunity to continue driving growth in operating margins in Cloud as we have done in the past. And also, I think from a revenue, sets the infrastructure portion of our business to be a growth driver looking ahead as well. Philipp Schindler: And to the second part of your question, look, just taking a quick step back, we often describe YouTube's business as a flywheel. Obviously, it, first of all, starts with the creators, and we have significantly invested here to be the place that YouTube creators really call their home. That's a big piece of it, the #1 piece. Viewers, of course, YouTube has billions of monthly logged-in users and every day, people watch billions of hours of video. And we talked about how our recommendation systems are driving robust watch time growth and so on and so on. So on the monetization side, YouTube's business is really powered, I would say, at, let's call it, a twin engine monetization strategy, combining its advertising business and its growing subscription services. Both YouTube ads and subscription saw strong growth this quarter. And so looking at YouTube Music and Premium, users are, on average, delivering more value to creators, to music, media partners and YouTube itself than even ad-supported users do. So in other words, on average, a YouTube Music and Premium subscriber generates a meaningful higher gross profit than they were simply an ad-supported users. Fans come from all over the world. You know this and this engagement through ads and subscription generates YouTube's revenues and funds what I started with, these creators here and this then drives more viewership and engagement and so on. And that's the flywheel. And so our priority continues like this growth cycle. We're happy with this twin engine monetization strategy. Operator: Our next question comes from Mark Shmulik with Bernstein. Mark Shmulik: Sundar, with the strong adoption of Gemini, AI Mode and Overviews across the user base, are there any meaningful differences to call out kind of around the behavior and depth of engagement for those users across the entire Google ecosystem. And then, Philipp, I know we kind of asked this most quarters, but I'm curious kind of what some of the adoption you've seen around AI Overviews and Mode, how you see the economics of search evolving with the higher commercial and total query volume and how it kind of compares against the incremental cost to deliver these results. Sundar Pichai: Mark, look, I think obviously, AI Overviews are a natural part of the Google experience, and so engagement is very, very high. I would say AI Mode, you have varied cohorts that are people who are casual users, who are checking it out. And then -- but there's a core group, which really likes AI Mode and is passionate about it, and so you see the early adopters. The product is resonating very strongly, and they are seeking it out. So I think that's how I would highlight the difference. With Gemini, again, a set of engaged user base who are seeking out the product and so on, but across the board, I think the trajectory has been we are definitely seeing in each of those use cases, a set of early adopters and then more people coming in and the people who are using it continue to use it more over time and report high user satisfaction. So I would say the underlying product metrics are pretty encouraging to see as well. Philipp Schindler: Look, into the second part of your question, I think we covered before -- Sundar covered the query development. And as I've just said before, for the AI Overviews, even at our current baseline of ads, right, whether above, below and within the AI response, overall, we see the monetization at approximately the same rate. And this is a great baseline for further innovation. We talked about this. We're excited about where this can go. And on the AI Mode side, we're testing as an AI Mode, and we'll continue to test and learn before we expand this any further. So that's in combination with what we mentioned about the commercial query overall development. I think we're in a good place here. You could also argue that on queries, that historically have not been well monetized. We think there is a potential opportunity here where you can obviously imagine that we can build this out with smart AI integration. Operator: Our next question comes from Michael Nathanson with MoffettNathanson. Michael Nathanson: I have 2, 1 for Philipp, 1 for Anat. Philipp, it's clear that when people use AI Mode, the query length is much longer. Could you talk about how that longer length may be impacting your ability to drive ROAS and what you're seeing in terms of some of the early -- the benefits of maybe longer query length? And then, Anat, you came to Alphabet from a pharmaceutical company. You've been there more than a year. Can you talk a bit about how you're working to look at ROIC internally? And what early signs are you seeing that gives you confidence that the spending is really driving better returns longer term? Philipp Schindler: Look, as Sundar shared, AI Mode now has over like 75 million daily active users in the U.S. and we see a strong and consistent week-over-week growth in usage since launch, and the queries doubled over the quarter. And as I also mentioned, we're testing ads in AI Mode. We'll continue to test before we expand any further. It's really too early to tell and go into any of the details of that testing. Anat Ashkenazi: Yes. And the question related to ROIC and how we look at just overall our business and where do we see early signs that are encouraging, so first, I would say it's not just early signs because we're seeing returns, obviously, in the Cloud business. You've heard us talk about the fact that we already are generating billions of dollars from AI in the quarter. But then across the board, we have a rigorous framework and approach by which we evaluate these long-term investments that are meant to do 2 things. One is to ensure we have -- we built a resilient growth profile for the company, but also that we meet the demand of the customers that we have here in the more near and midterm. So we look at it across the business. We evaluate the potential return for each one of them whether it's in Cloud, and I think that's more visible, obviously, externally given that you see the revenue generated and the fact that we're unable to meet, at this point, customer demand. We have more demand than we have supplied. In our ads business, you see the fact that we're investing to transform search, as you heard from Philipp and Sundar, with AIO and AI Mode. So we're excited to see what our investments are -- how our investments are helping advertisers as well; YouTube, where it's helping power recommendations. So we're -- when we make a decision on investment in the long term, we go through a very rigorous process of assessing what the return could be and over what time frame we will see that return to give us the high level of confidence to then invest and make those investments for the long term. So it's a very rigorous approach. Operator: Our next question comes from Ross Sandler with Barclays. Ross Sandler: Great. About 20% of Google's search queries are commercial historically, and you've talked a bunch on this call about how AI Overviews are kind of expanding the breadth of queries. Could you talk about how new products from the monetization side, like AI Max, are potentially increasing the percent of commercial queries? Philipp Schindler: So look, AI Max, and I mentioned this in my call before, improves the ability for advertisers to target a wider range of queries. Separately, there is the question of whether queries actually increase with AI Mode, and Sundar actually talked about it and mentioned the opportunity that he sees here. So I think it's important to separate those 2 things. And I personally also see this, what I just said in my last remarks, that I think, over time, there's an opportunity to actually take, let's say, queries that are not fully commercial but could have an adjacent commercial relationship to basically expand this into more attractive ads offerings without -- while really creating a really interesting user experience at the same time. Sundar Pichai: Yes. And the only thing I would add is just stepping back broadly, I think AI Overviews and AI Mode are dramatically improving search. We can see it in user satisfaction, user quality, all our metrics, and they're universal in the nature. They apply across the universality of human needs. So I think we are seeing it in breadth. And so naturally, over time, that will apply to commercial categories as well. Operator: Our next question comes from Ken Gawrelski with Wells Fargo. Kenneth Gawrelski: Two questions, please. First, it appears more and more clear that all the new modes -- Google with Gemini Overview -- AI Overviews, AI Mode, even ChatGPT is growing the addressable market for engagement and search-like behavior. Could you talk about what gives you confidence that it will also grow the addressable market for marketing activity and overall revenue associated with that behavior? That's question one. And question two is just more about as you think about AI Mode, AI Overviews and traditional Google Search, how do you think -- do you see a world in 12 to 24 months, those all will exist? And does the user eventually pick what mode they want? Is -- does the algorithm pick the mode? Can you talk a little bit about how you think that will progress over the next 12 to 24 months? Sundar Pichai: Ken, thanks. Look, I think it's a dynamic moment, and I think we are meeting people in the moment with what they are trying to do. Obviously, search is evolving, and between AI Overviews and AI Mode, I think we are able to kind of give that range of experience for people in this moment. Over time, you will expect us to -- you can expect us to make the experiences simpler in a way that, just like we did universal search many, many years ago, we may have done text search, image search, video search, et cetera, and then we kind of brought it together as universal search. So you will see evolutions like that, but I think we want to be sensitive to making sure we are meeting the users in terms of what they are looking for. I think Gemini allows us to build a more personal, proactive, powerful AI assistant for that moment. And I think having the 2 surfaces search in Gemini allows us to really serve users across the breadth of their needs. And -- but over time, we will thoughtfully look for opportunities to make the experience better for users. And to the first part, I would broadly say, as I do think we've been consistently saying for a while now, this is an expansionary moment, and we are seeing people engage more. And I think when they do that, naturally, a portion of that information for users, those journeys are commercial in nature. So I would expect that to play out over time as well. Operator: Our last question comes from Justin Post with BAML. Justin Post: Great. Just a couple. Sundar, I think you mentioned Gemini 3 is coming. Maybe you can comment on the pace of innovation in frontier models. Is there still just a tremendous amount of innovation? Or is it slowing at all? And then you mentioned a number of large deals signed in the last 9 months for cloud, which is great. Any changes in the economics of these deals as far as long-term profitability? Anything we should be aware of? Sundar Pichai: Thanks, Justin. The first on the on the pace of frontier model research and development. Look, I think 2 things are both simultaneously true. I'm incredibly impressed by the pace at which the teams are executing and the pace at which we are improving these models. But it also is true at the same time that each of the prior model you're trying to get better over is now getting more and more capable. So I think both the pace is increasing, but sometimes we are taking the time to put out a notably improved model, so I think -- and that may take slightly longer. But I do think the underlying pace is phenomenal to see. And I'm excited about our Gemini 3.0 release later this year. On cloud, I would point out as a sign of the momentum, I think the number of deals greater than $1 billion that we signed in the first 3 quarters of this year are greater than the 2 years prior. So we are definitely seeing strong momentum, and we are executing at pace. And in terms of long-term economics, I would say that, again, us being a full stack AI player and the fact that we are developing highly differentiated products on our own technology, I think, will help us drive a good trajectory here as you have seen over the past few years. Operator: And that concludes our question-and-answer session for today. I'd like to turn the conference back over to Jim Friedland for any further remarks. James Friedland: Thanks, everyone, for joining us today. We look forward to speaking with you again on our fourth quarter 2025 call. Thank you, and have a good evening. Operator: Thank you, everyone. This concludes today's conference call. Thank you for participating. You may now disconnect.

88天前Insight Analytics约5分钟阅读

AMP.MI 2025 Q3 财报电话会议

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ODFL 2025 Q3 财报电话会议

Operator: Good morning, and welcome to the Old Dominion Freight Line Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Jack Atkins. Please go ahead. Jack Atkins: Thank you, Jason, and good morning, everyone. Welcome to the Third Quarter 2025 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today through November 5, 2025, by dialing 1 (877) 344-7529, access code 1478106. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. As a final note before we begin, we welcome your questions today, but ask in fairness to all that you limit yourself to just one question at a time before returning to the queue. At this time, for opening remarks, I'd like to turn the call over to Marty Freeman, our President and Chief Executive Officer. Marty, please go ahead, sir. Kevin Freeman: Good morning, and welcome to our third quarter conference call. With me on the call today is Adam Satterfield, our CFO. And after some brief remarks, we will be glad to take your questions. Old Dominion's third quarter financial results reflect continued softness in the domestic economy. Our revenue declined 4.3% compared to the third quarter of 2024 due primarily to a 9% decrease in our LTL tons per day, which was partially offset by ongoing improvement in our yields. We continue to operate efficiently during the quarter and were able to manage our direct variable costs as a result. The deleveraging effect from the decrease in revenue, however, drove an increase in our overhead expenses that resulted in the increase in our operating ratio to a 74.3%. As we navigate through the continues to be a challenging macro environment, we remain focused on what we can control. I'm proud of how our team continues to execute the core elements of our long-term strategic plan as we work to ensure that Old Dominion is the best positioned carrier in our industry to respond to an inflection in the operating environment when it does materialize. As we have said many times before, our long-term strategic plan includes an ongoing focus on delivering superior service at a fair price. The other key elements of our strategy include investing in new service centers, equipment, technologies and most importantly, our people. Our past financial results have proved that investing in our sales through the economic cycle can pay dividends over the long term. An example of how this is happening is we've been able to control our direct variable costs this year despite the lack of network density associated with the decrease in our volumes. In fact, our direct variable costs are relatively consistent as a percent of revenue to when we produced company record operating results back in 2022. While we are -- while there are many factors influencing these costs, we have implemented new workforce planning and dockyard management tools as well as P&D and line-haul route optimization software, which have helped drive improvements in our productivity even as we have faced headwinds from lower density. Importantly, we have done this while maintaining the highest standard of service for our customers, and I'm pleased to report that once again provided our customers with 99% on-time service and a cargo claims ratio of 0.1% during the third quarter. That said, we also know that providing our customers with superior service more than simply picking up and delivering the freight on time and without damages. Mastio & Company measures 28 different service and value-related attributes during its annual survey of shipper and logistic professionals. We were honored earlier this month to be named the #1 national LTL provider for the 16th consecutive year. In addition, Old Dominion maintained a sizable advantage against our competition. And we finished first in 23 of the 28 categories evaluated by Mastio. I would like to congratulate the OD family of employees on this accomplishment. Every member of the OD family is incredibly proud of this recognition, and we also remain highly motivated to continue providing our customers with best-in-class service every single day. We know that consistency of our service creates value for our customers. It also differentiates us from the competition. Our customers know that they can count on us to help keep promises through the ups and downs of the economic cycle, which means they can keep their commitments to their own customers. Importantly, our consistent service also supports our disciplined approach to yield management. Over the years, we have built a unique culture centered on core elements of our strategic plan, the cornerstone of which is providing our customers superior service at a fair price. This has created an unmatched value proposition for our customers and allowed us to win more market share over the past decade than any other LTL carrier. We will continue to focus on delivering best-in-class service to our customers while also operating efficiently and maintaining our disciplined approach to managing our yields. As a result, we are confident in the ability to win profitable market share and increase shareholder value over the long term. Again, thank you for joining us this morning, and now Adam will discuss our third quarter in greater detail. Adam Satterfield: Thank you, Marty, and good morning. Old Dominion's revenue totaled $1.41 billion for the third quarter of 2025, which was a 4.3% decrease from the prior year. Our revenue results reflect a 9.0% decrease in LTL tons per day that was partially offset by a 4.7% increase in LTL revenue per hundredweight. On a sequential basis, our revenue per day for the third quarter decreased 0.1% when compared to the second quarter of 2025, with LTL tons per day decreasing 2.9% and LTL shipments per day decreasing 1.6%. For comparison, the 10-year average sequential change for these metrics includes an increase of 2.9% in revenue per day, an increase of 0.5% in the LTL tons per day and an increase of 1.9% in LTL shipments per day. The monthly sequential changes in LTL tons per day during the third quarter were as follows: July decreased 1.9% as compared to June; August decreased 1.8% as compared to July; and September increased 1.3% as compared to August. The 10-year average change for these respective months is a decrease of 2.9% in July, an increase of 0.4% in August and an increase of 3.3% in September. For October, our current month-to-date revenue per day is down approximately 6.5% to 7% when compared to October 2024, with a decrease of 11.6% in our LTL tons per day. As usual, we will provide actual revenue related details for October in our third quarter Form 10-Q. Our operating ratio increased 160 basis points to 74.3% for the third quarter of 2025 as the decrease in revenue had a deleveraging effect on many of our operating expenses. Our overhead costs, which are primarily fixed in nature, increased 160 basis points as a percent of revenue due to this effect and the ongoing execution of our capital expenditure plan. These factors contributed to the 70 basis point increase in our depreciation costs as a percent of revenue. Miscellaneous expenses as a percent of revenue also increased 40 basis points due primarily to changes in gains and losses on the disposal of property and equipment between the periods compared. While our remaining overhead costs increased as a percent of revenue, these expenses in aggregate were lower than the third quarter of 2024 as we continued to exercise excellent control over our discretionary spending. Our direct costs as a percent of revenue were flat compared to the third quarter of 2024 due to the improvement in yield and continued focus on operating efficiencies. We were pleased that our team was able to effectively match our variable costs with current revenue trends during the quarter. I also believe that we will be able to improve these direct costs even further when we return to a growth environment and benefit from the improvement in network density. Old Dominion's cash flow from operations totaled $437.5 million for the third quarter and $1.1 billion for the first 9 months of 2025, respectively, while capital expenditures were $94 million and $369.3 million for those same periods. We utilized $180.8 million and $605.4 million of cash for our share repurchase program during the third quarter and first 9 months of 2025, respectively, while our cash dividends totaled $58.7 million and $177.2 million for those same periods. Our effective tax rate for the third quarter of 2025 was 24.8% as compared to 23.4% in the third quarter of 2024. We currently expect our effective tax rate to be 24.8% for the fourth quarter of 2025. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time. Operator: [Operator Instructions] And the first question comes from Chris Wetherbee from Wells Fargo. Christian Wetherbee: Maybe Adam, we could start on sort of the October environment. You mentioned tonnage down. I think 11.6% is what you said. Kind of curious what you're seeing from a demand perspective. Obviously, it seems like there's some softness in the first part of October. And then I think you typically give us some help in terms of both top line as well as operating ratio for the forward quarter. So any kind of comments you have just given the context of what we're seeing so far in October around the fourth quarter would be very helpful. Adam Satterfield: Yes. Maybe I'll just start with that because obviously, the operating ratio is going to be impacted by what's going on with revenue. But the average change in our operating ratio from the third to the fourth quarter is a sequential increase of 200 to 250 basis points. As a reminder, that excludes any change in the insurance and claims line item. And as you know, that gets impacted by the annual actuarial study that we conducted in the fourth quarter of each year. But basically, the current trend with revenue, we're starting out. Our tonnage is underperforming seasonality a little bit. But it looks like with our revenue per day performance, we're really just -- I'd say it's a similar -- we continue to trend at this down 6.5% to 7%. That's similar underperformance or would be for the full quarter as what we've seen in the first 3 quarters of the year. So if we continue with that same revenue per day being down 6.5% to 7% for the full quarter, I'd say that we probably expect a sequential increase of about 300 basis points. I would say that we probably ought to put a range on that given the revenue uncertainty and probably go an increase of 250 to 350 basis points. I think if we see some revenue recovery, that could help us get to the low end of the range, which would be right there, 250 bps right at the top end of normal, if you will. But I think just given the continued uncertainty on revenue, if things were to get any worse, which we're not seeing at this point, that would give a little flexibility on the top side. But fortunately, after the performance that we just had in the third quarter, we're at a great starting point as we start off with the fourth quarter performance. Operator: And our next question comes from Jonathan Chappell from Evercore ISI. Jonathan Chappell: Adam, as it relates to salaries, wages and benefits down sequentially as a percentage of revenue, I'm pretty sure you still put in your annual wage increase on September 1. So was this a function of headcount numbers coming down in any type of material manner? And also as we think about the 3Q to the 4Q transition there, if the wage increase did go into effect on September 1, would we expect the usual kind of uplift on that line item as it relates to the OR? Adam Satterfield: Yes. The -- we definitely put a wage increase in effect at the beginning of September as we always do. And as we continue to perform in the -- or operate in the mid-70s, we think that's very appropriate to continue to reward our employees for the outstanding performance, not just from an operating ratio standpoint, but as Marty mentioned, I continue to be extremely proud of the service metrics that we're offering to our customers, the value, and that came through in the 16th straight win of Mastio. But -- so that definitely was in there. We did continue to see our headcount drift down a little bit through the third quarter. As you know, the decrease overall from a total number of full-time employees was down about 6% compared to the third quarter of last year with shipments being down almost 8%. But we expect that we'll continue to see normal attrition as we go through the fourth quarter and probably that headcount continue to drift down a little bit. But that always is something. That's a big driver of that change when I look at the average increase in the operating ratio from the third to the fourth quarter. If you really combine -- I like to combine the salaries, wages and benefits and our total operating supplies and expenses, on average, those 2 main components, they generally increase about 170 basis points. So we continue to have that pressure there. And with revenue pressure, especially continues to get harder and harder if you want to give service at the levels that we do to manage those costs. But that's one reason why we think that the operating ratio will be a little bit higher than our normal sequential change. The other thing is just looking at our overhead costs, we've been averaging somewhere around $310 million of overhead a quarter. And I think it may be a little bit lower than that, probably in the $305 million to $310 million range in 4Q, but that creates 150, 170 or so basis points of pressure as well. So really, I think that, that 300, just to be clear, I mean, that's when we gave a range of 250 to 350 for the operating ratio, it's probably 300 to 350, but I think we can continue to perform. And if we get some -- any type of acceleration on the revenue side, obviously, we just outperformed the normal sequential change from 2Q to 3Q even with revenue pressure. And obviously, we're going to continue to manage costs as tightly as we can in this lower revenue environment as long as it doesn't jeopardize our ability to be able to respond to a growth environment when that does materialize. Operator: Our next question comes from Tom Wadewitz from UBS. Thomas Wadewitz: I wanted to ask you a bit about, I guess, capacity position. So if you could just let us -- kind of tell us where you think you're at on terminal capacity. I think you're kind of normalized. You like to have 20% to 25%. I don't know if your last comments, maybe more 25% to 30% or even beyond that. But if you think about how much excess -- and then it seems to me like with some projects, you kind of hold them off. And so I don't know if you count those in the capacity number where you've kind of made the investment, but you haven't kind of bought up the terminal because you really don't need it. So I guess a kind of broader question is really like, well, where do you stand? But do you go for a period where you maybe spend less CapEx and do less on terminals because even though you're long-term focused, you're just kind of so far beyond what would be normal for you in the terminal position for excess capacity? Adam Satterfield: Yes. We're definitely north of -- our target is generally to have 20% to 25% excess capacity. I'd say we're well north of the 30% at this point and probably even above 35% type of range. So I think it is fair to assume that we'll have lower CapEx for our real estate next year. We haven't fleshed all of that out completely at this point. And some of the capital expenditures that we have, that's in some cases, repair projects. We've got some projects that are already in the works right now that will continue into next year. So that's some that will -- or some spend rather that will always kind of be out there. But I think we're in really good shape with the network where it is. We haven't opened any service centers this year. If you go back over the past couple of years of this freight recession that we've been in, I think we've opened 6 service centers going back to the end of 2022. So we definitely have built up some capacity. We do have several service centers that we've completed construction on, to your point. When we do that, they're ready to be turned into the operation. And so for that reason, we do start depreciating those facilities. So that depreciation -- incremental depreciation expense is already in our numbers, and that's part of the carrying costs of having that capacity availability for our customers. And that's a key part of the value proposition is to always be able to say yes to a customer. And while capacity isn't maybe on everybody's mind right now, it hasn't been that long ago when we've seen periods where the environment does turn, it generally turns very quickly in our industry. And I think we'll see customers' focus go right back to who has the capacity, not just on the service center side, but with labor and with equipment and who can really respond to those growth needs. And I think that is a big part of our value proposition and why we feel like we're better positioned than anyone to respond when the market does eventually inflect back to the positive. But yes, so we have already several service centers in ready reserve, so to speak. We just think it's more appropriate to hold them out versus increasing the number of service centers in operation, which increases line-haul expense, weakens your density even further and puts more pressure on the costs. So it's similar to what we've done in prior cycles before, and I think we'll see those turn on whenever we see the growth come back. Operator: The next question comes from Jordan Alliger from Goldman Sachs. Jordan Alliger: Yes, I wanted to come back to demand a little bit. Obviously, things continue to be fairly weak. But can you maybe give some -- your perspective thinking ahead over the next year or so on inflection timing, what could drive it? Are we getting closer? And what's it going to take to get back to tonnage seasonality on track? Adam Satterfield: Yes, that's a hard one to answer, obviously. We've been ready and waiting for it to turn over the last couple of years, this freight recession, if you look at ISM being below 50 for 32 of the last 35 months, I believe, that's obviously put pressure on everyone, and we haven't been immune to the macroeconomic environment. But I'm really pleased with how we've been able to deal with this decrease in network density in terms of controlling what we can control. And that's the message that we give to the team is control those items, those expenses, control our service first and foremost. And we've obviously been able to do that and be able to keep our variable costs as a percent of revenue, the direct variable costs that is consistent with where we were back in 2022 when we were benefiting significantly from the improvement in the network density. So I think that whenever that inflection happens, and we're confident that it will, we stand ready to be able to put on strong profitable growth. I think that's when our model shines the brightest. I think when you look back at an environment like a 2018 or 2021 when that market turns, I feel confident that we're better positioned than anyone else. And I think going back to the last question about capacity. And again, that's on the service center side, but I think there's a misconception in the market just looking at how the allocation of Yellow's service centers have gone since they filed bankruptcy. We just don't see that there's been a material change in many of the public carriers, total number of service centers when we look at the change from 2022 to the change in where they finished in 2024. So I think there's less capacity out there. And obviously, all of Yellow service centers didn't get sold to market and many were sold outside of the market or remain unsold. So I think what we know was a capacity-constrained environment in 2022 will be even more capacity constrained when we do eventually get into the upcycle. So I think those are the reasons why we feel like we're better positioned than ever to be able to start showing strong profitable growth. Operator: The next question comes from Eric Morgan from Barclays. Eric Morgan: I wanted to, I guess, follow up on the last one on volumes. Obviously, you haven't gotten any help from the macro, and I appreciate all the comments on how you responded and are positioned. But can you just speak to the market share dynamics here just because it does feel like the industry is probably not down quite as much, at least from what we can tell. And I don't know, is this something that can stabilize into next year? Or are we just kind of run rating into another year of down volumes? Adam Satterfield: Yes, Eric, I think that the challenge that we see is that our numbers are just compared to the remaining public carriers. And many of the comparisons leave out the fact that the third largest carrier went bankrupt, and there was a reallocation of that volume. So if you include that carrier in the mix going back to the end of 2022, then the industry numbers look a little bit different than our relative comparison to them as well. So we -- I think we talked about this on the last quarter. The best way that I feel like looking at market share as I look each year when all the carriers' revenues are published in transport topics, and that would include the private carriers as well. And we've been right at 11.8% revenue market share for each of the last 3 years. And that's our strategy is generally in a weak macro environment, we continue to try to maintain market share, maintain our discipline over yields and discipline over our costs. And usually, we come out much stronger on the other side. So I feel confident about that. When will the market change? I mean, that's obviously the big question. I've asked ChatGPT that, and it suggests next year. So who knows? We'll see if AI is right or looking at other economic forecast will prove to be right. But I think that it seems like as we've gone through every quarter this year, the next quarter has been pushed out to show that we would have a full return to normal seasonality. And obviously, we've underperformed seasonality at this throughout each quarter. And based on the starting point with October, I think we'll have a similar underperformance from a revenue per day standpoint, at least sequentially. Typically, the way this would work out was then you start seeing a little increase in demand, you start closing that gap to seasonality, you get back there for a couple of quarters, and then we have significant outperformance. So I'd like to think that when we get into the spring season next year, by then, I think this week, we probably are going to have a good indication of where the macro might go. I mean we get a lot of feedback from customers that continue to have concerns over trade and the impact of the tariff environment. And so if some deal was formed, if you can close that uncertainty loop that many of our customers continue to struggle with, perhaps that's when we'll finally start seeing a little bit of recovery. It was obviously there in the first quarter of this year, there was optimism and those were the couple of months that ISM did go back above 50. So I think that there's that pent-up sort of demand that's hanging out there, but I think we've got to close that trade loop question before we see our customers really get excited about trying to grow their businesses again. But there's puts and takes on all sides with it. I think the tax bill was important, the accelerated depreciation component of that. Hopefully, we'll start seeing some drive to demand. It seems like there's been a few things recently helping on the supply side within the truckload industry. All of those things should help to bring the supply and demand equation back into balance and support our ability to start growing again. But if you just roll normal seasonality out from kind of the current trend where we are, it certainly would lend itself that if we don't have a major inflection that we could be looking at continued declines on a year-over-year basis, at least for the first quarter. And then hopefully, we'll start seeing some compression for there and a true spring recovery, which is what we normally see in our business. Operator: The next question comes from Ravi Shanker from Morgan Stanley. Ravi Shanker: Adam, maybe a couple of follow-ups to what you just said. A, just on October itself, obviously, a lot of questions there. But do you have a sense that the kind of big step down from September to October is something transitory, maybe related to the government shutdown? And from what you see right now, do you think that this continues for the entirety of the fourth quarter? And also, you have mentioned the things happening in the TL market. Obviously, we did see a bunch of volume move out of the LTL market to TL. You guys have always been optimistic that will come back to LTL. Are you starting to see any of that happen at this point, the TL market tightening up a little bit? Adam Satterfield: Yes. Let me see if I can unpack all that, remember every point. But the October, just the focus on tonnage, right now, where the trend would be, that would have us sequentially down 5% versus September. The 10-year average is a 3% decrease. So again, it's consistent, the September performance, which to point out was an increase, which was nice to see after several months of sequential declines, but that was up 1.3%, so 2 points, if you will, 200 basis points below the 3.3% average increase. So it's, I think, a similar underperformance relative to seasonality at the start. And like I mentioned before, if we continue at the same kind of pace of being down, if you carry the 6.5% to 7% decrease throughout the period, that would really be similar underperformance, if you will, for the full quarter from a revenue perspective as what we've been seeing through the year. So I don't think anything has gotten worse per se. It just sort of seems like things have continued on. And frankly, that's what we were expecting with our third quarter revenue. We weren't anticipating an increase, normally see an increase there. We thought we would see revenue at $22 million per day, and that continued through the full quarter. So I think the demand is -- it feels consistent to me. But obviously, we haven't seen the inflection that we've all been sort of waiting for. And you don't typically see that in the fourth quarter. I mean, obviously, at this point, October is 23 workdays out of a 62-workday quarter. So a lot of the trend that we have in October will carry the quarter. And December is always a weak month. So I think a lot of it will be, can we kind of hold pace to a degree with seasonality from a tonnage standpoint, just sort of keep that current trend consistent through the quarter and then be in a position to hopefully start seeing some type of movement upwards when we get into the first quarter of '26, which is when you would -- for the full quarter, our revenue historically is down another 2% in the first quarter. But by the end of that quarter, that's what will be important that we start seeing some improvement there in demand where you see that spring build starting. And so that's just something that, unfortunately, we continue to kind of wait on. Operator: The next question comes from Scott Group from Wolfe Research. Scott Group: Just a follow-up. So you're not seeing with October like a big drop off in government-related activity. That was just sort of just a quick follow-up. And then just like bigger picture, like how are you balancing like long-term pricing discipline versus what's going on with network density? Are we -- are you seeing any change in the competitive dynamic, the pricing environment? Just big picture, I'd love to get your thoughts on that. Adam Satterfield: Yes. That was one of the pieces of Ravi's questions that I kind of missed. But yes, we don't have any direct government business. I think that, again, it seems like demand is consistent, but it's obviously -- October was a little weaker, especially at the start of the month, the past week has been good. But I think there's probably an indirect effect on the overall economy that could be pressuring things there as well. From a pricing standpoint, continue to see general discipline out there. And obviously, we continue to move forward with our increases. We're seeing an increase in yield of about 5% in October, and that's ex fuel. And that's what the change would be if you kind of think about the fourth quarter. If we hit normal seasonality, it would be an increase of right at 5%. So that's kind of our baseline thinking as we go through the period. And I think that having those conversations, obviously, we're in a very competitive environment right now with demand being weak overall for the industry. But we've got a very -- I think, the best sales team in the industry that's out there that's having conversations every day with our customers about the value that we provide. And we have a lot of conversations about service failures that customers may be dealing with that are using other carriers. And so it's up to us and to our sales team to make sure that we can demonstrate value. And I think we've proven that time and time again. And to give the service that we do, our costs are going up every day. We're having more cost inflation this year than what we were originally anticipating, but we've been consistent with the increases that we've asked for across the board. And I think we've been successful there without seeing any major customer loss or anything like that. But I think when you look at an actual performance, our operating ratio, our earnings per share and the relative change, I think a lot gets missed when you see, at least for the public carriers, just a comparison to consensus and things of that nature. But while we don't like seeing our earnings per share being negative like they've been, when I look back at the second quarter and the relative comparison, at least for the, I'd say, 3 public carriers that are stand-alone entities, their earnings per share was down at least double what ours was. And so I think that kind of proves a couple of things, the importance of being disciplined with yields, but also the cost control that we've been able to display throughout the business and really through the past couple of years that protected our operating ratio, protected our earnings and put us in a great spot to be able to grow when the environment is more conducive to growing. Operator: The next question comes from Bascome Majors from Susquehanna. Bascome Majors: Really to follow up on that theme, Adam, if we kind of run seasonality through, it looks like next year could be potentially the fourth consecutive year of tonnage decline. And certainly, you've gotten no help from the market, but that's abnormal in the history of the company. And as you take a step back and I don't know if you have a direct answer to this, but what is the point in this sort of new weaker, more competitive paradigm where you really think about the balance of service, price and volume growth and if you need to twist some of those knobs to really drive the long-term outcome that benefits your shareholders? Adam Satterfield: Yes. I think that, obviously, we've had -- I mean, it's been a very disruptive and challenging period over the last 3 years. And we've heavily invested for future growth opportunities. And we still feel very confident in what our long-term market share opportunities are and believe we've got a long runway for growth. And we wish that the market would have already turned, but we'll have spent $2 billion cumulatively over the last 3 years with volumes being down to expand our network to continue to keep a fleet replacement cycle and be prepared for future opportunities, but that comes at a cost as well. We had a lower CapEx spend this year and very likely that it will be lower overall next year as well. So I think that will continuing to pare the capital expenditure plan back to grow into what we have will take some of the pressure off the overhead costs. And we can continue to manage our variable costs as much of a fixed cost business that we run with a network of 261 service centers, probably 2/3 or more of our costs are variable in nature. And I think we've shown good control there. But this down cycle has obviously lasted a lot longer than I think anyone would have expected. And when we go through down cycles, we've been through this multiple times before. And I think a lot of people are ready to write us off and several analysts have through this cycle as well. And I think the growth story is over. But we keep a lot of those old headlines around for [ boards and board ] material, if you will, and look forward to when the market does eventually inflect back to the positive. I think the key thing is, like I mentioned earlier, the value offer to your customers. We are a little bit of a price premium, but with the control that we have over costs, our go-to-market price is not much higher than our competitors. I would say, typically, when we get in an up cycle as well, the competitors that don't have as much capacity, that's when you see their prices go higher than ours. And so that price gap will continue to close especially for those carriers that, frankly, from a GAAP operating standpoint, there's 6 other publicly traded LTLs, 4 of those from a GAAP operating ratio have been operating in the '90s. And so I think that to deliver value to their shareholders, they're going to have to increase prices would be my guess. And so when that happens, that price gap closes, that, too, gives us additional volume opportunity. So I think we'll benefit from the improvement in demand, the improvement or volume opportunities coming from that churn at competitors. And that's historically what we've done, and that's fully what we're expecting at this point as well once we can get back into a demand environment that's more conducive to growth and not trying to go out and we want to win market share. We don't want to go out and try to take it, right? Operator: The next question comes from Brian Ossenbeck from JPMorgan. Brian Ossenbeck: Maybe 2 quick follow-ups for you, Adam. Just the length of haul was coming down a good amount here. I don't know if you can put some context around that. Is that a sign of just the demand environment that you're in? Is there some sort of shifting mix in there? And does that have any sort of implications for how you operate the network or how the industry responds? And then just on the pricing side, I want to get your quick thoughts on dynamic pricing, and we've heard a little bit more about it. I don't know if it's really widespread in use, but I just wanted to get your perspective on how you utilize that, if at all, and then what the rest of the industry is doing as well. Adam Satterfield: Yes. On the dynamic pricing side, that's -- we hear some commentary of that, and I think that's something that's probably used in a small way by some carriers and I don't think that we've ever seen a whole lot of positive impact from that. That's not really something that we subscribe to. For us, I just feel like it's more important to be consistent. Customers know what to expect from us. We look at how our costs are changing each year, and that drives what we try to ask for from a cost-plus standpoint to continue to support investments that we make, be it in service centers and equipment, investments in technologies. And those investments in technologies, we've shown that they help us continue to improve our costs. So in some cases, you invest to drive an improvement in your service product and customer engagement and customer stickiness, but then we also have plenty of investments that allow us to operate much more efficiently. And we've kind of proven that by our ability to be able to manage our variable costs. But I don't think that when you look at some of the carriers historically that have done some of these things, I can think back to the first half of 2023. I don't think that it's proven it's weighed out in terms of when you look at earnings per share performance. It just seems like it never really pays to try to be willing to take less of a rate when costs are going up. And I think the earnings per share trends for us and other carriers kind of prove that out. And I forget, what was the first part of your question again? Brian Ossenbeck: Just the implications of shifting length of haul. It seems like it's been coming down for a while [indiscernible] the market or mix thing and how it impacts the business. Adam Satterfield: Yes. I think that's something that has been developing over time, and we expect that it will likely continue to decrease. I think that shows kind of the regionalism as we continue to expect that we'll see growth, especially e-commerce trends that will probably move more and more freight into kind of next day second-day lanes. That's about 70% of our revenue today. And in the most recent quarter, we actually -- our retail business outperformed industrial again. And so that's something that's probably contributing. But yes, I think the other thing is when there's time in supply chain, and obviously, there is right now, there's other forms of transportation that can be used for some of the longer lengths of haul at a cheaper price point. And those are some of the things that if you go back to 2021, for example, if freight was hitting the shore, we were picking it up. It was converted to truck as soon as possible in the supply chain. And so we were probably getting some longer lengths of haul at that point. But I think shippers are able to take advantage of time in the supply chain right now and getting it to us later in the process, if you will. So that's partly some of that change that we're seeing. Operator: The next question comes from Jason Seidl from TD Cowen. Jason Seidl: I wanted to stick on pricing a little bit. You guys obviously announced a GRI recently, it was 4.9%, I believe, equal to prior year. But the market feels like it's weaker this time around. How are you guys gauging sort of compliance to the GRI as we move through quarter right now? Would you think it might be a little bit weaker than last year? Kevin Freeman: You mean the increase or the request from the customers about the increase? Jason Seidl: The increase that you announced. I think yours takes place November -- early November, I believe. Kevin Freeman: Yes. We were 11 months this year. We've done that in the past. Some years, it's 12 months, but we base our general rate increase off of our costs each year. And we're not getting any kickback, so to speak. We explain to our customers what our costs are for equipment, real estate, just to generally operate our business. And keep in mind, too, this only affects 25% of our customer base. This is a general tariff for noncontract. Our contracts are about 75% of our business, and those increases are based on months of the year when they expire. So this only affects 25% of our business. Operator: The next question comes from Reed Seay from Stephens. Reed Seay: You've had a lot of competitors invest in service and in their network, and you have a peer about the spin-off from their parent, maybe getting a little more financial attention. Are you seeing any changes in the market from these investments from either your public or private peers or any impacts from your peers as they prepare to spin from the parent company? Adam Satterfield: Yes. The best information that we can use to compare us versus the others from a service standpoint is all the detailed information that we get from the Mastio study. And we really didn't see a whole lot of movement, if you will, when you look at us or any of the other carriers. The gap between us and the competition stayed as wide as it's ever been. As Marty mentioned, we were -- there's 28 different attributes related to service and value, and we were #1 in 23 of those attributes. But I think when I look at the other logos, there really hadn't been a lot of change in the past or at least on the value map in the past 2 to 3 years despite there's -- we hear more about the service improvements from investors, and I think we see it in Mastio or hear from customers. So we continue to focus very intently though on that data. Service is more than just being able to pick up and deliver freight on time and without damage. And so those are the things that we work very closely, and we talk about these attributes and how we're performing with every employee throughout the company. And every person lends a hand to giving service, whether it's an external customer or an internal customer. And so that's what we focus and what we spend a lot of time and money. We're training our employee base to make sure that every experience at Old Dominion is a positive one, and we stay best in the game every day. It's not just best in the game on Saturdays for ESPN GameDay, we want to be the best in the game every day. Operator: The next question comes from Ken Hoexter from Bank of America. Ken Hoexter: Great. So Adam and Marty, maybe I'm still a bit confused by the comments of demand is consistent and similar underperformance as you've seen recently, that commentary, Knight, who reported -- already said things got worse in the LTL world rapidly to start the quarter. Volumes down 11.5% against last October's down 9% comp, which was I think the easiest comp you had as the worst month of the year. So I just want to understand, is it consistent? Is it -- did something fall off rapidly? I guess, the weight per shipment, I don't know if you want to throw some thoughts there. Is that decrease? Is that in line with normal shifts? Or is the economy making that a little bit lighter? And then the flow there of the volumes, I guess there's some shipper commentary that you're being more aggressive on pricing. I would presume your answer is going to be, you know us, we never change that. I'd just like to hear that from you directly. Is there any change on your pricing moves in the market? Adam Satterfield: Yes, there's no change there. It's -- you can see our numbers, and we continue to be consistent with our approach. And I think our year-over-year change in our yield trends kind of bear that out. So no change there. I would just say with respect to the volumes, I mean, look, obviously, they're down and with volumes being down double digits, at least at the start with October, that's tough. And that's coming on the heels of we've been down the last couple of years, and it's something we continue to manage through. But I think that my commentary about similar underperformance was again just looking at the sequential change in our tonnage relative to kind of what the 10-year average is. And we -- last year, we were basically -- the sequential change in October versus September was down 3%. So right now, we're trending down 5%. So that's making that year-over-year change look a little bit worse. And we'll see as things progress through the quarter, whether that changes or not. But just looking at the overall revenue per day and looking at kind of how we've -- whether it's revenue per day or tonnage, if you kind of have a similar underperformance relative to our 10-year average sequential change, that's kind of how I come up with the numbers that we have, be it the tonnage would be down, I don't know, about 11.5%, could be a little bit better. And then the revenue sort of being in that same type of -- basically, it would be around $1.29 billion if we continue on with this down 6.5%, 7% or if we underperform at a similar rate to what the underperformance has been this year sequentially, that is. But no major -- for us, it just feels about like the same from a macro standpoint. And from a customer demand standpoint, the conversations that we continue to have. And like I said earlier, I think that we kind of came into this year or at least, I would say, in the second quarter, thinking that we needed clarity from a tax deal, clarity from an interest rate environment. And then once everything got stirred up with the tariff conversation, we felt like, okay, we got to get this settled. And really, it's settled for our customers' sake. And so we've got a couple of those components checked off the list, if you will, at least the interest rate cut cycle has begun. And we'll continue to watch and see if we get further cuts there that should help customers. But like I mentioned earlier, I think the biggest thing is just the overall uncertainty in the environment with respect to if you're trying to make a business decision, not knowing what all the cost inputs might be, it's hard to make that decision. And I think that's just got some business owners and managers just kind of paralyzed at this point. And so if we can start getting some clarity there, then I think we can start seeing some change in activity. Operator: The next question comes from Jeff Kauffman from Vertical Research Partners. Jeffrey Kauffman: And congratulations on another terrific Mastio finish. I wanted to see if I could unpack a little bit more visibility into what's your different customer buckets are doing. Because when I think about it, industrial production hasn't really gotten incrementally worse in the last couple of months. The ISM hasn't gotten incrementally worse in the last couple of months. You gave us a little insight that your retail customers were outperforming your industrial customers. But I was wondering if -- however you think of bucketing it, whether it's an industry or kind of a customer group, I don't think e-commerce is down that much, kind of where is it a little weaker to drive the tonnage down the way it is and kind of which buckets are performing a little bit better or a little bit stronger in this environment? Just help us -- give us a little context. Adam Satterfield: Yes. It's -- we generally put the group or SIC codes into a couple of major buckets. Our industrial revenue is 55% to 60% of revenue and then the retail is about 25% to 30%. And in the most recent quarter, the revenue per day, we were down 4.3% overall for the quarter. The retail, it wasn't wildly different, but was down about 4% compared to the third quarter last year. And the industrial was obviously a little worse, but not a major difference. And part of that goes back to the consistency that we've had in our customer base. And we've talked a lot over the fact that we haven't lost any major customer accounts. We haven't really lost major lanes or whatnot and awards from existing customers. And so we've had a lot of continuity there. But obviously, demand for our customers' product has been weaker. Orders have been weaker. I think that's coming through with our weight per shipment trends, and that's something that generally is indicative of the macroeconomic environment. And we're seeing weight per shipment that's down in October right now about 2.3%. So that's continued to go lower and is driving that overall change in our tonnage. And obviously, with business levels being down like they are, and you have to say, well, what gives if you think you're maintaining market share and not losing customers. It is those weaker orders. I think we continue to hear some customers tell us that they're consolidating shipments within the truckload industry. And with that oversupply that has been there, I think that you've had capacity that's been readily available, and that opportunity has existed. We've had some pressure in our 3PL business. That's about 1/3 of our overall revenue. Some of that could be the dynamic pricing that carriers are out there using that to a small degree and some variability. That could be causing some incremental pressure there within the 3PL world, but not seeing it in a major way. It's just some 3PLs are down a little bit more. And I think historically, what we've noticed is 3PL managed business, they're able to leverage their technologies, the carrier connections that they have and help customers consolidate loads into the truckloads. So we feel like more of the pressure is kind of that truckload consolidation on the 3PL world. So it just seems like it's coming from multiple areas, if you will, what's causing the overall weakness in demand. But I think that historically speaking, ISM has been the highest correlated metric with the industry volumes. And with ISM being weak for 32 out of 35 months, that lends itself to our industry volumes being challenged overall, not just us. And again, you got to put Yellow back on the mix from when all of this started. I'd say the other kind of piece is housing and the struggles that have been there. I think that we've noted some correlations between housing, economic factors and volumes as well. And while we don't have a lot of direct exposure there, there's a lot of indirect exposure that we get related to people buying new homes, building new homes, some of the components that go in and things along those lines. So I think it's just been sort of weakness across the board, some mode shift, et cetera, that's contributed to these unfortunate declines that we've had in our business levels. Operator: Our next question comes from Richa Harnain from Deutsche Bank. Richa Harnain: It seems like the theme of the call is sort of this consistency that you talked about. Adam, you mentioned demand feels fairly consistent, not great, but consistent. And really what stood out in this quarter was you controlling what you can control, again, that variable cost item and optimizing your workforce that helped you deliver a nice cost out for the quarter and a better OR than what we see as your normal sequential deterioration. So maybe you can talk to us about like where there's room for further optimization there? I know you're guiding to something that's worse than normal seasonality. But like what can you do? I think you touched on a few things like the tech-enabled features and things like to drive better cost performance. And I think from like salaries, wages and benefits as a percentage of revenue, you're operating at something like 44% in the 2022, 2023 time frame. Could we see a level like that come back? And then just also, what prompted these cost savings now? I know you -- employee count came down a bit, but we've been in a freight recession for some time. Why cut costs 3 years into the impending down cycle? That's it. Adam Satterfield: Yes. Let's say, what prompted is we focus every day on saving costs. And whether you're in a good environment or bad, that's something that you've got to be focused on. I had a mentor early in my career that said, if you don't focus on saving costs in the good times, you probably don't even know where to start when times get difficult. So that's a focus that we have every day, and it's just part of who we are. And it's part of our continuous improvement cycle as well. That's a key column in our foundation for success is we always want to look at ways that we can get better, ways that we can invest in technologies, in particular, that will drive a return for the business. And I think some of what we've seen in those areas, being able to manage our direct variable costs consistent with levels that we had back in 2022, I think, speaks to the importance of that. We obviously -- we run a tight ship, but you got to give your people the tools to be able to give service while also operating very efficiently. So that will be a continued focus for us. But as I mentioned in my prepared remarks, the good thing in all of this, what's going to drive the long-term improvement. There's 2 key ingredients to long-term operating ratio improvement, and that's density and yield. And our yield trends have been consistent throughout this freight downturn. But density is obviously what we're missing out on. We need density back in the system, and it will come again. But that's what's really going to create tremendous leverage for us. And I think the immediate opportunity and typically, when you see our operating ratio performance when we get into these recovery years, we've got periods where the operating ratio improves 300 or more basis points. And a lot of that comes on the overhead side when you start getting revenue back in the system and you get leverage on all these costs that we've built up when times have been slower, depreciation, in particular, I think that's where you see the immediate movement in the operating ratio. And I think we've probably got a couple of years of improvement given the level of excess capacity that we have in the service center network right now. But the long-term improvement in operating ratio that we've seen has really been on the direct variable costs side, and that will be the opportunity that we have going forward. If we're already at record levels in those costs as a percent of revenue, imagine what happens if we can get double-digit volume growth back in the system, which is type of performance that we've seen in prior upcycles. That's where those costs can continue to go much lower as a percent of revenue. But you got to be disciplined. All of these things work together. We couldn't be disciplined with our yields if we didn't have best-in-class service. And so it all feeds on one another but understanding our costs and making sure that we charge appropriately based on the cost to handle freight is what gives us the confidence that we can continue to drive the operating ratio back to where it was and beyond. Operator: The next question comes from Ari Rosa from Citigroup. Ariel Rosa: I just wanted to ask you for a bit of color on the nature of the conversations you're having with your shippers, with your customers. How are they kind of contextualizing some of this volume weakness? You mentioned some of the uncertainties that they're grappling with. Does it feel like they've gotten more confident, less confident? I guess I'm trying to, again, as a lot of others have done, contextualize this decline that we're seeing in October. And then is there any dimension in which they've perhaps gotten a little bit more emboldened in pushing back on pricing given whether it's competitive pressures or pressures that they're feeling themselves on their own margins? Kevin Freeman: I think the sentiment is pretty much the same as it's been all year from a customer confidence standpoint overall. They're all -- most of them are waiting for something positive to happen. And I think if you look at the backdrop of what can be set up for 2026 with lower interest rates, tariffs being consistent -- at least consistent, corporate taxes being decided. I think the backdrop is very positive, and they talk positively about those things. And as it relates to price, of course, we have customers that want to talk about price. But our salespeople are trying to go out and basically seek business where customers absolutely have to have on-time service with no claims, which allows us to charge a premium. So -- and as Adam said earlier, our customers do have lower weight per shipments. We don't churn a whole lot of customers, but the shipments that we are getting are about 20 pounds less per shipment than they were this time last year. So there's some cautious optimism out there, and we continue to stay in front of these customers and tap what we can do for them, and we're just waiting on the increase in business. Operator: The next question comes from Stephanie Moore from Jefferies. Joseph Lawrence Hafling: Great. This is Joe Hafling on for Stephanie Moore. I wanted to go back to, Marty, something you had mentioned at the top of the call. You mentioned a little bit about how you're using technology around workforce planning, dock management and route planning. We don't often talk about technology in OD. So if we could just unpack what you guys are doing across those main cost buckets, what are the benefits you're already seeing, what inning you think you're in, what's still to come? Just trying to get a better understanding of everything on the tech and productivity side. Kevin Freeman: Yes. We normally don't go in detail about our AI activities. But I can tell you some of the things that we already have in use today, some of it being in cybersecurity with e-mail protection platforms. As we get into more bots, communications with our customers, we have to learn to manage that better to keep cyber out. From an operation safety aspect, we have implemented a line-haul plan creation that allows us to study our loads quicker, obtain more pounds per truck as we move along. We analyze from a safety standpoint, we analyze our Lytx cameras with videos so that we can coach our drivers more efficiently and increase our safety. Billing automation, we have AI in our billing automation, which lowers our costs. Content creation for our sales -- our people for deeper customer engagement. And we also use AI for capabilities related to basic application development. But -- and things that we're looking at in the future for that, that we're currently researching is equipment utilization, predictive equipment maintenance, training for mechanics, just to name a few -- weather conditions, so we can take better routes during the winter months. And that's just to name a few of some of the things that we're looking at. But all of these things we look at, we expect a return on investment. So we'll talk about them more as we see that happen. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Marty Freeman for any closing remarks. Kevin Freeman: Thank you all today for your participation. We appreciate all your questions. And please feel free to give us a call if you have anything further. Thank you, and I hope you have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

88天前Insight Analytics约5分钟阅读

NOW 2025 Q3 财报电话会议

Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Q3 2025 ServiceNow Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Darren Yip, Senior Vice President of Investor Relations and Market Insights. Please go ahead. Darren Yip: Thank you. Good afternoon, and thank you for joining ServiceNow's Third Quarter 2025 Earnings Conference Call. Joining me are Bill McDermott, our Chairman and Chief Executive Officer; Gina Mastantuono, our President and Chief Financial Officer; and Amit Zavery, President, Chief Product Officer and Chief Operating Officer. During today's call, we will review our third quarter 2025 results and discuss our guidance for the fourth quarter and full year 2025. Before we get started, we want to emphasize that the information discussed on this call, including our guidance, is based on information as of today and contains forward-looking statements that involve risks, uncertainties and assumptions. We undertake no duty or obligation to update such statements as a result of new information or future events. Please refer to today's earnings press release and our SEC filings, including our most recent 10-Q and 10-K for factors that may cause actual results to differ materially from our forward-looking statements. We'd also like to point out that we present non-GAAP measures in addition to as a substitute for financial measures calculated in accordance with GAAP. Unless otherwise noted, all financial measures and related growth rates we discuss today are non-GAAP except for revenues; remaining performance obligations, or RPO; current RPO and cash and investments. To see the reconciliation between these non-GAAP and GAAP measures, please refer to today's earnings press release and investor presentation, which are both posted on our website at investors.servicenow.com. A replay of today's call will also be posted on our website. With that, I'll turn the call over to Bill. William McDermott: Thank you, Darren, and welcome, everyone, to today's call. ServiceNow delivered another set of stunning quarterly results that absolutely shattered expectations. Subscription revenue growth was 20.5% year-over-year in constant currency, 1 full point above the high end of guidance. cRPO growth was 20.5% year-over-year in constant currency, 2.5 points above our guidance. Operating margin was 33.5%, 3 full points above our guidance. Free cash flow margin was 17.5%. We had 103 deals greater than $1 million in net new ACV, 6 of which were greater than $10 million in net new ACV. Technology workflows had 50 deals over $1 million, including 6 over $5 million. ITSM, ITOM and ITAM were all in 15 of our top 20 deals with double-digit deals over $1 million. Together, security and risk combined for 12 of the top 20 deals with 3 deals over $1 million. That risk and security business combined is now $1 billion ACV business, our fifth business to cross the $1 billion threshold. CRM and industry workflows were in 14 of the top 20 with 15 deals over $1 million, and core business workflows were in 13 of the top 20 with 14 deals over $1 million. Here's the headline. ServiceNow is one of the most durable, consistent, overperforming growth companies in the enterprise software industry. When you think about brand shaping the future, you have GPU leaders like NVIDIA, hyperscalers, foundation models and 1 company integrated in all together, the AI workflow company, ServiceNow. It used to be the MAG 7. Now there's a new category, I'm calling this the Super 8. That's the MAG 7 plus ServiceNow, that's right, the Super 8. As you'll hear from Gina, our confidence in the future has never been stronger, so we're raising guidance again heading into the fourth quarter. This team knows how to focus, innovate for our customers, execute at global scale and most importantly, how to win. We've only scratched the surface of the market opportunity for this platform. This new enterprise AI neighborhood is a dynamic place to live. Our Now Assist net new ACV to date, beat expectations once again in Q3. Our AI products are on pace to exceed $0.5 billion in ACV this year, excellent progress toward beating at $1 billion target next year, and we're totally focused on surpassing it. We saw 12 Now Assist deals over $1 million, including 1 over $10 million. Our AI Control Tower deal volume more than quadrupled quarter-over-quarter in Q3. And just since the end of May, AI Agent Assist consumption has increased over 55x, that's the foundation of a beautiful hockey stick that's coming to you. For our customers, it's all about AI business transformation. IDC forecast AI IT spending will be $1.3 trillion through 2029. And here's why ServiceNow is winning. Our platform sits at the core of the enterprise technology estate. ServiceNow is championed by the very leaders who are designing AI reference architectures of the future. Beginning with autonomous IT, we're helping those leaders solve enterprise-grade AI challenges. Governance is one of those mission-critical areas. Machines simply can't govern themselves, AI is like any other enterprise asset, it needs to be cataloged, tracked, supervised and secured. ServiceNow's configuration management leadership gives us and our customers a clean single pane of glass to govern all artificial intelligence. How is it working, where it's adding value and where it's hallucinating. This is AI-enabled orchestration of all the other AI. Every single enterprise in every industry wants this real-time AI control tower. Another challenge is getting beyond the hype to fast business value. The root cause of nearly every failed deployment of enterprise technology in history is a lack of integration. And even the ones that worked took years to get to positive ROI. To change this paradigm, AI has to run east to west across the enterprise and north to south up and down the tech stack. ServiceNow's AI platform can do this like no other. For every process that transcends departments and systems, ServiceNow's workflow engine is creating the road map that AI agents follow to get work done. Without cross-enterprise workflows, so-called agentic AI is just another one-dimensional chatbot. Enterprises gravitate to ServiceNow because we have a system of intelligence and a system of action on one integrated AI platform. Legacy systems of record where enterprises want a modern alternative are being composed as AI native workflows on the ServiceNow AI platform. We all have personal experiences with AI apps on our phones. Enterprise AI is different. It's much harder. To put AI to work for people takes more than a language model or a rebranded wrapper on legacy tech. It takes domain expertise, which ServiceNow has curated over 2 decades and trillions of automated workflows. It also takes empathy as every customer's AI journey is unique. You don't build trust in this industry by forcing customers to conform. You build it by meeting them where they are. That's where the operative word in ServiceNow's strategy is any, any cloud, any model, any data source, any agent. It's why we were so early partnering with all 3 hyperscalers, the foundation model companies and the systems of record. We neutralize complexity for our customers, giving them a clear road map to cycle down old systems over time as their AI readiness matures. Our customers recognize the time is now to shape their future. AI is the new UI. The ServiceNow AI experience breaks the cycle of siloed systems and bolt-on agents with a unified AI interface for voice, images, data and text. Figma and ServiceNow are partnering to bridge the gap between design intent and enterprise execution. Through an MCP integration, teams can seamlessly transition from visual design and Figma to fully functional enterprise-grade applications on the ServiceNow platform. This integration empowers developers regardless of skill level to use Figma design as direct prompts in the Now Assist build agent. We see a bright future, intelligent agents working side-by-side with people to resolve issues, complete tasks and take action. In the context of value creation for customers, partners, employees and shareholders, enterprise AI keeps every ServiceNow stakeholder on the same side. This is a once-in-a-generation opportunity. It's like minting a new currency that underpins a limitless new economy. The more we keep getting this right, the more we'll reach our full potential as the AI defining enterprise software company of the 21st century. To ground this in special way, in a special and specific market, let's talk customer experience. Enterprises invested a lot into legacy CRM deployments. For all that investment, they got a sprawling mess of instances and silos. They want a better way with AI. This applies to many legacy vendors, some more than others. Here's why ServiceNow is reshaping the customer experience market. Our AI experience turns CRM into an AI-first system of action that drives growth and customer loyalty. In sales, a new AI-powered CPQ solution accelerates quote generation, and this is going to free business to focus on relationships. In service, AI agents flag at-risk cases, automate resolutions and empower teams to act before SLAs are breached. This spans the entire customer life cycle from first contact to resolution. Customers like Thrive and Pure Storage are using ServiceNow CRM to personalize support, connect data, AI and workflows and scale service excellence. With a global technology services company, we are streamlining service models and enhancing customer experiences through agentic workflows. A hardware manufacturer selected ServiceNow CPQ and manufacturing solution to scale sales and service without increasing cost. A leading global technology company tripled their CPQ commitment with ServiceNow. What began with one product and one channel turned into a breakout success. The customer saw the impact, and now they're scaling it across partners and a dozen more products. A European auto manufacturer selected ServiceNow CPQ for its configuration, and it's selling this globally. What's fascinating is that these conversations are actually coming to us, the appetite for change is everywhere. We're also meeting the moment with great partners like Genesys. Unified experience from Genesys and ServiceNow merges contact centers, CRM and service operations into a single agenic AI-powered platform. Through agent-to-agent orchestration between Genesys Cloud and ServiceNow, AI agents will collaborate autonomously on tasks to deliver fast resolutions, seamless customer experiences and stronger customer loyalty. ServiceNow always goes where the customer needs us to go. In this case, that's to the core of a better CRM because the status quo just isn't cutting it. Let's spend a moment on U.S. Federal, which had a great Q3, beating NNACV expectations handily. In the quarter, we saw Now Assist pilots quickly converting into deals as agencies realize fast time to value and compelling ROIs. Like other industries, our AI control tower is gaining attention as agencies look to enforce governance and manage risk within their AI estate. The GSA OneGov agreement opens the door for broader federal and government adoption of ServiceNow. This simplified model reduces complexity and makes it easier for agencies to adopt more of our AI platform over time. That positions us well for upgrading standard customers to Pro Plus. Through the agreement, the ServiceNow AI platform is estimated to boost efficiency by 30%, saving the federal government billions over the next 5 years, and it will accelerate Agentic AI transformation. In closing, ServiceNow's strategic relevance has never been higher and it's soaring right now. When you look at the Zurich release, every innovation from vibe coding to Agentic playbooks and enterprise-grade security is purpose-built to unlock the full value of Agentic AI, helping teams act faster, work smarter and build trust as they scale. Gartner just published the first ever 2025 Magic Quadrant for business orchestration and automation technologies, affectionately called BOAT. So get on board because ServiceNow is the leader, the furthest for its completeness of vision placement of all companies. We have a rock-solid core business with the biggest opportunity in our history to provide the AI control tower. We have a next-generation CRM business at the doorstep of substantial legacy disruption. We have AI, data and workflows integrated into a single AI architecture. World's leading brands like the great NVIDIA, the world's first $5 trillion company. Congratulations, Jensen, our great friend and your wonderful company. Also AstraZeneca, Volkswagen Group, Ulta Beauty, 7-Eleven Japan, FedEx Dataworks and countless other companies are working with ServiceNow and excited to do so. Periods of systemic change always reveal new pillars on which the future is being built. This is the one moment in time when everything will change. And we won't do it with AI alone. We need AI that works for people. We need a bias for exponential thinking for renaissance level creativity to finally solve some of the world's biggest challenges. Our customers, our partners and our team are all in to build that future on the ultimate platform, ServiceNow, the AI platform for business transformation. Thank you for your time and interest. I look forward to your questions. I'll hand things over to our President and Chief Financial Officer, Gina Mastantuono. Gina, over to you. Gina Mastantuono: Thank you, Bill. Once again, Q3 showcased another standout quarter of elite level execution with significant outperformances across all of our top line and profitability guidance metrics. Now Assist, Workflow Data Fabric and RaptorDB were all ahead of plan. ServiceNow's U.S. federal business also demonstrated its resilience, surpassing net new ACV expectations for the quarter as we work hand-in-hand with agency leaders to modernize how the government works for the American people. Q3 subscription revenues were $3.299 billion, growing 20.5% year-over-year at constant currency, 100 basis points above the high end of our guidance range, driven by strong execution with broad-based demand throughout the platform. RPO ended the quarter at approximately $24.3 billion, representing 23% year-over-year constant currency growth. Current RPO was $11.35 billion, representing 20.5% year-over-year constant currency growth, a 250 basis point beat versus our guidance. From an industry perspective, transportation and logistics led the way, growing net new ACV over 90% year-over-year, followed by momentum in retail and hospitality and education, both growing over 50%. Energy and utilities continue to see healthy demand and government was also an area of strength, driven by our U.S. federal business growing net new ACV over 30% year-over-year. Our renewal rate remained a strong 97% and an even more robust 98% when excluding the closure of a large federal agency. We ended Q3 with 553 customers generating over $5 million in ACV. Furthermore, the number of customers contributing $50 million or more increased by over 20% year-over-year. We closed 103 deals greater than $1 million in net new ACV in the quarter, including 3 deals over $20 million. The power of our Better Together platform model was evident as all of our top 20 deals included 6 or more products. Now Assist had a tremendous quarter, once again exceeding expectations, fueled by 12 deals over $1 million in net new ACV, including over $10 million. As Bill noted, our AI products are on pace to exceed $0.5 billion in ACV this year, underscoring the great progress we're making towards our $1 billion target for 2026. Key product areas of strength included ITSM and HR+ net new ACV, both doubling quarter-over-quarter, ITOM+ net new ACV surging more than 5x quarter-over-quarter and CSM+ deal volume tripling year-over-year. More broadly within CRM, our AI-powered CPQ solution has become a powerful entry point into front office transformation. We're seeing traction with displacement wins around the globe, including multiple million-dollar deals. Turning to profitability. Non-GAAP operating margin was 33.5%, 300 basis points above our guidance, driven by our top line outperformance, AI OpEx efficiencies, disciplined spend management and timing of some program spend. As we advance our AI agent deployments across the company, we're unlocking substantial organizational capacity, driving measurable efficiency gains and enhancing scalability. Our free cash flow margin was 17.5%, up 50 basis points year-over-year. We ended the quarter with a robust balance sheet, including $9.7 billion in cash and investments. In Q3, we bought back approximately 644,000 shares as part of our share repurchase program, up nearly 70% versus last quarter with the primary objective of managing the impact of dilution. As of the end of the quarter, we had approximately $2 billion of authorization remaining. Together, these results continue to demonstrate our ability to deliver a healthy balance of world-class growth, profitability and shareholder value. With our continued confidence in the trajectory of our business, today, we announced that the Board of Directors has approved a 5-for-1 stock split designed to make our shares more accessible to a broader base of investors and to provide employees with greater flexibility in managing their equity. A special meeting of shareholders will be held on December 5 to approve the split. Moving to our guidance. Given our Q3 outperformance, we are raising our 2025 growth and profitability outlook. For 2025, we are raising our subscription revenues by $55 million at the midpoint to $12.835 billion to $12.845 billion, representing 20.5% year-over-year growth or 20% on a constant currency basis. We are raising our full year operating margin target by 50 basis points from 30.5% to 31% as AI operational efficiencies continue to drive incremental leverage. We're also raising our full year free cash flow margin target by 200 basis points from 32% to 34%. We continue to expect subscription gross margin of 83.5% and GAAP diluted weighted average outstanding shares of 210 million. For Q4, I would note that while our public sector pipeline and demand is very strong, the ongoing government may impact deal timing in our U.S. federal business in Q4. Given the time line requirements to complete standard procurement processes, we've prudently factored in this timing dynamic into our guidance. With that in mind, for Q4, we expect subscription revenues between $3.42 billion and $3.43 billion, representing 19.5% year-over-year growth or 17.5% to 18% on a constant currency basis. We expect cRPO year-over-year growth of 23% or 19% on a constant currency basis. We expect an operating margin of 30%. Finally, we expect 210 million GAAP diluted weighted average outstanding shares for the quarter. In conclusion, Q3 was an exceptional quarter with standout performances across the board. These results underscore the power of the ServiceNow AI platform and our multiple growth vectors from core workflow expansion to the accelerating adoption of innovative new products in areas like security and risk, sales and order management and data and analytics. Massive platform demand, combined with AI-driven efficiencies not only fueled fantastic results, but also reinforced our ability to scale with accelerating margin expansion. Before we close, Bill and I want to take a moment to thank our incredible employees around the world. Your unwavering commitment, tireless execution and passion for excellence continue to be the driving force behind our success. With that, I'll open it up for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Kash Rangan with Goldman Sachs. Kasthuri Rangan: Congratulations, Bill and team. Bill, I like the Super 8, but I still like the category of one even better than Super 8. But I want to ask you a question with Agentic technology, it's becoming abundantly clear, as you outlined, that there is a process of integration, implementation. We're back to, in some sense, making software companies like yours successful with the help of the outside world like the Accentures and whatnot. Some integration expertise, implementation expertise could go a long way, maybe even the talk of forward deployed engineers to get this technology primed for real time. What are your thoughts on that, Bill, going forward as you really try to institutionalize the adoption of Agentic technology in your ecosystem? That's it for me. And all the best for the future. William McDermott: Yes, Kash, let me begin, first of all, by saying it's been an honor to know you all these years. You're one of the greates of all time. And I never forget being on a helicopter with you many years ago on a rough ride, and you were a champion then and you're a champion now. And I wish you and your family the best in your next endeavors. I was with 150 CEOs a couple of Fridays ago, and we were talking about the whole AI scenario, and they were telling me that their proof of concepts, these toy sidecars are getting crushed. They don't want to do them anymore. And they were also telling me that they have so much complexity in their business processes that they're having trouble making AI work. And I explained that was the same dilemma, as you pointed out, Kash, with digital transformation. You have a platform here with AI platform for business transformation that resides above the systems of record and gives you that clean pane of glass to integrate the business processes into workflows. And workflow has become the new buzzword. Everybody likes workflow now, but we're the workflow company. And what's unique about our workflows is we're doing 75 billion of them today, and we're doing more than 1 trillion transactions on them today. So the fact that we can connect to any cloud, we have all of the 3 hyperscalers, they're all great companies, by the way. We have the language models that are large ones, and we integrate with all of them. And we built on NVIDIA Nemotron the next generation of our platform, which enables customers to do extraordinary things with big language model power at a fraction of the big model cost, zero latency, total security, no hallucination and a cost-effective ROI that's amazing. And Kash, we're getting customers live with autonomous implementations in a few weeks, not years and years. So the game has changed, and I believe we're at the epicenter of the enterprise to make every company a best-run business. And the word is getting out there. And I'm glad you asked that question. It was a perfect question. Thanks a lot, Kash. Kasthuri Rangan: Bill, the world should know that as that helicopter swiveled 45 degrees from it's a forward path of progress that you diligently on a blackberry were tapping away e-mails with, I think, perfect spelling, so and I was nearly throwing up and you were so kind to me. So that memory will go down forever. William McDermott: Great memory, Kash. Amit Zavery: Kash, I'll just add one thing, again, congratulations on your future plans. But as Bill was saying, what we're doing with the way we build out our Agentic processes and the workflow as part of ServiceNow platform is that we have 100-plus prepackaged workflows with Agentic built in. So you don't have to do a lot of handholding, a lot of implementation to get going. Of course, there are going to be co-innovation required. There might be something specific for our customers. That's why we're investing in FD kind of a model with forward deployed engineers who are really AI black belt who can work very closely with customers on the AI expertise required for some of those use cases. A lot of customers are getting -- I think the lack of expertise in some of the departments, it might be a difficult thing for them to catch up on. And when they do things with spare parts and buying all these random pieces, it becomes very difficult to really get the outcome they want. So what we're doing is really solving the problem and getting them the use cases really closely out of the box and getting the implementation done quickly and then in production, they see value instantly and they do more and more with us. And that's really the difference between us and everybody else out there. Operator: Your next question comes from the line of Samad Samana with Jefferies. Samad Samana: Great to see the strong results, Bill. I also want to ask an AI-related question. The $500 million plus ACV level for AI on its own is a great disclosure that you're tracking to that. But it stood out that the deal volume you mentioned for Now Assist also seems to be broadening out and that there's a greater breadth of deals driving the AI ACV strength. So what I was wondering is, are you seeing that the broader sales organization and the partner base that Kash just mentioned is getting better at selling the AI solutions and it's being less of a top-down driven sale? And how should we think about maybe that impact going forward? William McDermott: Yes, Samad, it's a great question. And you're right. It is progressing beautifully, and it is now a standard way of selling in our company. And you see that in the Pro Plus upgrades and all the new business that's coming in Pro Plus. And what's really exciting to me from a shareholder value creation perspective is that the customers really want it. And when you see a 55x growth since May in the number of assists that our customers are doing on our platform, you have to look into the future and say, we have billions of assists already out there in the marketplace that will be monetized in future quarters. And already, we have 1,700 customers that are live on this, and that's growing every single day. And one thing that will definitely get underreported on an earnings day is culture. We have every single person in our company with their own AI learning journey where they've been assessed and credentialed and there's an AI action plan because we're putting AI to work for our people. And internally, what's super cool with our ServiceNow on Now, meaning we run the product before we put it into the market is 90% of the IT, customer service and HR processes are now being done by agents, not at the exclusion of people, but to make people happier. So the soul crushing stuff is done by the agent and the people are doing more and serving more capability to our customers. And this really is a virtuous cycle because we're proving that you can grow, put AI to work for people hire and as Gina said, have tremendous operating leverage on the margin and free cash flow line to reinvest in our business and to create even greater shareholder value. So we get it. We know what that hockey stick is, and we're building a company for the ages here. Samad Samana: And Gina, if I could squeeze one in for you, if possible. I know you can't predict when the federal government will reopen, although the way you've been nailing guidance, I'd say your prediction power are strong. But how should we think about the prudence that you factored in? Is it different from what you were thinking, let's call it, 90 days ago? Or is there incremental prudence just given that the government is still close? Just help us understand that comment specifically around guidance. Great quarter. Gina Mastantuono: Of course, of course, Samad. Yes. So first and foremost, I want to just extend like huge congratulations to our incredible Fed team. We had an incredible Q3, which, as you know, is the biggest federal quarter always because it's the closing quarter of the fiscal year for the Fed. Over 30% year-over-year growth in net new ACV really demonstrates the incredible resilience and demand that federal agencies have for our platform. So first and foremost, demand is strong, and we are resonating so clearly with the federal agencies, which is fantastic. On specifically with the government shutdown, 90 days ago, the government was not shut down. And I would say that we absolutely have factored in a bit more prudence into this guide because as much as I would like to say, I know how to forecast when the government is going to reopen, I just don't. And so procurement processes do take a bit of time. And so we did factor some timing-related only prudence into the guide because demand is healthy, strong and the opportunity for us in federal space, and by the way, more broadly, public sector, state and local as well, remains stronger than ever. Operator: Your next question comes from the line of Alex Zukin with Wolfe Research. Aleksandr Zukin: Maybe just a quick 2-parter or Bill, for you. Maybe demand trends as you progress through the quarter, linearity of bookings and kind of maybe talk to us a little bit about how the consumption and utilization of some of the AI credits is trending. It sounds like it's going better than you expected. And then I have a quick follow-up for Gina. William McDermott: Yes. Thank you very much, Alex. I really appreciate it. The demand is amazing. Our demand right now is better than I've ever seen it. And I just want to give you a little bit of an anecdotal color on process going on across the world right now. I was getting text early this morning on our New York Forum, which is substantially oversubscribed. But I also got one along with my colleagues and the Board a couple of days ago, we did our Board meeting. In Japan, we had a capacity for around 6,000 people in Japan for our World Forum. We had 6,500 that could not be seated due to fire regulations, and we had to set up a workaround so everyone could see the speeches and get the content. The pipe is wild. And what's happening now is we're breaking through. The brand is actually now breaking through and this one platform for AI business transformation is coming across at the C-suite. The CEOs are kind of getting the picture. Many of them have killed these proof-of-concept scenarios. One had 900 proof of concepts going on in the company and said it was uncontrollable and they killed them all, and they went with ServiceNow. So I think we're really breaking through. As it relates to the linearity. I would say the linearity is historically consistent. I think it's going to get even better when you think about the bookings and the step-ins and the hockey stick around the assist as the tokens are used, then they get reloaded, and that is the hockey stick that's built into the model. And yes, I see a 55x growth since May in the assist as clear indication that the customer is deriving unique value from the platform. And yes, I think that tsunami is going to increase and pick up even more. Aleksandr Zukin: Wonderful and amazing. Gina, maybe for you, the renewal cohort in Q4 that's been, I think, a headwind to cRPO growth. Anything that stands out positive from this large renewal cohort that wasn't initially expected this quarter, like whether it's a greater willingness to expand with Pro Plus? And anything to think through there as we incorporate the prudence in the guidance? Gina Mastantuono: Yes. What I would say is that part of the incredible -- so we had a 250 basis point beat in cRPO in Q3. Part of that, about half was the team doing a pretty incredible proactive job of pulling some of that cohort renewal into Q3 from Q4, which not only boosted Q3 results, but also provides strong momentum heading into Q4 because now as a result, we have a head start in addressing that large renewal cohort coming up in the next quarter. And so feel really good about what that looks like. We're also seeing Plus attach rates better in Q3, so they continue to get better and better and stronger. And so feel really good about what that renewal cohort looks like. We continue to see very strong renewal rates, as I called out as well. And so just putting a topper to the conversation back to what Bill was saying, demand trends remain really healthy. Pipeline into Q4 looks strong and very healthy. And we remain really confident in the guide and feel great about the ability for us to pass the full beat in revenue in Q3 to the full year. And then on top of that, to be able to raise the bottom line guide 50 basis points on operating margin and 200 basis points on free cash flow really demonstrates not only the demand we're seeing, but the AI efficiencies internally we're getting to help really drive that bottom line expansion on top of the incredible top line growth. Operator: [Operator Instructions] Your next question comes from the line of Tyler Radke with Citi. Tyler Radke: You talked about some pretty astounding consumption increases, 55x. Can you just talk to what do you think is sort of driving that type of consumption? I mean, I imagine it's pretty broad-based, but if you're seeing that outsized in a particular vertical or use case. And then you talked about $500 million of Now Assist ACV by year-end. Just any sense on kind of how that tracks to your original expectations and what the upside could look like on the $1 billion target next year? Amit Zavery: Tyler, I'll take that. This is Amit here. So on the consumption, the way things have worked very well for us is that once our customers start using Agentic workflows. And once you're doing Agentic, you are starting to use a lot more of the Assist because you're making a lot of calls back and forth to the different processes and automating those systems. So the volume you require for those Agentic use cases is like 10x, 5, 12x depending on each of the calls. That's where the growth has been. And when we provided this prepackaged Agentic workflows to a customer, they're going live faster. They're starting to use those things quickly. And this quarter already, we started seeing so many customers go live, and then that's where the usage goes up much higher than we had before, where it was more of an idea of summarization and things like that. Agentic is really the game changer for our consumption business and with customers who have got on the Now Assist packages are starting to now apply and reuse them more regularly. And they're unlocking new use cases as well, right, incident management, triaging, helping customers kind of solve a lot of the requests around the customer issue. And those use cases are very complex. And with the Agentic workflows, that requires a lot more work behind the scenes, but the automation happens, and that's where the hockey stick starts happening for our use cases as well. William McDermott: And may I just give you a couple of examples, and we'll turn it over to Gina on the math. Think about it this way. Lenovo, very well-known, fantastic brand. They're resolving cases 35% faster and they achieved 100% customer satisfaction score with the Now Assist deployment. Bell, a leading Canadian telecom company, you know them well. They're deflecting more than 3 million customer support calls annually, and they're automating 90% of dispatch-related tasks now on Now Assist agents. Griffith University in Australia, they've adopted the enterprise service management approach to enable easy-to-use services for students and the staff that serve those students, and they deployed AI across ITSM and customer service management functions, and that's led to an 87% increase in overall self-service rate. Follow me, the CMDB competitive advantage that ServiceNow has in the marketplace has led us into with this Agentic AI cross-functional support on the platform to new use cases in all functions of corporations. And that is only a ServiceNow-enabled skill. No other platform can do that. So I think that's really reason to believe. Gina Mastantuono: And then lastly, to your question on how the ACV for Now Assist is tracking. So yes, we're on pace to exceed $0.5 billion by the end of the year, which is tracking ahead of where we thought we'd be. You heard Bill and Amit talk about our Assist tracking faster and growing faster also than we planned. So we are well on our way to that $1 billion. I'm not going to up the guide at this point, but you can expect that we expect that we will continue to track ahead of plan and continue to see pretty incredible traction for all of our AI products. Operator: Your next question comes from the line of Michael Turrin with Wells Fargo. Michael Turrin: Gina, the 3Q results, as you're alluding to, are impressive, especially given the uncertainty the company has been navigating throughout the year. The one question we're getting is around the fourth quarter subscription revenue guide for 18%. That number is a touch lower than where the cRPO growth rates overall seem to be settling. So just any context you can give us to help bridge those 2 metrics? Is that public sector comment you're making more specifically tied to the fourth quarter guide? Or are there other assumptions just given renewal dynamics and a few months that we know are very important for the company to be mindful of as well? Gina Mastantuono: So yes, public sector will be a factor in there. One thing I think is important, the full Q3 revenue beat we put into the full year. And so remember that the full year is higher, and we raised not only in Q3, we also raised in Q2. The other piece that I would say is on-prem is definitely a factor a bit in Q4. And so that's a piece that you need to understand, too. Operator: Your next question comes from the line of Kirk Materne with Evercore ISI. S. Kirk Materne: I'll echo the congrats on the quarter. Bill, you're mentioning that some of the bigger enterprises are starting to get rid of some of these pilot projects with AI, which would seem to lead to more consolidation to platforms like yourselves. I was just wondering when you're talking to CEOs about AI, how important is it to be able to talk about AI and workflow from an industry context, meaning you all obviously have specialization in areas like government, financial services. How important is the fact that you can bring solutions that address specific industry workflow pain points as well as just more horizontal? Just curious on your thoughts on that. William McDermott: It's a great question, Kirk. There's no question that the customers expect not for you to know their industry, they want you to know their industry cold. They also want you to understand before you show up their mission-critical processes, the objectives of the company and to be very specific and pointed on exactly how your technology is going to move their needle. And we use our own AI platform to do that for every seller in the company. So when we show up, we show up with that domain expertise, the deep list of logos, and we can get extraordinarily specific about what we're doing with the platform and what we could do for them with the platform. And we also have thought about that in the coverage model and how we go to market. So where you have critical mass or you have large customers in a cohort like financial services, like public sector, as an example, like telco, like high-tech manufacturing and so forth, we try to structure the coverage model that way. And all the things that we do in the command center behind the scene are always industry-specific. And Amit, you may want to build on that. Amit Zavery: Yes. So Kirk, other things we do is we have a team which is very focused on industry solutions. What they do is they build out data models, which are very specific to particular industry. And look at the example like Ulta Beauty, where we do retail store operations. Our Agentic flows are built specifically for what you require to manage a retail store, the maintenance, the life cycle and the cases the retail store operator require help with because we built that into our Agentic platform and not just a generic offering, but very specific to that use case so they can go live faster. And we're doing the similar kind of things for other industries as well. We do that for manufacturing. We do that for industrial production. We have done a lot of work around health care, financial services, telecommunication. And we partner also with companies who have very good domain expertise in there. So we build joint solutions we can take to market in that area. For example, we did things for financial services with Visa for dispute management, which is built together on our industry data model, which every customer can take advantage of. So a lot of things going on. It's just not that we provide you a platform, which is generic, but also a lot more specific domain expertise built inside it. Operator: Your next question comes from the line of Keith Weiss from Morgan Stanley. Unknown Analyst: This is [ Ryan Lance ] on for Keith Weiss. I guess I'm just curious if there's any updates around MoveWorks and if there are any changes in how you're thinking about that process closing? And I guess just on that, I mean, the Now Assist performance has been really encouraging. And so just curious if you could provide some additional thoughts around what MoveWorks brings to the table to continue to strengthen that AI suite. Gina Mastantuono: Thanks so much. So with respect to MoveWorks, we're expecting at this point that we'll be closing -- hopefully closing that deal at the -- towards the end of Q4. So very excited about what MoveWorks is going to bring to us. But at the same time, pretty important to note that the incredible Now Assist results that we've had have been all on our own without MoveWorks. And so as you think about moving into 2026, ServiceNow plus MoveWorks is going to add a whole other level to what we can provide to our customers. And I'll let Amit take like more specific about what MoveWorks is going... Amit Zavery: n So as Gina mentioned, I mean, I think we are -- our initial thesis around MoveWorks still remains the same, right? We're looking at a company which brings a lot of good AI expertise and talent to allow us to accelerate our road map. But we've been doing a lot of work, as you see with our new capabilities with the Zurich release and things we're doing around the AI lens and other things we've delivered today. So those things are all progressing well. Customers are appreciating it and the adoption has been great. We will -- as MoveWorks come on board, we will, of course, accelerate a lot more stuff together, but nothing is dependent on it right now. Operator: Your next question comes from the line of Peter Weed with Alliance Bernstein. Peter Weed: I think one of the really innovative and exciting opportunities you've been talking about is the AI control tower. And I wanted to kind of pick your brain on how you see the demand from buyers. Is this a type of thing where people are investing in the control tower as they start on their AI journey? Or does the buyer really need to get to kind of a certain maturity level before they realize its need and then they kind of come back and invest in it? And if you think of through that model, like how does the commercials ramp and how material can this opportunity be for ServiceNow over time? Amit Zavery: Yes. So Peter, on the AI control tower, it's been one of the biggest interest from any customer we speak to. because every customer, when they're thinking of AI adoption and Agentic, they're worried about control. They don't know how to manage the security. They don't know what to do with trust, safety, regulatory requirements. And AI control towers solves that problem. As soon as we start talking to customers, it resonates instantly. That's why our business in this area and customer base grew by 4x in this quarter itself because there's so much proliferation of different pieces of technologies out there in customer base, and they need something which can control it and manage it for them. Just like we were doing that for various assets, we are now doing it for AI. And what we have done is we have integrated all the different systems out there to give you full visibility and control. And that resonates and that's where the growth is coming for. If you look at our risk business, the security business, AI control tower is pulling that into a lot of more conversations than we would otherwise have been because of our end-to-end capability around security, risk, compliance and giving you full life cycle control and cost management around AI. And we are very heterogeneous end-to-end, and that's where the use cases are emerging from. And that's driving a lot of consumption. As you said, the business will continue to grow in this area because we are probably the only provider like this in the industry today. William McDermott: And to build on that, Peter, I recently was on a trip in Europe, and you take great companies, as an example, like an AstraZeneca, they're using the control tower to manage and govern all their AI initiatives at scale, and they have implemented ServiceNow agenic AI across the organization to drive employee productivity because they want to free up time for innovation to double the medicines that they bring to market, and they want to do it faster than any competitor. And I think Amit nailed it, but I would also, especially when you get to Europe and Asia, ethical, compliant and secure is really radiating as important attributes of our platform. because they see what's going on in the headlines with security challenges out there. And that's what this unified architecture does. It's AI, but it's ethical compliance, secure and you can coordinate all your efforts across legal, the security function, internal audit, IT. And these are really important matters. And the AI control tower is going to give organizations that clean pane of glass, that simple control tower to drive AI strategy, governance, management and performance across all of their AI investments. This AI sprawl that's gone on right now, whether it's built in-house proof of concepts or externally sourced dreams that haven't quite worked out are really getting cleaned up by the AI control tower in this platform. So I think having a single governance framework is absolutely a breakthrough for enterprises, and they all appreciate it at the C-suite, I can tell you that. Operator: Your next question comes from the Brad Sills Bank of America Securities. Bradley Sills: I wanted to ask a question also on -- now Assist, just given the momentum you're seeing here. I wanted to get your thoughts on the pricing change earlier this year. Do you feel like that has been well received? Has that been an unlock for you as you're starting to see some of the momentum here? Do you have the right pricing model in place? Do you kind of feel that way? And then also some of the deal metrics you mentioned sound like you're getting to a place where probably have some pretty decent lighthouse accounts for reference with Now Assist. Do you feel that, that could be a catalyst for more Now Assist deals to come? Amit Zavery: Brad, so the pricing we introduced for -- now Assist and this idea of combination of subscription and consumption, a hybrid model has been very well received by our customers. They like this idea of having flexibility as well as predictability in this model, where we can give them the capability to adopt as they need to and then they pay based on usage over time. And then if they run out of tokens, they can re-up as well. So that structure has worked perfectly for our customers. We're seeing a lot of interest in terms of adopting this kind of structure by other vendors as well because they're seeing what we have done works very well for everyone today. So we're very happy with the structure. It's already been playing out with the way we expected in terms of consumption and the idea of adoption and usage going up very fast, while we, of course, get the subscription revenue upfront. So the combination has played out, and I think it's the right structure, and we continue to add more to it with other products as well. So you should expect continuous that kind of structure going forward. And the other question you have around our lighthouse accounts, there are a lot of customer examples we shared with you earlier, Ulta Beauty, AstraZeneca, City of Raleigh, who are doing a lot of deflections using Now Assist and doing a lot of adoption around AI control tower as well as using this to automate the business processes. So that lighthouse accounts, of course, help us to go and talk to other customers with a similar kind of use cases and get that adoption going very fast as well. William McDermott: And Brad, I have to say, just as a point of pride, when the world's most valuable company is one of those lighthouses, I can only tell you, it just really, really touches my heart. And I think every single part, all 28,000 at ServiceNow to proudly say that NVIDIA runs ServiceNow. It's super exciting. Operator: Your next question comes from the line of Arjun Bhatia with William Blair. Arjun Bhatia: I had 2 questions, hopefully quick ones. Bill, first, I'm curious, just in terms of where you see interest in adoption, is there a particular workflow that sticks out or that customers are adopting first? And then is it IT and then you see them expand to customer and HR and other workflows for your analysis SKUs? And then second question, just on -- in terms of monetization. Gina, I'm curious if the $500 million that you have planned by the end of the year, how much of that is the subscription uplift piece versus the token consumption? Or should we think of consumption kind of layering in more in 2026? William McDermott: Thank you very much for the question, Arjun. I'll start and then give it to Amit, but I'll just focus on the category of CRM, if I might. It's fascinating to see what's happening and how quickly that dynamic is changing because of AI. I recently met a CEO of one of the largest companies in the world, one of the most prestigious companies in the world, and they also happen to retail very glamorous, wonderful products all over the world. And the conversation revolved around the social media and the idea of TikTok and the real-time understanding of what's going on in the market, but then also having a tremendous ability to use AI as a secure portal for the customer to configure, price and quote all of their online interest and have that fulfilled in a way where they get the right product at the right price at the right place in the form factor that the customer wants and then ultimately, to service that account and make sure that customer is one for life. The net present value of the loyalty effect is still every business's greatest asset. And when I explained how we did it and how that was unique in an end-to-end platform that we built, and that was our AI, and it was a single customer experience and you could meet the customer where they are. And in fact, you could even automate that supply chain on the fly if you found that, that TikTok ad hit a strike zone for you in the marketplace. And he was like, "Oh, wow, this is a whole different conversation because this is what I'm doing now, and this is how my people are spending their time, and this is the fragmented nature of the customer relationship across multiple clouds." And I said, I understand. And he said, "Please, can you bring your people in right away?" And I said, you got me. You don't need anyone else. Let's just do it. And he said, "Let's go for it." So that's where it's at. Amit Zavery: I'll just add. I think Bill talked about the CRM use case. The one which we're also seeing a lot of interest is this idea of autonomous IT, where you have 0 cases being created, all automatically be solved for any kind of IT incidents. Security is another use case, which is becoming very, very common for us where incident management for any kind of issue which we might have inside the company with VPNs or security-related stuff as well. The idea of triaging and case resolution for those kind of use cases are becoming a big part of this whole workflow where customers are adopting it very fast because it reduces the cost, automates the system, gets better efficiency, but also much more predictability in terms of how you run and operate your individual departments as well. So it's helping that. Same thing happening with HR. We're doing something similar with finance, supply chain, procurement. All of these areas have particular specific prepackaged flows we provide, which makes them much more automated going forward. Gina Mastantuono: And then to your second question, Arjun, on the $500 million in expected ACV for Now Assist, subscription versus consumption. First, I want to just mention that we continue to see price uplift for Now Assist of over 30%, which is powerful. Of the $500 million, while we're seeing incredible growth in Assist, consumption won't materially start impacting for a little while. So that $500 million at this point is just the subscription piece. So as you think about the flywheel and the longer-term opportunity, it's extraordinary. Operator: We have time for 1 last question. And your last question comes from the line of Keith Bachman with BMO. Keith Bachman: I wanted to drill down, if I could, on the security piece. It was highlighted in the prepared remarks. And the question really relates to, are you actually seeing an acceleration as security crosses into that $1 billion ACV threshold? And does it include benefits from AI within the context of security? And if so, how? And Gina, since I'm just -- on the last question, I just want to sneak in one more. Your previous guidance on margins for '26 were plus 100 for operating and plus 50 for free cash flow. Does that still hold on the higher base? And that's it for me. Congratulations on the quarter. Amit Zavery: So let me, Keith, address the security question you have. Definitely, the big tailwind we are seeing is AI creates a lot of security issues for every company out there. When you're starting to adopt so many different pieces of technology in AI, you need to be able to manage them, have visibility, control. And any incident happens, you have to do that proactively support that and fix that very quickly across the organization. So the CISOs are coming to us for asking for help to really automate the processes of resolution, incident management and triaging those cases as well. So that's a big tailwind for us. Second is around risk management as well because every company is worried about what exposure do you have, what systems are you using, how much you're paying for it and what is the outcome you got out of it, right? So our risk management profile we created in our security business gives you that full visibility. So AI control tower as part of our security products really makes a huge difference. So that's why we're seeing a very, very good adoption interest. And as you heard, we crossed the $1 billion ACV threshold and very, very excited about what we can do in this area, and we keep on investing to make sure that we take a lot more part of this market because there's a lot of demand driving this kind of request to us. Gina Mastantuono: And then on your second question, Keith, on the previous margin guidance, the raises that we're making to 2025 op margin and free cash flow margin guidance certainly accelerates the trajectory of our margin accretion. I'm not going to update guidance yet. I'll share more specifics on 2026 and long-term margin outlook next year. We're certainly encouraged by the operational efficiencies that we're already seeing from AI because they're providing clearly incremental leverage and additional headroom for further margin expansion. However, as you know, if there's opportunities for us to make good ROI investments to accelerate growth, we will make them. The other thing I'll just comment on, you're seeing a bit of lower CapEx as a result of data center spend rationalization as some of our workloads move to hyperscalers. And so we definitely are excited about the potential for incremental margin expansion. We always reserve the right to reinvest back into the business if we see opportunities for higher growth. But what this ServiceNow business shows, I think, with our Q3 results and the guide is that we have incredibly durable long-term growth opportunities with absolute best-in-class margin profile that continues to accelerate and accrete. William McDermott: Gina, if I may add one thing to your very perfect comments. This is the only enterprise software company in the world that for the last 10 years has operated above the rule of 50-plus between the 20-plus revenue growth and the free cash flow growth of the company, the only one in the enterprise. So you have every reason to believe the next 10 are going to be even more exciting because of the AI revolution. We're pumped up. Operator: Ladies and gentlemen, that concludes today's call. You may now disconnect. Thank you, and have a great day.

88天前Insight Analytics约5分钟阅读

RWT 2025 Q3 财报电话会议

Operator: Good afternoon, and welcome to the Redwood Trust Third Quarter 2025 Financial Results Conference Call. Today's conference is being recorded. I will now turn the call over to Kaitlyn Mauritz, Redwood's Head of Investor of Relations. Please go ahead, ma'am. Kaitlyn Mauritz: Thank you, operator. Hello, everyone, and thank you for joining us today for Redwood's Third Quarter 2025 Earnings Conference Call. With me on today's call are Chris Abate, Chief Executive Officer; Dash Robinson, President; and Brooke Carillo, Chief Financial Officer. Before we begin today, I want to remind you that certain statements made during management's presentation today with respect to future financial and business performance may constitute forward-looking statements. Forward-looking statements are based on current expectations, forecasts and assumptions, include risks and uncertainties that could cause actual results to differ materially. We encourage you to read the Company's annual report on Form 10-K, which provides a description of some of the factors that could have a material impact on the Company's performance and cause actual results to differ from those that may be expressed in forward-looking statements. On this call, we may also refer to both GAAP and non-GAAP financial measures. The non-GAAP financial measures provided should not be utilized in isolation or considered as a substitute for measures of financial performance prepared in accordance with GAAP. A reconciliation between GAAP and non-GAAP financial measures are provided in our third quarter Redwood review, which is available on our website, redwoodtrust.com. Also note that the contents of today's conference call contains time-sensitive information that are accurate only as of today. We do not intend and undertake no obligation to update this information to reflect subsequent events or circumstances. Finally, today's call is being recorded and will be available on our website later today. And with that, I'll turn the call over to Chris for opening remarks. Christopher Abate: Thanks, Kate, and thank you, everyone, for joining us today. On our last earnings call, we announced the acceleration of our strategic transition to a more scalable, simplified operating model, one designed to capitalize on the transformative opportunities we see emerging for our business. We committed to proactively repositioning our balance sheet, freeing up capital from legacy assets and redeploying it into our highly profitable operating platforms. We set a target of reducing our legacy exposure from 33% of our capital at July 30 to 20% by year-end and in support of this transition, repurchased common shares. We can look back now in the third quarter as one of our most productive to date. Across our businesses, we locked or originated nearly $7 billion of loans, a new quarterly record for Redwood. This was despite an otherwise subdued housing market where industry volumes are roughly flat quarter-over-quarter. Our production included a record $5.1 billion of loans locked at Sequoia, $1.2 billion of loans locked at Aspire, which has rapidly ascended to become a market-leading non-QM loan aggregator and $521 million of loans funded at CoreVest across residential investor products. Volume drivers for the quarter included record contributions from bank sellers and a host of new distribution partners that have enabled us to turn our capital quickly and speak for more production. In step with the growing opportunity across our mortgage banking platforms, we've continued to scale them profitably, generating a core segment's EAD of $0.20 per share for the third quarter. We've now maintained mortgage banking segment ROEs above 20% for 5 consecutive quarters while boosting capital allocated to these businesses by 80% over that time. Importantly, this growth hasn't come at the expense of efficiency. We continue to build out an AI infrastructure and core in-house capabilities, owning our data, models and workflows while leveraging AI-driven document intelligence to extract data at scale and accelerate turn times. We're also partnering with leading Silicon Valley tech firms to stay ahead of curve. Our AI tools aren't just operational upgrades. We expect them to become strategic assets that will help us drive scale and manage risk as volumes reach new heights, just as they did this past quarter. On the heels of such a productive period and in recognition of the ongoing success of our existing partnership, we announced today that we have expanded our relationship with CPP Investments by extending the investment period of our joint venture and significantly increasing our corporate secured borrowing facility to $400 million from $250 million. We look forward to building on this foundational momentum with CPP Investments, and we'll now turn our attention to fundraising for our flagship Sequoia platform, where growth prospects underscore the opportunity for additional institutional capital. Turning to our legacy portfolio. We significantly reduced our capital allocated to this segment in the third quarter with it now representing 25% of our total capital. The noise of the legacy transition continues to play a part in our consolidated results, which Dash and Brooke will cover, contributing to a small decline in GAAP book value to $7.34 per share at September 30. Book value also included the effect of our $0.18 per share dividend paid to stockholders and 5 million shares of stock repurchased during the quarter. Zooming out on the broader markets, we are closely watching developments across the credit landscape and U.S. economy. Recent bankruptcies affecting clients of several large banks underscore growing pressure in certain consumer asset-backed sectors. These events may appear isolated, they echo earlier chapters of the credit cycle, reminiscent of conditions that preceded the mortgage reforms implemented after the global financial crisis. By contrast, today's residential mortgage market benefits from more rigorous underwriting standards, enhanced transparency and stronger data integrity, principles deeply embedded in Redwood's credit culture and capital markets practices. And as we continue to see strong growth in the private label securitization market, our advocacy in Washington to make capital flows into securitization more efficient is bearing fruit. Amidst a very ambitious agenda, SEC Chair Atkins launched a concept release in late September on how to streamline non-Agency RMBS disclosures, which we think has the potential to crowd significant new capital into the sector and deepen demand for the assets we create. As we progress through the final quarter of the year, we continue to capture market share in what has been a very subdued housing market. However, with mortgage rates on the decline and with the prospect of further monetary easing ahead, we're optimistic that the housing finance sector will once again resume strong growth in the year ahead. With that, I'll turn the call over to Dash to discuss our operating results in more detail. Dashiell Robinson: Thank you, Chris. The third quarter witnessed our strongest operating performance in the Company's history with ample progress in further reallocating capital to continue profitably scaling our core activities. To start, Sequoia launched $5.1 billion of loans in the third quarter, a 53% increase from Q2 and a record for the platform. Against a more muted market backdrop in which many other large players reported minimal to no production growth, our volumes with both bank and nonbank sellers grew by over 50%. We estimate that our seller network now covers approximately 80% of market share for jumbo production, up from 20% to 30% as recently as 2023. In step, our estimated jumbo market share is now 7%, up from 1% to 2% over the same time period. This deeper access must be complemented by crisp execution, a continued strength of our platform across a deepening set of products. Sequoia's third quarter activity was split between traditional 30-year fixed, hybrid ARMs, closed-end second liens and a number of other products, underscoring our role as a one-stop provider of timely and flexible liquidity for our loan origination partners. Of note, 48% of our third quarter volumes were bank collateral and 25% was tied to seasoned loans, reflective of trends we have anticipated for some time, namely a resurgence in bank M&A activity and increased rigor within bank C-suites in evaluating the true return profile of funding long-duration mortgages with deposits, irrespective of where the final Basel endgame rules land. By design, our operating progress has been coupled with continued momentum in distribution. Year-to-date, we have distributed nearly $9 billion of collateral tops in the market across 13 securitizations and whole loan sales to a variety of partners, including $2.6 billion in the third quarter. This already eclipses full year 2024 activity and with demand for securitization still elevated, notwithstanding a modest recent backup in overall execution. We expect activity to continue at pace heading into year-end. Complementing Sequoia's growth is our emergent Aspire platform, whose expanded loan program we launched in January of this year. This business primarily focuses on loans for prime quality borrowers who require an alternative underwriting approach, including a valuation of personal bank statements or rental income tied to the property. Aspire's $1.2 billion of third quarter locks were nearly 4x second quarter volume. The business closed the quarter with a record month, $550 million in September alone, profitably establishing a run rate we expect to build upon in the quarters ahead. The pipeline continues to reflect a focus on well-underwritten loans to high-quality borrowers with third quarter production carrying an average credit score of 749 and average LTV of 71%. Aspire's emergence as a top 5 aggregator of non-QM loans underscores both the institutional strength of our platform and sellers' growing preference to consolidate relationships as they expand their own product offerings. A key element of Aspire's business plan has already played out. Existing sellers are meaningfully broadening the range of products they deliver through the platform. As recently as 18 to 24 months ago, many of our core seller relationships were brokering out or otherwise not directly addressing the expanded credit market, which market observers estimate could be up 40% from a year ago and top $125 billion in size in 2025. The shift has been noticeable and bodes well for the expanded credit market overall and Aspire's growth prospects in particular. Sellers seeking seamless and one-stop solutions for their products can now come to Redwood for their entire suite of non-agency offerings. Concurrently, Aspire continues to make important inroads with relationships new to our platform, critical progress to grow the platform responsibly, diversifying our seller base and thereby driving reliable margins. The platform grew its loan originator partner base by nearly 50% in the third quarter with plans to continue growing further, including with several top originators in the coming quarters. While Aspire's distribution thus far has been focused on whole loan sales, we are in process to expand our distribution efforts further through securitization and joint ventures, outlets where we have had success in other channels of our business. Our residential investor loan platform, CoreVest, continued to evolve its production mix while achieving its highest quarterly volume since mid-2022. Notably, originations within CoreVest are increasingly driven by smaller balance products. Originations of residential transition loans or RTLs and DSCR comprised 40% of Q3 volume and are up 45% versus the same period last year. The smaller balance market remains a significant opportunity for CoreVest, given we have been relatively underpenetrated in a space that continues to grow and remains in demand with our capital partners. The broader origination landscape for investor loans remains robust but uneven as many platforms competitive posture, as always, ebbs and flows in step with their access to capital. Depth of distribution remains a competitive advantage for CoreVest, which has distributed nearly $1.5 billion of loans year-to-date via joint ventures and whole loan sales. Concurrent with our operating progress, we significantly reduced our exposure to legacy investments since the end of the second quarter. We sold our full reperforming loan portfolio, SLST, and approximately half of our third-party HEI investments at accretive levels versus our June 30, 2025 marks, while also resolving or transferring a significant portion of our legacy bridge loans, including selling over half of the portfolio into a partnership structure capitalized with multiyear nonrecourse borrowings with preferred and residual co-investments by a third party. Pro forma for these activities, legacy investments now represent approximately 25% of total capital, down from 33% at June 30, 2025, with further reductions expected through year-end, primarily through additional resolutions in the legacy bridge portfolio. I'll now turn the call over to Brooke to discuss our financial results. Brooke Carillo: Thank you, Dash. For the third quarter, we reported a GAAP net loss of $9.5 million or $0.08 per share compared to a loss of $100 million or $0.76 per share in the second quarter. The GAAP loss primarily reflected transaction-related expenses associated with the resolution or transfer of approximately $600 million of legacy bridge assets and an ongoing net interest income drag from our legacy investment portfolio. Book value per common share was $7.35 at September 30 compared to $7.49 at June 30, and our economic return on book value was 0.5%, including $0.06 per share of accretion from share repurchases. Total repurchase activity since June was 6.5 million shares or 5% of our outstanding common shares. On a non-GAAP basis, core segment's earnings available for distribution or core segment's EAD was $27 million or $0.20 per share, representing a 17% return on equity. This compares to $0.18 per share in the second quarter and underscores the continued earnings strength of our 3 core segments: the Sequoia Coya Mortgage Banking, which currently includes our Aspire platform, CoreVest Mortgage Banking and Redwood Investments. Across our operating platforms, we've increased capital allocation by more than 80% since mid-2024, including a $160 million increase since the end of the second quarter. Combined GAAP return on equity for mortgage banking segments reached 28% in Q3, marking the fifth consecutive quarter returns exceeded 20%. At Sequoia Mortgage Banking, segment net income rose to $34 million, producing a 29% ROE compared to $22 million and a 19% ROE in the prior quarter. Total locked volume reached $6.3 billion, including $5.1 billion from Sequoia and $1.2 billion from Aspire. Gain on sale margins averaged 93 basis points at the high end of our long-term target range. CoreVest Mortgage Banking generated $3.5 million of segment net income and a 30% EAD return on equity. Funding volume of $521 million, the highest since 2022, was up 14% year-over-year, supported by strong loan distribution and a shift in production mix towards term, DSCR and smaller balance bridge products. Redwood Investments delivered segment net income of $10 million and a 10% EAD ROE. The modest decline in net income relative to the second quarter was attributable to paydowns and sales of third-party securities, partially offset by gains on retained investments as rates declined and spreads tightened. We deployed approximately $30 million of capital into assets sourced from our operating businesses and completed our fourth nonrecourse financing trade of retained investments, reducing total securities repo balances to just $28 million, which is down 85% from Q3 2024. The investment portfolio saw steady to declining delinquencies across products, including 90-plus day delinquencies on securitized bridge loans that now sit below 3% and where we continue to see healthy repayment velocity. Turning to legacy investments. The segment reported a $22 million net loss driven by the transaction costs and continued net interest margin pressure. On the $1 billion of assets sold or transferred this quarter, we recorded an approximate $0.05 EAD loss equating to negative 15% return versus returns exceeding 20% across our operating businesses, where the $150 million of capital generated from resolution activity will be redeployed. Total operating expenses decreased 3% or $1.7 million from the second quarter, driven by lower portfolio management costs. This was partially offset by higher G&A related to personnel and other expenses supporting the growth of our newer platforms. Across all operating segments, we saw continued gains in operating efficiency with notable improvements in cost per loan, reflecting the benefits of record quarter origination volumes this quarter. Turning to our balance sheet and capital structure. Our overall recourse leverage increased from 3.2x to 4x, driven by warehouse utilization tied to record mortgage banking activity. Excluding recourse leverage from our mortgage banking businesses, our combined corporate and portfolio leverage ratio declined from 1.9x to 1.6x, consistent with the ongoing repositioning of the balance sheet towards our operating platform. The 2.3x of recourse leverage associated with the warehouse lines remain well supported by highly liquid jumbo loans where we turn capital quickly. Recourse debt balances increased by [ $771 million ] from the second quarter, reflecting record funding volume of $5.1 billion and $2 billion of which has already been sold or securitized month-to-date. Subsequent to quarter end, we retired our 2025 convertible notes and as announced today, expanded our revolving credit facility by $150 million to $400 million in total capacity, extending the maturity to September of 2028. These actions strengthen our liquidity, simplify our debt profile and increase flexibility to support continued growth in our core platforms. In addition, our company-wide cost of funds declined approximately 40 basis points from the prior quarter, driven both by lower SOFR rates and narrow net spreads across our aggregate facilities. To close, Redwood is executing with focus and consistency. We are simplifying our business, scaling our core platforms and redeploying capital into higher return opportunities. The progress this quarter underscores the strength of our operating model and the earnings potential of our core segments, repositioning Redwood to deliver sustainable profitability and long-term value for our shareholders. And with that, I'll turn the call back over to the operator for questions. Operator: [Operator Instructions] Our first question comes from Bose George from KBW. Bose George: First, I wanted to ask about the EAD sort of longer-term earnings power. You noted you largely expect the legacy assets to be rolled off by 2026. And so when you look at the earnings power after that, should we look at the non-GAAP core number this quarter was $0.20 plus the deployment of all the capital that comes out of -- that's still in the legacy piece. Is that kind of the way to bridge to sort of the earnings power after? Christopher Abate: Bose, I can start on that one. The short answer is yes. I think as the legacy segment winds down, our earnings -- our consolidated earnings will start to look a lot closer to what we're generating in EAD today, in core EAD. So as you said, that was $0.20 exceeded the dividend. I think that's -- the redeployment is going to be a question of how quickly we can wind that down. But certainly, in the third quarter, we turboed it, so to speak. And I think Brooke mentioned, we freed up $150 million of capital for reinvestment. So that was capital that was generating a negative return on a consolidated basis and now can be redeployed into the mortgage banking segments, which I think we stated have generated greater than 20% ROEs for the past 4 or 5 quarters. Bose George: Okay. And just in terms of the $0.20, that basically just strips out the legacy piece. But as you redeploy that, there'll be essentially whatever, 20% return on that piece, right? So that's sort of incremental to the $0.20. Is that -- is that fair? Brooke Carillo: Yes, that's right. We still have $400 million of capital associated with our legacy segment. So as that capital is freed up, absolutely, that will be redeployed into mortgage banking. Bose George: Okay. Great. And then just one other quick one. The GAAP -- the ROE on the Redwood investments, the non-GAAP EAD ROE looked like it was -- last quarter, I think it was 16%. This quarter, it looked like it was 10%. Was that right? So can you just discuss like what drove that? Brooke Carillo: Yes, I'm happy to. So a lot of it came from just lower NII from our investment portfolio. We actually saw our net interest income up about $1 million overall, and you're really starting to see kind of the benefit of our mix shift here where our capital is being redeployed from the portfolio into mortgage banking. So I think our mortgage banking NII was about $5 million. This was really from sales primarily in payoffs. We had about almost $450 million of payoffs in our bridge and term loans across our consolidated assets. So that was the reason for that. Operator: Our next question comes from Rick Shane from JPMorgan. Richard Shane: I have to queue in a little faster because Bose asked most of what I wanted to discuss. But look, basically, if you sort of look at the time line in terms of what you're describing for releasing capital from the legacy investment portfolio, it's about $100 million a quarter that's going to run off over the next 4 or 5 quarters. When we look at the 3 remaining core businesses, I'm curious if -- which of those businesses will actually generate additional net income with additional capital? For example, does the mortgage banking business, is it capital constrained right now? Or is it a market share issue and that additional -- it will be about market share growing regardless of capital? Or -- and so how should we think about that actual capital being allocated to the 3 different businesses? Christopher Abate: Rick, I'll take a stab at this one to start. I would say we've shown -- I think we said we've grown capital to that sector 80% or so over the past 4 or 5 quarters. So effectively, what that means is every dollar that we've been able to free up, we've deployed. And I think that dynamic will continue into the foreseeable future. So as we free up more capital, we have uses for it fairly quickly in mortgage banking across the 3 platforms, candidly. We had a record quarter in Sequoia. We mentioned that Aspire grew 4x quarter-over-quarter. So when you think about those growth rates, the need for capital is going to continue to be there. It's a big reason why we continued -- extended our relationship with CPP Investments, which is a great partnership for us. And so I think we're pretty excited about our ability to deploy capital in the core businesses here over the next year or so. Richard Shane: Got it. Okay. That's helpful, Chris. And when we think about it and over the last 2 quarters, the math, the ROE math for Sequoia is book ended 19% to 28% ROE. Even on the low end, that's obviously very attractive and supports the dividend. I am curious when you think about what drove the expansion and how we think about that going forward, is that ROE expansion a function of scale? Or is it more a function of shape of the curve and a particularly favorable environment in terms of margin in that business? Dashiell Robinson: Rick, it's Dash. Great question. It's probably a little bit of all of the above. We've always strived to be as capital efficient in that business as possible. Loans on average are coming on and leaving the balance sheet within a month. We could probably continue to do that more efficiently. We've done now 13 securitizations already year-to-date, which is obviously above 1 per month. So that's very, very helpful. So capital efficiency is part of it. Our operating efficiency just in terms of just expenses to revenues continue to improve. Those improved notably from quarter-on-quarter. So that's obviously helpful from just an overall expense ratio perspective. The other big emerging story, which we talked about is just the synergies between Aspire and Sequoia as well. We're just scratching the surface within Aspire in terms of our market share. Our implied market share annualized in that business in Q3 is probably like 3% or so if you extrapolate our volumes versus full year volume. So you asked about market share. And I think for different reasons within Sequoia and Aspire, those businesses are primed to continue to grow wallet share. Aspire, in particular, onboarding new sellers and penetrating existing Sequoia sellers. And as I mentioned, our adding their product suite, that's a very big deal. We talked a lot about bank posture, just the percentage of bank collateral that Sequoia did in the third quarter was close to 50%. That's very meaningful, particularly when you think about what's going on in bank C-suites, dispositions, rationalization of ROEs. So the runway is really long to continue to grow share, notwithstanding the size of the pie with rates, et cetera. And so I think when you put all of that together, those can continue to drive ROEs to the -- hopefully to the wider end of the book end that you talked about. Operator: Our next question comes from Doug Harter with UBS. Douglas Harter: I guess sticking with returns, just how do you think about the total size of the corporate expense as you look to maximize kind of the overall ROE? And then also, how do you think about what the third-party investment ROE can be as you look to kind of allow the high mortgage banking ROE to fall to the bottom-line as much as possible? Brooke Carillo: Yes. Doug, I'm happy to take that. I think we think it's really important not to view our expense base just in the context kind of of our capital base. We've talked today a lot about our 3 scaled but still rapidly growing operating businesses. And when we think about who we're competing and what we're producing there, on the jumbo side, we've kind of been neck and neck with the biggest bank dealer desk as a prime the top issuer of prime jumbo loans, and we're running that business on a fairly lean operating expense base. Aspire, as Dash just mentioned, just move quickly into a top 5 non-QM aggregator. CoreVest continues to kind of lead in the investor and small business lending. And so -- and meanwhile, for several years, we've really chosen not to raise dilutive capital and instead focus on returning capital to shareholders through buybacks. So our operating expenses, it might look elevated as a percentage of equity, but we think the kind of right way to look at it is the amount of operating leverage and productivity that we have and manage on our platform today. We basically manage $20 billion of assets with about 300 people. And so we remain highly focused on our expense structure, but we also believe that the real path to earnings creation is coming from further scaling our model and addressing our legacy capital rather than shrinking our infrastructure. So I think the third-party focus will remain fairly limited. We kind of talked a lot about our strategic pivot last quarter to focusing on our operating businesses that are franchise. I think we're -- within third party, we're focused on assets that meet our cost of capital today. And obviously, with where we were marked, that helped move assets that we thought were suboptimal from that perspective. Operator: Our next question comes from Don Fandetti with Wells Fargo. Donald Fandetti: Yes. On the Aspire non-QM, can you talk a little bit about how you see the growth of that underlying market and whether or not the GSE footprint shrinking could potentially increase that? Dashiell Robinson: Thanks, Don, for the question. I think setting aside the GSEs for just a second, I think that we see that market just organically having significant growth runway. If you look at just the employment mix in this country, there's more and more consumers who earn nontraditional income away from W-2. I think that's a very big deal. The other piece is awareness. I think particularly with more originators, particularly larger IMBs involved in non-QM originations. I think more of the eligible consumer population that can take out some of these loans is being reached, frankly, now that more originators are involved in this space. Technology, particularly AI, that's a very, very big deal in terms of managing cost to produce in the space. If you think back to when like bank statement loans really emerged 10 or 12 years ago, very manual, took quite a while for an underwriter to responsibly get through underwriting one of those loans. That's significantly shorter now. And I think we're probably just at the tip of the iceberg in a good way in terms of how those efficiencies can come to bear. There's a lot to be careful about in terms of how those underwriting processes evolve. That's something we're very focused on, but that's also a big deal. And then on DSCR, just for context, about 40% of Aspire's volume was DSCR, which is sort of smaller balance rental loans. Rentership in this country continues to grow. I think rentership was up 2%, 3% annualized last quarter when you think about just continued challenges with housing affordability, et cetera. And so I just think organically, Aspire's TAM is going to continue to grow for good reasons. As it relates to the GSE footprint, these are not products that they really do right now. Far be it for me to fully prognosticate around how they think about the footprint going forward. We need to be ready for anything. Obviously, an overall footprint reduction with the GSEs on loan limits would be a huge boon for all of our businesses, probably most notably Sequoia. But even away from what's going on in D.C., we just think the Aspire TAM is growing for good reasons. Operator: Our next question comes from Steve Delaney with JMP Securities. Steven Delaney: So I want to ask a question about rates, which is probably dangerous after Chairman Powell didn't do a very good job at his little speech earlier today. So I guess we don't know where they're going. But what I want to get at is looking at your securitized prime jumbo portfolio and the WACC kind of the coupons within those seasoned loans versus what you're quoting now on new prime jumbo loans. Help us get a picture maybe of what that dynamic looks like. Are you -- do you think your book is going to extend? Or could it accelerate in terms of CPR picking up. And just curious how you're going to approach that? And I got a follow-up related to that, if you would just kind of comment on where you stand with respect to coupon risk. Christopher Abate: Sure. Steve, good to hear your voice. I will take a shot here. I think 1/3 or so of our volume this quarter was refi, refi related. So a lot of -- most homeowners are sort of out of the money. And I think that's reflected in our book as well. So I'm not sure we're going to see much on the back of Powell's remarks today, even though, of course, the market is going to likely sell off in the near-term. But by and large, we're growing the portfolio at a rate where it's trending towards current coupon. And to the extent that continues, the extent we're on a pace of more than a deal a month, and we're retaining subs and likely IO, that puts us in a good position to continue to move the coupon up -- and over time, with the combination of IO, we've got a good balance in the book today. So I'm not sure it's going to be overly meaningful for us because, again, our business today is primarily the moving business. It's mortgage banking, and it's less and less portfolio investing. Steven Delaney: Curious, what is the current -- I haven't been in the market lately, but what is the sort of current range for prime jumbo, 30-year fixed prime jumbo loans? Christopher Abate: We were around 6.25% this week. Again, we'll see what happens on the back of Powell's remarks. Aspire is maybe 100 basis points higher than that. So the market has come down meaningfully. And again, we're starting to see more refi business in our pipeline, but that's been largely absent for the last 3 years or so. So to the extent we do see more easing, QT is officially done. So heading into 2026, if that could become a more meaningful component of our business, that just adds to the opportunity. Steven Delaney: And the refi pick up that you're hearing here recently, is that kind of HPA driven where people have built up some nice equity and they're looking at that. I know that's probably an aspect of the Aspire program, but do you see that even in Sequoia where the people are really coming in and they want to do a little bit of a cash out, whether it's education or whatever the issues are? Christopher Abate: Yes. We're certainly seeing some of that. We have those products. I'd also say that just given the capacity in the origination system, people are getting calls sooner. So the old adage that you had to be 50, 75, 100 basis points in the money to refi I think the combination of capacity and technology has really shortened that up where we are seeing some homeowners refi-ing perhaps 25, 35 basis points in the money. So I think that presents an opportunity for us. And again, technology is a big part of that. We talked about AI and just processing loans faster, getting approvals faster. Those are real upside opportunities for us as we build out the infrastructure. Steven Delaney: Appreciate the comments. The business -- the mortgage business is changing for sure, but it sounds like you guys are kind of riding the wave and right on top of what's going on. So thanks for the feedback. Operator: Our next question comes from Eric Hagen with BTIG. Eric Hagen: Really strong quarter for jumbo volume. We're looking out now like, call it, a year and looking at your capital needs. And so if you stay on this pace, what do you think will be the amount of jumbo volume that you securitize versus sell to third parties over the next year? Christopher Abate: Well, right now, securitization has been a great option for us. I think we have the most liquid shelf in the sector. So our financing costs are the lowest. In jumbo, the subordinates that we retain aren't overly thick. So the actual investment size isn't what it is at Aspire or certainly CoreVest. So that business, we have the potential to grow through securitization for an extended period without necessarily needing outside capital per se. I would say, though, we've been able to invest every dollar of capital that we've put in that business. And I know that we can do more. So I think I mentioned fundraising for Sequoia in my prepared remarks, and we're going to be very focused on that over the next few months. We also -- I think bank business was half of our volume in Q3. Again, that's way beyond where it's ever been. And I think it's reflective of why we're able to grow market share so significantly in a market that's essentially flat from a housing origination activity perspective. So that's another area of partnering with banks. So we've got great options in Sequoia and to the extent we can grow Aspire and CoreVest as well. I think the mortgage banking piece of the business has been pretty exciting for us. Dashiell Robinson: Just one thing I'd add to that, Eric, sorry, is we talked a little bit about the upsize of the CPP secured facility, which I think is important to return to for a second in terms of your question because not only did we upsized that facility by $150 million of capacity, but the -- basically, the borrowing base eligibility is moving in the direction you're indicating, which is more ability for us to use that facility to finance our operating activities in mortgage banking and not just hard assets. And that's -- the upsize is a big deal, but in terms of how we're able to use that capital going forward, that's pretty important, too. Eric Hagen: Yes, that's helpful. That's helpful. What are you guys looking at right now to give you confidence or some visibility that the credit performance in the BPL portfolio has basically been stabilized at this point? Dashiell Robinson: I think it continues to be a vintage issue. We've talked about that for quite a while. I think the issues are -- certainly the issues that have taken longer to deal with or have resulted in higher severities are still very much limited to that really first half 2022 vintage. As Brooke articulated in her remarks, our securitized bridge portfolio, which is basically the last 3 years of production net of prepays is now below 3%, 90-plus -- that's a good number. We're seeing prepay velocity pick up. And if you look at the loss mid within those portfolios, we've seen delinquencies come but be resolved efficiently and in many cases, with little to no severity, which is a function of our pivot over the past few years to smaller balance, more single-family focused collateral. And so Eric, as you know, that business is not a no loss business. But if you look at the composition of what we've been originating, I think multifamily was like 1% of our overall production last quarter. You're seeing it in just the overall roll rates, but also the efficiency of being able to resolve whatever does go delinquent in the last 2, 3 years of production. Brooke Carillo: One thing I would just add to Dash's comments, I know I mentioned the amount of paydowns we had in the quarter, $280 million or so that was bridge. That includes about $67 million of REO and some of our special assets. So we are, I think, not only seeing the payment velocity -- repayment velocity in performing assets, but also moving that legacy book as well. Operator: This now concludes our question-and-answer session. I would like to turn the floor back over to Kaitlyn Mauritz for closing comments. Kaitlyn Mauritz: Thank you, everyone, for joining today. We appreciate the ongoing engagement and sponsorship. If you haven't already, we encourage you also to check out our earnings materials, including the Redwood review and shareholder letter on our website. We're always here to answer questions if you have any. And thank you, and have a good rest of your evening. Operator: Ladies and gentlemen, thank you for your participation. This concludes today's teleconference. Please disconnect your lines, and have a wonderful day.

88天前Insight Analytics约5分钟阅读

BOOT 2026 Q2 财报电话会议

Operator: Good day, everyone, and welcome to the Boot Barn Holdings, Inc., Second Quarter 2026 Earnings. As a reminder, this call is being recorded. Now I'd like to turn the conference over to your host, Mr. Mark Dedovesh, Senior Vice President of Investor Relations and Finance. Please go ahead, sir. Mark Dedovesh: Thank you. Good afternoon, everyone. Thank you for joining us today to discuss Boot Barn's Second Quarter Fiscal 2026 Earnings Results. With me on today's call are John Hazen, Chief Executive Officer; and Jim Watkins, Chief Financial Officer. A copy of today's press release, along with a supplemental financial presentation, is available on the Investor Relations section of Boot Barn's website at bootbarn.com. Shortly after we end this call, a recording of the call will be available as a replay for 30 days on the Investor Relations section of the company's website. I would like to remind you that certain statements we will make during this call are forward-looking statements. These forward-looking statements reflect Boot Barn's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting Boot Barn's business. Accordingly, you should not place undue reliance on these forward-looking statements. For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made during this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements that is included in our second quarter fiscal 2026 earnings release, as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise. I will now turn the call over to John Hazen, Boot Barn's Chief Executive Officer. John? John Hazen: Thank you, Mark, and good afternoon. Thank you, everyone, for joining us. On this call, I will review our second quarter fiscal '26 results, discuss the progress we have made across each of our 4 strategic initiatives and provide an update on current business. In addition, I will be sharing the outcome of a recent study we completed, resulting in an increase to our estimated total addressable market and our long-term store count potential. Following my remarks, Jim Watkins will review our financial performance in more detail, and then we will open up the call for questions. We are very pleased with our second quarter results, which reflect broad-based strength across all major merchandise categories in stores and online and across all geographies. During the quarter, revenue increased 19% compared to the prior year to $505 million, driven by sales from the 64 new stores opened over the last 12 months and consolidated same-store sales growth of 8.4%. In addition to strong sales growth, merchandise margin rate increased 80 basis points compared to the prior year period. The strength in sales and margin, combined with solid expense control, resulted in earnings per diluted share of $1.37 during the quarter, which equates to 44% growth compared to the prior year period of $0.95. The team's ability to deliver strong top and bottom line results reflects the execution of our 4 strategic initiatives, which I'll now spend some time discussing. Let's begin with new store growth. Our new store growth engine continues to exceed expectations while expanding the Boot Barn brand across the country. Halfway through fiscal '26, we have already opened 30 new stores, and we expect to open 40 new stores over the balance of the fiscal year, ending the year with 70 new stores opened. We estimate new stores on average will generate approximately $3.2 million in annual sales and pay back their initial investment in less than 2 years. Consistent with our comments last quarter, the new stores opened over the last 6 years are providing an approximately 100 basis point tailwind to consolidated annual comps. Now turning to our total addressable market and long-term store count potential. The strong broad-based results we have seen across new store openings, merchandise categories and geographies prompted us to revisit the total market opportunity for Boot Barn. Similar to the study we conducted 3 years ago, we have combined our internal analysis with a third-party study to understand the future potential of the Boot Barn brand. This work, which is summarized on Pages 4 and 5 of our supplemental financial presentation, suggests that the market is substantially larger than our prior estimate, and we now believe that our total addressable market has expanded from $40 billion to $58 billion. Turning to our long-term store count potential. New stores opened over the last few years have consistently generated strong sales and earnings across all geographies, which has emboldened our approach to be a stores-first organization. We recently reevaluated our store potential across individual U.S. markets and have combined that analysis with a third-party study to support our estimates. We now believe that the U.S. store count can reach 1,200 stores, and we expect to open 12% to 15% new units annually. As we look towards fiscal '27, the pipeline remains very strong, including 20 projected openings in the first quarter, which will begin in April. I would like to thank the entire team for their tireless efforts in identifying quality real estate, building and merchandising impressive stores, hiring and training both average unit retail and units per transaction of less than 1%. From a merchandising perspective, we saw broad-based growth across all major merchandise categories in the second quarter, led by the ladies business, which comped positive mid-teens. This was followed by the men's business, which comped positive high single digits. Our denim business, which is included in the categories just mentioned, comped positive high teens. Our work boots business comped low single-digit positive and our work apparel business comped mid single-digit positive. We were extremely pleased to see the broad-based growth across categories continue from the first quarter into the second quarter. From a marketing perspective, Boot Barn proudly sponsors hundreds of rodeo and events every single year. We support a broad array of events across the country from local rodeos to national sponsorships such as Professional Bull Riders and National Finals Rodeo. We also have long-standing partnerships with country music artists, Miranda Lambert and Brad Paisley, and we recently announced a new sponsorship agreement as the official boot retailer for the Stagecoach Music Festival. As the largest Western retailer in the nation, we are thrilled to form a partnership between our brand and the largest country music festival. Moving to our third initiative, omnichannel. In the second quarter, e-commerce comp sales grew 14.4% and bootbarn.com, which is approximately 75% of our online sales, comp positive high teens. We are very pleased with the growth in our online channel and attribute a portion of our strong results online to several recent initiatives. I would like to first touch on the rollout of our new exclusive brand websites, which is one of the early visions I had for the company upon assuming my new role as CEO. The primary goal of these sites was intended to provide a vehicle for brand storytelling and to market our exclusive brands as stand-alone brands, similar to that of our third-party brands. As part of this initiative, earlier this fiscal year, we launched a new website and marketing campaign for our work brand, Hawx, and we duplicated that approach late in our second quarter for our largest exclusive brand, Cody James. We are pleased with the initial returns on both rollouts, particularly the large number of net new customers to Boot Barn that are visiting each site. In addition to building the brand awareness and authenticity we had hoped for, we are also very pleased with the early sales on these sites. Another initiative we believe is driving strong results online is the implementation and integration of artificial intelligence. Our omnichannel team has improved the search functionality on our website, utilizing AI, which now offers the customer a wider range of search results and more product recommendations when they browse the site. In addition to the new search experience, Boot Barn is leveraging AI to enhance product copy, support store associates through our Cassidy assistant and develop multimedia training modules. While still in the early stages, we continue to look for opportunities to integrate AI to improve the customer experience and drive efficiencies. Lastly, our strategy to open new stores not only expands our national footprint, but also benefits online sales. When a Boot Barn store opens in a market, we see a noticeable increase in online sales volume in that store's vicinity. A brick-and-mortar location legitimizes the Boot Barn brand for a new customer and many omnichannel offerings provide a seamless shopping experience for our online customers to also find our store, benefiting both sales in-store and online. I am very pleased with the achievements of our omnichannel team and their collaboration with the stores organization to expand the overall business and provide a great customer experience. Now to our fourth strategic initiative, merchandise margin expansion and exclusive brands. During the second quarter, merchandise margin increased 80 basis points compared to the prior year period and exclusive brand penetration increased 290 basis points to 41% of sales. I'm thrilled with our team's continued ability to develop high-quality product to complement the great assortment offered by our branded vendor partners. I'd like to now provide an update on our pricing strategy. As a reminder, third-party price increases of approximately mid-single digits went into effect during the second quarter. As we discussed on our last call, we made a decision to limit exclusive brand price increases in order to evaluate the customers' reaction. Over the last several months, we have worked closely with our exclusive brand factories in order to mitigate the impact of tariffs to the business. In some instances, we have been able to keep our total product costs relatively unchanged, allowing us to maintain merchandise margin rate without increasing prices. In other instances, we are experiencing increases in product costs as a result of tariffs. The combination of partial cost mitigation and our inventory turns have afforded us the opportunity to wait until after the holidays to implement price increases on exclusive brands without adversely affecting our margin rate in the third quarter. The magnitude of price increases will vary product to product based on current costs as well as where tariff rates settle. Now turning to current business. We are 4 weeks into the third quarter of fiscal '26, and we have continued to see broad-based growth with a consolidated same-store sales increase of 9.3%, driven by an increase in transactions. While we are pleased with the start to our third quarter, as a reminder, October has historically represented 25% of the quarter's revenue with December alone representing half of the third quarter's revenue. We remain cautious of overall consumer sentiment and macro uncertainty that will continue to manage -- and continue to manage our business prudently. That said, we feel very good about the current tone of the business, and we believe we are well prepared for a strong holiday season with exciting marketing campaigns, fresh inventory and a well-prepared field organization ready to provide best-in-class customer service. I would like to now turn the call over to Jim. Jim Watkins: Thank you, John. In the second quarter, net sales increased 19% to $505 million. The increase in net sales was the result of the incremental sales from new stores and the increase in consolidated same-store sales. The 8.4% increase in same-store sales is comprised of a 7.8% increase in retail store same-store sales and a 14.4% increase in e-commerce same-store sales. Gross profit increased 20% to $184 million compared to gross profit of $153 million in the prior year period. Gross profit rate increased 50 basis points to 36.4% when compared to the prior year period as a result of an 80% -- or an 80 basis point increase in merchandise margin rate, partially offset by 30 basis points of deleverage in buying, occupancy and distribution center costs. The increase in merchandise margin rate was primarily the result of better buying economies of scale and growth in exclusive brand penetration, partially offset by higher freight expense. The deleverage in buying occupancy and distribution center costs was driven by the occupancy cost of new stores. SG&A expenses for the quarter were $128 million or 25.3% of sales compared to $113 million or 26.5% of sales in the prior year period. SG&A expense as a percentage of net sales decreased by 120 basis points, primarily as a result of lower corporate general and administrative expenses and legal expenses in the current year period. Income from operations was $56 million or 11.2% of sales in the quarter compared to $40 million or 9.4% of sales in the prior year period. Net income per diluted share increased 44% to $1.37 compared to $0.95 per diluted share in the prior year period. Turning to the balance sheet. On a consolidated basis, inventory increased 20% over the prior year period to $855 million and increased approximately 1% on a same-store basis. Total inventory increased as a result of adding 15% new stores and growth in exclusive brands. We feel good about the health of our inventory and our markdowns as a percentage of inventory are both below last year and historical levels. During the quarter, we purchased approximately 73,000 shares of our common stock for an aggregate purchase price of $12.5 million as part of our authorized $200 million share repurchase program. We finished the quarter with $65 million in cash and $0 drawn on our $250 million revolving line of credit. Now turning to our raised outlook for fiscal '26. Driven by year-to-date results and the strong start to our third quarter, we are increasing full year guidance. The supplemental financial presentation that we released today outlines the low and high end of our guidance range for both the fiscal full year and third quarter. I will only be speaking to the high end of the range for both periods in my following remarks. For the full fiscal year, we expect total sales to be $2.235 billion, representing growth of 17% over fiscal '25. We expect same-store sales to increase 6% with a retail store same-store sales increase of 5.3% and e-commerce same-store sales growth of 13%. We expect merchandise margin to be approximately 50.6% of sales, a 50 basis point increase over the prior year period and includes exclusive brand penetration growth of 240 basis points. We expect gross profit to be approximately 37.7% of sales. We anticipate 30 basis points of deleverage in buying, occupancy and distribution center costs due to the occupancy of new stores and 50 basis points of leverage in SG&A. Our income from operations is expected to be $294 million or 13.2% of sales. We expect net income for fiscal '26 to be $219.6 million and earnings per diluted share to be $7.15. We plan to grow new units by 15%, adding 70 new stores during fiscal '26. We expect our capital expenditures to be between $125 million and $130 million, which is net of estimated tenant allowances of $39 million. And for the balance of the year, we expect our effective tax rate to be 26%. For the third quarter, we expect total sales at the high end of our guidance range to be $700 million and a consolidated same-store sales increase of 4.5%. We expect merchandise margin to be approximately 49.7% of sales, a 30 basis point increase from the prior year period, which includes a 200 basis point increase in exclusive brand penetration. We expect gross profit to be approximately 38.8% of sales, which includes 70 basis points of deleverage in buying, occupancy and distribution center costs. Our income from operations is expected to be $107 million or 15.3% of sales, a 100 basis point deleverage compared to the prior year period. We expect earnings per diluted share to be $2.59. As a reminder, income from operations in the third quarter last year benefited by approximately $6.7 million, primarily related to the former Chief Executive Officer's forfeiture of unvested long-term equity incentive compensation and the reversal of cash incentive bonus expense as a result of his resignation. We estimate in the third quarter last year that this was a 110 basis point benefit to SG&A and income from operations and a $0.22 benefit to earnings per share. Now I would like to turn the call back to John for some closing remarks. John Hazen: Thank you, Jim. We are very pleased with our second quarter and year-to-date results and the positive momentum of the business as we head into the holiday season. I would like to thank the entire team for their hard work and dedication. The company's culture and teamwork are truly remarkable and over the past decade have built Boot Barn into the national retailer it is today. I'm excited about the future growth potential of the Boot Barn brand as we target 1,200 stores across the U.S., and I believe we have the foundation and team in place to achieve this goal. Now I would like to open the call for questions. Operator: [Operator Instructions] The first question comes from Matthew Boss with JPMorgan. Matthew Boss: And congrats on a great quarter. John Hazen: Thanks, Matt. Matthew Boss: So John, could you elaborate on the drivers of October's further comp acceleration? And then on the more than 30% increase to your long-term store target today, does this embed any moderation in unit economics? And maybe if you could speak to regions of largest white space opportunity? John Hazen: Yes, absolutely. Starting with the October business, it was very much in line with the major merchandise categories that we saw in Q2. The one exception being a nice build or acceleration in work boots from a low single-digit comp to a mid-single-digit comp. But otherwise, if we look at women's -- men's and women's boots, men's and women's apparel, it was very much in line with the performance and the comps that we saw in Q2. As we look at the 1,200 store count across the country, our average store right now is a $3.2 million door. And we think that the 1,200 stores will be on average with those stores. We have stores today that do a little bit less than that. We have stores who do a lot more than that. So the 1,200 store count is within the algorithm we have for the current stores that we are building. Jim Watkins: Yes. And just to clarify on that, the $3.2 million being the new store economics, our average stores, as you guys know, are higher than that. Matthew Boss: And then maybe, Jim, as a follow-up, could you just walk through the bridge between roughly 2% comps forecasted for the second half of the year relative to the October performance, 9% plus. Just maybe how much of this is prudent macro haircut versus anything specific to the business? Jim Watkins: Absolutely. So similar to what we normally do, Matt, we looked at the most recent sales volume. In this case, it was the last 3 months, August through October. And similar to what we had starting the year, given that macro uncertainty, including the potential for the softening of consumer sentiment in the second half of the year, we applied roughly a 3% haircut on top of that model to arrive at a plus 2% same-store sales growth in the stores, right? So that's the stores methodology. So if you look at November -- each of the months, November through March, that's kind of how the guidance rolls out a pretty even plus 2% comp in each of those months with a similar haircut as to what we had at the beginning of the year. Matthew Boss: Great, best of luck. Jim Watkins: Thank you, Matt. John Hazen: Thanks, Matt. Operator: The next question comes from Peter Keith with Piper Sandler. Peter Keith: Great results, guys. The TAM increase is pretty impressive from $40 billion to $58 billion, so a 45% increase. I was hoping if you could just unpack that a little bit. And is it specific categories, age demographics, the proliferation of Western wear? Like what's driving this large increase just after taking up about 3 years ago? John Hazen: Sure. So Peter, we partnered with a third party that looked at the demographics, of course, across the country, anyone older than 18. We surveyed roughly 8,000 consumers, looked at the familiarity they had with different brands, eliminated categories that should not be part of the TAM for obvious reasons, looked at the trend of casualization of wearing occasions in the United States, asked some questions about how likely they were to wear certain products. Were they aware of certain types of stores and kind of combined all that information to come up with the new TAM that admittedly included a portion of mainstream denim, by no means all of mainstream denim, but we acknowledge that we've become a little more of a denim destination over the last few years, and that was incorporated into the TAM as well. Peter Keith: Okay. Very interesting. And then you were referencing on the tariffs with price increases, and I just want to make sure we're understanding it. So the branded prices have gone up. You have not taken exclusive brand pricing yet, but you now plan to take exclusive brand pricing up after the holiday. So does that imply you're not really seeing the mix shift that you were hoping to into exclusive brands? John Hazen: Yes, that's correct. We've seen a slight tick up in exclusive brands, and we're at 41% exclusive brand penetration. And there was -- we wanted to see if that penetration could get higher than that. We have not seen consumer behavior change. They're continuing to buy third-party brands, which is good as well. And as we got through the 6-week kind of test period, we took a moment and we realized that the goods that we're going to sell during Christmas, during the holiday season, there are a few components to the cost structure of those goods. One, some of them were brought in pre-tariff. Two, exclusive brands turn a little bit slower than third party given how much we purchase. And three, we had gotten some onetime concessions from our factories overseas that allowed us to have more margin to support holding prices through that lower -- through the holiday season. As we get out of the holiday season and the tariff situation has not abated and in some countries such as India, as you guys well know, gotten a little bit worse, we are going to pivot to preserving margin on exclusive brands, either by mitigation of tariffs with our factories who have been fairly cooperative or in cases where we need to raising prices on exclusive brands, and we will be doing this style by style to preserve the rate for exclusive brands as we get into our fourth quarter and into next year. Operator: The next question comes from Jay Sole with UBS. Jay Sole: John, I want to ask you about your comments about the success of the websites for Hawx and Cody James. Given the momentum that you've seen in the success of those plans, what's your vision now for where you can take the exclusive brands? Like what can they become beyond just brands in the Boot Barn store? Can they become bigger? And how would you do that now that you've seen that new websites have been successful? John Hazen: Yes. We're going to continue to focus on making them big as their own brands, which means they're selling kind of pseudo direct-to-consumer on codyjames.com and hawxwork.com. And then -- but the real goal of these sites is to drive the customer into Boot Barn stores. So there's no plans to sell them wholesale or international at the moment. But looking at the number -- the spend that we've put out, the number of impressions we've had on the sites, the number of folks more importantly, that have clicked through to the sites and then again, this was never about driving sales, but it's been a nice additional sales driver. In Q2, it was a couple of points of comp on the e-comm business. And we weren't expecting much, if anything, from a sales standpoint. It was about the storytelling. So if I think about the goal going forward for the next 12 to 18 months, it's to make the customer excited about Cody James and Hawx and Cheyenne and Idyllwind and then realized the best place to buy those brands is inside of the Boot Barn store. Jay Sole: So that's helpful. If I could just follow up with one. Do you plan on expanding the assortment, in other words, offering more categories on those websites and maybe you have room for in the Boot Barn stores just as a way to dimensionalize those brands? John Hazen: Yes. Those sites will carry the kind of full throated assortment of each of those brands, which I couldn't think of a store that would have the assortment that we have on Cody James or Hawx. We're not going to develop any more product for those sites. But if you want to see the full assortment of Cody James Western and Cody James Work and then our Cody James 1978, which is our higher-end line of denim and boots, that's the place to do it. It's -- we just at an average of 12,000 square feet, could never storytell nor represent the assortment in the way that we can on those sites. And just one other note, it is so much more powerful to tell those stories on the individual sites. You can imagine on bootbarn.com, it becomes a little more difficult as the product is all kind of wrapped in with other exotic boots or other denim. So having a dedicated site where we can tell that dedicated story and show the full assortment, we think, is going to be extremely beneficial. Operator: The next question comes from Steven Zaccone with Citi. Steven Zaccone: Congrats on a nice quarter. To follow up on pricing, can you help us think through the second half? What should AUR be up in the second half relative to some of the commentary you gave? And then I guess a bigger picture of question, why do you think pricing elasticity has performed better than planned? You seem to be bucking the consumer backdrop and transactions are still strong. How much of this is fashion being a tailwind and you kind of positioning yourself as more of a denim destination? John Hazen: Yes. Starting with the AUR portion, we think AUR in the back half of the year will be up 2% to 3% with slowing transactions. And we think that will -- that the slowing of the transactions, as Jim said, will be more about the macro than the AUR being up 2% to 3%. We've raised the price on third-party brands by mid-single digits. And as I said, as we went through this test, we never really saw a change in consumer behavior, and they continue to buy both exclusive brands and the third-party brands, which is a good thing in some ways. So I think our customer, as we look at -- and I know there's been a lot of discussion in the market about the bifurcation between the higher income customer and the lower income customer. We're not seeing that. We've been looking at our income brackets, and it is incredibly consistent, almost identical to last year in terms of the penetration of the lower-end brackets and the higher-end brackets. So our customer is need-based, more so perhaps than others. I don't think it's driven by a fashion trend. If I had to point to one difference in our business than perhaps others out there is the needs-based component of it. Steven Zaccone: Okay. That's helpful. The follow-up question I had was on buying and occupancy. So can you help us think through the buying and occupancy leverage point for the second half of the year? And then with the 12% to 15% growth rate on an annual basis for stores, do you see the buying and occupancy point coming down at some point? Or what should we think is the right leverage point at that elevated store growth target? Jim Watkins: Yes. Great question. So the buying and occupancy leverage point that we identified at the beginning of the year of a plus 7% comp needed to leverage that remains a place that it's probably inched up a little bit higher really due to new store opening timing and our ability to open some of these stores a little bit sooner into this year. And then as we look out to the first quarter of next year, we've got a really strong pipeline with 20 stores in it. And those have actually moved up further within the first quarter. And so we've got some preopening rent that we'll be expensing in our fourth quarter that we didn't anticipate. So that's kind of the leverage point. So call it a 7.5% this year higher than we would like, but for all good reasons of being able to get some really good stores in the queue and ready to be opened up. As far as the 12% to 15%, we've talked over the last few years of how we -- when we accelerated from a 10% to a 15% new unit opening pace that did create a higher leverage point. I think we're about at the point where those are into the system, and we're kind of at this 15% run rate. We're finishing our fourth year of 15% new units. And so in the next year or 2, I could see that coming down a little bit, maybe it goes down to a plus 6% comp. And then after that, we'll just kind of have to see where we land. But with strong openings of 12% to 15% in the future, even after the next couple of years, I don't see that going down much more just because of the volume of stores we will continue to open up, we will put some pressure on that. But stay tuned. We try to keep you updated every year on what we're looking at for the upcoming year. Operator: The next question comes from Max Rakhlenko with TD Cowen. Maksim Rakhlenko: Congrats on all the momentum. So first, in your TAM and store analysis, can you speak to where you see the bigger opportunities for growth ahead regionally? And then as you think about store growth, could we see stores potentially get a little bit bigger? I think that that's what you did a few years ago. So just curious how you think about the right store size to generate the strongest productivity? John Hazen: Yes. As we look at the 1,200 store opportunity, we're going to continue to open stores across the country broadly. We've learned much in the last few years about where we've opened stores and what has worked best. But for competitive reasons, we're not going to go into what we've learned on the call, but we feel very, very good about that road map to open those 1,200 stores. And to the question on size, it's going to be real estate dependent. If you saw what happened with Party City, maybe there were some bigger boxes that became available. So it's going to be more about location than anything. So we're going to continue to be flexible in the size of the box, more so about where it is and its location than the actual size itself. Maksim Rakhlenko: Got it. Okay. That's helpful. And then, Jim, you previously discussed an opportunity to reach a mid-teens EBIT margin over the longer term. With some of the changes that you've made to sourcing, exclusive brand mix as well as exclusive brand margins, the improvement that's still to come there over the next couple of years. Do you see an opportunity to reach that sooner than you previously expected internally? And then just what's the latest thinking about the margin level that the business can generate as you do get closer to this 1,200 store target? Jim Watkins: Yes. Great question, Max. You're right. We've talked about that 15% target. It used to be 10%. We moved past that, and now it's been 15% for a couple of years now, the target operating margin. We had said probably 2 or 3 years ago that it'd be about 5 years to get to that 15%. We've -- at the high end of our range this year, we will -- assuming we achieve that, we will have grown operating margin 120 basis points over a 2-year period. So I would say we're ahead of schedule on that operating margin goal. I think we're going to have to see how we guide next year and the impact of tariffs and the macro and what that does for us. But the opportunity to continue to build new stores in great locations is encouraging. I would say the sourcing strategy that John has talked about for a couple of quarters that were in the early days of implementing. I think there's some really good opportunity to grow margin from that. But as I talked about in the previous question about the buying and occupancy, we do need pretty solid comps to kind of cover that side of it. So I think -- long answer to your short question, I think there's opportunity to get to 15% maybe a little faster than we thought, but I don't want to promise anything beyond that at this point. Maksim Rakhlenko: Got it. That's super helpful. And best of luck. John Hazen: Thanks. Operator: The next question comes from Janine Stichter with BTIG. Janine Hoffman Stichter: I wanted to ask a bit about the geographic performance. Curious if you're seeing anything different regionally. And then anything you've seen in terms of weakness with the Hispanic consumer. It doesn't seem like in the results, but something other companies have called out. So just wanted to see if you were seeing it as well? Jim Watkins: Yes. We did mention, Janine, the geographic -- kind of commented, and I think it was the script that we're seeing nice growth across all geographies. Similar to what John said earlier about for competitive reasons, I don't want to get too far into the detail on which geographies are performing better. But I would say we saw pretty widespread growth across the country. And then as far as the Hispanic customer goes, we have looked at the demographic information that we have, and we really haven't seen much of a change in the shopping behavior of that customer. Janine Hoffman Stichter: Great. And then just a quick one on tariffs. I think earlier in the year, you had said $8 million of tariff headwinds. And since then there's been some changes in rate, but it also sounds like you're maybe taking a little bit more price on the exclusive brands after the holiday. Just where does that number shake out now relative to the initial forecast? Jim Watkins: Yes. I think it's still -- the purpose of the $8 million number was to kind of size up where tariffs were kind of big picture. We've been seeing some really big numbers and wanted to bring that into perspective. And at the time, talked about there being a lot of moving parts, a fluid environment. The tariffs that we spend on inventory don't necessarily get expensed to the P&L until it gets sold, which may be 6 or 9 months later. And so that's not a number we're going to provide an update to at this time. The other piece of it is with the mitigation strategies that our team has been taking and working with the factories, we're able to get the cost of our -- of the manufactured goods down, they're willing to negotiate that down knowing that we have to pay a higher tariff. And so you have a little bit of a blend between what's tariff and what's really lower cost and how that works. So it becomes a little bit difficult to quantify that number as well. So what I would say is that we've factored in tariffs into the margin guide that you see for the balance of the year, and we feel pretty good about that. Janine Hoffman Stichter: And best of luck. Jim Watkins: Thanks, Janine. Operator: The next question comes from Dylan Carden with William Blair. Dylan Carden: Curious now that you're sort of rethinking longer-term TAM store opportunity, where does online penetration kind of net out in your estimate? It seems like with the growth in AI initiatives, it could be higher, if not meaningfully so. And if that's any sort of -- if there's any repercussions from that from a margin standpoint. I think historically, online has run slightly below retail. John Hazen: Yes, Dylan, the online business and the omnichannel team is doing a great job. As you saw in the release, we had a plus 24% in October. The business is doing very, very well. They're investing in technology. They're investing in AI. The very nice challenge they have i,s, we're going to open 70 stores with an AUV of $3.2 million, and that's the equivalent of a bootbarn.com every year. So we think it's going to continue to hover around 10%. I don't see any tectonic shift in that penetration anytime soon. Operator: The next question comes from Jonathan Komp with Baird. Jonathan Komp: I want to ask, John, if you could talk a little bit more about some of the merchandising initiatives that you're pursuing and the effectiveness, whether it's across some of your third-party brands or categories? And maybe within that, specifically for denim, I know denim accelerated Q2 last year and you're -- I believe you're cycling double-digit performance now and looking forward. So any thoughts on the ability to sustain some of the momentum there would be great. John Hazen: Yes, absolutely. The buying team, the merchants, the visual merchants in the store, they've all done -- and I've been in a lot of stores recently have done an incredible job from a merchandising standpoint. Our inventory levels of full-price seasonal merchandise are in a great place. We're at very, very low levels from a clearance standpoint, and we really have become more of a denim destination. So when we started to cycle that -- those strong denim numbers from last year, those were stronger on the men's side. So we still have a little bit of room to grow on the women's side. And as we come into holiday, we're going to be pushing both third-party and exclusive brand denim more so to the front of the store and having better merchandising of that denim. I've said it before, and I'll say it again on this call, as I look at the top 10 styles in women's denim or men's denim, it is almost exclusively boot cut jeans. It continues to be while folks are coming to Boot Barn to buy their denim. It is very still a traditional silhouette in most cases with a nice mix between third-party and our exclusive brands. We do skew a little more exclusive brands in women's denim. But as we go into holiday, denim is absolutely a focus, and we weren't quite where we needed to be last year from a women's standpoint. We are, to your point, comping the men's side of it, and that will be kind of a comp business, but we feel great about denim going into Christmas and the holiday season. Jonathan Komp: Okay. Great. And then, Jim, if I could follow up just as you're thinking about setting guidance here for the second half comps, I think you had some helpful color. Is there a way to think about sort of the range of outcomes you've thought into the second half? I know it sounds like a haircut for macro, but -- have you contemplated any potential tailwinds from stimulus or just any other context around a range of outcomes that you see given the recent momentum here? Jim Watkins: Yes. Yes. No problem, Jon. It is a wide range of outcomes, right? I mean we would love it if there wasn't an impact from the macro and the haircut that we put in there was not necessary. And I know many will ask us about how strong the October business is. And while it's 4 weeks of business and the slower month of the quarter, it's exciting to see how strong the comps are and how well the business is doing. We haven't contemplated or included in there a tailwind from stimulus or any of these bills that come through that might drive some construction or infrastructure build or any of that. It's just too hard to figure out what quarter that would come into. And so that is not included in there. But we feel good about the full year 4% to 6% same-store sales guide and kind of how we've built that. I don't know if I have anything else to add there. Operator: The next question comes from Sam Poser with Williams Trading. Samuel Poser: I just got a couple. One, just -- how many stores by quarter for the balance of the year? I mean, how should we think about that just as a housekeeping. How many stores you opened in Q3 and how many in Q4? John Hazen: We've got 25 stores in Q3 and 15 in Q4. Samuel Poser: And then secondly, one of the things you talked about on the last call in regard to denim was how you narrowed and went deep into the assortment. I'm wondering how you're applying that same concept or if you're applying that -- to what degree you're applying that same concept to other categories, especially in boots across the company and where you are in that, if that is something you're working on? John Hazen: Absolutely, Sam. It's a great call. We have a group of styles that we call tried and true. It's the top 3% to 4% of styles that make up a disproportionate portion of our sales, and there has been a focus from the merchant team to ensure that we're always in stock on those styles. And I'm proud to say that the team is at 90% in stock on those very small number of styles, roughly 1,000 styles, that make up a much larger portion of sales. So that focus that started with that kind of aha moment with denim a year ago has carried through to the rest of the business. There's always more work to be done for sure, but we are absolutely pursuing tried and true or that going deeper on those tried and true styles. Samuel Poser: And are you -- we talked about this before. Are you doing that by region? Like are you getting into the -- sort of into the weeds with it down to region and district levels? Or is that part of the opportunity? And given -- and where were you last year in stock on those tried and trues as a comparison? John Hazen: Yes. The -- I don't have the percentage in front of me for last year on the tried and trues, it definitely was not at 90%. And I think -- to your question on the weeds, I think there is opportunity there. I think what we do is we get down, and this is a function of spending a lot of time in stores. We get all the way down to individual store levels, but what we're not teasing out, I think, is perhaps how we approach it at the district or even the region level. I'll be in stores and go, why do we have X, Y and Z here or we don't have this there. And this happens with all of us visiting stores. So we get perhaps too far down into the weeds at the store level and also need to do that a little bit further up at the district or the region level. Operator: The next question comes from Chris Nardone with Bank of America. Christopher Nardone: So just going back to the price elasticity part of the conversation. Just curious if you're seeing more elasticity in certain categories when compared to others? Maybe is like work showing less elasticity versus fashion? John Hazen: We really haven't seen a change in consumer behavior outside of -- there was one particular brand that raised prices by close to 15%, and we saw a drop. It was a small brand, but we saw a change in their business. When you think about AUR increases, the mid-single-digit increases really did not change the consumer behavior anywhere with the exception of this one particular brand that had a much higher increase in their MSRPs, and we saw a demand drop off. Christopher Nardone: Got it. Okay. And then just as a follow-up. Overall, are you starting to see some more new emerging competition in the Western category given the recent strength? And do you also suspect the holidays will be more promotional relative to last year if you take into account some of the pricing actions from third-party brands? John Hazen: I'll start with the promotion piece. I don't think it will be more promotional than last year. Our promotional cadence is almost identical to what we had last holiday season. This has always been a very rational industry when it comes to promotions. And I think and I believe it will continue to be so. So we are going to have a promotional schedule very similar to last year. Jim Watkins: And we haven't really seen any new recent emerging brands come forth. There are always new entrants into the market. I think at times when, in particular, like ladies Western boots become a little bit more in style or fashionable than some of the more mainstream fashionable department stores and others will sell that, and then they'll get out of it if it slows down. But we haven't really seen any significant sizable entrants into the market. Operator: The next question comes from Jeremy Hamblin with Craig-Hallum Group. Jeremy Hamblin: And I'll add my congratulations to the team. I wanted to ask a question on just some of the margin dynamics that you're seeing. So last year, fiscal '25, we knew that there was some catch-up on incentive compensation, and you saw pretty nice gross margin expansion. This year, you've got headwinds, obviously, related to tariffs. And yet your gross margin looks like it's going to be flattish. You're getting nice leverage on SG&A. And this is all kind of with comps roughly similar to what you did in FY '25. As we look ahead I wanted to see if there were other dynamics that we need to think about in FY '27, not that you're guiding, but are there other dynamics that we should be considering here as we look ahead into calendar '26, either on the gross margin or the SG&A side? Or do you think that the leverage points here, all else being equal, meaning no meaningful changes in tariffs, would you suspect that, that's going to play out similarly? Jim Watkins: I would expect it to play out pretty similarly. The leverage points that we laid out at the beginning of this year, the buying and occupancy at 7%, that probably stays within the range, maybe comes down a little bit. SG&A probably comes up this year, we just need to be at flat and that probably goes back up to 1.5% or 2%. So I think those things stay pretty similar. We do have a little bit of quarter-to-quarter noise. I called out in my prepared remarks about lapping the reversal of incentive-based compensation in the third quarter that we're up against. But on the full year, I think that it should look pretty similar. There's not anything that we know of now that would be -- throw that out of whack. Jeremy Hamblin: Great. And then just as a follow-up question on exclusive brands. So you did some testing here over a 6-week period. You're taking a little bit of price to offset some of the tariff implications. But as you think about penetration of that going forward now with the rollout, very successful with codyjames.com, do you suspect that you're going to get a similar type of step-up in your exclusives? Or do you think the combination of maybe price increases potentially limits the amount of growth that you see in that? John Hazen: I don't think the price increases made a big difference in either direction. Again, that's what we were testing for the 6 weeks and the consumer continued to buy what they wanted to buy, which was third-party or exclusive brands. And so we will pivot post Holiday to preserve margin. I think longer term, we still are comfortable with getting to 50% exclusive brand penetration, 100 to 200 basis points a year over the next several years. And again, the codyjames.com site, while I'm thrilled with the launch of it and the reaction we've had to it, it launched in the last 2 weeks of the quarter. So it's still very, very early days in terms of what it will do for promoting the entire Cody James brand. So more to come there. But for right now, we're still tracking or looking to that 50% EV penetration over the next 4 to 5 years and 100 to 200 basis points of growth a year. So kind of more back to normal versus where we've been testing over that 6 weeks of lower for longer. Operator: The next question comes from Corey Tarlowe with Jefferies. Corey Tarlowe: Great. I wanted to ask about the store count updated analysis. How do you think about the new stores and where the opportunity is in new versus existing markets that you have line of sight to? Jim Watkins: Sure. It's really going to be -- I guess the last time we updated this, Corey, we had more of the new and existing market opportunity as far as there are states we hadn't been in yet or markets we hadn't been in. And now that we've gone across the entire country and open stores, we'll continue to open stores across the entire country. We're not going to get into details on which markets we're going to go heavier into versus others just for obvious competitive reasons, but we do feel very confident in the road map we have. Corey Tarlowe: Okay. Got it. And then just on the updated TAM analysis as well. When you updated the TAM analysis a few years ago post doing it for the first time around the IPO, it felt like the positioning around that update was like, hey, we're actually penetrating this whole new customer base called Just Country, and there's this whole opportunity there. And now you've just upped it by another roughly $20 billion, $18 billion. Is there another kind of customer that you're going after? Or what do you see is driving that next leg of growth in the total addressable market? Jim Watkins: Sure. It's really the country lifestyle, the Western and the work have all expanded in the size of the TAM. So we didn't provide that in the prepared remarks, but in the analysis that those expanded. And then John mentioned that mainstream denim has become more of what we sell. And so that's given us part of that increase in the TAM also. Operator: The next question comes from Mitch Kummetz with Seaport Research. Mitchel Kummetz: Can you guys elaborate on the recent strength of the e-comm business? I mean, John, you referenced the 24% gain in October. What you didn't say is that on top of a 14% [indiscernible] a year ago, and you've got now [indiscernible] of double digits. So is there anything more you can say about that? What's driving that? John Hazen: Yes. There's a few different components. We took a look at where that 24% comp was coming from. And one of the new Chief Digital Officer and his team, they've made some nice enhancements around search and other things on the site. We're thinking that's driving north of 100 basis points of that comp. But the biggest pieces are the new channels, so the additional sites, Cody James and Hawx as well as our ability to spend more in the paid space. So there has been -- and I'm sure you see this in your own life, there has been a change in the paid algorithms, both with Meta and with Google over the last several months, and we just have an ability to continue to attain the ROAS we're always looking for, which is north of a 4 and spend into those sales more so than we were able to do in the past. So the new channels are a piece of it, the paid -- and the paid social are a piece of it. And then organic is also a piece, which is, I think, a reflection of the strength of the brand. We see 400 basis points of that growth coming from additional organic traffic coming from the site. So it's people who know the Boot Barn brand. So it's not one particular thing. It is across new channels, paid traffic, site enhancements and organic. Mitchel Kummetz: Great. Appreciate that color. And then my follow-up, just on the dedicated exclusive brand websites, is there opportunity for you to do that for other EVs? Or -- and if so, kind of what rollout might you be looking at? John Hazen: There is. We have one for Idyllwind, and we've always had one for Idyllwind since we started that relationship with Miranda Lambert. But we will be rolling out post holiday a site for Cheyenne, which is our other large women's Western brand, and we'll keep going from there. These have gone very well. We like the ability to tell stories in a very different way than we can on bootbarn.com. And so Cheyenne will be launching post holiday. Operator: The next question comes from Ashley Owens with KeyBanc Capital Markets. Ashley Owens: Just wanted to start off really quickly with work. I think it comped similarly to what we saw in the first quarter. Would be curious as to if your view on that category has evolved at all, particularly around whether some of the prior headwinds have fully normalized, if there's still more recovery to go. And then I know you've highlighted that comp trends tend to be lower than the rest of the business, but just anything from an opportunity standpoint to further accelerate this comp, especially seeing as work has expanded under this new identified TAM you've outlined? John Hazen: Yes. We are -- I am definitely not ready to declare victory on work. We've seen a nice acceleration in comps in October, again, small month, 4 weeks of the quarter. But work boots is doing better. It has comped positive for 2 quarters in a row now. And now the first month of this third quarter, it's comped a mid-single-digit positive. And work apparel has continued to comp mid-single digits now for at least 6 quarters. So we're doing quite well on work apparel. This has been a work boot issue. The relay of our work boots that we talked about on the last call is complete -- has only been complete. I'll caveat this for 2 to 3 weeks at this point. But anecdotally, we're hearing from store managers, from district managers, from customers that it is much, much easier to shop work boots by size and by style. So I'm encouraged by the first few weeks of this. It's been hard to -- or difficult to tease out some of the rainy or cold weather of October versus the work boot relay to figure out what drove that mid-single-digit comp. But the early read is October is -- did do better than Q1 or Q2, which were both positive. So we're heading in the right direction with work boots. We are not ready to declare victory. Ashley Owens: Okay. Got it. That's super helpful. And then just one follow-up on the stores. Count has effectively doubled or essentially going to double from the 301 in '22 to crossing over 600 next year potentially. You've now outlined this new long-term opportunity to double again towards 1,200. Would just be curious as the base continues to scale that quickly while you're managing the added operational complexity that comes with a larger fleet while protecting that culture and some of the in-store standards that have really helped to set you apart? Jim Watkins: Yes. No, it's a great question, and it's a challenge. And I think we've done a few things to help manage that. I think for starters, the store operations team has done a really nice job of getting these stores opened and they're working extremely hard. And as we grow the store base, we add districts. Each district has roughly 10 stores in it. And so we have a district manager over each of those districts, and they're able to help with those store openings. And we continue to train new store managers, whether they're an internal promotion or a transfer, they need less training. And if they come from outside, we'll train those store managers in an existing store to try to help them develop the culture and learn the process operationally. Opening the new stores is heavily reliant on our real estate department and the team that we've got there and identifying these locations and managing the leases and the updates and all different kinds of things that are involved in that, the construction of these stores. They've proven to be just incredible at getting these done, and they will expand as we have more stores that need to be opened and then the folks in the DCs and managing the product flow and the merchant teams. I could go on, but we are careful in how we expand headcount in the company, but we're also very careful in who we hire and making sure that the culture fit works well so that we don't lose the magic that we've got here at Boot Barn. Operator: This concludes our question-and-answer session and the Boot Barn Holdings, Inc. Second Quarter Fiscal 2026 Earnings Call. Thank you for attending today's presentation. You may now disconnect.

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NTGR 2025 Q3 财报电话会议

Operator: Ladies and gentlemen, thank you for standing by. [Operator Instructions] I would now like to turn the conference over to Erik Bylin. Please go ahead, sir. Erik Bylin: Thank you, operator. Good afternoon, and welcome to NETGEAR's Third Quarter of 2025 Financial Results Conference Call. Joining us for the company are Mr. CJ Prober, CEO; and Mr. Bryan Murray, CFO. The format of the call will start with commentary on the business provided by CJ, followed by a review of the financials for the third quarter and guidance for the fourth quarter provided by Bryan. We'll then have time for any questions. If you've not received a copy of today's release, please visit NETGEAR's Investor Relations website at www.netgear.com. Before we begin the formal remarks, we advise you that today's conference call contains forward-looking statements. Forward-looking statements include statements regarding expected revenue, gross and operating margins, expenses, tax expenses and future business outlook. Actual results or trends could differ materially from those contemplated by these forward-looking statements. For more information, please refer to the risk factors discussed in NETGEAR's periodic filings with the SEC, including the most recent Form 10-Q. Any forward-looking statements that we make on this call are based on assumptions as of today, and NETGEAR undertakes no obligation to update these statements as a result of new information or future events, except as required by law. In addition, several non-GAAP financial measures will be mentioned on this call. A reconciliation of the non-GAAP to GAAP measures can be found in today's press release on our Investor Relations website. At this time, I would now like to turn the call over to CJ. Charles Prober: Thanks, Erik. We are pleased to share that our team delivered another really strong quarter. Over the past 1.5 years, NETGEAR has embarked on the first phase of a dramatic and comprehensive transformation and the results of everyone's efforts and diligence are coming to fruition. While the seeds of our investment are only beginning to bear fruit in terms of top line expansion, our team's operational acumen is unlocking new ways for us to efficiently capitalize on the opportunities in front of us. We are sincerely excited about the foundation we've built and are confident that our transformation positions us exceedingly well to deliver long-term growth, profitability and shareholder value creation. This quarter's results marked the sixth quarter in a row where NETGEAR has exceeded our revenue and non-GAAP operating margin guidance. The supply chain team kept the pedal to the floor to drive material improvement in our supply position for our managed switches, allowing us to grow revenue for our Enterprise segment almost 16% year-over-year. As a great sign of our strength in this category, ProAV units and ASPs were each up materially year-over-year, contributing to a strong improvement in gross margin, operating margin and net profitability. We came into this year hoping to improve our gross margin from 2024 while sharing that we felt that achieving profitability for the year was unlikely. We're now thrilled to share that not only are we expecting to be non-GAAP profitable for the year, but we expect to deliver non-GAAP positive EPS in each quarter this year. While our focus remains on making the investments needed to drive our transformation and enable long-term profitable growth, this near-term profitability milestone is a sign that our efforts are paying off. In Q3, our profitability resulted from a big improvement in each segment. We once again delivered positive contribution margin and significantly improved gross margin for each business. An increased mix from enterprise, which delivered an all-time high segment gross margin of over 50% led to another record high non-GAAP gross margin for the company of 39.6%, surpassing the record from last quarter by 180 basis points. This enabled us to deliver positive non-GAAP operating income, well above guidance and non-GAAP EPS of $0.12. We were also extremely successful on the capital allocation front, repurchasing $20 million of our common stock at an average price of $24.55 per share in the quarter. We plan to continue to opportunistically return capital to shareholders via share repurchases at a minimum to offset dilution. Before moving on to updates for our business segments, we're excited to share a couple of important updates on our transformation that will allow us to continue to evolve how we position our products and services in the market. First, we launched our new website yesterday, and we encourage you all to check that out. This has been in the works for over a year and reflects our new branding that will serve to more clearly distinguish our consumer and commercial businesses. A key part of this change involves renaming our commercial business from NETGEAR for Business to NETGEAR Enterprise. This is a reflection of the fact that, we are delivering reliable enterprise-grade solutions to large customers that include Fortune 500 companies and mission-critical events like the G7 Summit, not to mention many different global Tier 1 music and sporting events. Second, starting in Q4, we will be reporting on 2 segments, NETGEAR Enterprise and NETGEAR Consumer. As we've shared over the past several quarters, our mobile products serve both of these end customers' and the go-forward product strategy is to drive stronger integration of our mobile products into our app and subscription service for consumers on the one hand and into our cloud management and security platform for our enterprise customers on the other. Mobile, of course, remains an important strategic capability that we will leverage to expand both our consumer and enterprise businesses. Brian will share more details on this in his section. With that context, I'll move on to the business segment updates. Our Enterprise segment again led the way in driving our great results, and we continue to see double-digit demand growth for our best-in-class ProAV managed switches. The NETGEAR team successfully navigated supply chain headwinds to accelerate supply and start to lower our backlog, leading to outperformance in the quarter. While we still believe we'll return to an optimal inventory position in the first quarter, the 16% sequential growth of our managed switch revenue in Q3 reflects better supply and strong end-user demand for these products. We're already a clear leader in the ProAV space and continue to expand our advantages and round out our value proposition by relentlessly growing our ecosystem, notably reaching 500 AV partners this quarter. Further, the AV professional services that launched in the second quarter have garnered positive early traction with blue-chip customers and will be an integral part of expanding our enterprise value proposition and nondevice revenue going forward. Essential to achieving this goal is our constant drive to innovate in ways that will improve our differentiation across products, pricing and partners. Much of our headcount growth remains in enterprise as we're building out our software development capabilities. Our new team in Chennai, which is roughly cost neutral due to a simultaneous reduction in outsourced software development capacity, allows us to improve our efficiency, quality and competitive differentiation. With this new and growing team, we're making great strides in improving our device firmware, cloud management and security software offerings. We're also in the process of greatly improving the user experience. And in the coming months, we will be integrating networking and security in a manner that will lead to a unique offering in the industry. We plan to offer networking and security with enterprise-grade reliability delivered by a simple user experience at an affordable price that will make this platform purpose-built for managed service providers and small to medium enterprises. And as a first step to addressing cybersecurity in our target market, earlier this month, we announced a tailored security solution for SMEs based on technology obtained via the acquisition of Exium earlier this year. This exciting new unified solution is the industry's only all-in-one SASE and hybrid firewall platform designed specifically for SMEs and the MSPs that support them. We can now secure remote workers as well as the on-premise networks and combine advanced threat protection, AI-powered Zero Trust network access, web gateway security, SD-WAN and firewall capabilities in a single user-friendly platform. The investments we've made in the enterprise business are clearly beginning to deliver both financial and operational benefits. While we continue to have success in hiring key leaders for the enterprise sales team, we're starting to expand the list of marquee customers we serve. In the most recent quarter, we closed material deals with a Fortune 10 global retailer, Boeing, the South African Parliament, University of Wales and Fox Sports to name a few. Moving on to home networking. While the retail market remains highly competitive, we're continuing to make inroads with our good, better, best strategy. Sequential top line growth came in at roughly 8%, and we once again delivered positive contribution margin in the quarter. Key enablers to this success are the broadening product portfolio, strength in our higher-margin D2C channel, leaner operational execution and growing annual recurring revenue, which reached $37.9 million in the quarter and grew 17.2% year-over-year. Our Orbi 370 mesh product that launched in the quarter is gaining momentum in the market and outperformed our expectations. This is our most affordable WiFi 7 mesh system to date and offers high-end performance and security at an accessible price point, benefits that are clearly resonating with customers. We remain confident in the long-term growth potential of the home networking business and notably saw share growth in WiFi 7 routers and mesh systems in Q3, pointing to NETGEAR's expanding sphere of influence in this part of the market. The mobile segment delivered on our modest top line expectations and with strong demand for our high-end offering, we achieved record non-GAAP gross margins of 31% for this business. Although, the service provider channel remains highly competitive, we continue to add new channel partners. For example, we'll be launching the M7 Pro with O2 in the U.K. this quarter. We also have exciting new products coming to market for this segment over the coming months that will expand our addressable market. Over the long term, we expect our strategic capability in delivering mobile products to benefit our consumer and enterprise segments by offering differentiated experiences that are integrated closely with our broader solution for these end markets. So in summary, this quarter was marked by solid execution, and these results underscore the impact of our strategic transformation in building a healthier, more resilient business for the long term. We remain well positioned to be the trusted domestic supplier across our range of products, a true differentiator in this market and remain almost completely exempt from tariffs. We are focusing on the right areas, growing our higher-margin segments, driving operational efficiency and delivering value to our customers. And it's showing in our financial performance thus far, while setting the stage for renewed growth in 2026. With that, I'll turn it over to Bryan. Bryan Murray: Thank you, CJ, and thank you, everyone, for joining today's call. We entered the second half of the year, building on the solid momentum we established in the first half. And I'm pleased to share that this marks a sixth consecutive quarter where we exceeded the high end of our guidance ranges for revenue and non-GAAP operating margin. Propelled by the strong demand for our managed switch products within our Enterprise business segment, and enabled by the ongoing operational excellence of our team, we drove sequential top line growth of more than 8%, while attaining non-GAAP gross margin of 39.6%, yet another new all-time high for NETGEAR. These impressive results are undeniable signs of progress as we continue to execute our long-term growth and profitability strategy. For the quarter ended September 28, 2025, revenue was above the high end of our guidance range, coming in at $184.6 million, up 8.2% on a sequential basis and up 0.9% year-over-year. The third quarter's outperformance was once again a result of a strong showing by our higher-margin enterprise segment, benefiting from ASP and unit growth in ProAV managed switch products. The team worked tirelessly to improve supply in the quarter, which enabled a 16% sequential revenue growth for these products and meaningful double-digit growth year-over-year in end-user demand. We also saw all 3 of our businesses delivered positive contribution income for the second consecutive quarter. In Q3, we repurchased $20 million of our shares and ended the quarter with $326.4 million in cash and short-term investments. We delivered $90.8 million of revenue in the Enterprise segment for the third quarter, up 9.9% sequentially and up 15.7% year-over-year, above our expectations. Although, we continue to be challenged by supply constraints around certain managed switch products in the enterprise business, the team executed well and was once again able to outperform our forecast for the quarter by working closely with key vendors to navigate these headwinds. Notably, in spite of these supply constraints, the revenue mix of our products from higher-margin enterprise segment continued to climb and grew both sequentially and year-over-year, adding to the corporate margin improvement. We continue to expect modest impact from the supply constraints in Q4 and expect to be back into a healthy supply position in Q1, so we can fully capitalize on the substantial and growing demand. In Q3, the home networking business delivered net revenue of $72.6 million, down 6.6% on a year-over-year basis and up 7.6% sequentially. The U.S. retail market remained extremely competitive, but with the introduction of our entry point WiFi 7 mesh offering in the Orbi 370, we were able to gain share in the WiFi 7 mesh category, and we saw similar share gains in WiFi 7 routers. We have moved past higher cost inventory and continue to benefit from an improved product mix of WiFi 7 offerings, coupled with streamlined channel execution. Revenue for the mobile business in Q3 was $21.1 million, down 20.7% year-over-year, but up 3.3% sequentially. Mobile benefited from an increased adoption of our high-end Nighthawk M7 Pro mobile hotspots in retail. With additional products expected to launch in the coming months, we believe the full benefit of our good, better, best strategy will build over time. Our focus in mobile technology really straddles both consumer and enterprise customers. As such, we will be reporting 2 business segments going forward with products and solutions built on mobile technology being in both businesses. Even though more than 50% of our mobile hotspot products sold through our service provider channel are to commercial end customers, the initial reporting of this revenue will remain in our Consumer business segment. We will continue to supplement reporting of revenue from mobile products sold to service providers and plan to add our cable modem and gateway businesses to this reporting as well since these products also enable services offered by these operators. This revenue call out will allow investors to isolate these declining businesses in their assessment of NETGEAR and our transformation. Now, moving on to an update on our recurring subscriber base. We continue to believe that focusing on increasing our recurring subscriber base is the optimal strategy to add high-margin revenue throughout our business while differentiating our offerings. We have made progress with our initiatives to transform these offerings, successfully moving more customers to our higher ASP Armor Plus offering, which was the driving force in growing our ARR by 17.2% year-over-year, reaching $37.9 million in the quarter. We remain confident we can grow our highly profitable ARR over time, and I'm pleased to share that we exited Q3 with 560,000 recurring subscribers. From this point on, my discussion points will focus on non-GAAP numbers. The reconciliation from GAAP to non-GAAP is detailed in our earnings release distributed earlier today. Non-GAAP gross margin came in at 39.6% in the third quarter of 2025, once again a new record and the fifth consecutive quarter of sequential gross margin expansion. This marked an 850 basis point increase compared to 31.1% in the prior year comparable period and a 180 basis point increase compared to 37.8% in the second quarter of 2025. Our gross margin in the current period benefited from an improved mix of our higher-margin enterprise business, success in moving past older, higher cost inventory, along with other benefits of operating with channel inventory at leaner levels relative to the year ago period. Drilling down to the profitability of our 3 business segments, all 3 segments were profitable on a contribution margin basis for the second quarter in a row and each grew their contribution margin by at least 440 basis points year-over-year. This is the truest indicator of the operational changes we've made over the last 6 quarters and the stellar execution of the team. Enterprise gross margin was 51%, up 630 basis points year-over-year, matching its highest level ever, led again by strong demand for our ProAV managed switches, driven by strong demand for our Nighthawk M7 Pro mobile hotspots, the mobile segment experienced the largest improvement in segment gross margin expansion year-over-year, growing 1,270 basis points to 31%. The Home Networking segment was aided by our improved mix of WiFi 7 products, the move into lower-cost inventory, strength in our higher-margin direct-to-consumer channel, which grew to approximately 15% of sales, improving our gross margin for this business by 590 basis points year-over-year to 27.7%. Total Q3 non-GAAP operating expenses came in at $69.2 million, up 25.1% year-over-year and up 5.4% sequentially as we had some onetime expenses related to moving our headquarters, and we continued our strategic hiring plans. We saw an increase in facility-related costs due to moving our new San Jose headquarters in Q3, but we expect this cost to normalize. Our headcount was 753 at the end of the quarter, up from 707 in Q2. As a reminder, we conducted a reorganization in January to enact approximately $20 million in annual savings and are reinvesting those savings in the areas of the business that we expect will deliver the best growth and profitability. This is reflected in the sequential operating expense and headcount increase, most notably within our enterprise business. Our non-GAAP R&D expense for the third quarter was 11.7% of net revenue as compared to 11% of net revenue in the prior year comparable period and 11.6% of net revenue in the second quarter of 2025. To continue our technology and product leadership, we are committed to continued investment in R&D. I'm pleased that we delivered non-GAAP profitability above the high end of our guidance range, enabled by improved top line led by enterprise growth and compounded by gross margin improvement. Our Q3 non-GAAP operating income was $3.8 million, resulting in non-GAAP operating margin of 2.1%, an improvement of 120 basis points compared to the year ago period and an improvement of 280 basis points compared to the prior quarter. As a reminder, the prior year period included a $10.9 million benefit from a legal fee adjustment relating to the favorable settlement of a legal matter. Our non-GAAP tax expense was approximately $3.4 million in the third quarter of 2025. Looking at the bottom line for Q3, we reported non-GAAP net income of approximately $3.5 million, resulting in a non-GAAP income of $0.12 per share. Turning to the balance sheet. We ended the third quarter of 2025 with $326.4 million in cash and short-term investments, down $37.1 million from the prior quarter due largely to $20 million in stock repurchases and changes in working capital. During the quarter, $7.4 million of cash was used by operations, which brings our total cash provided by operations over the trailing 12 months to $3.6 million. We used $9.7 million in purchase of property and equipment during the quarter, elevated from normal levels relating to improvements to our new corporate headquarters, which brings our total cash used for capital expenditures over the trailing 12 months to $17.1 million. In Q3, we spent $20 million to repurchase approximately 815,000 shares of NETGEAR common stock at an average price of $24.55 per share. We have approximately 2 million shares reserved in our current authorization, and our fully diluted share count is approximately 29.8 million shares as of the end of the third quarter. We're committed to returning value to our shareholders and plan to continue to opportunistically repurchase shares in future periods. I'll now cover our outlook for the fourth quarter of 2025. Within enterprise, end-user demand for our ProAV line of managed switches is expected to remain strong. And although we expect to continue to make improvements in our supply position, we continue to face supply headwinds, which may limit our ability to capture the full top line potential of this growing business. On the home networking side, we are seeing signs of the benefit of our broader product portfolio to address the market. On the mobile side, we expect revenue to be in line with Q3 as we await our new product introductions to round out the portfolio, which we don't expect to yield benefits until next year. Accordingly, we expect fourth quarter net revenue to be in the range of $170 million to $185 million. In the fourth quarter, we expect our operating expenses to be slightly reduced with our facilities costs normalizing now that we have transitioned into our new corporate headquarters with some offset as we further ramp our planned investments. We're focused on in-sourcing software development capabilities and enhancing our go-to-market capabilities supporting our enterprise business. Additionally, we expect a headwind to our gross margin of about 150 basis points, mainly related to the rising cost of memory as several of the large suppliers in this space have exited the DDR4 market. Accordingly, we expect our fourth quarter GAAP operating margin to be in the range of negative 7.3% to negative 4.3% and non-GAAP operating margin to be in the range of negative 2% to 1%. Our GAAP tax expense is expected to be in the range of a benefit of $500,000 to an expense of $500,000. And our non-GAAP tax expense is expected to be in the range of $500,000 to $1.5 million for the fourth quarter of '25. And with that, we can now open it up for questions. Operator: [Operator Instructions] Your first question comes from the line of Tore Svanberg from Stifel. Tore Svanberg: Congrats on the continuous progress here. My first question is on the gross margin headwind for the fourth quarter. Is that across the board for each 3 of the segments? Or is this mainly more tied to the enterprise segment? Bryan Murray: Yes. Good question. So, the main headwind is coming from the DDR4 memory situation where the largest suppliers in that space have taken their products end of life. And at this point, there are smaller players who are trying to pick up capacity. Memory is in products in each of our businesses. I'd say it's more acutely felt on the home networking side at this point, but it does impact all 3 businesses. Tore Svanberg: Very good. And when I look at your revenue guidance, it's like a $15 million spread. Could you just talk about some of the puts and takes? What would have to happen for you to get to the higher end of the range versus lower end of the range? And I assume supply is part of it because you obviously have very good backlog visibility. But anything else that you could share with us as far as variability within that guidance range? Bryan Murray: Yes, I'll start there, and CJ can certainly chime in as well. supply is the big factor there. As we've said throughout the year, we're seeing tremendous progress on the managed switch side with the ProAV switches. We are still supply constrained. We are making progress there but really don't believe we'll be in a position to have safety stock in place until Q1 of next year. So that would be one lever. As you saw in Q3, the upside to the quarter that obviously impacted gross margins as well as the top line was that we were able to pull things in ahead of expectations. So that would be one potential lever there. The other thing would certainly be the success of the Q4 holiday promotional period and what happens in the home networking market, I would say, would be another factor to unlocking more towards the upside potential in that revenue guide. Operator: Your next question comes from the line of Adam Tindle from Raymond James. Adam Tindle: Okay. CJ, I want to start by just acknowledging great progress on the gross margin front and very clear that your leadership and strategy towards pushing more of the enterprise business and quality of the business higher is manifesting itself in results. More recently, we've seen more headlines around TP-Link of late, and we obviously get a lot of investor questions on that. So, I just wanted to start on that subject. It seems like there's a lot of government activity around TP-Link. Just give us your sense of the latest of your understanding there and the potential timeline and opportunity on that. Charles Prober: Yes. Sounds good. And Tore -- Adam. So, Bloomberg reported a few weeks ago that there's been a flurry of activity, and I think that's a kind of well put statement around what's happening. In the article, they mentioned that there's a final initial determination on TP-Link. It's been completed and a bunch of administrative activity around that. I haven't heard much about it since then. But more broadly, the Senate just passed the NDAA, which states that it's going to evaluate TP-Link as a DoD covered company. Yesterday, the FCC voted in favor of restricting networking equipment that has connected components from the Chinese covered list. There's a state of Texas investigation into the TP-Link, something apparently just dropped from Wisconsin of all places. There is a 60-minute piece. So, with all of this activity, I think our confidence is increasing that something is going to eventually drop here. Timing is obviously uncertain. In fact, I think our President's meeting with the right now or shortly. And there's obviously a lot going on there. But one thing kind of related to that, not specific to a government action is that we have been seeing customers starting to recognize NETGEAR differently in the market as a U.S.-based public company trusted partner, and we've been winning some pretty big deals that may have previously not gone our way because of that. And so, I think all the messaging out there is actually helping us win with customers. And so, we're excited about that in the near term, but then also I think there's just a lot going on from the administration perspective. So, it'll be following it closely like everybody else. Adam Tindle: Got it. Makes sense. And maybe just a follow-up for Bryan. I know you have an Investor Day coming, and I imagine we're going to get a lot more information. I appreciate the detailed guidance for Q4. So, I think we've got a good handle on that. But a number of moving parts that are happening, and I'm trying to unpack when some of these things unwind or how long headwinds persist. Maybe a simple way to ask would just be, as we have to shape our models for 2026 and in particular, for Q1, is there anything that you might just have us be mindful of, whether it's on the margin front or growth front or channel inventory front, just so we can make sure that we're in good shape heading into that Analyst Day and not caught with something that we mismodeled or a surprise. Bryan Murray: Certainly. I'll start by saying that we're certainly thrilled and you kind of started your questions with this, that we're thrilled with the progress we've made on the transformation thus far and the unlocking of incremental gross margin performance on the business that certainly is putting us ahead of our plans. You may recall at the start of the year, we came in, we didn't think we would be profitable in 2025. And certainly, year-to-date, we're there. And you can see by the guide where we expect the full year to shape up there. There are certainly a lot of additional opportunities ahead of us. And as we've said, we are very much focused on driving towards long-term sustainable profitable growth. These things will require investments. We've made some investments this year. We obviously took some aggressive actions to strip out $20 million of annual cost to help fund some of those, but we still have additional investments to go here to really get this business to where we think it can get to. If I look at -- like if I look at the public estimates that are out there for next year, I think they're fairly reasonable when it comes to both the top line and the operating income side of things. And again, that's largely -- we do have investments that we need to continue to put into the business. Shorter term or more near term, I should say, Q1, I would reiterate there is seasonality in the consumer side of the business. And while enterprise has gotten to about 50% of the mix, the other 50% is subject to some of those seasonal fluctuations. So Q1 seasonality typically off of the Q4 period, the markets would be down in the mid-teen percentage-wise. Certainly, that will impact top line leverage in the first part of the year. But as I said before, I think the public estimates that are out there for the full year 2026 are reasonable at this point. Adam Tindle: Okay. And the mid-teens is just for the consumer side of the business, not for... Bryan Murray: Correct. Yes, it's for the consumer side. Enterprise is not a seasonal business for us today. Adam Tindle: Yes. I just want to make sure. Okay. Operator: Your next question comes from the line of Jay Goldberg from Seaport. Jay Goldberg: First off, I wanted to ask about -- you mentioned considerable progress in growing your distributor channel for NETGEAR Enterprise. I get that right? I was wondering -- I was just hoping you could talk more about what's going on in the channel, what is drawing the channel's interest in NETGEAR and just sort of what you're hearing from them? Charles Prober: Yes. Great question, Jay, and good to see you on the call. One thing just to clarify, when we talk about our ProAV ecosystem partners and the growth of that, that relates more to the product integrations that we're doing with the broader AV ecosystem to kind of extend our product leadership and make it -- continue to make it simple to deploy complex IP-based AV networks. That having been said, because I just make that point because I'm not sure if that's what you're referring to. But we are very focused on the channel on the enterprise side of things. And there's a number of transformational initiatives that are coming to market. And our overall philosophy is we just want NETGEAR to be the easiest company to do business with. And so, we've got a partner program that's launching on -- I guess, it's a week today on November 4, I believe it is, via webcast. And there's a number of other things happening under the hood in terms of -- we've launched our new website as part of the partner program launch. We're going to have a new partner portal. So, we're very closely monitoring the health of our channel and expanding the business that we do with our channel partners and helping enable them to work more seamlessly with NETGEAR. So, it's a huge part of our transformation on the enterprise side, and we're really excited with the progress that we've made to date. And just to cap this all off, I spent a week on the East Coast a couple of weeks ago with customers, existing customers and potential customers. And the feedback that we're getting is like we're spot on in terms of our product strategy and how we're evolving our go-to-market capabilities. So, it's really validating to get that directly from those folks. Jay Goldberg: Got it. That sounds great. Let me just follow up real quick. As you went through your prepared remarks, you mentioned a number of new product launches, and they seem to be across all the business units. Could you just give us -- could you just sort of walk through the cadence of when we should be expecting new products over the next year as much as you can say now, it doesn't have to be dates or anything specific, just how we should think about new product launches? Charles Prober: Yes, it's a good question. Philosophically, I don't like to talk about new products coming to market until we've actually launched them. We will be teasing out some stuff at Investor Day. And I think we're going to see you there at least on the webcast. So, I definitely tune into that. But across the board, we are innovating for our end customers and have both kind of new devices coming to market. But most importantly, our focus is on innovating on the software side, driving differentiation via software. And part of this change that we highlighted in the call of making mobile more of a horizontal capability is we have a strong belief that that's combining our mobile products with what we've previously been calling our home networking products allows us to drive a lot of differentiation in terms of having a single app, a single subscription with all of those products connected in one experience. And similarly, on the enterprise side, bringing our mobile products into our Insight Cloud management platform into our security experiences is quite differentiated. So, what you're going to see from us going forward is we've really got a consumer platform, an enterprise platform. And anything we launch is going to be connected into one of those for consumers on the one hand or our commercial customers on the other. Jay Goldberg: I look forward to seeing you in person at the Analyst Day. Charles Prober: Excellent. I wasn't sure if you'd be there. I saw your name on list. I wasn't sure if you're coming in person. That's great. Jay Goldberg: Yes, I'll be there. Operator: Your next question comes from the line of Tore Svanberg from Stifel. Tore Svanberg: Just had a couple of clarifications or follow-ups. So, first of all, and not to really pick on this, right, because you had such a strong gross margin improvement in your home networking business in Q2. But when I do look at the gross margin this quarter, it was down slightly sequentially. So, I was just wondering, is that sort of the DDR4 pricing already starting to weigh on that gross margin? Or was there something else that contributed to the gross margin being down sequentially? Bryan Murray: Yes. Good question. last quarter, we talked a little bit about there being a kind of out-of-period onetime benefit that would have been in the Q3 period there that was pertaining to improved experience with regards to sales returns. And we said at that time, it was about a 250 basis point windfall to the home networking gross margins on the quarter. So we said normalized, it would be about 27% going into Q4. We obviously beat that. And I would say that, as I noted on the comments earlier that we did see some improvements and acceleration on our direct-to-consumer business, which grew to about 15% of our total sales for home networking that has higher gross margins. So that would be the improvement. We have not yet felt any of the impact of the memory pricing increase that won't hit us until Q4. Tore Svanberg: Very good. And my last question for you, CJ. You highlighted on the ProV side, company very uniquely positioned offering both networking and security. I was just hoping you could elaborate a little bit more on that, especially when it comes to how you potentially monetize that. I mean, obviously, by including security, you can charge more. But I'm just wondering if there's a software services part of that as well. Charles Prober: Yes. Great question, Tore. So, the way that we -- and you'll see this come out in Investor Day even more clearly is we are -- when we talk about our enterprise business, we can think about it in the context of ProAV and enterprise networking, which includes security. And when you hear from Pramod, he'll share kind of our long-term plans around those 2 different segments. On the enterprise networking side of things, we're building a platform that combines networking and security that's targeted at small to medium enterprises, many of whom are served by MSPs. And the differentiation that we're looking to drive there is enterprise-level reliability with a very simple user interface that combines both of those things that tend to be presented in a complex, very feature-rich manner that those size customers don't value at an affordable price. So, we're looking to be quite disruptive. And on the topic of gross margin, the competitors that we're looking to disrupt in that enterprise networking space have a very different margin profile that we do. So that's our opportunity. And a lot of the business growth that we expect to drive there will be on the services side of things. So, we're very focused on software differentiation, driving recurring revenue and nondevice revenue and cloud management is a big piece of that. Security is going to be a big piece of that. And then support and services is another big piece of that. So hopefully, that answers your question, but that software recurring revenue side of things is a big priority for us on the enterprise networking and security side of things. Tore Svanberg: Sounds good. Look forward to hearing more about at New York, on November 17th. Operator: [Operator Instructions] There are no further questions at this time. Mr. CJ, I turn the call back over to you. Charles Prober: Just a final shout out to the NETGEAR team. Really proud of the work that we've done to date on the transformation. And a little plug for our Investor Day. We've got exciting things to share. We're going to have some demos. I know many of the people on this call are committed to joining, but space is limited. So if you're interested in coming to New York on November 17, let us know, and we look forward to seeing you there. Operator: This concludes today's conference call. You may now disconnect.

88天前Insight Analytics约5分钟阅读

CCA.AX 2026 Q1 财报电话会议

Tony Sheehan: " Thomas Russell: " Tony Sheehan: [ Audio Gap ] Change, and I'm joined by Tom Russell, Executive Director. Similar to our usual webinar format, Tom and I will run through a presentation and then take Q&A at the end. If you have any questions, please submit them through the chat function on this webinar. Okay. So what do we do at Change Financial? Many of you would have already heard this overview, but for those of you who are new to the business, I'll run through this pretty quickly. We provide innovative and scalable payment solutions for over 150 clients across more than 40 countries. We're a B2B business with 2 core products. The first one is Vertexon, which is our Payments as a Service or PaaS offering, which provides card issuing, card management, and transaction processing. Vertexon supports prepaid, debit, and credit card issuing, and there are 2 main models under Vertexon. The first one is processing only. So under this model, Change provides the technology, which is a card management system, to clients to run their card program. So the client holds a necessary scheme, typically Visa or Mastercard, and regulatory licenses to issue cards. So, processing is only available globally and supports all major schemes. So we have clients using Vertexon in Southeast Asia and Latin America, including 2 of the largest banks in the Philippines, running over 40 million cards on the platform. The second model is processing and issuing. So this is only available in Australia and New Zealand. And under this model, clients utilize Vertexon for processing capabilities and leverage our regulatory and scheme licenses and issuing capabilities. So under this model, Change is the card issuer of record and provides treasury, fraud, and compliance services. So it's a far more comprehensive service when you're doing processing and issuing. Vertexon generated 85% of the group's revenue in Q1. Our other core product is PaySim, and that is software, which enables end-to-end testing of payment platforms, processes, and scheme rule compliance. The PaySim software is based on global messaging standards and can be sold globally. PaySim is the default testing standard for FPOS in Australia and has a blue-chip client base, including 5 of the top 10 global digital payments companies. PaySim contributed 15% of the group's revenue in Q1. Importantly, both Vertexon and PaySim are proprietary payment technology platforms, which are owned and developed in-house by Change. So this is important from a value and control perspective for the company. Okay. If we look at the key highlights, we've had a really strong financial performance in Q1, which is great for us to start FY'26. Another record quarterly revenue result of USD 4.6 million, which is up 25% on the prior year. 70% of revenue was derived from recurring sources. So this provides a very solid base of revenue for us to grow from. The one-off revenue, which is our licenses and professional services, is still a very important driver of overall financial performance, though. Underlying EBITDA for the quarter was USD 900,000. So to add some context around that, in FY '25, we delivered underlying EBITDA for the whole year of $200,000. So this really starts to show that operating leverage pull-through that we've been talking about, the combination of revenue growth and a stable fixed cost base, driving materially improved bottom-line performance. So, as a business, we've talked about this previously; we are scaling. We're not at scale. So we want to continue to drive that operating leverage in FY'26 and beyond. PaaS is a key driver of our growth, and we have seen strong growth in PaaS metrics across the board. And I'll talk more about that on the following slide. In terms of our PaaS metrics, we've got over 89,000 cards active in Australia and New Zealand. So the increase in cards was driven by growth in our existing client base, particularly one of our fintech clients, which added a significant number of new cards in late September. We will continue to drive revenue growth through new clients already signed. So we're currently onboarding 2 clients and further client wins. The Personal Wealth Management client we secured in Q2 FY'25, which can now be revealed as Sharesies, went live in early October. So we're super excited about the launch and to see the success of the program as it continues to roll out. There's a large backlog of registered interest in the Sharesies card. So great to see that really starting to hit its stride. We are very focused on growing the PaaS platform to drive the scale benefits. So we have the product and the team in place to add significantly more clients and volume without having to increase our fixed cost base. I won't go through the PaaS revenue sources in detail as we have covered this previously, but it is there for reference. Just looking at the PaaS timeline. So as you can see, steady cadence of new client wins and a significant shortening of time frames between signing clients and launching programs over time. So with the PaaS platform fully live and operational in New Zealand and Australia, we want to increase the number of client wins, particularly in Australia, and continue to shorten the onboarding time frames. You can see at the top right of the slide, Sharesies is launching in early Q2. So that will contribute monthly revenue from October onwards. We also have 2 more PaaS clients that I mentioned that are currently onboarding, and they will contribute monthly revenue once those programs launch. Thomas Russell: Thanks, Tony. So, turning to the financial metrics for the quarter. So we had another great revenue quarter, as Tony said, USD 4.6 million or AUD 7.1 million. So that was up 25% on Q1 FY'25 and a record by quite a way. That's now 7 record revenue quarters out of the last 8 for the company. PaaS revenues from our Australia and New Zealand clients are up 38% on the quarter 12 months ago. And as Tony mentioned, earlier this month, following the end of the quarter, Sharesies has gone live, so we'll start to see PaaS revenues from them in Q2. We are also currently onboarding an additional 2 new, already contracted PaaS clients. We'll start to see these clients adding to our PaaS revenues as they go live in the next couple of quarters. A question we have got this morning is why the a slight drop in quarterly PaaS revenue. This is just due to the weakness in the New Zealand dollar during the quarter. A reminder that most of our PaaS revenue is invoiced in USD, but there is a portion of our New Zealand clients invoiced in New Zealand dollars. As a reminder, PaaS, along with our support and maintenance, is our recurring revenue stream. Now, these do have some seasonality in them and can fluctuate, particularly PaaS, but because the underlying cardholders of our clients are buying groceries and paying for their streaming subscriptions, et cetera, using change cards, these revenues are quite predictable. We are also continuing to see the benefits of the recurring revenue base we have been building, our PaaS and support, and maintenance revenue. For the quarter, our recurring revenues totaled USD 3.2 million, AUD 4.9 million, which is approximately 70% of our revenue. In terms of the nonrecurring revenue, we continue to generate from professional services and licenses. During the quarter, we delivered USD 1.4 million in one-off revenue. Over the last couple of quarters, we have flagged our strong focus on one-off revenue and the significant late-stage pipeline. Again, this quarter, we are seeing the efforts and the work the sales team has been doing dropping through in terms of financial performance, but also a great job winning a number of new opportunities in Q1, which continues to build the pipeline of contracted work and future opportunities and revenue to unlock in future quarters. We have a large amount of contracted work to deliver, which helps us build confidence on top of our recurring revenue and being able to deliver on our guidance for FY'26. In terms of EBITDA, very pleasingly, after delivering a maiden EBITDA positive result of $200,000 for the full year in FY'25, we delivered more than 4x that in underlying EBITDA of USD 900,000 or AUD 1.4 million in Q1. Turning to the cash flow for a second. Cash receipts for the quarter of USD 4 million were up 16% on the prior corresponding period. Cash payments from operating activities were broadly in line with Q1 last year, up only 4% which was driven by an increase in COGS on increased revenue, which is obviously what we expect. As we have said before, we have all the key roles and staff in place to add significant revenue without a lot of new hires, and we continue to see evidence of that with staff costs actually down 10% due to our exit from U.S. operations during FY'25. CapEx has also remained steady and, as expected, is in line with FY'25. We have a healthy cash position of USD 3.7 million, just under AUD 6 million, and we hold an additional $900,000 in cash-backed security deposits. Tony Sheehan: Thanks, Tom. So we've gone through the market opportunity in the last few results updates. So I'm not going to go through that in detail. There are more slides in the appendix for those of you who wish to read around the addressable market opportunity. But we have a very large opportunity for Vertexon and PaySim. So what is our focus as a business to capitalize on these opportunities? Firstly, it identified target markets. So for Vertexon, this is New Zealand, Australia, and Southeast Asia. These are the regions where we are gaining traction and winning. For PaySim, it is global as the product can be sold without modification and does not require any licenses to be sold. Secondly, there's a pivot towards outbound sales hunting. So we appointed 2 new strategic BDMs in Q3 FY'25, and they are focused on outbound sales. So we'll continue to aggressively target outbound sales across the business. Thirdly, we want to grow and leverage the partner ecosystem. So we want to expand our partner ecosystem and work more closely with existing partners to drive mutual value. That partner ecosystem provides a one-to-many sales approach and can be very effective for both Vertexon and PaySim to scale quickly, particularly in offshore jurisdictions. Fourthly is around cross-sell and upsell. So we work with our existing Vertexon and PaySim clients to drive project work. And for Vertexon clients, the on-premises clients, continue that journey towards migrating to PaaS or the latest on-premises version, and also upsell modern functionality and features to our clients, which drives incremental revenue across both Vertexon and PaySim. In terms of our outlook, we provided guidance for FY'26 on the 10th of July. We've had a really strong start to FY'26. And whilst it's still early days, we are on track to deliver on guidance. Revenue has grown strongly, with Q1 revenue up 25% versus the prior year at USD 4.6 million. This revenue growth, coupled with a stable fixed cost base, is driving a strong increase in operating leverage that we've talked about in Q1, underlying EBITDA of USD 900,000. So that's a great result to start FY'26. Positive operating cash flow quarter. So typically, as Tom said, H2 is a stronger cash flow period, and we expect that to be the case in FY'26 as well. So overall, a great start to FY'26. We've delivered strong financial results. And operationally, we have continued to deliver on our operating plan. This start to the year has us really well placed to deliver on our targets for FY'26. That's it for the formal presentation from Tom and I. We do open it up now for Q&A. I think, Tom, we may have received some as well. Thomas Russell: Yes. So thanks, Tony. I'll read some of these out. And this first one is for you. How is the sales pipeline progressing? Tony Sheehan: Yes. So the sales pipeline is in a really great place at the moment. We are focused on those regions that I mentioned in the presentation as well. In terms of Vertexon Australia, New Zealand, and Southeast Asia, we are getting some really good traction as well, and interest is up in Southeast Asia. I think our presence, particularly with those 2 major banks up in the Philippines, is helping. We've talked about referenceability in Australia and New Zealand. That same applies to regions in Southeast Asia, like the Philippines as well. So big focus across the business to continue to build that pipeline and drop that through. And really, Australia for PaaS clients is a real focus for us as well to continue to focus on winning new clients in this region, so that we can add more volume to the PaaS platform. Thomas Russell: Okay. Next one here. Have you observed any potential hesitation on new card programs due to the ANZ regulatory uncertainty? Tony Sheehan: Yes, I'll take that, Tom. So not really. We haven't seen really any hesitation there. I think we operate in the debit and prepaid space predominantly. We are licensed to issue credit cards in Australia. Credit, particularly around the interchange regulations, that's one of the card types that's that's more impact. It's not an area we currently play in a lot. We are looking to play in that space. But at this stage, we are not seeing any sort of hesitation across Australia and New Zealand due to the regulatory environment. And remembering there's a lot of that regulatory impact is on the acquiring side. We are an issuer. So it is slightly different, understanding that interchange impacts on issuers, but not at this stage. Thomas Russell: Great. Thanks. I'll take this next one. Given your currency exposure, what actions do you take to hedge this? So we don't have any formal hedging arrangements in place. But what we do is our COGS, which are in USD, and we charge revenue in USD as well. So there's a natural hedge in terms of those COGS and that revenue. Our fixed cost base, so our staff and our offices and all those things, they're all sitting in Australia and New Zealand. So we hold all our cash in Australian and New Zealand dollars. So from a cost base perspective, we're hedged against movements in the currencies from a cost perspective. As we continue to grow, further hedging might be required. But at the moment, we've sort of got a strategy to deal with it and the small fluctuations, although we have seen, obviously, currency markets move a lot more volatile in recent months. Okay. When a client is looking for a card issuer, does Mastercard have a referral program at all that may help with ANZ customers? Tony, I'll let you answer that one. Tony Sheehan: Yes. Thanks, Tom. Good question there. So Mastercard does have a number of issuers in Australia and New Zealand, a small number, I should say, that are similar to Change Financial. There are opportunities that come through to Mastercard that we do receive similar, I am assuming, to other competitors to change as well in the market, but we have successfully worked with Mastercard on opportunities and converted them to live clients as well. So there is a referral program that works where Mastercard partners with an issuer like us to bring on new clients onto that Mastercard brand as well. So that does help us with new client wins in Australia and New Zealand. Thomas Russell: Okay. Great. I'll take this next one. Given that you achieved USD 900,000 in the first quarter for EBITDA and the top end of your guidance is $3.5 million, less than $900,000 per quarter. Is this suggesting EBITDA for future quarters should drop from here? No, it's not. It's very early in the financial year. You will note that the revenue and the EBITDA were driven by one-offs as well. I've said we've got a strong pipeline of that to keep delivering, but we've got to keep delivering that. We'll let a bit more time pass and see how the next quarter goes, and then we'll make any assessments if we need to. That's it for the current questions. Tony Sheehan: Okay. If there are no more questions, we might wrap that up there. Thank you for taking the time to join us for our Q1 FY'26 results. We're very pleased with the start to the financial year. Look forward to updating you in the coming months as well. Thanks a lot.

88天前Insight Analytics约5分钟阅读

STEM 2025 Q3 财报电话会议

Operator: Ladies and gentlemen, greetings, and welcome to the Stem, Inc. Third Quarter 2025 Results Conference Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host for today, Erin Reed, Investor Relations Manager. Please go ahead. Erin Reed: Thank you, operator. This is Erin Reed, Head of Investor Relations at Stem. We welcome you to our third quarter 2025 earnings call. Before we begin, please note that some of the statements we will be making today are forward-looking. These statements involve risks and uncertainties that could cause our results to differ materially from those projected in these statements. We, therefore, refer you to our latest 10-Q, 10-K and other SEC filings and supplemental materials, which can be found on our website. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP financial measures can be found in our third quarter 2025 earnings release, which is on our website. Arun Narayanan, CEO; and Brian Musfeldt, CFO, will start the call today with prepared remarks, and then we will take your questions. And now I will turn the call over to Arun. Arun Narayanan: Thanks, Erin. Hello, everyone, and thank you for joining us today. Q3 2025 marks 12 months since we announced our strategic realignment, and I'm proud to report that our transformation continues to deliver tangible positive results. Today, we reported third quarter revenue of $38 million, up 31% year-over-year, with ARR growing 17% year-over-year to $60 million. We achieved our second consecutive quarter of positive adjusted EBITDA and generated positive operating cash flow. Our software-centric strategy is delivering results. The success of our strategic transformation is evident in our consistent earnings performance with steady growth in software and services revenue and continued improvement across key profitability metrics. As we maintain disciplined cost management, we believe we have achieved operational stability and our high-performing team is laser-focused on execution and results. Today, we are also refining guidance to reflect our revised forecast, which we will go into more detail later in the call. The key takeaways are we have reduced the historical volatility in our business. We have derisked the low end of nearly all guidance ranges, and we feel confident about the stability of our business. This quarter also marked a pivotal moment in our evolution as we unified our corporate identity under the Stem brand and streamlined our entire product portfolio within the comprehensive PowerTrack suite. This transformation goes far beyond surface level changes. It reflects the deep integration of AlsoEnergy's solar expertise with Stem's storage and AI capabilities. For our customers, this means that we approach them with a single voice with superior technical solutions across their entire energy portfolio, covering solar, storage and hybrid assets alike. Combined with Stem's industry-leading subject matter expertise, this creates an unparalleled customer value proposition. We welcome you to visit our redesigned website at stem.com to see this unified vision in action. Each quarter, we have touched upon our strategic priorities for 2025, driving software and services revenue growth, revamping software development and reducing our cost structure and driving profitability. We've advanced all 3 strategic priorities in Q3 with concrete results. Let me detail our progress. First, let's focus on software and services growth and revamping our software. On September 2, we launched PowerTrack EMS for hybrid and stand-alone storage projects. This energy management system integrates AlsoEnergy's solar C&I offerings with Stem's storage offerings and positions us to meet the needs of key markets, including solar, storage and hybrid assets in both the C&I and utility scale segments. It is an intelligent control system that manages battery charging and discharging operations while coordinating grid services and enabling revenue streams for energy storage projects. PowerTrack EMS fills the critical gap between basic battery management and advanced optimization software such as our PowerTrack Optimizer product, enabling us to provide important control offerings regardless of the commercial management of the battery, including in territories where merchant optimization is not permitted. We remain excited about PowerTrack EMS because it expands our total addressable market by widening our potential customer base and the markets we can serve. Here in the U.S., it unlocked for us the utility scale market, which is heavily hybridized versus the C&I market. Outside of the U.S., PowerTrack EMS unlocks the international market for C&I and utility scale projects, which are also largely hybridized. International expansion is a key component of our corporate strategy that also helps us manage near-term macro headwinds in the U.S. Importantly, in all markets, PowerTrack EMS is an optimization-agnostic controls-oriented product, which means that it can be sold in markets where utilities provide dispatch signals without the need for a third-party optimizer or in international markets where Stem does not provide managed optimization services with PowerTrack Optimizer. It is truly a complementary offering to the existing portfolio and allows us to offer an end-to-end solution for our customers. We launched PowerTrack EMS at the RE+ conference to strong customer reception. This product garnered particularly high interest from operators of hybrid energy sites. Just 8 weeks after launch, we've already booked significant capacity deployments with blue-chip customers in 3 different countries, validating both our product capabilities and marketing positioning. These deals cover primarily hybrid utility scale projects with existing solar assets that expect to convert to hybrid in the near term and are using PowerTrack EMS as a way to future-proof this conversion while limiting downtime. We expect these bookings to convert to revenue in the coming quarters with about a 6- to 9-month typical lead time. Our core C&I solar monitoring platform is deeply established in the industry, but we remain dedicated to continuous innovation and addressing key customer feedback as quickly as we can. In the last 90 days alone, we have rolled out over 100 software improvements and bug fixes directly enhancing the PowerTrack experience for our customers. Recently, we have added best monitoring features and enhanced [ PV ] performance analytics, ensuring that PowerTrack is the platform of choice for our customers as they add storage to their solar portfolios and scale to more complex operations. As we announced last quarter, we are also incorporating advances in AI into our offerings with PowerTrack Sage. PowerTrack Sage is an AI-powered assistant that sits on top of PowerTrack and transforms complex solar and storage data analysis into natural language conversations. It's like an expert analyst available 24/7 to simplify certain important product workflows and serve as a first line of support for customer questions. There's high customer interest and excitement about this product, particularly around solar analytics and diagnosing root causes for unusual data. PowerTrack Sage development remains on track for limited beta release with select customers in December and is expected to be broadly available in 2026. PowerTrack software continues to demonstrate strong performance across key metrics. Revenue increased 10% year-over-year. ARR expanded 19% year-over-year, and we commissioned 1.2 gigawatts of solar assets this quarter. Our platform now manages nearly 34 gigawatts of solar assets, reinforcing our market-leading position in C&I solar monitoring. Now let's move on to managed services. Our managed services are software-enabled full life cycle energy storage services covering the design, procurement, commissioning, operation and optimization of energy storage and hybrid solar plus storage systems. We help asset owners maximize the reliability, performance and returns of their storage assets. Managed services are supported by our PowerTrack Optimizer software, previously known as Athena. Energy optimization, especially when value stacking is a specialized area that requires both our optimization software and humans in the loop to execute well. Humans in the loop ensure that the optimization is keeping up with the constant market and program rule changes, market dynamics and new value streams. Our competitive advantage in managed services lies in our ability to serve as a full service provider, leveraging our substantial market share across diverse segments. We remain one of the few companies with this expertise. Our managed services contracts include both recurring revenue and performance-based upside when we exceed operational targets. Q3 2024 included significant overperformance that we did not repeat this quarter, which impacts the year-over-year comparison. The underlying health of this business is strong as our recurring base revenue grew 14% year-over-year and 4% sequentially. Finally, our consultative professional services offering continues to resonate with customers across a wide range of development, deployment and operational needs. We are continuing to drive repeat business, a clear mark that our offerings are adding value. And we are increasingly focused on cross-selling professional services with other business units offerings. Now to another strategic priority, reducing our cost structure and driving profitability. We remain diligently focused on cost management. We have achieved our second consecutive quarter of positive adjusted EBITDA while maintaining robust GAAP and non-GAAP gross margins. Operating expenses remained flat compared to the second quarter, and we are continuing to drive further efficiencies through AI implementation. Additionally, we've generated positive operating cash flow and kept cash flat sequentially. Our financial performance validates the business model transformation, expanding gross margins, 2 consecutive quarters of positive adjusted EBITDA and positive operating cash flow. These results demonstrate both profitability and sustainability. We are dedicated to financial transparency, and we remain committed to helping our investors and stakeholders better understand our business. To that extent, our Form 10-Q to be filed today once again disaggregates revenue across distinct categories. What's new this quarter is that we are also providing detailed gross margin disclosure for each revenue category in our supplemental slides. Now on to guidance. With 9 months of reported results and early visibility into Q4, today, we are refining our full year 2025 guidance ranges, including a tightening of ranges previously disclosed. First, we'd like to highlight that our ability to tighten ranges is a significant advancement versus where we were previously, where volatility and back-end seasonality negatively impacted our ability to guide with precision. Our software-centric model has reduced this volatility and enhanced our forecasting accuracy. With that said, we are tracking towards the midpoint or better on all metrics except operating cash flow, where timing of working capital movements could result in performance towards the lower end of our range. I'd like to highlight that we have brought up the low end of the ranges for software, edge hardware and services revenue and adjusted EBITDA and raised the guidance for non-GAAP gross profit. Brian will provide the specific updated ranges, but I want to emphasize that the underlying business fundamentals remain strong, and we are well positioned entering into 2026. Now turning to the macro environment. Headwinds from policy uncertainty remain, and we are actively working with our customers to navigate this environment. We remain on track to meet our guidance expectation through the end of the year. In addition, our diversified software-centric model, combined with our recently enhanced international strategy should position us well against the potential impact of domestic headwinds. We remain confident in our end markets, and we believe that we are well positioned to benefit from the projected international load growth. Our international expansion efforts are focused on a multiphased approach. First, we developed an internationally ready product suite with PowerTrack EMS. Second, we are leveraging our regional expertise through our existing teams in Berlin and Japan. We see significant opportunities to expand within the European markets. And in Berlin, we recently moved our operations to more centralized and collaborative facilities. We are expanding our technical depth and customer support in Berlin to combine our global expertise with local execution that can service high-priority European markets. Our growth strategy for Q4 and beyond centers on 2 drivers: PowerTrack EMS expanding our addressable market into utility scale and international hybrid projects and continued focus and acceleration in our core C&I solar business. Our recurring revenue base, substantial backlog and international diversification provide a strong foundation for sustained growth. With that, let me turn the call over to Brian for detailed financial results and the updates to guidance. Brian Musfeldt: Thanks, Arun, and hello, everyone. In the third quarter of 2025, we saw solid financial performance across the business. Total revenue grew an impressive 31% year-over-year to $38 million. PowerTrack software revenue continued its strong performance in the third quarter, growing 11% year-over-year, and edge hardware grew a notable 18% year-over-year. As a note, this quarter with the introduction of PowerTrack EMS for hybrid and storage sites, we have redefined solar software revenue to PowerTrack software revenue as our PowerTrack software revenue will now include all customer-facing SaaS revenue generated from solar, storage and hybrid assets. Project and professional service revenue decreased year-over-year as the third quarter of 2024 benefited from approximately $5 million of onetime DevCo revenues. As Arun discussed, managed service revenue was also down year-over-year due to onetime overperformance in the third quarter of 2024. Although we are deemphasizing the business as part of our software-centric strategy, battery hardware resale brought in $4 million in revenue this quarter. You can find this revenue detail in the disaggregation of revenue footnote in our Form 10-Q and supplemental materials, which provide enhanced clarity into our business. We again achieved strong gross margin this quarter with GAAP gross margins of 35% and non-GAAP gross margins of 47%. This expansion reflects the increasing mix of higher-margin software and services in our revenue base and improving hardware margins for both edge hardware and battery resales. Our disaggregation of revenue provided in our supplemental materials now includes gross margin ranges for each revenue category to provide more clarity for investors and analysts. GAAP and cash operating expenses were both flat sequentially from the second quarter of 2025. Cash operating expenses were down an impressive 47% year-over-year. These reductions were primarily the result of the difficult but necessary workforce reduction that took place in the second quarter, and we remain focused on driving operating leverage and further cost savings across the business. That said, we feel positive about our ability to grow revenue without significant OpEx increases as demonstrated by our development of PowerTrack EMS and PowerTrack Sage products with current staffing levels. The improved margins and significantly reduced OpEx drove positive adjusted EBITDA of $2 million for the quarter, demonstrating that we are finding sustained operational profitability in our lower OpEx structure and our business transformation. Operating cash flow turned decisively positive at $11 million this quarter, a $21 million swing versus the same quarter last year, and our cash position remained stable at $43 million. My key strategic priorities as CFO remain to help drive profitable growth and manage our capital structure as we look to continue growing in key revenue categories over the coming years. And now turning to our operating metrics. Bookings were $30 million, down slightly versus last quarter, largely due to timing of bookings from our historically lumpy low-margin battery hardware resales. Software and service bookings were sequentially flat and contracted backlog was $22 million, down from $26.8 million last quarter due to lower bookings and increased hardware revenue recognition in the quarter. Contracted ARR remained stable at $70 million. And importantly, ARR increased 3% sequentially and 17% year-over-year, demonstrating the strength and scalability of our recurring revenue model. Finally, storage and solar AUM increased 6% and 4%, respectively, since last quarter. Now turning to our updated guidance for full year 2025. First, for revenue, we are tightening our revenue range to $135 million to $160 million from the prior $125 million to $175 million range. This reflects strong software and service performance with an updated range of $125 million to $140 million and is offset by lower battery hardware resale expectations of up to $20 million as we continue to deemphasize that business. For gross margins, we are raising the range to 40% to 50%. We are already tracking toward the high end of this range, but expect some margin compression in the fourth quarter with increased edge hardware deliveries. For adjusted EBITDA, we are raising the low end of the range and now forecast between negative $5 million and positive $5 million for the fiscal year 2025. We have factored in some conservatism in this metric, and I would highlight that we are currently tracking above the midpoint of our updated range. For operating cash flow, we are adjusting our range for this metric to between negative $5 million and positive $5 million. This quarter's $11 million in positive cash flow demonstrates the underlying cash generation capability of the business. Any fourth quarter working capital fluctuations will reflect normal timing differences in customer payment cycles, not fundamental business performance. And finally, our forecast for year-end ARR remains consistent at $55 million to $65 million and continues to reflect an attractive base of recurring revenue. While we won't provide formal guidance for 2026 until early next year during our fourth quarter and full year 2025 call, I can share that we enter 2026 with strong visibility from our recurring revenue base and contracted backlog, positioning us well for continued growth. And now I will pass the call back over to Arun for closing remarks. Arun Narayanan: Thank you, Brian. Our team delivered strong execution across the business this quarter. One year into our strategic transformation, the results are evident. Revenue growth, margin expansion, sustained profitability and positive cash generation. We established clear objectives for this transformation, and we are achieving them. The clean energy transformation continues accelerating globally and our industry-leading software platforms, solutions and dedicated team positions us to capitalize on this transformation. I want to thank our investors and customers for their continued confidence and trust in us, and I want to take this opportunity to also express my gratitude for the hard work and contributions of Stem employees in achieving these results. With that, operator, let's open the line for questions, please. Operator: [Operator Instructions]. The first question comes from Justin Clare with ROTH MKM. Justin Clare: So I wanted to start with the guidance. And so with the update here, it looks like you're guiding to the midpoint or better across all the metrics. But just looking back to what you said last quarter, it sounded like you were tracking toward the high end of the guidance based on your comments from last quarter. So just wondering, has your outlook moderated somewhat given the new ranges? Or maybe you could speak to the potential to kind of deliver at the high end. Arun Narayanan: Justin, this is Arun. Thanks for the question. Let's address your point. The way we show the updated guidance on Slide 6 in the exhibit, you can see that we are actually still tracking towards the midpoint or high end of all the ranges. Only the deemphasized and nonpredictable sort of OEM hardware resale business, which was ranged at [ 0 to $35 million ] is now ranged between up to $20 million. I think that difference is sort of, you could say, the main difference. The rest of it is just a tightening of the ranges. And I would say that that's the main interplay between the 2 quarters. Justin Clare: Okay. Got it. That's helpful. And then just on the gross margins, it looks like in Q4, you could see a slight compression. I'm wondering, is this only really due to a mix shift with a little bit higher sales of the battery hardware or should we anticipate any other notable change to the gross margins by business line? And then I guess just looking beyond Q4, how should we be thinking about the gross margins by business line? And definitely appreciate the added disclosure here that you provided this quarter. Brian Musfeldt: Thanks, Justin. This is Brian. Yes, I think when you look at the new disclosure there, hopefully, you see detailed on Page 12, when we talked about a little bit about compression in Q4, it's just going to be mix. Q4 is our largest delivery quarter for our edge hardware to a slightly lower margin. So that's really what will compress it in the fourth quarter kind of just in that period. As far as the out periods, we don't give guidance until Q1, but I think you can kind of see the 3 and 9 months trends. And so we do expect to keep working on margins and improving them over the next coming years, especially as, again, we're deemphasizing that OEM hardware, but the other categories are pretty stable and will continue to improve. Justin Clare: Got it. Okay. And then maybe just one more. Bookings in Q3 modestly lower than Q2. But again, that sounds like it's more a deemphasis of the battery hardware sales. But wondering with the release of PowerTrack EMS, can you talk a little bit more about the demand that you're seeing, the potential to see an increase in bookings potentially in Q4 here and just what you're seeing at this point? Arun Narayanan: I can take a stab at that. This is Arun again. We are very excited about PowerTrack EMS, as we have said in the prepared remarks quite a few times. It opens up new markets for us. And the market -- the subsegment sort of that we are targeting is the small utility scale sites. So sort of 20 to 100 megawatts in size. As we look at the initial energy around it, we are quite enthusiastic about it, and we are quite glad that our product fit is good. As PowerTrack EMS becomes a more meaningful portion of the revenue, we will provide more breakup and details around that. I think that's sort of our thinking at this point. Operator: Our next question comes from Jon Windham with UBS. Jonathan Windham: Congratulations on the back-to-back quarters, probably adjusted EBITDA. I just have 2 questions. I'll ask one at a time. Any -- would love any commentary or color you're getting from your customers. There's obviously a lot of moving parts going on right now, particularly around batteries with [indiscernible] , but also with solar and some of the [indiscernible] guidance. Just love your thoughts on what you're seeing in sort of the top of the funnel, how demand looks in general for the industry and for you? Arun Narayanan: John, thanks for the question. This is Arun. I can take a stab at it. We are maintaining the momentum in our engagement with our customers. And we do see that the engagement levels that we have in terms of being able to drive our conversations around PowerTrack are maintained. So the comments you're making on [indiscernible] and other points are valid, but we see reasonably unchanged sort of conversation momentum in customer engagements. Jonathan Windham: Perfect. And I guess the second question, may I love this. You're into the turnaround, you're delivering on gross margin expansion very nicely. EBITDA is positive. How do you think about your goals for them because the market is always on to the next thing. When do we get to operating income positive, when do we get to net income positive? Once how do you think about that path or alternatively, if you don't want to answer that question, which I would understand, is how do you think about laying that out to investors and here's the path we're on a time line to sort of get longer term. Clearly, we had a lot of success here in the first year with the strategy shift. But I think the questions from investors are increasingly -- how does this progress down the income statement to positive numbers all the way down? Appreciate any thoughts you have on it. Arun Narayanan: It's a really good question. Let me take 2 or 3 parts to it. First of all, I think this quarter is the 1-year anniversary of the shift to the software-centric focus for the company. And you can sort of see that, that strategy is paying off in terms of stabilizing the revenue margins and being able to have a predictable business. The second piece is I've been in this role now 9 months roughly. And there's been a focus on managing our costs and driving a push towards profitability. Now I think we'll give more guidance on this in the next call. But maybe one thing I can direct you towards is a note that we put out towards investors and stakeholders in one of the press releases in the early part of September, which sort of explains our thinking in terms of our overall product strategy, in terms of our overall service strategy, how we look at international markets and what our general approach is towards having a very continuous full market coverage solution all the way from C&I to the smaller scale utility projects and then going up from that space to what PowerTrack Optimizer provides in terms of the high end of that market. So I think it's an elegant story. And I would sort of encourage you and the other listeners to go back to our website and read that note that we have put out towards investors that comes with an attachment and a very nice presentation. Operator: Our next question comes from Thomas Roche with Barclays. Thomas Roche: This is Tom on for Christine. Congrats on the great quarter. So I guess I just first wanted to ask, do you foresee the business benefiting from the hyperscaler data center build-out in any way? I know you've typically been more focused on C&I and smaller utility scale customers, but has there been any internal strategy discussions around trying to go after hyperscaler customers with either your solar or storage offering? Arun Narayanan: Yes, Tom, really good question. This is Arun. One of the things I love about Stem is the team is very energetic, always focused on new business models, new business opportunities. We continue to target all of these opportunities with a lot of bigger -- what we're seeing in the data center markets, which typically prefer sort of natural gas solutions is that there are early indications that it's going to come around towards more renewable energy plays. So it's an exciting development as that shift seems to be happening, and we continue to watch that market space and see how we can play into that effectively. Thomas Roche: Got it. Understood. And then just one more quick one for me. So you guys have -- you've cut a fair amount of OpEx here in the last few quarters. Would you say that it's safe to assume that we're at a decent quarterly run rate here on a go-forward basis? Brian Musfeldt: Yes. Tom, this is Brian. I can take that one. Yes, I mean, as you've seen, right, we've cut cash OpEx, we've cut about 47% year-over-year. We reported just over $20 million of cash OpEx this quarter. I think we're done with the fundamentally large execution of that, that you've seen in the second quarter, we took a really large chunk out of the team with a very difficult but motivated strategy. But we are now -- we continue to look at other opportunities for savings. An example, this quarter, we exited our India facility, which was just oversized for what we needed. So the team is working on it. We'll always kind of manage cash just in the fundamental blood of this company now to make sure that we're operating that way. So we'll expect -- we're not really giving guidance yet, but I would say this quarter's trend is a good indication, and we'll keep working it down. Operator: Ladies and gentlemen, this concludes the question-and-answer session. I would now like to hand the conference over to Arun Narayanan, the CEO, for the closing comments. Arun Narayanan: I want to thank everyone for joining the third quarter earnings call, and we look forward to speaking with you during our fourth quarter and full year 2025 earnings call next year. Thanks, everyone. Operator: Ladies and gentlemen, the conference of Stem, Inc. has now concluded. Thank you for your participation. You may now disconnect your lines.

88天前Insight Analytics约5分钟阅读

MAX 2025 Q3 财报电话会议

Operator: Good afternoon, and welcome to the MediaAlpha Inc. Third Quarter 2025 Earnings Call. I am France, and I'll be the operator assisting you today. [Operator Instructions] I would now like to turn the call over to Alex Liloia, Investor Relations. Please go ahead. Alex Liloia: Thanks, France. Good afternoon, and thank you for joining us. With me are Co-Founder and CEO, Steve Yi; and CFO, Pat Thompson. On today's call, we'll make forward-looking statements relating to our business and outlook for future financial results, including our financial guidance for the fourth quarter of 2025. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially. Please refer to our SEC filings, including our annual report on Form 10-K and quarterly reports on Form 10-Q, for a fuller explanation of those risks and uncertainties and the limits applicable to forward-looking statements. All the forward-looking statements we make on this call reflect our assumptions and beliefs as of today, and we disclaim any obligation to update such statements, except as required by law. Today's discussion will include non-GAAP financial measures, which are not a substitute for GAAP results. Reconciliations of these non-GAAP financial measures to the corresponding GAAP measures can be found in our press release and shareholder letter issued today, which are available on the Investor Relations section of our website. I'll now turn the call over to Steve. Steven Yi: Thanks, Alex. Hi, everyone. Thank you for joining us. I'm pleased to report that we delivered record third quarter results, driven by continued momentum in our P&C insurance vertical. Growth in the quarter was fueled by increased marketing investments from leading auto insurance carriers who continue to lean into customer acquisition in what remains a highly favorable operating environment. With underwriting margins at unusually high levels, carriers are in a strong position to pursue policy growth. Importantly, peak underwriting profitability does not mean that carrier advertising spending has peaked. To the contrary, we're seeing an increasing number of carriers turn their focus in earnest to capturing market share, and our marketplace continues to be the most efficient and scaled platform for them to acquire new customers. These dynamics give us significant runway for continued growth in the quarters ahead. In our health insurance vertical, our results were impacted by our recent reset in under-65, which was in line with expectations. Our partnerships with leading Medicare Advantage carriers continue to perform well, and we expect digital advertising to capture a larger share of health insurance distribution spend over time. As these secular tailwinds play out, we believe we're well positioned to restart growth from this new baseline. As we look ahead, we're encouraged by the strength of our P&C business, the long-term potential of our Medicare vertical and the expanding opportunities we see across digital insurance distribution. In our P&C vertical, we believe we're in the early stages of a multiyear soft market, characterized by strong carrier profitability and robust market share competition, which we expect to sustain healthy marketing spend for years to come. The combination of strong industry fundamentals, deep partnerships and the efficiency of our platform gives us conviction in our ability to deliver sustainable growth. We'll continue to balance investment in innovation with disciplined capital deployment, ensuring that we build enduring value for our partners and shareholders. In addition to favorable industry fundamentals, powerful technology shifts, particularly those related to AI, are likely to reshape how consumers discover, evaluate and purchase insurance. In the near to midterm, it's foreseeable that AI may disrupt traffic patterns and monetization models for some of our publishers while also creating entirely new supply side opportunities. Because our marketplace spans hundreds of publishers across multiple formats and media channels, we expect our ecosystem as a whole to adapt well to these changes, preserving a resilient and diversified supply base. With materially greater scale than our competitors and growing network effects, we expect to remain the partner of choice for both publishers and advertisers and to continue gaining share as AI adoption accelerates. We're also highly focused on leveraging AI to enhance the productivity of our organization and better serve our partners. We believe we're just scratching the surface here and look forward to keeping you updated in the coming quarters. With that, I'll hand it over to Pat. Patrick Thompson: Thanks, Steve. I'll start by walking through the key drivers of our Q3 results. Transaction value was $589 million, up 30% year-over-year, driven by 41% year-over-year growth in our P&C vertical. In our health vertical, transaction value declined 40% year-over-year, consistent with our expectations. Adjusted EBITDA for the quarter was $29.1 million, an increase of 11% year-over-year. Our efficient operating model and disciplined expense management allowed us to convert 64% of contribution to adjusted EBITDA, up from 63% in the prior year. Excluding under-65 Health, our core business performance was very strong with year-over-year transaction value and adjusted EBITDA growth of 38% and 31%, respectively. Our take rate, defined as contribution divided by transaction value, decreased year-over-year as expected for 3 main reasons. First, our under-65 subvertical, which was historically at high take rates, has declined. Second, our largest P&C carrier partners have continued to represent an outsized share of spend in our marketplace. These carriers were among the first to restore underwriting profitability, which has given them a head start, but we are confident that other carriers will enter the race in a more meaningful way. Lastly, our take rate was impacted by large-scale new supply partner wins. These factors together have increased the percentage of transaction value from private marketplace transactions, which carry lower take rates. Importantly, our open marketplace take rates have remained relatively stable. The pressure we're seeing is primarily a function of mix shift. Looking ahead, we expect our Q4 take rate to be approximately 7%, with private marketplace transactions representing approximately 54% of total transaction value. As we plan for 2026, our current base case assumes we will start the year with a take rate roughly consistent with Q4 levels before the broadening of carrier demand has a meaningful impact on our take rate. Given the strong momentum we are seeing in carrier spend and our usual OpEx discipline, we believe we are well positioned to deliver adjusted EBITDA growth and maintain strong free cash flow generation next year. Longer term, we expect an uplift in take rates as more of our carrier partners ramp up their marketing spend to compete for policy growth, resulting in an increasing percentage of spend being transacted on our open marketplace. We expect record fourth quarter transaction value as we benefit from continued strong demand from the largest carriers in our marketplace. Accordingly, we expect P&C transaction value to grow approximately 45% year-over-year. In our Health vertical, which includes both Medicare and under-65 Health, we expect transaction value to decline approximately 45% year-over-year, driven primarily by under-65, which is stabilizing at a lower baseline. On a year-over-year basis, we expect fourth quarter transaction value and contribution from under-65 Health to decline by $34 million to $38 million or 61% to 68% and $8 million to $9 million or 80% to 90%, respectively. To provide additional insight into the new baseline for our Health vertical, similar to last quarter, we've included in this quarter's shareholder letter, both transaction value and contribution for our under-65 business. As a reminder, we expect 2025 under-65 transaction value of $95 million to $100 million and contribution of about $10 million to $11 million, with around $1 million to $2 million of that contribution coming in the fourth quarter. Looking ahead, we expect that under-65 will generate annual contribution dollars in the mid-single-digit millions, reflecting the reset in both scale and profitability for this subvertical. Moving to our consolidated financial guidance. We expect Q4 transaction value to be between $620 million and $645 million, representing a year-over-year increase of 27% at the midpoint. We expect revenue to be between $280 million and $300 million, representing a year-over-year decrease of 4% at the midpoint. We expect revenue as a percentage of transaction value to decrease meaningfully year-over-year as private marketplace transactions, which are recognized on a net basis, are expected to represent around 54% of transaction value, up from 41% in Q4 of last year. Adjusted EBITDA is expected to be between $27.5 million and $29.5 million, representing a year-over-year decrease of 22% at the midpoint, including $8 million to $9 million of impact from an expected year-over-year decline in under-65 contribution. Excluding under-65 Health, we expect adjusted EBITDA to be roughly flat year-over-year. Finally, we expect overhead to be roughly flat to Q3 levels. Turning to the balance sheet. We generated $23.6 million of free cash flow in the third quarter. We ended the quarter with a net debt to adjusted EBITDA ratio below 1x and cash of $39 million plus restricted cash of $33.5 million. Earlier this month, the restricted cash was used to make the initial FTC settlement payment and the remaining $11.5 million is payable in Q1 of 2026. Excluding these settlement payments, we expect to convert a substantial portion of adjusted EBITDA into free cash flow, providing us with continued financial flexibility to support our strategic priorities. Given our confidence in our strategy and long-term growth opportunities, we think our stock is an attractive investment and share buybacks are an accretive use of excess cash, particularly at current levels. During the quarter, we repurchased approximately 5% of our outstanding shares at a discount to market for $32.9 million. In addition, earlier today, we announced a new share repurchase authorization of up to $50 million, consistent with our disciplined approach to capital allocation and focus on maximizing shareholder value. With that, operator, we are ready to take the first question. Operator: [Operator Instructions] And your first question comes from the line of [ Nelia Wickes ] from Canaccord. Maria Ripps: This is Maria Ripps. It seems like a lot of investors are focused on carrier profitability sort of peak margins currently. And as you know, one of the largest carriers recently recorded a sizable credit expense to reflect excess profits. Can you maybe talk about sort of your view on how sustainable current profitability levels are and what that might mean for customer acquisition spend overall? Steven Yi: Maria, I appreciate that question. Yes, as you're alluding to, I mean, we've been getting that question a lot as well. And so it's good to be able to clear things up with what people are doing with regards to like inflating peak profitability for carriers with either peak of the soft market cycle or peak of advertising spend. And so the short answer to that is conflating those things, they couldn't be further from the truth because -- and to understand this, I think you really need to take a step back and like think about hard markets and soft markets and how they work. And so we just emerged from, what, a 2.5-, 3-year hard market cycle. Hard markets are -- get kicked off when there is reduced profitability because higher-than-expected loss ratios. And so what ends up happening is carriers start to get tighter underwriting restrictions. As they raise rates, they pull back on marketing spend. And so what happens during a hard market is actually you have a baseline where you start from low margins and then you see margin expansion as the hard market progresses. Now it starts to tip over into a soft market. And when those margins sort of start to peak and get to adequate levels, carriers then start to get more competitive. They get looser with their underwriting guidelines, start to reduce pricing and then invest in customer acquisition. And so all of that has the impact of actually compressing margins during the course of a soft market cycle. So when we hear things about carriers being at peak profitability, in a lot of ways, what that tells us is that we're just kicking off the meat of -- or the heart of the soft market cycle. And what you can see from our marketplace is that demand remains very, very top heavy. On one hand, we have 13 carriers who spend more than $1 million a month this quarter. That's the greatest number that we've had in history. And so we're seeing a lot of nascent broadening of demand. But again, we're as top heavy as ever with some of the leading carriers who are early to take rate, stepping on the gas in terms of marketing spend that continue to dominate our marketplace. And so with rates starting to come down, right, with profitability starting to come down as well, I think what you're going to start to see are a lot more carriers really stepping on the gas in 2026 and beyond, right, as we really enter into the meat of the soft market cycle and a broadening of demand that I think will continue and be a tailwind for us for the years to come. I do think it's worth pointing out that soft market cycles tend to last a lot longer than hard market cycles. Hard market cycles tend to be in about 2- to 3-year increments, and soft market cycles historically have been 2 to 3x that, so about 5 to 7 years on average. And so what we're expecting is several years of tailwind in terms of carrier advertising spend growth. We also expect to see the next level of growth in advertising spend really being from a broader set of top carriers in the top 25 with a lot of that spend, as Pat mentioned, coming through the open exchange, again, as demand broadens out. And so I hope that explains sort of our position and what we're hearing in the marketplace about peak carrier profitability. Certainly, that doesn't concern us at all. And if anything, that gets us excited that really the heart of the soft market is just beginning. Patrick Thompson: And Maria, this is Pat. I'll just add kind of one thing to what Steve said there, which is that we've got -- we're kind of 2 years into kind of an improving operating environment, and our guidance for Q4 envisions 45% year-over-year transaction value growth for us in P&C. So we feel like we've got the wind at our back right now, and we've got pretty nice operating momentum going into 2026. Maria Ripps: Yes. That's great, that's very helpful. And then can you maybe share a little bit more color on the transition within your Health vertical? Is that largely complete at this point? And I guess, how are you thinking about the long-term opportunity within that vertical sort of outside of under-65? Steven Yi: Yes. I'll take the second part first, I think Pat can address the first part of your question, which is -- I mean, what we're looking with in the health insurance vertical is really focused on Medicare Advantage. We think that's a very strategic vertical. Again, I'll reiterate that it's a $0.5 trillion industry, really new to direct-to-consumer advertising. So we see a ton of opportunities there over the long term. It's a challenging market environment right now with medical loss ratios being elevated because of high utilization rates. And so what you're seeing is a lot of plan redesigns and carriers pulling out of certain markets. And so we have our own version within the Medicare Advantage space of a hard market that we saw in the P&C space. And so I think most people are expecting that, the market to recover, I think, starting next enrollment period. And certainly, we anticipate carriers starting to reinvest in growth during that time. But really for us, it's about the long-term opportunity that Medicare Advantage offers just because of the market size and really where the carriers are in terms of their adoption cycle of direct-to-consumer advertising and direct-to-consumer platforms. And we see a lot of opportunities for integrated solutions to really help that space navigate the transition to direct-to-consumer distribution model. Patrick Thompson: And Maria, I'll tackle the shorter-term portion of that question and kind of the near-term financial outlook. So I think in under-65, we've taken a number of actions to kind of rebaseline that business. We think Q4 is kind of approximating that new baseline for us. And so for the quarter, we're expecting plus or minus 65% year-over-year decline in transaction value with contribution down 80% to 90%. And so it's a business that should make us $1 million or $2 million in Q4, and we believe it will be kind of a mid-single-digit million dollar contribution business for us next year. And kind of from a compliance standpoint, we've already implemented effectively all of the necessary changes. There hasn't been a whole lot of cost that we've had to layer on to do that. And actually, we've embedded some AI technologies into that framework, which has allowed us to automate a lot of the monitoring that historically would have been labor intensive. So we feel like we're in a spot where kind of towards the middle of next year, the comps for the health vertical will start to normalize. Operator: And your next question comes from Cory Carpenter from JPMorgan. Cory Carpenter: I was hoping you could drill down a bit more into what you're seeing in the discussions you're having with carriers. I think, Steve, last time we talked, carriers kind of hit the pause button a little bit just given the tariff uncertainty started to ramp in 3Q, and now you're guiding to accelerating growth in 4Q. So maybe just talk about some of the dynamics you saw intra-quarter? And then also, how much visibility do you have into year-end budgets at this point in the cycle? Steven Yi: Sure, Cory. Yes, so I think that when carriers hit pause, it was related to the uncertainties around tariffs. I think that paused -- I guess that pause was relatively short-lived. And I think the carriers who were spending aggressively prior to Q3, I think, resumed their levels of spend. And we're continuing to see them grow their spend right now, as you can see from our estimates and our forecast. I think in terms of visibility into Q4, I mean, obviously, we're sharing that with the guidance that we have. We -- there has been a tendency in these types of markets for there to be excess budget being kind of made available to us as the quarter starts to wind down. And again, because we're a very efficient source and very tractable source, that excess budget does tend to accrue to us. But it's not something that we're planning on right now. And so our Q4 estimates really have our best estimate to what the carrier budgets are going to be for the remainder of the year. We are starting to have some early discussions about 2026 budget. And those discussions have been highly encouraging. And again, they really support the narrative that up to this point, really the recovery of the ad spend market coming out of the hard market has been very narrow and robustly driven by a narrow set of carriers. Really, what we're doing is having discussions with everyone else and starting to see that there really will be a meaningful broadening of demand in 2026. The timing of that, I think, is going to be hard to gauge. Certainly, those carriers that we're talking about who have an early lead have taken a sizable lead. So it will take a bit of time and a few quarters for the expansion or the broadening of demand to really start to have a positive impact on our take rates. But certainly, we've been very encouraged by the early discussions that we've had with a lot of the major carriers, again, outside the top couple. And really do anticipate that '26 is going to be a year where we see meaningful broadening of demand within our P&C marketplace. Cory Carpenter: You answered my second question, which was any early thoughts in '26 so I'll turn it back over. Operator: And your next question comes from Tommy McJoynt from KBW. Thomas Mcjoynt-Griffith: A couple of questions on your comments around the take rate. Can you remind us, is there seasonality in 4Q? And then I just want to confirm that you're expecting both those quarters, the fourth quarter and then the start of 2026 to be 7% take rate. And then just your expectation about increasing the take rate over time, is that a function of a broader array of demand partners or supply partners or both? Patrick Thompson: Perfect. And Tommy, I can get started on that question, and then Steve and I can potentially tag team the last one. So on seasonality, historically, we had a good bit of seasonality in our business on take rate. And that was when P&C was a smaller percentage of the total mix and our Health vertical was significantly larger. Now we're in a spot in Q4 with under-65 having stepped down pretty meaningfully, where there is a lot less take rate seasonality in the business because the Medicare portion of that looks pretty similar to P&C overall. And to tackle the second part of the question, yes, our guidance for Q4 is for around a 7% take rate. As a reminder, for us, take rate is contribution divided by transaction value. And our view is that, that 7% plus or minus is kind of the right benchmark for the next couple of quarters. And kind of moving to the over time and the opportunity to drive take rate from -- to drive take rate over time, a broadening of demand would be kind of the primary driver of that happening. Obviously, broadening supply could help as well, but we believe that the demand side is the bigger opportunity. As a reminder, the largest advertisers with us tend to be relatively more private, smaller advertisers tend to be either fully open or very, very heavily open. And so as we see more people come into the marketplace and more people start to spend 7 figures a month, we would expect to see the business start to shift more to open over time. Steven Yi: Yes. And what I'll add is that as the demand starts to broaden out, which will be the key driver of take rate improvement on our end, one of the reasons that, that will primarily flow through the open marketplace is that the next set of carriers, right, who are underrepresented in our marketplace need a lot of help from us, right? So they leverage our managed services and our machine learning algorithms to optimize their campaigns on their behalf. They leverage our platform solutions and integrated platform solutions in order to help host and optimize certain parts of the conversion experience. And so we're putting a lot of effort behind those services that will better support and accelerate a lot of these carriers' journeys to really like embracing direct-to-consumer and embracing our channel and being successful in our channel. And again, all of those services are available really only through the open marketplace. And so that's why as demand starts to broaden now and we see other carriers within the top 25 really start to punch their weight in terms of allocation of advertising dollars to us, the way we make them successful is through these integrated solutions and managed services. And again, most of that spend is going to flow through the open exchange, which will have, over time, a very positive impact on our take rate. Thomas Mcjoynt-Griffith: Got it. And then switching over to some of our expectations for the overhead expenses. Do you guys have any plans to either add or account managers or technology headcount or make any other major new technology investments that we should be thinking about as we enter 2026 and think about the fixed expense leverage in the business next year? Patrick Thompson: Yes. And Tommy, thanks for the question. I would say we -- over the last couple of years, we've been consistently investing in the business, but doing so in a thoughtful and measured way. And we are a business that we've always run lean. We've got about 150 employees today. We're a bootstrap business. Efficiency is in our DNA. We will continue to invest to support the growth in our business, but we would expect to be a business where we would see leverage on those overhead items over time. And when I say leverage, I mean the mapping from contribution to adjusted EBITDA being flat to increasing over time. Operator: And your next question comes from Andrew Kligerman from TD Cowen. Andrew Kligerman: First question is around open versus private. And as private becomes a bigger proportion, I think first 9 months, it's now 48%. Steve and Pat, how do you see that kind of playing out long term, maybe 3 years out, 5 years out? Like where does that mix kind of settle down if it ever settles down? Steven Yi: Yes. I think it's a good question. I think we're at unusually high levels favoring the private marketplace right now. And again, I think that's really a nature of how the market has recovered on the heels of this generationally difficult hard market cycle. What we had was a couple of leading carriers who are early to take rate, right, step on the gas a full 1.5 years or so ahead of everyone else. And these are carriers who are very sophisticated in direct-to-consumer advertising, very sophisticated and well experienced in our marketplace. And the private marketplace product was designed to support advertisers like this and their relationships with some of our biggest publishers. And so I think the way that the market has recovered has really lent itself to us being over-indexed on the private side. And I think as the long term plays out, again, as the industry and the recovery and the demand starts to broaden out, not just because carriers who are later to take rate and get to rate adequacy start to spend in advertising and growth again, but because the whole secular trend towards direct-to-consumer advertising, which means online advertising and greater budgets allocated to measurable sources like us, as that's starting to really take foot again, right, or take hold again, what we expect are just more and more of the top 25 carriers allocating a greater percentage of their overall customer acquisition spend and converting in effect, right, a lot of commissions that they're paying to agents into advertising dollars that they spend with us as they prioritize their direct channels. And again, this growth based on the support that they'll need, right, and being relatively new to this channel, the services and the platform support that they're going to require to be successful in our channel, we believe that is predominantly going to flow through the open exchange. And so I think what you're going to see over time is the shift back to the open exchange. And again, we don't have any views as to exactly what that level should be. But certainly, I think internally, what we think is that the private open mix is kind of at a high watermark because of the unusual nature of the heaviness of demand right now, which is really a byproduct of how this market recovered after the most recent hard market cycle. Andrew Kligerman: I see. So maybe even next year, it could start to inflect more toward open again? Steven Yi: I think that's our anticipation. And again, I think what we're expecting is that for the next few quarters, the take rates will stay about where they are, right? But we do anticipate that next year, the demand will start to broaden out. And so you're going to see carriers 10 and 11 and 12 and 15 and 20 really start to spend more in our marketplace. And again, that's going to flow through the open exchange. And over time, that's really going to start to skew that mix back towards open from, I think, what we internally see as a high watermark right now. Andrew Kligerman: Got it, Steve. And then in your shareholder letter, you talked about how most carriers were investing well below their full potential. And there's this kind of analysis where you say that the investing was below 2019 levels last year, 2024, even though premium was up 44%. So I'm kind of -- here we are a year later, premium has kind of leveled out year-over-year, I think. What -- where are we versus 2019 in where carriers are investing? I'm kind of curious as to where we are now as opposed to the '24 number. Steven Yi: Sure. And let me try to answer the question and tell me if I'm not answering the question that you're asking. But I think where we are versus 2019, I think we've highlighted that stat just to show that even though the overall volume has gone up within our marketplace, with a couple of leading carriers really investing heavily in growth in '24 and '25, that the vast majority of other carriers, again, top 25 carriers, really weren't back to the pre-hard market levels of 2019 and 2020. And that's one of the reasons that we're still -- we're top heavier now than we were in 2020. Now if you're asking where the carriers are right now versus 2019, what I'll tell you is that I'll point back to the FEHB of having 13 carriers spending more than $1 million a month. That's an all-time high for us. I know that sounds a bit paradoxical with what I just said. But what that means is that, a, our marketplace has scaled tremendously as everyone knows. But b, we do see more carriers now than 2019 and 2020 who are really ready to adopt this channel. We have more integrations with more carriers than before to enable them to be successful in this channel. And so we see the nascent broadening of demand. We see a lot of encouraging signs from the discussions that we're having with these carriers. And so we see more carriers than ever before really poised to be able to grow in this channel and to advertise and punch their weight in this channel than we have ever seen and certainly a lot more than what we saw in 2019 or 2020. Now Andrew, did that answer your question? Andrew Kligerman: Yes, it did. It feels like directionally, there's still a lot of momentum there. Is that kind of the right take on what you're saying [indiscernible]... Steven Yi: 100%. That's absolutely right. I mean I think because of what happened with the pandemic-related hard market cycle and not transitioning to a soft market cycle, what, in some ways, gotten lost in a lot of that is just the secular shift that the whole industry is undergoing, right? And so really, at the heart of it is really that people are shopping for insurance online. The best way to connect with these consumers and sell policies to consumers is through advertising online and enabling policy sales online, yet still 2/3 of policies are still sold offline where the main expense -- distribution expense is commissions paid to agents. And so what you would expect to see are the advertising budgets continue to go up right, over time because what you're essentially doing is converting commissions that are paid to agents, which are in the neighborhood of -- for U.S. personal auto, like $17 billion, $18 billion a year, you would expect to see more of that being converted into advertising dollars as more and more carriers really adopt direct-to-consumer marketing as a necessary part of their distribution strategy. And so it's that secular story that I think got lost in the cyclical story that we've had over the past few years, and we're seeing that play out. And again, we're seeing that play out in the form of having 13, 15, 20 carriers at this point, who I think are really well poised to start to grow in our channel over the next several years during the upcoming soft market cycle. Andrew Kligerman: Super helpful. And if I could just sneak one last one in. Do you -- with all the turbulence in Medicare Med Advantage over the last 3 to 4 years, and it's been brutal, do you ever see that business getting back to -- because I think a lot has shifted to Med Supplement now. Do you ever see that business getting back to what it looked like in 2021 or 2020 or 2019? I forget what year, but it's been a rough number of years. Steven Yi: Yes. I mean I think that's a great question. I think that -- I think people in the industry don't expect a return to, I think, the frothiness that you saw in those markets when, quite honestly, the Medicare Advantage payers or the carriers in this case were probably making a little bit too much from Medicare Advantage policies. And again, there's been a resetting of payment rates, right, a resetting a lot of the plan. And the fact remains that it's a $0.5 trillion industry, right? Medicare Advantage policies are still profitable and big profit centers for these major carriers like UHC and Humana just because in the past, it used to be 2 to 3x as profitable to sell a Medicare Advantage policy as another policy. The fact that it's probably going to come down and to be maybe nearly as profitable as other health insurance policies they see, I mean, certainly, I think the frothiness will go away. But I do think that as that market matures, you're going to start to see it evolve more like the auto insurance industry where a lot of the carriers, depending on how they're feeling about their plan design, start to get aggressive about advertising and taking market share away from other carriers. And so we do see the market starting to settling down over time. And again, one that's going to look a lot more like the auto insurance industry than it does today. But certainly, I think a lot of the frothiness that you saw in the early period, I think, probably will be gone for a while. Patrick Thompson: Yes. And Steve, and this is Pat. I'll probably just add 1 or 2 things to what Steve said on that, which is I think the consumer penetration of Medicare Advantage plans continues to tick up a point or 2 every year. I think this year -- for this plan year, 54% of the enrollees chose it, and the estimates show that number going up to about 64% by 2034. And the other nice tailwind we think we have in the Medicare market for a number of years to come is online shopping. And so as you get 65-year-olds aging into Medicare, they are much more Internet savvy than the average Medicare consumer. And so we think that trend is going to be continuing every year, and we're going to have more and more Internet-native seniors coming into the market, which should be very, very good for our business over time. Operator: [Operator Instructions] And your next question comes from Ben Hendrix from RBC Capital Markets. Michael Murray: This is Michael Murray on for Ben. Congrats on the strong results. It looks like normalizing for the under-65 segment, adjusted EBITDA grew 31%. But then looking at your guidance, you expect EBITDA to be flat on transaction value growth of 38%, excluding the under-65 segment. So is there a level of conservatism baked in there? Any color on the puts and takes would be helpful. Patrick Thompson: Yes. And Michael, this is Pat. I would say that our philosophy from a guidance standpoint is we guide to kind of based on what we know as of today and what we have a high degree of confidence in. And I think the -- our track record against guidance has been pretty good over time, and we're guiding based on 28 days of actuals we've seen in this quarter and our view on how things are going to play out. So I think our goal is always to deliver the best numbers that we can, and we're going to be looking to do that this quarter. And I think we'll have more to report when we come out with earnings in February, but we try to be realistic and put out numbers that we believe we can achieve. Michael Murray: Okay. And just shifting gears. So a large MA payer recently indicated that they would be suspending their relationship with a large telebroker, which had high complaints to Medicare and also the least engaged members. Do you see any opportunity to gain share here just given payers' increased focus on quality leads? Steven Yi: Yes, I do. The way I see it is that is that I think there is a growing trend with payers to actually start to acquire customers directly and rely less on brokers and telebrokers. And so again, it's unfortunate that these types of things happen, right? Certainly, I think one of the reliance on telebrokers of this industry is that a lot of the carriers within the Medicare space are relatively new direct-to-consumer and certainly new to online customer acquisition. So I think as that industry gets more well versed in that area, I think there will be a shift from reliance almost entirely on brokers and telebrokers and e-brokers to sell policies and, again, a greater shift to carriers selling policies directly. And that's something that you saw in the auto insurance industry in the early days, and we expect that trend to take hold within the Medicare Advantage space over time. Operator: Okay. There are no further questions at this time. And that's all for now. Ladies and gentlemen, thank you all for joining. And that concludes today's conference call. All participants may now disconnect.

88天前Insight Analytics约5分钟阅读

CP.TO 2025 Q3 财报电话会议

Operator: Good afternoon. My name is David, and I'll be your conference operator today. At this time, I'd like to welcome everyone to CPKC's Third Quarter 2025 Conference Call. The slides accompanying today's call are available at investor.cpkcr.com. [Operator Instructions] I would now like to introduce Chris de Bruyn, Vice President, Capital Markets, to begin the conference call. Chris de Bruyn: Thank you, David. Good afternoon, everyone, and thank you for joining us today. Before we begin, I want to remind you this presentation contains forward-looking information, and actual results may differ materially. The risks, uncertainties and other factors that could influence actual results are described on Slide 2 in the press release and in the MD&A filed with Canadian and U.S. regulators. This presentation also contains non-GAAP measures outlined on Slide 3. With me here today is Keith Creel, our President and Chief Executive Officer; Nadeem Velani, our Executive Vice President and Chief Financial Officer; John Brooks, our Executive Vice President and Chief Marketing Officer; and Mark Redd, our Executive Vice President and Chief Operating Officer. The formal remarks will be followed by Q&A. In the interest of time, we appreciate if you limit your questions to one. It's now my pleasure to introduce our President and CEO, Mr. Keith Creel. Keith Creel: All right. Thanks, Chris, and good afternoon, everyone, for joining us here on the call to discuss our third quarter results. As I always do, I'm going to start by expressing a heartfelt gratitude and respect for the 20,000-strong family of railroaders across these 3 nations who delivered the results that we get the honor of sharing with you today. So speaking of the results, the team delivered strong volume growth in the quarter of 5%. Revenues were up $3.7 billion, up 3%, operating ratio of 60.7%, which was a 220 basis points improvement in earnings per share of $1.10, an increase of 11% versus a year ago. Most importantly, we saw a strong performance from a safety perspective with improvements in both our FRA personal injuries as well as our industry-leading train accident frequencies. Despite what has been consistent macro and trade policy headwinds, the team continues to generate a diverse profitable growth across a number of areas. We produced a continuing trend of differentiated performance in our automotive franchise with another record quarter, strength in our bulk franchise with strong growth both in grain and potash, another strong quarter in intermodal growth in domestic and international, which included an important milestone that we've spoken to before in the quarter with the opening of the new Americold facility here at our terminal in Kansas City. This is a first of several facilities that will be co-located on the CPKC. And again, it's a perfect example of our ability to be market makers with our unique industry network. Mark and the team delivered a very strong execution on the operating side with results with improvements across a number of our key metrics. The network overall is performing well. We have a lot of operating momentum heading into the end of the year to close out, and we remain on track and fully expect to deliver on our guidance of 10% to 14% earnings growth versus a year ago. That said, while there's certainly a lot of focus currently on potential industry consolidation, we remain focused on executing this unique growth opportunity that CPKC represents. A couple of comments on UP and NS as it pertains to the proposed merger, I think we've been very clear about our views. We strongly believe further consolidation is not necessary at this time and is not in the best interest of the industry, the shippers or the U.S. economy. As we said before, we remain and will be active participants throughout the regulatory process to ensure that the facts are known and understood about what a merger of this size and scale means. Just for reiterating the obvious, the proposed merger would result in one single line railroad handling about 40% of the freight rail traffic in the United States. This proposed merger in spite of what's been said, represents overlap in key markets such as Chicago, Memphis, St. Louis and New Orleans. This is not a simple end-to-end merger. The merger of this magnitude introduces unprecedented risk by heavily concentrating much of the decision-making for our national rail network with undeniable implications on the entire supply chain. That said, while this is certainly driving a lot of focus, we will remain seized even if this consolidation happens on maintaining our industry-leading position to continue delivering industry-leading results. A direct threat from the Transcon merger to CPKC is minimal. This is a proposed East-West merger. Our U.S. network is primarily North-South. By no means does the merger impair or change our unique growth prospects that our 3-country network has created for us for years to come. And I'm confident for the merger to meet the regulatory standard that will have to meet, the conditions will have to be meaningful. So while much is still to be determined, our story remains unchanged. We have a unique network, undeniably a proven team and a differentiated growth opportunity in front of us that will continue to set us apart in growth and execution for years to come. We're well positioned to finish the year strong to produce another year of double-digit earnings growth. This network, this team, this opportunity is unique, and we're going to continue to deliver value for all stakeholders. So with that said, I'm going to hand it over to Mark to speak to the operation. John is going to bring a little color on the markets and Nadeem with the numbers, and then we'll open it up for questions. Mark Redd: Okay. Thanks, Keith. Good afternoon. I'd like to start by thanking our employees for their dedication and hard work in producing these results. The strong operating performance is a testament to the team's effort and execution in the third quarter. Looking at the third quarter results, we saw improvements to several of the key operating metrics. We look at terminal dwell improved by 2%, velocity improved by 1%, train length and train weight improved by 2%. Following the technology cutover that we executed in the second quarter, we are now leveraging the integrated Canadian and U.S. operating systems to drive further efficiencies and operating discipline. In the quarter, we saw CP legacy network operate at a record productivity and car velocity levels, while the legacy KCS network achieved its highest ever throughput levels. We're carrying this momentum into the fourth quarter with solid improvements to the key operating metrics, including velocity, dwell, car miles per car day and on-time to purchase. The strong network performance continues to provide John and his team a product they can sell into. Our 100 Series Transcontinental Intermodal trains in Canada are delivering consistent performance, along with low dock dwell at Centerm at Vancouver South Shore. This is also supporting the growth within Gemini. Velocity across the bulk network is mid-single digits, driving efficient service for the strong grain harvest in Canada and the U.S., along with the rest of the bulk franchise. As we continue to drive efficiencies across the network, we expect to further improve in our industry-leading PSR service model, delivering efficient growth and strong customer service. Now turning to safety. While we strive for perfect perfection during the quarter, safety is a continuous journey. Despite a challenging drama that occurred in the quarter, I'm encouraged that we delivered another quarter with year-over-year improvements in safety. If I look at personal injuries, we landed at 0.95, which is a 3% improvement. Train accident frequency was 1.15, which is 20% for the quarter. Turning to planning. As we moved into the end of the quarter, our resources are well aligned with our growth outlook. We have now received 91 of the 100 Tier 4 scheduled for delivery this year, locomotives. As we deploy these locomotives, primarily on a 100 Series Transcontinental Intermodal service, we're delivering about a 30% reduction in service interruptions compared to a year ago. As we look into the future, we expect to see an additional 70-plus locomotives in 2026 with further support an industry-leading growth outlook. We'll also improve the efficiency and reliability of this fleet. In closing, the network is performing well. We are properly resourced to handle the strong grain harvest in Canada and the U.S. Investments in capital, capacity, safety, locomotives are driving strong network performance, and we are well positioned to execute strong this quarter. Now, I'll pass it over to John. John Brooks: All right. Thank you, Mark, and good afternoon, everyone. I'm pleased with our third quarter performance as this franchise is resilient, and our team is producing differentiated growth despite a challenging macro economy. We are laser-focused on the things we can control. Our operations, as Mark said, are delivering strong service that we can sell into, and we are pricing to the value of our capacity and our service. Now looking at our third quarter results. This quarter, we delivered freight revenue growth of 4% on 5% increase in RTMs, both a revenue and RTM all-time Q3 record. Cents per RTM was down 1%. Our pricing remains strong as the team continues to deliver renewal pricing above our long-term outlook of 3% to 4%. Pricing was offset by mix as we delivered strong growth in bulk and International Intermodal while continuing to leverage our full network and grow our longer length of haul traffic, all of which contributed to lower cents per RTM. Now taking a closer look at our third quarter revenue performance, I'll speak to the FX adjusted results, starting with bulk. Grain revenues were up 4% on 6% volume growth. U.S. grain was strong with volumes up 13% over prior year. We continue to see strong growth in Mexico and the U.S. South as our network unlocks new opportunities and we expand our share into these markets. Looking to the end of the year, the U.S. corn and soybean harvest is going strong. While our P&W export program is impacted by the tariffs on soybeans, our grain team is working with our customers across Canada, the U.S. and Mexico to identify alternative markets and incremental opportunities to backfill a portion of this market shortfall. Canadian grain volumes were down 2%, driven by lower carryout stocks from the 2024-'25 harvest, along with lower demand for canola exports. Our outlook though is positive for this new crop, and we expect this new crop to be in the range of 78 million to 80 million metric tons ahead of the 5-year average, and we expect a strong close to the year for our grain franchise. Potash revenues and volumes were up 15%. The strong performance was driven by positive demand fundamentals and strong network performance that supported efficient potash export cycles. While Canpotex is fully committed to the end of the year, compares are more challenging, and we expect growth to moderate as we move through Q4. And to finish out bulk, we closed our third quarter with coal revenue up 3% on 2% volume growth. Growth in Canadian met coal was driven by improved production at our mines and continued inventory drawdowns. This was partially offset with our U.S. coal franchise driven by a facility outage that happened during the quarter. Now moving on to merchandise. Energy, Chemicals & Plastics revenue and volume were down 2%. The decline was driven by softer base demand, lower crude and lower refined fuel volumes due to customs border challenges going into Mexico. These headwinds were partially offset by new headwinds and increased volumes of LPGs. With LPG volumes starting to ramp up and refined fuel shipments rebounding in Mexico, we expect ECP to improve as we exit the year. In Forest Products, revenues and volumes were down 3% and 1%, respectively. Volumes in this space continue to be impacted by macro softness within our base demand. However, our team continues to outperform the industry by offsetting some of the broader macro impacts to this business with self-help initiatives and extended length of haul. Metals, Minerals and Consumer Products revenues and volumes were up 2%. The growth was driven by frac sand volumes to the Bakken, new business wins in the aggregate space and an increase in both U.S. domestic steel shipments and trade between Canada and Mexico. These efforts helped to offset the impact of tariffs on cross-border steel. Now looking ahead, we are encouraged by industrial development projects that are coming online, along with further growth opportunities from our land bridge shipments. Moving to the automotive area. As Keith said, revenue was up 2% and 9% volume growth, both are records. I'm pleased with the performance and resiliency of our auto franchise despite the uncertainty from evolving trade policy. This continues to be an area of unique growth for CPKC driven by our advantaged footprint serving both production plants and auto compounds across North America. Despite some of the recent chip and aluminum supply challenges, we are well on our way to producing another record year. Closing with Intermodal, revenue was up 7% on 11% volume growth. We delivered strong growth from our domestic Intermodal franchise with volumes up 13%. We continue to have a strong line of sight to domestic Intermodal growth from multiple areas, including our business growth with Schneider, new auto parts moves volumes out of the Americold cold storage warehouse co-located with us in Kansas City and our service with CSX connecting shippers in Mexico, Texas and the U.S. Southeast. Moving to International Intermodal. Volumes were up 10% on continued growth from Gemini through our ports at Vancouver, St. John and Lazaro. While we definitely have seen pull forward volumes in a muted peak season, we expect our strong service product and diverse port access to continue to drive opportunities for us in international. In closing, while we are certainly not immune to the many challenges in the freight environment, we continue to drive differentiated growth with our unique and resilient North American franchise. We are delivering mid-single-digit volume while pricing to the value of our capacity and our service. Now looking forward, we continue to be well positioned to outperform the industry and the macro on the strength of this franchise, paired with our unique synergies and self-help. With that, I'll pass it to Nadeem. Nadeem Velani: All right. Thanks, John, and good afternoon. I'll be referring to our third quarter results on Slide 12. To start, CPKC's reported operating ratio was 63.5%, and the core adjusted operating ratio came in at 60.7%, a 220 basis point improvement over prior year. Diluted earnings per share was $1.01 and core adjusted diluted earnings per share was $1.10, up 11% versus last year. Taking a closer look at our expenses on Slide 13, I'll speak to the year-over-year variances on an FX-adjusted basis. Comp and benefits expense was $619 million or $615 million adjusted for acquisition costs. The year-over-year decline was driven by lower stock-based compensation and efficiency gains from workforce optimization and other productivity actions, including improved train weights along with lower dead heading and held away time. The decline was partially offset by inflation and volume variable increases from higher GTMs. To close the year, we expect our average headcount to continue to be slightly lower year-over-year, driving strong labor productivity gains. Fuel expense was $415 million, down 2% year-over-year. The decline was driven primarily by the elimination of the Canadian federal carbon tax on April 1, partially offset by a volume variable increase from higher GTMs. Overall, changes in fuel prices were a $0.02 headwind to EPS in the quarter. Materials expense was $114 million, up 15% year-over-year. The increase continues to be driven by the long-term parts agreement that was put in place in the fourth quarter of 2024. Higher materials expense had a favorable offset within PS&O for net savings in the quarter. The increase in materials expense was partially offset by reduced locomotive maintenance spend from improved fleet performance. Equipment rents expense was $109 million. Increased car hire payments along with inflation impacts from growth in automotive volumes drove the increase. Depreciation and amortization expense was up 6%, resulting from a larger asset base. Purchase services and other expense was $565 million or $555 million adjusted for acquisition costs and purchase accounting. The decline was driven by lower casualty costs, savings from the long-term parts agreement as well as other productivity and in-sourcing initiatives. Overall, we delivered solid financial results despite a $39 million sequential increase in casualty expense with a $0.03 impact on earnings growth. Looking ahead, Mark and his team have our network running well and the volume outlook is solid with strong harvest in both Canada and the U.S. We continue to generate strong labor productivity and maintain line of sight to solid margin improvement in the fourth quarter. Moving below the line on Slide 14. Other components of net periodic benefit recovery was $107 million, reflecting the effect of favorable pension plan asset returns in 2024. Net interest expense was $222 million or $216 million, excluding the impact of purchase accounting. The year-over-year increase was driven by interest incurred on new debt issued in Q1 and Q2 of this year. Income tax expense was $296 million or $325 million adjusted for significant items and purchase accounting. We continue to expect CPKC's core adjusted effective tax rate to be approximately 24.5% in Q4 and for the full year. Turning to Slide 15 and cash flow. Year-to-date cash provided by operating activities increased 6% to $3.8 billion, while year-to-date cash used in financing activities was up 45%, driven primarily by the share repurchase program. From a CapEx perspective, we invested $860 million in the quarter and remain on track to invest approximately $2.9 billion in 2025, in line with the outlook we provided in January. Focusing on our share repurchase program, we have continued to take advantage of the volatility in the market to reward shareholders with disciplined and opportunistic returns. We see strong value in our share price at current levels. And as of the end of the third quarter, we've repurchased 34 million shares or approximately 91% of the program we announced in March. As we look towards the end of the year, our network is running well and prime to serve strong harvest in Canada and the U.S. John and his team are delivering mid-single-digit volume growth and strong pricing in a challenging macroeconomic environment. We are controlling our costs, improving the resiliency of our business and the power of our North American network. We remain well positioned to meet our guidance and lead the industry with another year of double-digit earnings growth. With that, I'll turn it back over to Keith to wrap things up. Keith Creel: All right. Thank you, gentlemen. Why don't we open it up for questions, operator? Operator: [Operator Instructions] We'll take our first question from Fadi Chamoun with BMO Capital Markets. Fadi Chamoun: So a question on the M&A topic, if I may. There's been a lot of kind of conversations, discussion out there that if this UP and NS merger ultimately happens, it's going to trigger potentially the end game, which effectively ends up being 2 North American -- kind of 2 major North American railroad, as I understand it. And I was just wondering, Keith, from your perspective, does this have to happen? And ultimately, does this consist of moving into that scenario in a multiple 1 phase or 2 phases? Or also, is there a scenario where one merger happened and ultimately, the rest of the industry can continue to operate at the status quo? Keith Creel: Yes, Fadi, that's a really good question in a lot. I mean, obviously, it's going to depend on the details. We've not yet had the benefit of reading UP/NS' merger application. I would say this, I know there's an echo chamber. I read it, I hear it. I sense it. I know there's a lot of invested investors that perhaps want this to be a layup. This is not a layup, number one. It's not a foregoing conclusion that it's going to get approved. What we do know is the hurdle is going to be high. These are rules that have never been tested. There's a public interest test, enhancing competition, a review of downstream impacts, which, to your point, includes the likelihood or potential of additional rail consolidation that those have to be met, and this STB is thorough. I'm certain of that. I can say that more so than anybody else in this industry because I've walked this walk and experienced this journey in getting our deal approved, which was under the old rules with the hurdle rate not even remotely close to being the same standard. So again, I think to assume or to expect it [indiscernible]. That being said, if it gets approved, that's a big if. But if it does, then to your point, depending on what the conditions are, would answer the question. I would make a case to serve and to meet and exceed all those tests that how could it be approved without significant conditions to protect balance in the industry, to protect competition, to enhance competition, given the market power that, that size railroad would exert. So I would agree. [Mr. Ben] and I definitely agree, this STB is smart. Maybe what we don't see on this -- or maybe not being recognized this STB has experienced the applicants behavior historically in previous mergers -- from 30 years ago, the integration risk that occurred and most recently, the service failures that occurred in the United States rail industry just 4 years ago. The applicants were before the STB in a service hearing expressing concerns. The applicants of STB relative to the allegations of serious concern on utilizing embargoes to regulate their network. So that may be ignored. And I don't believe that this regulator would set those memories aside in the weight of how they review not only the application, but ultimately determine what their conditions might be to protect the overall strength and health of the U.S. rail network because ultimately, that's what their mandate is. It's to protect the U.S. rail network to make sure that their decisions protect the public interest and ultimately lead to if we have consolidation, an environment that exists. So if the UP/NS are stand-alone, the others that have to compete have a fair shot of doing that. And it's not competition. Let me be clear, it is not competition that anyone is scared of. I think that's a very assumptive statement to make. It's anticompetitor that we recognize and that we're concerned about, and it will be our mandate and our objective to make sure that if that merger is approved, conditions allow anticompetitive behavior to be minimized or eliminated. So yes, with the right conditions, Fadi, that's a potential outcome. But again, there's so much more to be determined out of this process. There's a lot of stakeholders that are going to weigh in. There's going to be people that speak loudly and speak boldly and there are going to be customers, quite frankly, that perhaps they don't want to voice their strong heartfelt fillings for fear of intimidation or fear of retaliation, but I'm sure that if they're not said publicly, they'll be said privately. And all those facts and conditions and stakeholders' views, I believe this STB will take seriously. And I believe their decision, if approved, will contain significant conditions or if they don't meet the standard, I believe they have the mandate and they have the commitment to get this right. History needs it to be right. Our nation needs it to be right. And if they don't meet the conditions of the standards, I believe they'll reject it. Operator: We'll take our next question from Chris Wetherbee with Wells Fargo. Christian Wetherbee: Appreciate the comments, Keith. I guess maybe just piggybacking on that. As you think about the sort of landscape for now, and we don't have the application yet and we don't know ultimately how the STB is going to respond to that, sort of what's the strategy that you can employ? Are there opportunities for you in the relative near-term to leverage other relationships in the space? I guess how do you think about sort of the landscape right now, at least over the next several quarters? Keith Creel: Yes, the answer is absolutely yes. And we said when this all started, we're not going to sit on our laurels. We've been very engaged with the nonapparatus to look at creating alliances and to leverage as the regulations require us to, to exhaust all avenues, to achieve merger like benefit without the risk that merger represents. So yes, there's opportunities that we're exploring with the Western competitor to UP. There's opportunities that we're exploring with the Eastern competitor to the NS, and we're starting to connect the dots to create markets. And I'll tell you the strategic piece of our railroad that's becoming even more so critically important is that Meridian Speedway. That Meridian Speedway that what was when we took over the railroad is no longer the same. It has been enhanced with the connection at Meridian with the CSX via Myrtlewood, Alabama, through Montgomery to Atlanta. It unlocks a second mainline alternative that gives us unique industry advantage to create markets and bridge traffic between Dallas markets and between Southeast U.S. markets. And I'm not talking about just Intermodal. I'm talking more importantly, the industrial heartland. You think about the industrial development that's being driven to realize President Trump's ambitions, the additional infrastructure that's being put in place for these AI data centers and power centers along that corridor between those southern states and our network runs straight across it. That transaction that we made, which was a niche acquisition over the last 2 years, we've been investing heavily in it. I had the opportunity just last month to take an inspection trip with the CSX team that started in Montgomery, Alabama, went through Myrtlewood over to Meridian and Shreveport. So what was a little short line railroad by, I would say, January, February of 2026 is going to be a Class 4 railroad that allows us to create a transit time and a product off never before possible that's going to connect Atlanta to Dallas in about 30 hours. You think about -- and people have always thought about the Speedway as being the Intermodal product, yes, it is. And yes, we're going to protect our commitments to our partners in that joint venture in what is now NS and perhaps in the future might be UP. But at the same time, it's still the railroad that we dispatch. It has tremendous opportunity. It's not exclusive to freight traffic topic. So to create a product that allows us to connect the industrial heartland between Atlanta and Dallas is a pretty powerful model. And in 30 hours is truck-like competitive, single truck-like competitive. I think it's a unique differentiator that can't be replicated in UP/NS combination that's going to allow us to win market share working with our partners in the West and our partners in the East. And I can tell you they're motivated to work. Operator: We'll take our next question from Brian Ossenbeck with JPMorgan. Brian Ossenbeck: Maybe just to stick on that topic, Keith, can you give us a little bit of perspective in terms of the headlines we've been seeing around the Meridian Speedway and some of the service disagreements. I don't know if we're going to see anything settle until the government reopens, but I would appreciate your perspective there. And then just what's the possibility to put through on the big side of things when you get that track speed up? Is it 2026 when things start to unlock at the beginning of the year? Or is that going to be more of a ratable game as we look into next year? Keith Creel: Well, the service product, the actual infrastructure will be done in January. Track speed to be out there. It's going to be a 49-mile hour railroad. You're talking about 100 miles transit time from Montgomery to Meridian combined is going to be 3.5, 1.5 per hours. So you put that with a 6-hour run to Atlanta on the CSX, you got an 11-hour product to Meridian. And I think right now, what the NS does is 12 hours. And there's room to improve that. It just depends on the density that we put over it for the additional capital investment if we want to unlock some additional speed. So that's not full potential. That's just the right thing which we think for the market of the sweet spot. Now the dispute itself between ourselves and NS, and that's the dispute is because we have a commercial agreement with the NS, to me is, quite frankly, a self-serving narrative that has no merit. We have prepared our response, we'll give it to the STB as soon as they open up, and it will lay out the real details. What this is, is a story of 2 partners that don't like our decision to run the railway the way it was designed. This railway goes back to 2006 when the NS invested with KCS to create the Speedway, there was financial consideration given. There was infrastructure built for 8,500-foot trains. Our predecessors at the KCS allowed the NS to run long trains. Frankly, the way I see it as an operating officer, it was the demise of our customers. That's what we stopped, and that's what NS and UP does not like. There are provisions within that agreement. NS knows what they are. We know what they are. If they want to invest monies to run longer trains, then they need to come to the table and invest the money. The business today doesn't justify it, and I'm not going to subsidize NS' operation nor am I going to subsidize UP's operation for their operational synergies at the cost of my service to my customers. I have a responsibility to protect my customers as well. And that's kind of what it boils down to. It's built to run 8,500-foot trains. That's what we're going to do. Now what we have done out of respect for Mark George and his team for a temporary time period until we can get an additional crews, which we've hired and are in training right now, there's going to be an additional train start that comes on middle of November. In the meantime, NS has worked out a temporary agreement with us to pay us for the additional delays that were occurring, allowing one long eastbound run until that second train start is added the middle of November, and then we're going to revert right back to an 8,500-foot railroad. And I'll tell you this is kind of the proof in the pudding. When you try to oversubscribe a network and run long trains and the network is not built for it, some is going to suffer, whether it's the communities and the crossing you block, whether it's the yards where you're holding the trains out with some of the applicants have some history in that or it's our trains that had to take a siding for someone else's train at our demise. We ran the railroad for 7, 8 weeks at 8,500 feet over the last 2 months before we allowed this exception to occur. We measured the delay. Our trains are taking over [1-hour] delay a day to accommodate a longest train. It doesn't make any sense. It's not the right operating decision. It's not the right commercial decision. It's not the right bottom line decision. We're being fair and it's no more than that. Operator: We'll take our next question from Jonathan Chappell with Evercore ISI. Jonathan Chappell: Keith, I'm going to let you take a little break here. Nadeem and John, we've seen the quarter-to-date volumes trending not at mid-single digits. So I think there's an anticipation just given the way that October has been that getting to that mid-single-digit full year, that double-digit earnings growth full year may be a bit challenging and really, frankly, off the table. So it's a bit surprising that you've kept it. Can you kind of just help us forge the path over the next 8 to 9 weeks on how you get that volume up to the mid-single digits, how you get that sub-57% OR? Just what do you have line of sight on that's clear to you that, that's still attainable with just 8 weeks to go? Nadeem Velani: Yes. No, good question. I'd say that if you look at our year-over-year, certainly tough compares as we speak. So that's known to us. So not really any surprises on that front. But we also have some very easy compares in November when you think about some of the labor disruptions a year ago that impacted our business through some of our customers as well. And so when we look at the opportunity in November and December, we think that we have the ability to continue to deliver the mid-single-digit RTMs and that will be -- I think we have strong visibility. Now there's a chip shortage issue on the auto side that we -- that's come up, and we're mindful of that. But we think on the bulk side, there's enough offsets to be able to support our top line view and our guidance from that perspective. From a cost point of view, from an operating leverage point of view, I think we're going to see benefits similar to what we saw Q4 a year ago, the previous year to that. We've had some very strong finishes to the year. And we have good visibility to the ability to get a sub-57% type of operating ratio or that level, plus or minus, depending on what mark-to-market the stock price is as well. But we are very confident, we'll be able to achieve at least 10% EPS growth for the year. So we're not backing off of that with 8 or 9 weeks here left to go. Operator: We'll take our next question from Steven Hansen with Raymond James. Steven Hansen: Quick one. I just wanted to dovetail back on the grain opportunity. I recognize you've described it as being a sizable harvest. But do you feel like the customers have given you a sense for whether there's upside opportunity or how that's going to track in terms of timing? Just mindful of some of the issues still out there and pricing on the farm and whether or not farmers are going to be eager to move it through the fourth quarter or going to be deferring into the first half? John Brooks: Yes. Thanks, Steve. It's John. Yes, certainly, it's something we're watching closely. There's no doubt it feels like the grain companies are having to sort of pull the grain into the elevator a little bit versus maybe that typical push we'll see at harvest. Right now, I'm pleased with our cycles. I'm pleased with the number of sets we have in play in Canada. And honestly, we've been able to -- whatever softness we've maybe felt in the North, we've been able to backfill with good opportunities on our Southern franchise. So it's going to be teamwork between the 2 franchises, Canada and the U.S. and we're going to need sort of all the markets at play, but our execution is, as we described, we're going to run it hard right to the end. Operator: We'll take our next question from Scott Group with Wolfe Research. Scott Group: So Nadeem, Sense per RTM have been down a bit the last couple of quarters. Can you just talk about underlying pricing trends and when you think this metric turns positive? And then maybe, Keith, just bigger picture. When I think back to the Analyst Day, you guys talked about a mid-teens earnings algorithm. It's been closer to 10%. That's still really good on a relative basis, but not like at the absolute level you talked about. Do you still think mid-teens is the right algorithm? What do we need to unlock it? Is it just macro? Is it more price cost, I don't know -- how do you -- what do you think we need to sort of get back to that mid-teens growth? Nadeem Velani: All right. Thanks, Scott. So just a reminder that federal carbon tax that was removed in April, that did impact sense per RTM, but the thing is it also a flow-through, so it does come out of our expenses. So that's been a big headwind on sense per RTM in the last few quarters. But all that to say, in Q4, we should see positive sense per RTM. So we should see it inflect positive right now as we speak. So that will be supportive, I'd say that you'll see small low single digits, but it will be positive as we speak. We've also had some mix impacts that have impacted that. Autos, for example, the length of haul has been up significantly and the mix of business, but we should see that turn. Pricing has been strong. John and his team have done an exceptional job of being able to keep that above inflation and closer to 4% on a same-store basis. So I'd say that, that will continue as we foresee into 2026. To your point on double-digit versus kind of mid-teens. The macro has been challenging. There's been -- sort of also hurt us. Crude this quarter was a significant -- casualty with the crude derailment was a significant headwind, which we didn't foresee. If we didn't have that, if we had a more normal casualty expense in the quarter, we would have been sub-60% for the quarter. Now that's on us. We put it on the ground, and we have to take those costs. But I would imagine, and I expect going forward, we'll have a more normal casualty. Our safety numbers have been strong, but the cost of incidents have been high. So that will be supportive. As far as the mid-teens, we'll start seeing benefits of share repurchase starting next year, right? We announced the program in Q1, kind of mid-late Q1 of 2020 of this year. So 2026, we'll start seeing year-over-year benefits from the lower share count. And that was part of the algorithm of getting double-digit closer to mid-teens type of growth. We've delivered quite well on the volume front, but I think we could do more with a better macro environment. So we're still waiting for that turn. But as that inflects and we start seeing a more supportive economy, we start seeing some of this tariff noise get behind us and more certainty for our customers. We start seeing the benefits of strong bulk volumes, especially with this very strong Canadian grain crop. I think you have a potential in 2026 for that to turn closer to what we highlighted at our Investor Day as mid-teens EPS growth. And that's kind of what we had highlighted as through to 2028. So we're kind of in that sweet spot of 26% to 27% to 28% being in that mid-teens, and I still feel that we can achieve that. Operator: We'll take our next question from Konark Gupta with Scotiabank. Konark Gupta: I think maybe it's for John perhaps. If we look into Q4, I guess, you have easier comps coming up in November, December, but any insights into the potash and intermodal traffic, John, so far in October? It seems like pretty low. And I think you flagged some of the comps issues in the potash, but anything else besides the comps that's being on the potash and on the intermodal side, any issues you're seeing with imports coming down on the U.S. ports? John Brooks: Yes. So yes, the potash is all driven around the compares. We just -- we had some surge testing and some different things we did last year that made October awfully strong. Now I do expect Canpotex, as I said, is sold out to close the year. We're going to run that and push that as hard as we can. In the Intermodal front, I expect a really strong close on our Domestic Intermodal. We've got continued good line of sight, as I mentioned in my prepared remarks, to a number of pieces of the business that are going to start up in the quarter. And frankly, we're just starting to see the ramp-up of our reefer business in and out of Mexico with Americold. So I continue to be -- and frankly, our transload business across Canada continues to be strong. So I see pretty good numbers on our Domestic Intermodal side. The international has been a challenge relative to the third quarter, some of the maybe the pull-ahead volumes and muted peak. But that being said, I'm not seeing the blank sailings. I'm not seeing additional challenges. I can tell you, we're kind of foreseeing the current run rate to persist as we move through November and December. Operator: We'll take our next question from Walter Spracklin with RBC Capital Markets. Walter Spracklin: I'd like to come back to you, John, on volumes. And I know Norfolk Southern in their call flagged that they were seeing some diversions in volume away from them as a result of the proposed merger. And I think most would see CSX as the beneficiary of that. But I'm curious to see if you're seeing any customers being -- making decisions along those lines that would favor you in seeing in terms of volumes over to your line currently? Or could you see that as contract negotiations come up? Do you see any opportunity to take advantage of that if that is indeed a trend we're seeing into 2026? John Brooks: Well, I sort of emphasize what Keith said. There's certainly a lot of dialogue going on, on that front and what sort of products we can partner and create to leverage the strength of some of those other franchises. Those are things that maybe we've looked at in the past, but are certainly maybe coming to the forefront in terms of opportunities. I do believe that narrative becomes a part of what our 2026 growth platform could look like and add. There's no doubt about we're already seeing opportunities shift on to our Meridian Speedway route with the CSX. As Keith mentioned, the product design is to be up and running in Q1 of '26. But it's not a bad product as we sit here today. And there are certain customers that certainly want the optionality or have been willing to test that product. So -- and that -- we talk a lot about maybe in and out of Texas, Atlanta in those marketplaces, but there's an awful lot of freight that is just really conducive to our network into the Southeast that flows out of Mexico. And that's frankly an area whether it is competing against short sea today or taking trucks off the road that we've been able to key on with the CSX team. And frankly, a lot of that is new growth opportunities. It's not taking freight off of NS or another competitor. It's new opportunities we're bringing the roof. But in the same vein, there are other opportunities where customers are looking for optionality, and we'll give them that. Mark Redd: And John, I would add from an operating side, I mean, from the M&B connection that we have through Myrtlewood, it's -- Mike Cory and team -- CSX team has been -- they've been really energized with us on the operating side to make that happen to get the speed of the network up and just make the good positive connection that Myrtlewood itself. So it certainly is promising. Operator: We'll take our next question from Ken Hoexter with Bank of America. Ken Hoexter: Mark, first time in a while, I think we've heard you break out kind of the KCS network versus the CP network and performance. Can you delve into maybe what's left to get KCS to CP operating levels? I don't know, Nadeem, if you want to talk about the cost synergies or go back to the synergies of what you've achieved and where we're trending on those? And then, Keith, just an M&A quick one. But do you think political pressure to get the M&A process moving faster can have an effect? Or will this take the full 16, 17 months of a normal process? Keith Creel: Yes. Let me -- I'll answer that one before Mark. I think there's no way in the world for this to have a thorough review that it occurs less than 16 to 17 months. I think that's efficient. If you think about our review, our review took a lot longer than that. You've got an STB that -- quite frankly, the Chair of the STB has signaled, and I believe I'll hold them to his word that he's going to take the statutes and the time line seriously. And that means don't exceed them. And I also think it means, especially with the gravity of this transaction, it also means don't cut them short. You've got a lot of people that deserve and want and will need to take ample time to review the application, ample time to respond. And I think that's the only way you get to a place where the STB can make a fulsome thorough decision as if all the facts have been shared and heard and understood and then they'll ultimately decide, does it or does it not meet the public interest test, does it or does it not enhance competition? And if so, what conditions are required for that to be true. And again, I get back to -- I'm not going to put odds on it. It's not a layup. I'm going stick with basketball. It's not a half shot, it's a 3-quarter shot the way I see it. So we'll see how efficient the applicants are to navigate that. Mark Redd: So from the -- Ken, from the operating side, I would say 3 things. One is just getting that operating system behind us. I mean that just in itself helps us. We've made those steps. I talked about it in my noted remarks. Bargaining with some of the unions that we have down on the KCS property, we continue to do that as we leverage some of the agreements, some of the stuff that we can do with customers to streamline some of the crew districts, which we have done, we will continue to do that. Those are opportunities. I think probably one of the biggest ones is just next week. I mean, as we walk into year 3 of GM meetings in Calgary that I lead with the GMs, we look for opportunities specifically on KCS of how we can look at CapEx that we put in the ground, how we can leverage those sidings, leverage those locomotives, the crew districts that we have that we can redefine the dead heading, the recrews, all of that type of stuff that we could just do a better job of that because we know more of than we did from day 1. Some of the car fleets that we can interchange and spend faster from John's group selling the service that we could do something differently. I mean all that conversations I will have next week that will probably expose tens of millions of dollars that we can pull out just from the operating expense side that we'll look at and certainly put that right back in our annual budget because it's budgeting time for us. Nadeem Velani: And Ken, just on your third question, we had about, I think, $165 million of synergies on the expense side that we've achieved year-to-date. I'd bucket that in operational benefits, operational improvements that some of the things that Mark just talked about. I'd say that from a sourcing point of view, so utilizing kind of merging contracts with both companies and being able to look at our procurement practices and be able to benefit on our contract spend is a big part of it. And then I'd say that the operating efficiencies and now that we're past the day in on the IT cutover, we've been able to reduce headcount on the G&A side by about almost 300 people total with the combined entity. So those are the 3 buckets I'd highlight as leading to the majority of the expense benefits on the synergies. And I'd highlight that, that's significantly higher than what we had initially thought we'd achieve as part of the combination. Operator: We'll take our next question from Tom Wadewitz with UBS. Thomas Wadewitz: So Keith, I wanted to ask you a bit more on the kind of views on the deal and how your commentary -- how you look at it differently than what we've heard from Jim Vena. His characterization is, hey, it's less than -- it's maybe 10 specific production plants that are dual served. Your commentary is like, hey, it's a number of large terminal areas or city areas that have a lot of overlap. And I guess the other thing I want to ask about is there's a bit of a paradox in the sense of you're saying there's really not risk for CP that's CPKC that's north-south flows. But at the same time, the kind of market power of such a large railroad UP/NS would really be something of concern. So I don't know if that market power or the risk is like bundling, like they take some plants you serve and they serve a lot more plants of a chemical customer and they somehow rest some business away from you? Or just how we ought to think about the risk and why from a rail perspective, it's a concern to have such a big competitor. Just wanted to ask -- see if you could offer more on how you framed it in terms of overlap and risk. Keith Creel: Yes. I think sheer size and scale market power is something you have to be aware of. Historically, you can protect gateways, but if you've got enough reach and scale, it's not the gateway traffic that gets impacted. It's the captive traffic. So will or won't the applicants utilize and leverage that market power to take prices up on captive if they're not rewarded with traffic over the gateway. And that's their question to answer, not mine. Those would be the things that I would look at. And then the other thing I think about is to minimize it to only a few people that are impacted, enhancing competition, number one, it's not -- there's no precedence on what that definition standard is yet. But I would argue that just considering a 2:1 as the definition of reducing competition, and that's the only concerns that need to be addressed is a very minimalistic ill-fated definition. I just don't think that's going to meet the STB standard. And that's, quite frankly, the way it's been presented. You've got overlap in key markets. You've got customers going to have fewer options. I don't say you're enhancing competition if you reduce options. So again, all that's got to be worked out in the application. The other thing I want to be true and I want to make sure conditions exist is that the applicants are held to their commitments and held to kind of teeth so they don't behave an anticompetitive behavior. I don't take it lightly with our experience since our merger with what happened in the battle that we had to fight just over an existing condition that was given to the KCS that we inherited by way of the UP/SP merger, the Southend rides. A lot of people have forgotten about that. I have not. UP decided once we came together by sake of name change alone what historically had been acceptable Southend rides traffic that CP would interchange the KCS to go to the Houston marketplace, was cut off by the UP. They said, "You know what, you're not CP interchange into KCS anymore." My name alone -- your shippers are not entitled to that market anymore. That's anticompetitive. You cut off a market. They knew it was wrong, we knew it was wrong. We took them to the STB. The facts were heard. It took 2 years to get to a decision just because you can. I don't think it's right for any railroad or any business just because they can to try to impose their wheel that has an adverse impact in the marketplace. So when you want to talk about -- what we're concerned about, that's the kind of behavior we're concerned about. And I hope that I'm surprised, and I hope that Mr. Vena and team submit the conditions and the assurances in their application that makes us all rest easily. I don't know. All I know is what's happened in the past and what's happened in the past is not a very warm thought about what might happen in the future without the right conditions and the right teeth to, I guess, make sure that those conditions are enforced in a decision if a decision comes that's favorable, so we can protect and enhance competition for this nation's freight shippers. Operator: We'll take our next question from Brandon Oglenski with Barclays. Brandon Oglenski: John, as you look into next year, especially with all the ups and downs of trade, but can you talk to maybe some of the business wins that you have that support the longer-term growth profile of this business? And maybe if you could give us some early insights on maybe where you see volumes next year, too, if you're willing to go there? John Brooks: Well, Brandon, I don't know if I'm quite ready to go there yet, but I'm sure that will be a topic in January. I know it will. Look, I fully expect we will outperform -- we'll do what we do. We outperform our peers. We outperform the macro. I fully expect that in 2026. I don't see the recipe right now changing a whole lot. If some of this grain, whether it be soybeans or the Canadian crop rolls out of Q4 and into next year, that's going to be an area of strength for us. There's a sizable crop on both sides of the border. If we don't get it now, we're going to get it next year. So I see that as an opportunity. We exceeded my $300 million target this year for where I saw new synergies. I fully expect our self-help initiatives and synergies, whether it be continuing to grow our MMX, our Intermodal route, our 180, 181, the reefer business that I spoke to, continued growth down at Lazaro with Gemini. I fully expect the synergy area to produce another $300 million of opportunity for this franchise. We'll continue that price discipline that Keith spoke to. And maybe 2 areas that are a little unique to next year that I see is we've got a really strong industrial development pipeline shaping up. These are French new facilities that are being built on our railroad that will be up and running here in Q4 and early in 2026. And frankly, that's a $200 million-plus opportunity of, again, just new business that's going to start up on the railroad. And then you combine that finally with stuff we already talked to relative to some of these partnerships and opportunities with our connecting roads. And that's sort of what the recipe looks like, Brandon. Operator: We'll take our next question from Ravi Shanker with Morgan Stanley. Ravi Shanker: So just on pricing, I know you kind of commented on the kind of pricing being above the long-term target of 3% to 4%. I think it has been for a few quarters now. I'm wondering if there's any opportunity to maybe take up that long-term target? Or do you think that you guys are just overperforming now for whatever reasons and maybe that kind of comes back down to that 3% to 4% over time? John Brooks: I don't -- Ravi, I don't see it really -- inflation has certainly come down in those pressures. I think we've felt them kind of through the year. We knew they were going to play out that way. Again, it's all around pricing, the value of the service and capacity. And frankly, that's a discipline that as Nadeem said, I'm super pleased with the team's efforts down there. I'll tell you, we're definitely outperforming our peer railroads on that front. And we're going to push hard. Those targets for my sales team are going to continue to be in that neighborhood as I look to 2026. So yes, those -- I fully expect those pressures to be out there, but we're going to fight for every quarter point based on the service and the capacity this railroad provides. Nadeem Velani: Yes, Ravi, if we had a stronger macro, as I commented earlier, I think that would be supportive of some incremental pricing, but I don't think that, that's something that we've been able to benefit from the past, say, 10 months or past year. Operator: We'll take our next question from Ariel Rosa with Citigroup. Ariel Rosa: Keith, you mentioned that maybe some shippers or various stakeholders might be reluctant to speak up for various reasons. I'm just curious behind the scenes, what kind of conversations you're having? And where do the fears lie in terms of what the risks are that are posed from kind of the UP/NS proposal? And then not to be overly cynical, but is there any dimension in which you worry that by virtue of being a Canadian rail, your voice might not be listened to as carefully or kind of -- you won't get the same weight that a U.S. rail might have as the kind of merger process moves forward? Keith Creel: Well, I guess the way I'd answer the second question first is we're a North American rail company. We're uniquely the only rail that connects all 3 nations. 40% of our revenue, 40% of our business is in the United States. The monies we invest are significant. 1/3 of our employees live and work and our taxpaying members in the United States, taxpayer citizens, we are undeniably wrapped in the American flag, and we care as much about America as we equally care about Canada as we equally care about Mexico. We have that responsibility. So I can't decide if someone is going to dismiss our impact. I think it's material. I think it's meaningful. I think we've invested heavily into this nation as we'll continue to do that. And we're going to have a voice. It's up to those that listen to decide if they want to diminish it. I think it's relevant, and I think it's truth-based, and I think it's facts that truly can't be denied. The part about the customers, I can't reveal to specific discussions, but undeniably, there's a common theme and concern about retaliation. People are reluctant to speak up publicly. Yes, you hear associations. I heard Mr. Vena say they don't have a direct commercial relationship with UP. I would agree. But they're speaking on behalf of their customers, who do? So to be just so dismissive, I think, is a bit irresponsible. But again, that's my view, not obviously Jim's. But in time, we'll see. There'll be private discussions. There'll be public discussions. You're going to hear the associations speak out. In the end, I'm sure that some customers will take that step, their application and their comments will bear their concerns and they'll best bear their concerns better than I can. But I think a powerful thought. I hear this word, there's been 400 customers that have offered letters of support. And I'm not saying that doesn't matter. Their voice matters, but how many more have said nothing. [Power] says a lot. Operator: And we have reached our allotted time for Q&A. I'd now like to turn the call back over to Mr. Keith Creel. Keith Creel: Okay. Well, listen, thank you. Let me wrap up with where I started. Thank you for your time this afternoon. It's been some thoughtful discussion. I know this is an industry that, quite frankly, seems to be continually in a state of change. Regardless how those changes may roll out, this company, you can believe, is going to be focused on safely and efficiently delivering for our customers and delivering on the growth opportunities that this unique network has created, that enables the value creation that we've committed to for our shareholders and for those that have trusted us with their capital dollars. We look forward to executing a strong fourth quarter, and we look forward to the first quarter sharing those results with you. Everyone, have a blessed holiday. Until then, we'll talk soon. Thank you. Operator: This concludes today's conference call. You may now disconnect.

88天前Insight Analytics约5分钟阅读

ECTXF 2025 Q3 财报电话会议

Jacob Broberg: Good morning, and welcome to Electrolux Professional Group, the result presentation of the third quarter of this year. My name is Jacob Broberg. I'm heading up Investor Relations. With me, as always, have Fabio Zarpellon, the CFO; and Alberto Zanata, CEO. And as always, also Alberto starts. Please go ahead, Alberto. Alberto Zanata: Thank you, Jacob. Good morning to everybody. I would describe the third quarter of 2025 as a good quarter considering the context. The context is a context where the market condition are still not stabilized. There is still the uncertainty, in particular in the United States, and in particular, after the tariff announcement in July, the market in the United States has full of uncertainty and the decision, in particular, if we talk about chain rollout, a big project has been put on hold or postponed. It is an environment that is clearly marked by tariffs and currency and that have been negatively impacting our business. Despite all these things, and that is the reason why I consider it a positive quarter, we performed delivering organic growth, delivering improved margin, delivering improve EBITA. Currency impacted for a 0.5 percentage points, so quite significant in the quarter. It is a quarter where we delivered solid cash flow, operating cash flow. Also in this case, are continuing to invest. I mentioned more than once perform while transforming. And these are the quarters where this company is going through big transformation in terms of new products that we are finally -- we will finally start to bring to market from January 2026. But it's a transformation that is not only considering the investments and the new product, but is considering also the organization. Beginning of the year -- beginning of September, sorry, we launched program that has the objective to streamline the operation, reducing the operating cost, but also has the objective to change the skills of the company. We are -- we launched this program that has an impact of roughly SEK 85 million in terms of cost reduction already next year, is a program that is impacting a quite significant number of employees, 350 employees. Even if the net, as you see is not the total number of affected employees. And why is that? Because an objective of the program is also to transform our organization. Next year, we want to move more resources after having invested so much in R&D and developing product in investing in the automatization of our factory in the digitalization of our operation. Next year, we want also to invest to make use of these investments and to focus on the front end on the sales. The program, by the way, is progressing pretty well. is according to our expectations, and we believe we will be able to deliver what we have been promising. If we move about the market, I think I already commented the U.S. where you see that we are basically flattish on Food & Beverage, with the food still growing, in particular the chains. Chain business is still growing. And I believe it's 7, 8, 9 quarters in a row that we are growing chains. They are not the big chains. They are the mid- small-sized chains. They are not big rollouts, but it is the replacement business, new openings or as I said, small chains, but it's growing. One comment is to Laundry. You see Laundry here down, but I'm repeating things that I said also in the past, here, you should read these numbers considering that in the U.S., we have a large importer that is a stocking the product, and the fluctuation of the inventory and the shipment to this importer are clearly affecting the number that you see. The thing that I can say is that the external sales because we have visibility on the external sales of our distributor, our partner in the United States are healthy. We have an order stock or our distributor has an order stock in the United States, that is at the historical peak. So there is good business. And indeed, the order intake during the month of October is basically on the double level of last year. That was expected considering this number for Q3. What is good and I'd like to underline is the trend in Europe. At the beginning of this year, we have been talking about Europe saying that we would have expected a slowdown after years of growth, in particular in the South European markets, in the Mediterranean region, reality is that Europe is still holding very well. Both Laundry and food are holding well. And we see also not only the Mediterranean region contributing, but also the Central and Nordic region doing positive. And I think this is important because despite the fact that we have a clearly global business, Europe still remains a very important part of our business with roughly 50% of the sales executed in this part of the world. A few words also about the 2 segments, Food & Beverage. So Food & Beverage delivered organic growth. Food & Beverage delivered improved profitability and improved margin. Food & Beverage is also partially affected by tariffs and currency, in particular for what the beverage business is concerned, that is produced in Thailand, most of the product in Thailand and Italy, and the main market is United States. Nevertheless, despite these things, I repeat, organic growth, improved earnings, EBITA and improved margin. With Europe being the main market, delivering the positive results, U.S. food, in particular, while we had a decline in Asia and Middle East and Africa, but that is -- again, is these are regions with many projects. And it is similar to the discussion we had even if not affecting the inventory, but the fluctuation of the order that can change the number pretty well. In that area, we are sitting on a good order stock, so we should be able to have the results done. Positive notice about this segment is that the order intake was positive for Food & Beverage. If we move to the Laundry, that is the segment that is more impacted by tariffs and currency because a large portion of this Laundry business is in the United States. Organic sales are unchanged. So we have basically a flat development, with the order intake that was down, but remember the comment I made earlier is mainly because of this fluctuation. We already see this in the month of October, we are close to the end of the month, and the order intake is very good in Laundry, in particular, in the United States. Despite the significant impact close to 1 point of EBIT due to the currency. The margin in Laundry in the quarter improved, EBITA in absolute values was more or less flat, but the margin improved. And this is significant in relation to the -- how healthy is the underlying business of this segment. With this said, I believe we can get a little bit more into the details and Fabio, they're yours. Fabio Zarpellon: Thank you, Alberto, and good morning to everybody. As Alberto mentioned, in the quarter, we made an additional step in our profitable growth journey. Sales grew organically. We improve profitability before the provision for restructuring cost. Despite the headwinds we had to face both from currency tariffs, and by the way, was to continue to invest in product innovation and digitalization of our group. From a geographical perspective, we continue to have a pretty well-balanced situation with Americas contributing roughly 26% of the total sales, APAC 16% and now Europe below the 16%. When it looks to the margin development in the quarter, we got a positive contribution from price, lower material cost and the operational costs were more and less in line with last year with a different mix, meaning we continue to increase the investment for innovation and digitalization of the group. Thanks to this good price management. I'm happy to report that we have been able to compensate, I would say, not all, but at least the majority of the tariffs impact in the quarter. Few more words instead on the current development that continue to affect negatively our financial. And here, 2 pieces, currency translation and currency transaction. Currency translation affecting negative our top line by roughly 4.5%. And in value more or less the bottom line, but no material impact for what concern the margin. Instead, currency transaction do also here to the strengthening of SEK versus, I would say, mainly U.S. dollar and euro has reduced our, let me say, margin by 0.5 percentage point. Currency transaction that as we have reported previous quarter has not affected just this quarter, but it's somehow a negative contribution we face along this year and then if I sum up the currency transaction effect on EBITA in the year-to-date data, we are close to SEK 16 million or 0.6 points in terms of margin. A few more words then on the program we have launched to streamline our operation and improve the profitability. Total costs, as you know, was SEK 235 million, we treat it as item affecting comparability, partially booking gross margin, and this is the reason why you see a reported decline of gross margin impacting SG&A. The program is affecting both segment. Food & Beverage represent roughly 70% of the cost and the remaining of Laundry. So you see that is more in line with the size of the 2 businesses. Execution started is proceeding according to plan and we expect to receive material saving out of it. Based on current sales development already in 2026 about anticipated the SEK 80 million. They are equivalent to 0.6 point in margin and for 2027, where we are going to enjoy, I would say, the full contribution from the plan, we talk about 1.4 points of margin. So execution according to plan material contribution to our margin expansion. A few words then on the other component of our income finance net was SEK 21 million, significantly lower than last year, thanks to the fact that we continue to reduce our borrowing thanks to the good cash generation. A peculiarity in the quarter, we have positive contribution to income from tax. What happened in the quarter, the income before tax was pretty low due to the restructuring provision, and we have some previous period adjustment that brought the overall tax to positive. If we exclude this, let me say, one-off situation, the underlying tax rate is in line with the guidance we gave in the past that is around 26%. EPS was pretty low in the quarter, SEK 0.14 per share, and this is due to the restructuring provision. Without it, we are in line with the previous year earnings per share. Our cash flow generation continued to be solid over SEK 400 million was the cash flow delivered in the quarter, somehow lower than last year due to lower contribution from working capital and higher CapEx. A few more words than on CapEx. We anticipated an increase of CapEx, it is happening year-to-date, we are close to 2%. But I will say we see more CapEx in absolute terms and in percentage of sales coming in coming quarters this year and next year due to the investment we are doing in product innovation. This said, it is something that we can manage and will not affect materially our capacity to generate cash quarter-on-quarter. Capacity that is supported by a positive development on operating working capital. We are definitely well below last year. We somehow temporary stop the increase -- the decrease, sorry, compared to June. This is a temporary effect due to some stock pile-up, due to production movement, particularly in Laundry. Few last word on our financial position that you see the graphs is strong and continue to be stronger. So we continue to repeat that our net debt-to-EBITDA is reduced now to 1.2x. So solid group with solid performance and with ingredients to continue to profitable growth the journey. And with that, back to you, Alberto. Alberto Zanata: Thank you, Fabio. And as usual, some words about the quarterly events. And I'm very proud to report back or to inform you about the award, the product innovation award that we won. It's not the first time, but this year is important because it is in the U.S., first. And secondly, because we got these awards, thanks to the technology that we have been embedded in the Electrolux product, Electrolux Professional product and presented in the U.S. by technology that we got from TOSEI. So from the Japanese company, we acquired 1.5 years ago, close to 2 years ago now. I think this is an example of how we've been able to leverage the acquisition. The TOSEI business is not performing as we were expecting in particular, on the food area, I would say, and nevertheless -- and it is not because the performance of the company, it’s because of the market conditions that are -- that have been deteriorated during the past 18 months. Nevertheless, we developed the Electrolux Professional version of the Combo machine. Combo machine is peculiar technology where you're combining 1 machine at the washer and dryer cycle, you are probably used to have it home in some situation, in the professional environment it's only used in Japan because of the space constraint that they have there. And the big challenge is to have the 2 cycles in a way that the time is not so long as you probably has experience, if you had been using this machine at home. The technology that we have in Japan is great. It works. And it was a great success also in the U.S. because the reality, space constrained, you have also in a country like U.S., if you think about the big city. So we got the award, is confirming our innovation is -- these are products that now we are marketing also outside the United States. In the synergy plan, it was only supposed to replace the external supplier that we use in the -- in Japan, we did it. It's already done this one. But now we are also marketing this product outside Japan. So great things. Even if it is not here, we are also using the technology of the Adventys, the other company we acquired last year, we are embedding in the cooking lines that we presented last week, and we start selling in January, and we will talk about that next week during the Capital Market Day. With this said, if we have to summarize the quarter, as I said, I believe it's a quarter where we perform while transforming the organization, we performed because we improved our organic sales growing organically. We improved the underlying profitability, the margin and EBITA. It is another step. I consider this one an additional step in our journey towards the financial target that we have is mainly driven by the large businesses, so the Food & Beverage and Laundry in Europe and the food in the United States. We ended the quarter with a positive order intake for Food & Beverage. I would consider positive also the Laundry one, if I look at the number month today. So the order intake is still positive, it's still positive despite the uncertainty that we have to recognize and acknowledge in the market. And exactly to face possible downturn, but not only for that, we launched a program that is in the execution phase to reduce our operating cost. And as I said, clearly, it's giving us the possibility to be leaner, more flexible, agile, ready eventually for situation that we don't see in front of us today, but we could and we should be prepared for. But it's also a program that is giving us the possibility to have a shift in competencies in our organization to invest in resources that will make use of the product that we develop to further accelerate the growth of the sales. It is a quarter also where we have been working hardly and we will talk more about that next week during the Capital Market Day, to prepare for -- to prepare the launches of this product. We had a peak -- we are in the middle of a peak of investment, both in R&D and industrial investments, so tooling factory lines, that obviously, they have to bring the fruits. They have to generate something. And these are the products that we will start selling from January 1, 2026. With this said, back to you, Jacob. Jacob Broberg: Thank you, Alberto. Thank you, Fabio. With that, we open up for questions. Operator, please go ahead. Operator: [Operator Instructions] The first question comes from the line of Hageus Gustav from SEB. Gustav Sandström: This is Gustav Hageus with SEB. Might I start with the comments on the R&D spend into the second half of next year. Could you remind us where you are at, at the moment in terms of R&D to sales? And would you think this business commence or if not, where you've been historically in that relationship to get some sense of what the margin potential uplift could be here going into end of '26? Alberto Zanata: Okay. Gustav. So the average R&D spending on net sales is at 4.5%. I mean average and the underlining average because it is higher, in particular, for what the business area, Food and Laundry are concerned. It is a peak, as I said, because we mentioned this more than once that we are renovating the complete platform of Laundry and the platform of cooking in Europe. We expect that we will continue to spend this level slightly lower probably, also during the first part of next year, starting to bring it back to normal -- we call it a normalized level that is still high for the average of the industry, but it's part of what we do always during the second part of the year and going on into 2027. What's the normalized level? it's roughly 1 point less than what I said. Gustav Sandström: That's helpful. And if I can stay on that with the developments you're doing in the facilities, some with the new product, could you help us a bit understand firstly, if there will be sort of the phasing of the new versus old products, is there going to be a gap here of prebuying, do you think from -- based from experience as you roll out the new platform? And secondly, in terms of margin and the mix from the new products versus the old? And if depreciations will be a factor here going to -- as you roll these new products from the new facilities out to the new lineup, that would be helpful. Alberto Zanata: Okay. So I don't believe that there will be so much prebuying of all product for several reasons. First, the first line coming to market is the cooking line that will come in Q1 next year, so from January on. And it is an important line because it's basically 1/3 of the business in Food Europe. It is the line, the highest margin, so we are relaunching that we are expecting a push of sales clearly for the product that have the best margin in our European product portfolio. It is not only what we call horizontal cooking, so the stoves, but it is in addition to the stoves also relaunch of the Combi Oven with new features, and you know that the Combi Oven are high-margin product and the tabletop cooking. So it's all -- whatever is hot, let me say, in our portfolio. So it's an important part and we are expecting to have an impact all along the year. So to launch it in the beginning of the year is very, very important. And I repeat, these are product -- these are the most profitable product in our European portfolio. They are a replacement, so they are going to replace the product that today have in production. The launch that will happen during the second quarter, that is the first batch of laundry is at 30% of the laundry sales. It's also important, it's partially replacing something that we have in the portfolio today, but it's also giving us the possibility to be much more competitive mainly in Europe again with a small capacity washers. I don't have to say that Laundry is high margin product category. The third line is -- the third product that we will bring during the summer is again in Europe, and it is cooking, and this is a completely new product for new segments. So there are no replacement that will be only added sales in an unsaturated segment of the market. But I think probably I'm talking too much about these things because there will be a lot to say next week during the Capital Market Day. Gustav Sandström: Okay. But -- and could you just remind us sort of what the delta will be from the potential gross margin uplift then from these products versus I guess, more efficient production with the new line versus higher depreciations from whatever you have invested in the new lines. What -- is the delta positive as you see it on operating margins from this? Fabio Zarpellon: Yes. So this -- we expect this product to positively contribute to the margin expansion. Yes, we are going to have additional depreciation due to the investment we are doing on this product. At the same time, this will be compensated by a better other -- lower production cost in other items and better price and mix. So we expect a gross profit expansion and EBITA expansion all included. Gustav Sandström: That's very clear. And if I can continue a little bit on the nitty-gritty with the cash flow. Maybe you can help me sort out the discrepancy between the cash taxes and the reported taxes, both quite big in the quarter and almost SEK 300 million right in year-to-date. It seems like you're paying more taxes than you account for. Will there be a reversal at some stage here? Or is there anything I'm missing? Fabio Zarpellon: Yes. So this is mainly related to the provision for the restructuring. Somehow that has an impact on the tax and with no material yet on the cash flow. So temporary, we have been reducing the cash payment, but this one will come step by step. Gustav Sandström: So you should have a lower tax cash tax in Q4 2016 or how do I read it? Fabio Zarpellon: No, that all the rest equal, the tax rate for quarter 4 onwards is expected to be line with the guidance I gave earlier of the 26%. In the quarter, the tax rate was, let me say, even positive because, as I mentioned, due to the restructuring provision, the income before tax was pretty tiny. So we have a tax cost pretty small in the quarter. And we have a couple of positive previous period adjustment that brought the tax amount to a positive roughly SEK 25 million in the quarter. This was temporary related to the provision for restructuring this previous period adjustment, the tax rate and tax impact going forward is confirmed in line with what I mentioned, the 26% guidance . Gustav Sandström: Okay. And -- but in general, then cash flow into Q4, it seems like last year at least was quite strong. Can you comment on the seasonality that you see this year for the cash flow into Q4? Jacob Broberg: Seasonality. Fabio Zarpellon: Seasonality of cash flow. Yes, if we go through the different quarters, normally, we have relatively quarter 1 and quarter 3 are somehow the ones that compared to EBITDA, they are lower in terms of seasonality, normally stronger in quarter 2 and quarter 4, and we expect also this year quarter 4 to be in that line. Gustav Sandström: Perfect. And then that brings me to my last question, on capital prioritization, 1.2x EBITDA now gearing if I read correctly, target is 2.5. So how do you -- I appreciate that you're looking to buy companies, but it's been some time now. So how do -- would you see that you prioritize between M&A, dividends, buybacks, further investments in organic growth? Alberto Zanata: We are still targeting to buy companies. So we are still targeting to make use of this cash to buy companies. So that is still our priorities. We have been working. I always said that it's hard to predict when it's going to happen. But still, this is a full-time activity, let me say, for some people, some resources in our organization. . Fabio Zarpellon: To be added here, Alberto. If we look at the past, this group since COVID has been able to combine acquisition, investment in product innovation, in organic growth and pay dividend. So let me say, we have the strength in place to be able to act on these 3 dimensions. And somehow, the trend of our net debt on EBITDA development is confirming that we have the ingredients to continue to perform on these 3 important aspects. Jacob Broberg: I think I will take 2 questions from the web. One is from Stefan Stjernholm at Handelsbanken related to TOSEI. If we can give an update on TOSEI sales margin development and synergies. And also you had a question about R&D cost, but I think you answered that before, Alberto. So TOSEI update, please. Alberto Zanata: TOSEI, we have -- we are experiencing 2 different dynamics. In Laundry, the business has been weakening, but it seems to recover a good level with the profitability more or less in line with what it was a different situation in food, the Vacuum business, that due to the fact that the post-COVID a season of large subsidies from the government and now the market stabilized on a lower level. We know and that we clearly see this because Japan is one of the few markets where there are statistic that we didn't lose market share. Remember that we have roughly 50% market share in vacuum and 50% in Laundry. We didn't lose market share. Nevertheless, the market, in particular, on the vacuum side is smaller. So how -- what we are doing and the synergies are jumping in, in this discussion is because, in particular, on the food, let's talk about the food first. We launched the Electrolux produced product in the TOSEI business. It is with the Electrolux Professional brand, but it's going through TOSEI. And I tell you that I experienced personally a couple of weeks ago when I was there, when all the products that are coming from abroad, like, by the way, for our competitor, they are typically tested by the distributor. In our case, we are adding a brand or a brand -- sorry, a mark where is tested by TOSEI that is, in some way, giving trust to the customer that this is exactly the product fitting the request of the market in Japan. So we launched the food preparation, a lot of activities over there with the distributors. And these days, we are also introducing the Combi Oven. So from the business synergies point of view, we are doing the things that we said, yes, it's not super fast, but the Japanese market is progressing much lower than other regions. On the Laundry side, I think I mentioned earlier, when I was commenting the award that we got in the United States, we already replaced the external supplier that we had for the combo machine with a combo machine producing TOSEI and branded Electrolux Professional, we are also selling that product in the Asian market, in other Asian markets under the Electrolux Professional brand. And we also, at least a couple of weeks ago when I was there, I saw the TOSEI dryers that have been produced in the Thai factory and that should be sold in Japan replacing the local production with clearly higher margin and higher performances. From the cost point of view, TOSEI is also part of our program because now we merged the 2 organization. We have 1 office, so we close 1 office. We have only 1 office, 1 legal entity, 1 system, sharing all the showrooms around the country that are many, by the way, in Japan. And so we are starting to see the benefit also from the cost point of view. Jacob Broberg: Then I have 2 more questions related to the efficiency program. One was from [indiscernible] Capital. What was the impact on the gross margin of the SEK 235 million in items affecting comparability. And how much of this amount was below the gross profit line. And then there is another question from Henrik Christiansson, DNB Carnegie. The underlying gross margin, what was that margin. Those were the questions. Fabio. Fabio Zarpellon: So overall, the provision was SEK 235 million, roughly SEK 135 million was included into the gross profit. So the underlying gross profit margin, excluding this provision was in line with last year, meaning the 34.5%, to be said that when we talk about the currency impact, currency transaction impact of 0.5 points, the tariffs impact, these are affecting the gross profit. So the underlying gross profit, excluding these, let me say, items is expanding. It's expanding thanks to what I mentioned earlier, good pricing, reduction of product cost, mainly in the area of material. Yes, we are not yet able in the quarter to compensate fully the tariffs and the currency, but we have put in place action in terms of pricing to be able to do so over time in the coming quarters. Jacob Broberg: Thank you. Operator, please go ahead if there are any other questions from the phone? Operator: [Operator Instructions] The next question comes from the line of Christiansson Henrik from Carnegie. Henrik Christiansson: Yes. So a follow-up on that because I noticed they're on the slides that you said that you've taken action on pricing to offset FX. And I think you said, Fabio, that there was a SEK 60 million negative currency impact year-to-date, and you now said you have announced price increases as well. When do you expect that to go into effect? Alberto Zanata: The price have been already announced, they will take effect January 1 in some -- for some product categories. The last ones will be March 1. It's a matter of timing, seasonality, habits, let me say, in the different region. But during the first 2, 3 months, all the price will be effective, as I said, already announced. And we know that with this one, we will cover the gap that this year we were not able to cover because of the combination of the negative impact of tariffs and currency. Henrik Christiansson: And a follow-up on that. So what is the total gap? So the SEK 60 million negative currency? And then is there tariffs on top? And do you expect to close that fully next year? Fabio Zarpellon: Yes. The tariffs is on top of it and with the action that Alberto mentioned regarding price, we expect in 2026 to compensate both. Henrik Christiansson: And how much is the tariff impact that you haven't been able to close? Fabio Zarpellon: The tariffs, if the order of magnitude, just to give a sort of guidance in the quarter, meaning quarter 3 is in the area of roughly SEK 10 million. So it is negative -- this SEK 10 million is net of the price increase. So this is somehow the net. It is there, not negative effect but not really material when you think that we deliver over SEK 300 million in EBITDA in the quarter. Operator: The next question comes from the line of Johan Eliason from SB1. Johan Eliason: I have just a minor follow-up. You mentioned in Food & Bev that beverage declined in the U.S. How big is beverage of Food & Bev in the U.S. today? And what was the reason for the decline? Alberto Zanata: Okay. I go by memories because half of it -- half of the Food & Beverage business is, I would say, less than 1/3 is beverage and it's 100% imported, majority from Thailand and some from Italy. The frozen from Italy, the cold from Thailand. The reason is that it is the food -- the beverage business because we said the food, we grew while the beverage was declining, is that because it's 100% a chain business. The beverage business in U.S. is chain business. It is a chain business, and as I mentioned, most of the rollout, they've been put on hold. So it is a peculiar situation, the one that we are facing in the United States with the beverage business . Johan Eliason: And is this -- I remember you had this big contract some years ago. Is that one big chain that is sort of behind most of the beverage business in the U.S.? Alberto Zanata: Okay. That was -- but it is already 5 years ago. So I have to say that eventually, I can expect that we are going to replace this product relatively soon. But besides that, now the beverage business, we have -- today, in the beverage business, in particular, the business we're having are many midsized chains. So some hundreds of restaurants, not the -- as it was in that case, the 17,000, 18,000 restaurant chain. So -- but United States is full of regional restaurants -- regional chains with some hundred outlets. So it is still a profitable, healthy business that is -- beginning of the year, it was good, beverage, it was good until the spring, I would say. And then suddenly, everything was on hold. Johan Eliason: And we discussed TOSEI say on how the integration and work on that is ongoing. How would you characterize the Unified Brands business today in the U.S.? Is it where you wanted it to be? Because you had some issues, obviously, in the initial year? Alberto Zanata: Yes. Okay. U.S., we had the record year in the U.S. was 2022. I tell you that this is a year where we will do probably better. So we are improving all the issues that we have been addressing -- have been addressed. We opened several places where we can host reps, dealers, customers. We have our own new place in Mississippi. That is a brand-new one that we opened in March. I think we are doing well, honestly. We are reestablishing the position that we have in this country growing, both the imported and non-imported products, so the locally manufactured, building around some strong brand. So Groen, Randell, Electrolux Professional and Crathco. Crathco is the beverage. These are the 4 pillars of our strategy that is driven by brand and product. So hot for growing technology in Electrolux Professionals, the beverage leading market, leading brand in called Randell, that is the preferred choice for blue chips chains for what the prep tables are concerned. So I would say that now it's clear, the strategy, the way to go. And we have the setup that is able to support these things. We went through some years of difficulty, as you said, but I believe they are behind us right now. Operator: Ladies and gentlemen, there are no more questions. I would like now to turn the conference back over to Jacob Broberg. Please go ahead, sir. Jacob Broberg: Thank you very much for listening in. And hopefully, I will meet all of you next week on our Investor Day here in Stockholm on November 6. Thank you, and goodbye. .

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