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Operator: Hello, and welcome to the EXLService Holdings, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. If you have any objections, please disconnect at this time. I will now turn the call over to Shirley Macbeth, Chief Marketing Officer. Shirley Macbeth: Hello, and thank you all for joining EXL's Third Quarter 2025 Financial Results Conference Call. On the call today with me are Rohit Kapoor, Chairman and Chief Executive Officer; and Maurizio Nicolelli, Chief Financial Officer. We hope you've had an opportunity to review the third quarter press release we issued yesterday afternoon. We've also posted a slide deck and investor fact sheet on our Investor Relations website. As a reminder, some of the matters we'll be discussing this morning are forward looking. Please keep in mind that these forward-looking statements are subject to known and unknown risks and uncertainties that could cause actual results to differ materially from those expressed or implied by such statements. Such risks and uncertainties include, but are not limited to, general economic conditions, those factors set forth in yesterday's press release, discussed in the company's periodic reports and other documents filed with the SEC from time to time. EXL assumes no obligation to update the information presented on this conference call today. During our call, we may reference certain non-GAAP financial measures, which we believe provide useful information for investors. Reconciliation of these measures to GAAP can be found in our press release, slide deck and investor fact sheet. With that, I'll turn the call over to Rohit. Rohit Kapoor: Thanks, Shirley. Good morning, everyone. Welcome to EXL's Third Quarter 2025 Earnings Call. I'm pleased to report another strong quarter as we consistently executed on our data and AI growth strategy. In the third quarter, we generated revenue of $530 million, an increase of 12% year-over-year. And we grew adjusted EPS by 11% and to $0.48 per share. In the quarter, our data and AI led revenue grew 18% year-over-year, reaching 56% of total revenue. Our data and AI-led revenue comes from EXL's AI-powered solutions and services, including those in which we embed data and AI into client workflows. This is the third consecutive quarter we have accelerated our data and AI-led revenue growth, underscoring both the rising demand for AI-driven solutions and demonstrating our leadership in embedding AI directly into client workflows. At the same time, our Digital Operations revenue grew 6% year-over-year. This is significant when you consider but as we embed AI into workflows, we manage, the revenue moves from Digital Operations to the data and AI-led revenue category. Our third quarter results displayed sustained momentum across all operating segments. The Insurance segment grew 9% year-over-year, which represented 1/3 of our revenue in the quarter. This growth was driven by our Insurance clients evolving their operations to be more AI-powered. We believe the increased adoption of AI in the workflow in Insurance is a long-term trend from which EXL is well positioned to benefit. Healthcare and Life Sciences represented 1/4 of our revenue and was once again our fastest-growing segment at 22% growth. This performance was fueled by our demand for data and AI solutions. This included growth in our payment services business as well as expansion of digital operations and analytics services with new and existing clients. banking, capital markets and diversified industries grew 12%, representing nearly 1/4 of our revenue. Looking ahead, we see significant opportunity to further increase value and improve business outcomes in this segment by leveraging our enhanced data and AI capabilities across the value chain. In Q3, we drove 8% year-over-year growth in our International Growth Markets segment as we continue to diversify our business geographically. This segment represented 18% of our total revenue in the quarter. International markets represent meaningful potential for us to accelerate our long-term growth trajectory and expand our global footprint. We are encouraged by the overall demand environment, which remains positive. Our sales pipeline grew with the addition of several new data and AI-led opportunities. As enterprises navigate ongoing economic uncertainty, their priorities are expanding beyond the traditional focus on cost efficiency. They are also looking to change their business models, expand their total addressable market and grow revenue. As clients adopt AI to help achieve these goals they need trusted partners to help them navigate change and deliver tangible business outcomes. With our proven track record and comprehensive set of innovative AI-led solutions. We are a natural partner for our clients on this journey. For our existing contracts, we maintain exceptionally high renewal rates. More than 75% of our revenue is recurring or annuity like. This provides revenue stability and predictability. Combined with a healthy new business pipeline, we have momentum to sustain double-digit top line growth into 2026. I'd like to highlight progress made in advancing our data and AI strategy to deliver differentiated value for our clients. I'll cover 3 areas: number one, the launch of our new EXLdata.ai solution; two, client momentum with the adoption of embedding AI in the workflow; and three, industry recognition of our domain, data and AI leadership. Firstly, I'll cover the launch of our latest innovation. Earlier this month, we unveiled EXLdata.ai the first its-kind agentic AI suite of data solutions that help clients make their enterprise data AI ready. Data is the single biggest barrier to AI adoption. Our research shows only 30% of organizations can access their data enterprise-wide and most struggle with unifying data silos across legacy platforms. The challenge is especially acute with unstructured data, which now represents 85% of all enterprise data, especially in regulated industries. To make unstructured data AI-ready, it needs to be annotated, labeled and categorized within a structure. This is a manual, time-consuming and expensive process. We built EXLdata.ai to solve these challenges with EXLdata.ai, more than 65 AI agents autonomously managed data modernization, governance, quality, lineage and data accessibility across the entire data life cycle. This AI-first approach sharply reduces implementation time, which previously used to take months, down 2 weeks and even days, Built on a platform-agnostic architecture, EXLdata.ai integrates seamlessly with all leading data platforms, including our launch partner, Databricks, and Snowflake and Palantir and can be deployed across all the major cloud providers, including Microsoft Azure, Google Cloud Platform, Amazon Web Services, as well as with NVIDIA's accelerated computing infrastructure. We believe EXLdata.ai is a game changer, helping clients overcome the biggest hurdle to AI adoption. Next, I'd like to highlight our success with embedding AI in client workflows. I'll share 3 examples that are illustrative of the scale of many projects underway and the client business value that we generate. The first use case is our multi-agent powered solution for a U.K. insurer designed to improve and accelerate risk assessment for underwriters. EXL embedded AI into a new business submission workflow that processes thousands of e-mails and attachments each month. The AI agents extract the right information and assess risk in real time. Processing time has been reduced from a week to a few hours and court conversion has increased by 7%. Real-time insights for brokers also help improve the customer experience during client interactions. The second client example is a large U.S. health care organization. The collaboration began with the successful delivery of an enterprise-wide Gen AI platform for document processing which has become a foundational solution for managing unstructured data across the organization. Building on that momentum, we are designing a next-generation agentic ecosystem to power safe and secure solutions across their finance, pricing and supply chain functions. These AI-powered solutions are helping to reduce the cost of care accelerate speed to market for new solutions and improve end user experiences, work that used to take weeks can now be done in hours. My third example demonstrates how EXL is using AI to transform digital operations for existing clients. EXL's in-depth knowledge of the client processes that we already run is a huge advantage in accelerating infusion of AI and driving faster outcomes. For the past two decades, EXL has been a strategic partner to one of U.K.'s largest energy and home services companies. We've helped them reimagine their end-to-end operating processes, including onboarding, meter to cash, consume-to-pay and customer exit. By integrating data and AI throughout the front, middle and back office operations, over 35% of transactions that we run for this client are now AI-enabled. Our solutions have driven significant improvements in customer experience, including achieving 98% onboarding accuracy and a 10% upliftment in billing accuracy and timeliness. In addition, our initiatives leveraging intelligent automation and applied AI have improved productivity by over 30%. Our revenue from this client has not declined as we were awarded additional work that grew the relationship. And we are positioned really well to begin implementing agentic AI for this client and grow value-added revenue streams. These 3 client examples are representative of numerous successful EXL client AI deployments. While many enterprises struggle to generate returns from AI investments, EXL's unique strengths in domain, data and AI are delivering meaningful ROI and transforming how businesses operate. This has resulted in a success rate of over 90% and for EXL's AI deployments. Finally, I'm proud to share that in Q3, EXL received several recognitions of our AI services and solutions leadership across our core industry verticals. Here are a few highlights. In Insurance, we were named a market leader in the HFS Research, Horizon Insurance Services 2025 report, which emphasized EXL's data-first approach, deep insurance expertise and AI-driven operational insights. For health care, EXL was recognized as a leader in Everest Group’s Healthcare Data, Analytics and AI Services PEAK Matrix 2025 for our domain expertise, analytics focus and strong partner ecosystem. In banking, EXL was recognized as a category winner in the 2025 IDC FinTech Real Results program. We were recognized for building a financing solution that allowed First National Bank of Omaha to introduce new financing options quickly, integrate seamlessly with merchants and scale with agility. These recognitions validate EXL's innovative data and AI expertise as well as our unique approach to helping clients deliver significant business outcomes at scale. In conclusion, we saw strong demand for our services and solutions across the markets we serve. We have bolstered EXL's competitive position by investing in next-generation data and AI capabilities with the launch of EXLdata.ai. Our business portfolio is well balanced and stable and we have excellent visibility and confidence for the remainder of the year. As a result, we are raising our revenue and EPS guidance for the full year. With that, I'll turn the call over to Maurizio to provide more details on our financial performance. Maurizio Nicolelli: Thank you, Rohit, and thanks, everyone, for joining us this morning. I will provide insights into our financial performance for the third quarter and 9 months ended September 30, followed by our revised outlook for 2025. We delivered a strong third quarter with revenue of $529.6 million, up 12.2% year-over-year on a reported basis and 12.3% on a constant currency basis. Sequentially, we grew 3.1% on a constant currency basis. Adjusted EPS was $0.48 and a year-over-year increase of 10.8%. All revenue growth percentages mentioned hereafter are on a constant currency basis unless otherwise stated. Now turning to the third quarter revenue by segment. The Insurance segment grew 8.5% year-over-year with revenue of $180.5 million and 4.9% sequentially. This growth was primarily driven by expansion in existing client relationships and new client wins. The Insurance vertical, including revenue from International Growth Markets grew 7.3% year-over-year with revenue of $211.1 million. The Healthcare and Life Sciences segment reported revenue of $135.3 million, representing growth of 21.6% year-over-year and 4.5% sequentially. The year-over-year growth was driven by higher volumes in our payment services business expansion in existing client relationships and new client wins. The Healthcare and Life Sciences vertical, including revenue from International Growth Markets grew 21.5% year-over-year with revenue of $135.5 million. In the Banking, Capital Markets and Diversified Industries segment, we reported revenue of $121 million representing growth of 11.8% year-over-year. This growth was driven by the expansion of existing client relationships, primarily in Banking, Capital Markets and new client wins. The Banking, Capital Markets and Diversified Industries vertical, including revenue from International Growth Markets grew 12.1% year-over-year with revenue of $182.9 million. In the International Growth Markets segment, we generated revenue of $92.8 million, up 8.4% year-over-year and 1.7% sequentially. This growth was primarily driven by higher volumes with existing clients in Banking, Capital Markets and Diversified Industries and new client wins. SG&A expenses as a percentage of revenue increased by 120 basis points year-over-year to 21.3% driven by investments in front-end sales and marketing. Our adjusted operating margin for the quarter was 19.4%, down 50 basis points year-over-year, driven by investments in front-end sales and new solutions. Our effective tax rate for the quarter was 22.1%, down 70 basis points year-over-year, driven by higher profitability and lower tax jurisdictions. Our adjusted EPS for the quarter was $0.48, up 10.8% year-over-year on a reported basis. Turning to our 9 months performance. Our revenue for the period was $1.55 billion, up 14% year-over-year on a constant currency basis. This increase was driven by double-digit growth across both our data and AI-led and Digital Operation Services. Our data and AI-led services grew 17.1% year-over-year on a constant currency basis. The adjusted operating margin for the period was 19.7%, up 10 basis points year-over-year. Our first 9 months adjusted EPS was $1.45, up 19% year-over-year. Our balance sheet remains strong. Our cash, including short- and long-term investments as of September 30 was $393 million, and our revolver debt was $355 million, for net cash position of $38 million. We generated cash flow from operations of $233 million in the first 9 months of the year versus $163 million for the same period last year. This improvement was primarily driven by higher profitability and better working capital management. During the first 9 months, we spent $42 million on capital expenditures and repurchased approximately 4.2 million shares at an average cost of $44 per share for a total of $183 million. This includes 2.3 million shares received upfront as part of the settlement of our previously announced $125 million accelerated share repurchase plan. We expect to receive the remaining shares in the fourth quarter. Now moving on to our outlook for 2025. Based on our strong year-to-date performance, continued momentum and current visibility for the remainder of the year, we are raising our revenue and adjusted EPS guidance. We now anticipate 2025 revenue to be in the range of $2.07 billion to $2.08 billion, representing year-over-year growth of 13%, both on a reported and constant currency basis. This is an increase of $15 million at the midpoint of our previous guidance. We expect a foreign exchange gain of approximately $2 million to $3 million, net interest income of approximately $1 million and our full year effective tax rate to be in the range of 22% to 23%. We expect capital expenditures to be in the range of $50 million to $55 million. We anticipate our adjusted EPS to be in the range of $1.88 to $1.92, representing year-over-year growth of 14% to 16%. To conclude, we delivered a strong third quarter, demonstrating our formidable competitive position in embedding AI into the workflow. Our resilient business model and strong sales pipeline gives us confidence in our ability to maintain double-digit growth momentum in 2026. With that, Rohit and I would be happy to take your questions now. Operator: [Operator Instructions]. Our first question will come from Surinder Thind with Jefferies. Surinder Thind: Rohit, can you maybe just talk a little bit about how you're thinking about the change in the overall demand environment? Would you characterize it as relatively unchanged or are clients maybe getting a little bit more positive when it comes to kind of some of the innovation spend that obviously, you guys sit on a different end of the spectrum versus some of your peers, but I just wanted to understand what you're seeing in your commentary on the sustainability of the double-digit organic revenue growth. Rohit Kapoor: Sure, Surinder. So I think the way I would characterize it is that the overall demand continues to be very strong. And what we are seeing is that the TAM for our services and solutions has really expanded. But this is probably the first quarter in which the shift in demand is now visible in our financials. And you can see that our data and AI-led revenue has moved quite significantly up and become 56% of our total revenue. We can see the conversion of some traditional domain and F&A operations, businesses that we used to manage being converted to AI-led operations. We can see Gen AI and agentic AI move from POCs to production to actually going to enterprise scale. And there is a huge amount of demand that is building up around data enablement for AI. So frankly, the market overall demand in terms of innovation spend and sustainability is moving exactly in the direction in which we thought we should be strategically playing and building out our capabilities. And some of this is now becoming quite visible in our financials. We are pleased with our ability to gain new clients. We are pleased with our ability to win market share from other providers. And we're pleased to become the AI transformation partner for these clients and help them along these journeys. So when we think about sustained growth in double digits, we are very confident of our ability to be able to drive that because our data and AI-led business, which is 56% and it grew at 18% in the third quarter, that alone will be able to command a double-digit growth rate for the full company. So frankly, all of these signs are very encouraging for us and the pivots that we have made seem to be playing out quite nicely. Surinder Thind: That's helpful. And then I guess as a follow-up in the shift in demand and the shift in the underlying business. I think you pointed out some interesting things where work that may be used to take months may now be done in weeks and in a few instances or some instances, maybe it can be done in the course of hours or a week. That sounds very deflationary, right, optically. Can you maybe help us understand how and where the makeup of this is that when you go to that client and you offer to do work that used to be 3 months, and now you're telling him, hey, we can do it in 3 weeks. Where is that incremental revenue coming from? Are you now doing 3 or 4x times as much work with that client? Or what is going on here to help us understand the sustainability of the growth rate? Rohit Kapoor: Yes, absolutely. And the best anecdotal example of that was what I shared in my prepared remarks about an existing client for which we have implemented AI-led operations. And now we have 35% of the transactions, which are AI-enabled, and that's generated 30% productivity benefit for this client. And yet our revenue for this client has remained the same. And to your point, the reason the revenue has remained the same is, this client obviously has great confidence in our ability to be able to apply AI and deliver that productivity benefit to them. And therefore, they're giving us more and more work which is being shifted over from what they were running themselves or what they might have been running with other providers and we are winning more business from them. And therefore, this deflationary piece that you talk about, we don't really see that because today -- even today, I mean, the penetration of the work that we do with our clients is still relatively low. And the opportunity set for us is enormous. And then finally, there are new areas that this client would never have engaged with in the past with anybody, so things around agentic AI, things around bringing together their data together and bringing it in a manner that can be accessed, looking at data lineage, looking at data governance. These are things which were never necessary in the past because AI was not being used in these business operations. And now that it is these are areas that need to be kind of worked upon and we are the natural choice partner for them. So frankly, what we are seeing is the more benefit we can provide to our clients and the quicker we can do it for them. the more they tend to rely on us and give us more work and we become an even more trusted partner in this journey. Operator: Our next question will come from Bryan Bergin with TD Cowen. Bryan Bergin: First question is on digital ops. So can you just unpack further your expectations for the fourth quarter for digital ops and really into fiscal '26 as well, just given the first half comps. And Rohit, just based on that demand shift you noted here recently, where does the comfort lie in digital ops longer term? Is it still kind of high single digits? Is it mid-single to high single? And then my follow-up, I'll ask both up front here. Just on the top client, what's driving that top client strength and what's the sustainability. Rohit Kapoor: Sure. So Bryan, first of all, I just want to make sure that everybody understands that when we talk about Digital Operations, it includes 3 service lines below that. Number one is domain operations; Number two is finance and accounting operations; and number three is platform services. So those are the 3 elements that constitute our Digital Operations business. Now in terms of the growth rate of Digital Operations, clearly, as we embed AI into domain operations, F&A operations and platform services, some of that revenue is moving from the Digital Operations bucket to the data and AI-led bucket. So that's very important to understand because we ourselves are AI-enabling a lot of digital operations and making it data and AI-led operations. What you are seeing is the net growth of Digital Operations, which is at 6% for this quarter. What you are not seeing is that the overall growth rate of this business is much higher. And because the shift of Digital Operations to data and AI led is taking place, that's not visible to you. So that's something which I just want to preface the conversation in. Now in terms of how we are seeing domain operations grow, finance and accounting operations grow, platform services growth. We're actually very pleased with how clients are engaging with us a lot more in this direction. And when they first engage with us, a lot of this is some of the traditional work that we have done with them. And then very quickly within the first 6 months to 1 year, we start to apply AI into this operation. So frankly, this engagement with a new client, starting out with the Digital Operations and then converting it to an AI-led operations is a very good pathway and we feel very good about the kind of growth that we are seeing, the kind of engagement that we are experiencing. And this seems to be working really, really well. The top client question that you asked, for us, the top client grew very nicely year-on-year. And I will tell you this that our penetration rate with this top client still is extremely low. And we think there's an opportunity set for us to really expand this volume of business with the top client far, far more meaningfully. In fact, it can be multiples of the amount of business that we do with this client today. So there is no real limit to how much we can grow. I think if you also look at our second largest client, that also grew very nicely. So frankly, as we get more engaged with clients across multiple service lines, which includes domain operations, finance and accounting operations platform services, analytics, data management, AI services, our ability to expand work and revenue with large clients is actually -- there's a tremendous amount of potential out there. Operator: Our next question will come from Maggie Nolan with William Blair. Margaret Nolan: Maybe to build on an earlier question about your ability to win additional work in these clients, can you talk about how you're changing your client relationship management, your go-to-market motions and those types of things. And just in general, your confidence in your ability to win additional market share as these shifts happen? Rohit Kapoor: Sure, Maggie. I think that's a really important attribute and you're touching upon something which we've been working on very proactively because clearly, the nature of our conversation with our clients has changed. It's no longer about just providing them with cost efficiency. It's much more about innovation. It's much more about transformation of their business model a lot more about applying AI correctly in a sustainable way. So what that means is 2 or 3 things. Number one, our account managers and our client executives and our sales hunters. They all need to be proficient in terms of being able to engage and talk to clients with the use of some of these highly complex and newer technologies. So they need to be conversant with data with AI. They need to know how to apply that into the client workflow. They need to understand what it takes in order to pull this whole ecosystem together and deliver that business outcome to them. So that's a big change, and we are training our front-end teams to learn, understand and be able to communicate this appropriately to our customers and our prospects. The second thing that's happening is, we are no longer talking only to the Chief Operating Officer. We're talking to the CIO. We're talking to the CDO. We're talking to the Business Head. We are talking to the CEO. And therefore, the buying centers are much more integrated and much more spread across the organization. What that also means is these are much larger deal sizes, and these are much more strategic decisions that the client needs to make. And the third part of it is the entry point for us is it starts off with providing them the confidence on a single use case and then expand that use case at scale for the enterprise and then actually expand and proliferate across the organization across multiple businesses, multiple geographies and multiple functions. So the go-to-market piece has changed quite significantly. And then the third element of this is a large part of our go-to-market is now with partners. So the partners has got a number of the technology partners that we partner with. So we partner with Microsoft Azure, with GCP, we partner with AWS, we partner with the data platforms, Databricks, which is our launch partner for EXLdata.ai, with Snowflake, with Palantir and the go-to-market motion is jointly with these technology partners. We're also partnering with private equity firms, which are looking at applying this AI into their portfolio of clients a lot quicker. So again, the go-to-market motion has changed very, very significantly. Margaret Nolan: That's great detail. My follow-up would be about the growth in revenue per employee. Can you talk about the puts and takes there, just given that your growth was led by the data and AI? I would have expected that to track a little more closely with that growth rate? Any incremental color would be great. Rohit Kapoor: Right. So we are seeing there to be changed an upward improvement in terms of the revenue per employee across the company. So that's a trend we would expect to see going forward for the next several years as we apply AI and we get into more complex work for our clients. But keep in mind that we are also going to see this happen over a period of time. So there may be quarters in which this will move in different directions. It all depends upon what work we are winning, what the business composition of that work is and how that correlates. You can see actually quite visibly that the number of employees that we've added year-on-year is at a much slower pace as compared to our revenue growth rate. And that's been trending for the last several quarters. And that's something which we would expect to see going forward. So we would expect to see our revenue grow double digit but we don't expect to add employee head count at a double-digit growth rate. It's going to be pretty much in a single digit, maybe a mid- to high single-digit kind of a growth rate. Operator: Our next question will come from David Koning with RW Baird. David Koning: Good quarter. I guess A couple of questions. My first question, Healthcare has dramatically grown the last couple of years. It's about 50% bigger than 2 years ago. Maybe just talk a little bit about the outlook there. Can you keep growing this fast? What are you doing to kind of keep the pipeline going. But yes, the biggest question is just can it keep this growth rate up? It's been so good. Rohit Kapoor: So Dave, for us, the way we think about it is that our Healthcare business is really in its infancy because the health care market is so enormous and so huge. You also know that it's very data rich. It's got broken and fragmented processes. It is adopting AI and it's applying analytics in a much more aggressive way. And therefore, the opportunity set in health care is enormous. We are pleased with how we've -- we are building up our Healthcare business. If you talk to our clients in Healthcare, they can clearly see the kind of value that we bring to them. Our payment integrity business continues to grow very nicely. But what we are also very pleased with is that our domain operations business in health care this year grew very nicely. So frankly, there are multiple areas where we can help our clients as such. One of the biggest opportunities for health care is going to be able to help them around their data. And that's something which we can see again is growing nicely. So the headroom for us is enormous. These are enormous markets for us. And I think even if we've grown 50% it's just a fraction of where our potential is within these industry segments. David Koning: Yes. Okay. Great to hear that. And then a question for Maurizio. You're doing a really nice job executing to the full year plan on margins. But it's a little bit lumpy just the way Q1 was so good with margins. And then now as you're kind of going through the year just as expected. But margins being down in Q3 and maybe flattish in Q4, it looks like is -- you still expect growth next year, right, like growth in margin next year? I'm just wondering the cadence this year, is next year going to be more kind of stable growth through the year? Maurizio Nicolelli: So Dave, you are correct, right? So the first half of the year, our adjusted margin was 19.9%. We just closed the quarter at 19.4%. So it's a little bit lumpy this year, right? We started extremely high, just over 20% in Q1, and we're trending more towards what I've been guiding to is 10 to 20 basis points higher on a year-over-year basis, which would put us right around 19.5% for the year. So going forward, when we look at Q1 and also 2026, we continue to see margin improvement of 10 to 20 basis points a year, but a little bit more flatlined than what you've seen this year, meaning Q1 should be a little bit more reflective of the annual margin going forward. And you should see that for the rest of next year. So a little bit more balanced next year. But right now, you're seeing us spend a bit more on front-end sales and also on capability development and that's where we're really putting our investment dollars in the second half of the year. Operator: Our next question will come from Vincent Colicchio with Barrington Research Associates. Vincent Colicchio: Rohit, the EXLdata.ai, the product sounds very promising. Just curious, what does the landscape look like there? Are there similar products out there? Rohit Kapoor: So yes, Vincent, I think on the data side, a number of companies which are trying to build solutions and help clients manage their data and get their data AI-ready, we all know that, that's the #1 problem that clients face. But I think the way in which we have thought about being helpful to our clients is really to use AI to make data AI ready. And therefore, the large part of the effort and the heavy lifting is not manual, but actually it leverages AI itself for helping our clients have that data be AI ready. I would say that we differentiate ourselves in 2 ways. Number one is the use of AI for data being AI ready. And number two, is we built this platform and the solution set, which is fully comprehensive end-to-end. And that means it can help in data lineage, data accessibility, data governance, master data management, having data being coordinated across different platforms and silos and really attacking unstructured data which is the heaviest piece of lifting that needs to happen and do that by leveraging AI itself. So as of today, we think this is really a first of its kind. When we talk to our launch partners and other partners, which have data platforms, they find this solution to be compelling. And we are seeing tremendous amount of excitement around this. So a lot of demos, a lot of use cases and a lot of activity associated with this at this point of time. Vincent Colicchio: Thanks for that. The International segment looks should be a large opportunity for you given your penetration. What are you doing to accelerate that? Are you making investments in the marketing side, for example? Rohit Kapoor: Yes, Vincent. You're right. The International piece for us should overall be growing at a faster pace. And that's something which we are consciously investing in and also making sure that we have senior executive talent closer to our customers out there. So we are bringing on additional talent out there. We are taking our solutions and capabilities that we've created and leveraged with some of our U.S.-based clients and applying that into these international geographies. We are building up some local partnerships in these geographies. And we really do need to mature the business as such, but the opportunity and the potential is very, very strong here. Operator: Next question will come from David Grossman with Stifel Europe. David Grossman: I wonder if we could talk a little bit more about the requirements to really deploy enterprise or AI, if you will. And I think Rohit, you're talking quite a bit on this call about the amount of data preparation required to execute that and the new products that you have in the marketplace that automates a large part of that. So when you're going to these clients, are you going to market offering this service, which is then converting into follow-on revenue? So in other words, is it being sold as a stand-alone business. And if it is, what is the typical multiplier effect that you're getting once you get in with the client on that type of engagement in terms of the following work. Rohit Kapoor: That's a great question, David. You're right. We're doing this in two different motions. One is on a stand-alone motion. So we are taking EXLdata.ai as a stand-alone capability and whether or not our clients use us for embedding AI into the workflow, we're just helping them get that data estate in order and make sure that their data is AI ready. And so these are stand-alone engagements. They typically start off with demonstrating our ability with one particular use case, but it very quickly expands to kind of working across the enterprise and working across a number of their legacy data platforms and converting that and moving that to the cloud and moving that into a much more modern data platform. So that's one motion. The second motion is where we engage with clients to help them embed AI into the workflow, and we have the responsibility of doing the end-to-end charter, which means we have to get the data estate in order. We have to apply AI to that data and we have to deliver a business outcome to the client. And there, it's in a much more integrated format that we bring in our capabilities and services. We are finding actually both of these seem to be resonating. And clearly, the need for this across our clients is very, very strong. David Grossman: So what do you think the multiplier is stand-alone versus kind of the integrated sell? Rohit Kapoor: At this point of time, David, the data management piece in itself is a large part. So the AI enablement is a much smaller piece, but the heavy lifting is much more around the data enablement. So the multiplier at this point of time is not that strong. But I think as this kind of progresses, it will become larger and larger. And so we'll see how that plays out. David Grossman: And then just as you're thinking I know you've guided to double-digit growth as your target model here. And as you kind of formulated that double-digit target, how much of that is kind of net revenue retention or same-store growth, same client growth versus new bookings? Rohit Kapoor: Yes, that's a very strong metric for us, David, because with existing clients, as we embed more AI as we deliver greater value to them, the renewal rates are north of 90%. We continue to win additional business from them and then we add on new clients. I think we've shared this metric before for us, adding new clients in any given year only contributes somewhere between less than 5% of the revenue for that year. So a large part of this is with existing clients that we are able to kind of build and grow. David Grossman: Got it. And just if I could sneak one more in because I was a little confused by your response to an earlier question because I think you said that you were getting 30% productivity gains from a client, yet their client -- their revenues were remaining flat. So I think the context of the question was the deflationary -- or potential deflationary component of AI to the industry, not just for EXL. So did I hear that right that it's flat? And if I did, again, I guess I would ask the same question again. How should we think about this if we're just getting to flat off of a 30% productivity gain? Rohit Kapoor: Yes. So think about it this way that if our revenue was $100, we were able to provide a productivity benefit of 30% and it dropped down to $70 we were given incremental revenue of another $30 that brought it back to $100. Now we came back to $100 with better margins, higher revenue per head count and an increased amount of value for the customer. So our penetration rate with that customer increased and the strategic relationship with that customer just got enhanced. David Grossman: Got it. So then is that more of a I wouldn't call it a onetime event, but is it really just more of an upfront event. So if you can keep it flat, that's kind of a victory, and then you can grow off that base going forward? Is that the way to think about it at higher margin and higher value? Rohit Kapoor: Yes. So that part of the business for us remained flat. But we then became a strategic partner for the same client on helping them use agentic AI. And agentic AI is a space that we would have never played with in the past and the client would never have kind of used us in the past. And therefore, it opened up newer revenue streams, which are much more higher value added and a much more strategic and much higher margin. Operator: We have no further questions this time. This concludes our call. Thank you, and have a good day.
Operator: Good morning. Welcome, everyone, to the Tamarack Valley Energy Ltd. Conference Call and Webcast on Wednesday, October 29, 2025, discussing the recent third quarter 2025 results press release. I would like to introduce today's speakers, Mr. Steve Buytels, President and Chief Financial Officer; Mr. Kevin Johnston, VP Finance; and Mr. Ben Stoodley, VP Engineering. [Operator Instructions] Thank you. Mr. Buytels, you may begin your conference. Steve Buytels: Good morning, and thank you. Welcome, everyone, to the call to discuss our third quarter operating and financial results. My name is Steve Buytels, President of Tamarack Valley. And today, I'm joined by Kevin Johnston, VP Finance; and Ben Stoodley, VP Engineering. This morning, Tamarack announced its Q3 results, another positive update to our 2025 guidance and a dividend increase. Highlights of the quarter. Corporate production averaged 66,126 BOE a day, reflecting the previously announced 2,000 BOE a day impact of planned service interruptions at a third-party gas processing facility in the Charlie Lake and maintenance turnarounds in the Clearwater. Our production guidance of 67,000 to 69,000 BOE per day remains on track for the full year. In terms of portfolio optimization, we continued with that strategy during the quarter. As we previously announced, Tamarack completed a $51.5 million synergistic tuck-in acquisition of a private company in the Clearwater, adding approximately 1,100 barrels a day of production and over 114 net stacked sections of Clearwater land, primarily in the West Nipisi area. We see significant operating infrastructure and waterflood synergies on the newly acquired assets. In October, we closed the sale of our remaining non-core producing assets in Eastern Alberta for $112 million and disposed of approximately $63 million of undiscounted asset retirement obligations. This transaction is expected to reduce net production expense corporately by approximately 10% per BOE on a full year run rate basis. Tamarack has now completed its transition to a pure-play Clearwater and Charlie Lake producer. Our strong base volumes and lower decline rates from expanded waterflood activities in the Clearwater, combined with the Clearwater tuck-in acquisition are expected to replace most of the production from the East asset divestiture in the fourth quarter of 2025 and has allowed us to maintain our full year guidance range. In terms of shareholder returns, Tamarack repurchased 6.7 million shares during the quarter, which represents 1.3% of the 2024 year-end share count. During the quarter, we returned $57 million to shareholders through a combination of the base dividend and share buybacks. Consistent with our strategy of growing shareholder returns, we also increased our annual base dividend by 5% to $0.16 per share per year. Tamarack plans to move the timing of dividends from monthly to quarterly payments beginning in 2026. In the first 9 months of the year, we have returned $194 million to shareholders through base dividends and share buybacks, representing a 6% return yield through the combination of both the dividend and the buybacks. In terms of the waterflood, we increased Clearwater waterflood injection volumes during the third quarter to exit at more than 30,000 barrels a day in September. This represents the updated 2025 exit target rate being achieved 3 months ahead of schedule. We expect 2025 exit injection rates to exceed 35,000 barrels a day, which would represent approximately 22% of our Clearwater production being under waterflood support. This equates to a 250% increase over 2024 exit water injection rates. This significant response in oil rates from waterflood have driven approximately 3,600 barrels a day of full year production growth this year, which has been a key driver in the positive guidance revisions. In terms of our capital structure and net debt reduction, during the quarter, we completed a $325 million note offering of 5-year 2030 senior unsecured notes. The proceeds of the offering were used to redeem $100 million of our existing 2027 senior unsecured notes with the remaining proceeds used to reduce the drawn portion of the credit facility. Tamarack ended the third quarter with net debt of $631 million, which represents a reduction of $144 million or 19% since the beginning of the year. With this note offering, Tamarack has laddered its debt maturity structure across several years and currently has undrawn credit capacity of over $700 million. In October, S&P raised our corporate credit rating from B to B+ as a reflection of Tamarack's ongoing debt reduction and strong operational performance. Ben is now going to walk through the latest developments in the Clearwater and Charlie Lake. Benjamin Stoodley: Thanks, Steve. Operationally, waterflood and the Clearwater is driving our growth, while the Charlie Lake continues to deliver strong repeatable performance. Clearwater production has grown by 11% year-over-year. This continues to demonstrate the success of our primary development and strong response for the ongoing expansion of Tamarack's waterflood program. Response from waterflooding continues to grow with a total production uplift from waterflood now estimated to be 4,500 barrels per day of oil. Year-to-date, Tamarack has drilled 20 injection wells, a source water well and have converted 13 producing wells to injectors. Tamarack is demonstrating the long-term value creation and resource capture capability of deploying waterflood as part of a multilateral development strategy in conventional heavy oil reservoirs. To demonstrate this, we can look at the highest producing well rates in the Clearwater during the month of September. 4 of Tamarack's wells under waterflood, the 16-02, 15-02 and 01-11 wells at Marten Hills and the 11-24 well at Nipisi were 4 of the 10 highest producing wells in the Clearwater in the month of September despite all of these wells being brought on production 3 or more years ago. In the month of September, these 4 wells produced at a daily rate of approximately 940, 930, 430 and 490 barrels a day, respectively. These 4 wells under waterflood have collectively produced nearly 2 million barrels of oil to date as of September. Tamarack plans to rig release 22 net producing wells and 2 injectors in the Clearwater in the fourth quarter of 2025. Our Charlie Lake asset continues to deliver strong results. The Charlie Lake produced approximately 14,000 barrels of oil equivalent during the quarter, reflecting planned service interruptions at a third-party gas processing facility in the Pipestone area. We continue to await start-up of the CSV Albright plant and are prepared to commence delivery of gas as the facility is currently in the final stages of commissioning. Delays to the start-up of the CSV Albright gas processing facility are not expected to have a significant impact on Tamarack's production for 2025 or 2026 with several mitigation plans already in place. Tamarack resumed drilling and completion activities with 4 net horizontal wells drilled and 3 net horizontal wells completed during the third quarter, and Tamarack plans to continue running a one-rig program for the remainder of 2025 and to rig release a total of 4 net wells in the Pipestone and Saddle Hills areas of the Charlie Lake in the fourth quarter of 2025. I'll turn it over to Kevin to expand on the financial results and our updated corporate guidance. Kevin Johnston: Thank you, Ben. Q3 2025 marks the completion of our multiyear transition to a pure-play Clearwater and Charlie Lake producer. In the quarter, we generated adjusted funds flow of $201 million or $0.40 per share, which was in line with 2024. Tamarack earned $96 million of free funds flow or $0.19 a share in Q3. In the first 9 months of 2025, Tamarack has generated free funds flow of $320 million or $0.63 per share, which is 17% higher than the first 9 months of 2024, even with WTI pricing 14% lower. This year-over-year increase reflects the compounding effects of production outperformance, lower cash costs and continued share buybacks. Since beginning our share buybacks in January 2024, Tamarack has repurchased 63 million shares, which represents over 11% of our 2023 year-end common share float. We believe that long-term share buybacks allow Tamarack to both accelerate and compound per share value. Since the fourth quarter of 2022, Tamarack has delivered debt-adjusted production per share and debt adjusted funds flow per share growth of 40%. The ongoing reduction in our share count allows us to increase our dividend while keeping the absolute dollar payout relatively unchanged. Tamarack's base dividend will increase by 5% to $0.16 per share annually, beginning with the November 2025 payment. As Steve mentioned, during the quarter, Tamarack completed the tuck-in acquisition of a private Clearwater producer, the disposition of non-core producing assets in Eastern Alberta and the bond refinancing. With all of this, Tamarack ended the quarter with net debt of $631 million, which represents approximately 0.6x net debt to the trailing 12 months EBITDA. Since the fourth quarter of 2022, we have reduced our net debt by $750 million and our net debt to the last 12-month EBITDA by an entire turn. Tamarack's balance sheet is in a very strong position with low leverage, a laddered maturity schedule and currently 75% undrawn on its credit facility. We announced 2 positive revisions to annual guidance with the quarter. First, given the continued margin enhancement and expected cost savings from the East asset disposition, we further reduced guidance for net production expense by 5% on the full year. Second, we reduced guidance for royalty expenses by 1 and 2 percentage points on both the low and high end of our guidance, given lower commodity prices and greater gas cost allowance credits. Year-to-date, net production expenses have declined by 19% compared to the same period last year. The East disposition is expected to further reduce our net production expenses by 10% per BOE go forward. Tamarack will be announcing its 2026 corporate guidance and capital program in early December. I will now turn it back to Steve for closing commentary before we open the call to questions. Steve Buytels: Thanks, Kevin. We announced 2 executive updates this morning as well. First off, Kevin Screen, Tamarack's Chief Operating Officer, has decided to retire in January. Kevin joined Tamarack in 2011 as the Vice President, Production and Operations, and has served as the Chief Operating Officer since 2021. Kevin's 15 years of experience and integrity have been instrumental to the success of Tamarack are an important part of the company's foundation. We all wish Kevin and his family a happy, lengthy and healthy retirement. To ensure we keep one Kevin in the C-suite, Kevin Johnston, our Vice President of Finance, has been promoted to our Chief Financial Officer, effective January 1. Kevin joined Tamarack in 2023 and has been expanding his role since then to ensure a smooth transition. We'd like to congratulate both Kevins on these upcoming changes. Tamarack continues to be differentiated by the scale and quality of our assets. Through our recent acquisition and divestiture activity, we continue to build on both of those factors with the overarching goal of becoming one of the most profitable exploration and production companies in North America. There are 3 important themes I'd like to emphasize about Tamarack, which have been further demonstrated this quarter. First, the margin of profit on our barrels is consistently improving as we streamline into the best-in-class assets and drive down unit costs. Second, the Clearwater, aided by waterflood continues to deliver best-in-class economics with growing production and lower declines, driving enhanced free cash flow margin. And third, we continue to increase returns to shareholders through meaningful buybacks and growing dividends. These themes contribute to a sustainable business, where we see compounding free funds flow per share growth and sector-leading margins. This positions Tamarack uniquely across all commodity price cycles. Our focus maintains on maximizing the value of our barrels for investors, and we will continue to allocate capital and free funds flow in a manner that maximizes shareholder returns. We see the buyback and waterflood investments as our most attractive investments at modest commodity prices. On behalf of the executive team, we would like to thank our staff and Board of Directors in supporting the continued success of the company. Thank you. I will now turn it back to the moderator for questions. Operator: [Operator Instructions] There are no questions at this time. I will now hand the call back to the management team. Unknown Executive: Thank you. We will now read through some questions from the online Q&A. Our first question is for Mr. Ben Stoodley. Today, you announced Clearwater waterflood uplift of 4,500 barrels from waterfloods implemented prior to 2025. How many wells are responsible for these 4,500 barrels? Is the maximum expected from these wells? Or is the number expected to increase? Benjamin Stoodley: Yes. I think for that 4,500 barrels a day of uplift, we would attribute that to approximately 40 wells currently seeing response. They're in various portion or parts of the cycle of response. So some are inclining and some are quite stable. So I don't believe all of the patterns have reached their peak yet, and that will continue to evolve, but it's about 40 there. Unknown Executive: Thank you, Ben. Our next question is for Mr. Kevin Johnston. Given Q3 end net debt and given the disposition closed in October, it seems that net debt is in the low to mid $500 million range presently. Can you give us an update as to whether the expectation is to hit the net debt target sooner than previously communicated? Kevin Johnston: Thank you. So it's important to note that the $630 million net debt we have as at Q3 includes the East disposition. So they're on our balance sheet as assets held for sale. So those proceeds are already reflected in that $630 million number. That being said, at our Investor Day in June, we were pointing to 2027 as when we saw ourselves kind of achieving our net debt target, and we do see that being accelerated with the recent success we've seen on lowering declines, waterflood performance and margin enhancement. Unknown Executive: Thank you, Kevin. Our next question is for Mr. Ben Stoodley. The 1602 and 1502 wells are remarkable. In September, they produced more than double their primary production high. Are these unusual performances? Or do you expect to be able to rejuvenate other old wells to exceed their primary production highs? Benjamin Stoodley: Yes, we do expect this trend to continue, particularly in the Marten Hills area where we do have some older patterns. That's where 15-02 and 16-02 are. The other pattern we discuss often is our longest on injection W-pattern, which is the lateral flood. And it's now showing combined from the offsetting producers showing response uplift of almost 700 barrels a day. So it's also trending towards exceeding the initial peaks. We do have a large inventory of those wells, probably about 55 currently in the ground, and we continue to drill under these various waterflood patterns to build that inventory further. So we do expect these trends to continue across that area of the play. Unknown Executive: Thank you. Our next question is for Mr. Steve Buytels. How much does the new barrel of Clearwater oil from waterflood compared to a new barrel from new drilling? Steve Buytels: Yes. I think just sort of easy math, it would be probably about half depending on the style of the waterflood injection. If we're drilling new injectors, I'd say you're probably going to be in that $5 to $6 a barrel range. And if you are converting wells, which are old producers into injectors, the cost of that is probably about 1/3 of drilling a new injector. So you're going to see those costs on an F&D basis trend even lower. So again, I think we highlighted it last year in our really strong reserve report and our really strong F&D metrics. I think you'll continue to see as we put more waterflood that come through the business. And as Ben just talked about, specifically at Marten Hills, with the response we're seeing, the incremental recoveries we're seeing there, we hope to continue to see that trend of that overall cost per barrel moving lower from a finding and development perspective. Unknown Executive: Our next question is for Mr. Steve Buytels again. With debt levels moderating, how is the company looking at M&A opportunities versus share repurchases and further dividend increases? Steve Buytels: Yes. I think at the end of the day, as Kevin mentioned, we're ahead of where we would thought we'd be and forecasted at Investor Day with respect to debt levels. Obviously, the East asset sale has accelerated that. But at the same time, we continue to look at maximizing shareholder value. And as we've walked through, there's a combination of different things we can do with that. It's allocating capital appropriately. And here, we see waterflood investment being the most attractive at a lower commodity price. We put limited capital in the ground today, and we get a significant amount of production response in what we see is hopefully a better commodity environment. In terms of M&A, you can see that we added the Clearwater tuck-in acquisition during the quarter in conjunction with the disposition of the non-core pieces. So you still see us shuffling the deck, if you will, in terms of coring up the Clearwater. And I think our focus going forward will be continuing to do these smaller tuck-ins that offer synergies both on the infrastructure side, the operating side and potentially the marketing side with our barrels, and we've been successful in being able to do that. I think the other element, too, is the more we can get cored up and take advantage of our infrastructure with waterflood moving forward, you're going to see just enhanced full cycle profitability in the business. So those -- all those elements are going to play a part. And lastly, on shareholder returns, the buyback continues to be top of mind here. We want to be front-footed at these levels, even at these commodity levels, we see a growing return profile through our business at depressed pricing, and we want to get ahead of that. And Ben just walked through what we're seeing on the waterflood and the results and what they should indicate just moving forward from a reserve growth perspective and lower declines, lower sustaining capital, more margins. So again, shareholder returns are top of mind, and we continue to want to be front-footed there and be opportunistic there at this time. Unknown Executive: Our next question is for Mr. Ben Stoodley. At a high level, what are some of the reasons why the waterflood in the Clearwater has worked as well as it has so far? Benjamin Stoodley: Okay. Our modeling and testing lands on really 2 primary reasons why that waterflood has been so exceptional. One is the characteristics of the reservoir. This includes the relative permeability to oil and water. This creates a very efficient flood where the water naturally displaces oil rather than fingering through the water phase. And then the other thing is just the large surface area we create by drilling horizontal and multilateral wells is such a large step change from a vertical waterflood. The rate at which your water is being injected is more like sweating into the reservoir or soaker hose rather than high rate injection, even though we are injecting at high rates. This caused the flood front to move very slowly through the reservoir. But despite that, the pressure front is moving quite quickly, and that's why we're seeing these disproportionate responses at the producing wells. Unknown Executive: Our next question is for Mr. Steve Buytels. You touched on it in the financial statements, but can you speak to the strength in this quarter's production expense on a per BOE basis? How should we be thinking about the production expenses into 2026 compared to 2025 guidance? Steve Buytels: Yes. I think when you look at that, we've guided to with the East asset disposition there, what that means for OpEx moving forward on a run rate basis. So we do see OpEx trending down into '26, and we'll update that here in December when we come out with the budget. But again, I think really when you look at it, as we core up into the Clearwater and in the Charlie Lake, you're seeing that more efficient, higher netback barrel come through, which is a function of, in a lot of cases, that lower OpEx that comes with the Clearwater. And again, the growth in the Clearwater and the growth just in production ahead of where we would have budgeted, obviously, is driving on a per BOE basis lower costs there as well. But I think ultimately, at the end of the day, our goal here is to core up into the 2 plays that we're in, the Charlie Lake and the Clearwater. We see best-in-class economics. And as we look at the budget here in December, that margin in that barrel should come through, and we'll provide more detail then. Unknown Executive: Our next question is for Mr. Steve Buytels again. Tamarack mentioned it is able to mitigate the delays in onstream timing of the CSV Albright facility. But can you provide any timing updates on when the facility could be on stream? Steve Buytels: Yes. And I want to be careful here because it feels like there's a lot of false starts with this one through the year, and there's been some different messaging. As we've highlighted in the press release on the quarter, and we've talked about previously, we've been able to do things to mitigate that. And we -- even if there is delays, we see that mitigation being handled through some other processing alternatives that we have. Again, we drill to fill those volumes corporately here to in the Charlie Lake to manage that. However, the latest update we did receive is that the plant was in the warm-up phase and that we could be seeing gas volumes moving through that plant here this week. I have not heard any change. So I think for now, we'd leave it at that. But again, as we look at it, and I want to make sure we drive the point home is even if there are further delays, we don't see any impact to our production guidance for '25, and we have different mitigating alternatives for 2026 as well should there be further delays. Unknown Executive: Our next question is for Mr. Steve Buytels again. What is Tamarack's general view on A&D activity now that you finished disposing of the non-core assets in your portfolio? Steve Buytels: Yes. We screen all A&D the same way. And for that matter, we actually look at capital investment or all the business decisions very similarly. And if it is accretive to the business on a debt-adjusted free funds flow per share basis, does it make our internal 8-year plan better by competing for capital with existing assets or inventory. Those are all things that we look at and how do we sit currently versus where that opportunity set could lead us? And what threshold in terms of does that rank higher than what we currently have in the portfolio exists. So we look at a lot of different things. But again, as I mentioned earlier, tuck-ins in the Clearwater where we can leverage our infrastructure, our operating experience, the waterflood footprint, they're going to make a lot of sense for us. However, again, we'll be very disciplined with it. And again, the other thing I would say there, too, is it also has got to compete with our ability to buy back our own stock in many different ways. So I think we've shown the Street that we've been very disciplined. We've had a plan in terms of what we want to bring in, and we'll continue to look at all of that from an opportunity perspective. But it's got to be accretive to the underlying earnings potential of Tamarack. Unknown Executive: Our next question is for Mr. Kevin Johnston. Are you considering adopting a DRIP program? Kevin Johnston: So we've been discussing we see great value in buying back our shares and reducing our share count. A DRIP program, you're issuing additional shares for your dividend, so kind of going the wrong way. So we're not looking at a program at this time. But any investors who want to use their dividends to buy additional Tamarack stock options available. Unknown Executive: We have no more Q&A questions online. So I will pass it back to Steve to finish off the call. Steve Buytels: Yes. Again, we just want to thank all our shareholders, our staff for the support here in the success of the company and the patience that you've had as we've transformed the company, but we're really excited now with where we're at in terms of being a pure-play Charlie Lake and Clearwater producer. And hopefully, here, we'll talk to you guys again in December with what could be a good update on the future of the company with those core assets in place. Thank you. Operator: Thank you, ladies and gentlemen. The conference has now ended. Thank you all for joining. You may all disconnect your lines.
Operator: Good morning, and welcome to the TriNet Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Alex Bauer, Head of Investor Relations. Alex Bauer: Thank you, operator. Good morning. My name is Alex Bauer, TriNet's Head of Investor Relations. Thank you for joining us, and welcome to TriNet's Third Quarter Conference Call and Webcast. I'm joined today by our President and CEO, Mike Simonds; and our CFO, Kelly Tuminelli. Before we begin, I would like to preview this morning's call. I will first pass the call to Mike, where he will comment on our third quarter performance and discuss our progress on our strategy and medium-term outlook. Kelly will then review our Q3 financial performance in greater detail. Please note that today's discussion will include references to our 2025 full year financial outlook, our medium-term outlook and other statements that are not historical in nature or predictive in nature or depend upon or refer to future events or conditions, such as our expectations, estimates, predictions, strategies, beliefs or other statements that might be considered forward-looking. These forward-looking statements are based on management's current expectations and assumptions and are inherently subject to risks, uncertainties and changes in circumstances that are difficult to predict and that may cause actual results to differ materially from statements being made today or in the future. Except as may be required by law, we do not undertake to update any of these statements in light of new information, future events or otherwise. We encourage you to review our most recent public filings with the SEC, including our 10-K and 10-Q filings for a more detailed discussion of the risks, uncertainties and changes in circumstances that may affect our future results or the market price of our stock. In addition, our discussion today will include non-GAAP financial measures, including our forward-looking guidance for adjusted EBITDA and adjusted net income per diluted share. For reconciliations of our non-GAAP financial measures to our GAAP financial results, please see our earnings release, 10-Q filings or our 10-K filing, which are or will be available on our website or through the SEC website. With that, I will turn the call over to Mike. Mike? Michael Simonds: Thank you, Alex, and good morning, everyone. We appreciate you joining us for the early start. Before discussing our third quarter results, I want to formally welcome Mala Murthy, who as announced this morning, will become TriNet's Chief Financial Officer effective November 28, and I am sure is listening to the call this morning. Mala previously served as CFO of Teladoc Health and has more than 25 years of leadership experience, including business unit CFO for the Global Commercial segment at Amex and FP&A, corporate strategy and treasury experience at PepsiCo. I'm excited to have her join at a pivotal time for TriNet as our results increasingly reflect a strengthened foundation and our focus is on generating sustainable growth. I know Mala looks forward to getting out and meeting you all over the coming months. I would also like to sincerely thank Kelly Tuminelli, our outgoing CFO, for her outstanding service and contributions to TriNet over the past 5 years. Kelly has played a vital role at TriNet during her tenure. She's been a consistent and reliable voice to shareholders and has been a great partner to me as I transitioned into the company. I'm grateful for all her efforts and for her willingness to stay on as an adviser to me through the middle of March next year, supporting a seamless transition. Thank you, Kelly. Now let's turn to the third quarter, which was a good one for TriNet. I'm pleased with our financial and operating performance, allowing us to adjust our full year earnings outlook upwards and towards the high end of our 2025 guidance range. In the quarter, we made progress on several dimensions of our strategy. While overall market conditions remain difficult with persistently low SMB hiring and elevated health care costs in the areas we control, our execution is strong, our outlook is improving, and our confidence is growing as we work to reposition TriNet for long-term profitable growth. As a reminder, our medium-term strategy objectives include total revenues achieving a compounded annual growth rate of 4% to 6%, with our adjusted EBITDA margins expanding to 10% to 11%, which taken together will ultimately drive total annualized value creation of 13% to 15% through earnings growth supplemented by share repurchase and dividends. During the third quarter, revenues were in line with our plan. And with just a quarter left in the year, we expect full year 2025 total revenues to be approximately $5 billion, near the midpoint of our full year guide. Our disciplined pricing and better-than-expected ASO sales have contributed to revenues in line with plan despite a decline in WSE volumes. I recognize that while revenues being in line with plan is encouraging, investors will also have questions on underlying WSE volumes and when to expect a return to growth on this metric. Before talking through the components of volume growth, I'd like to make 2 points as context. First, we look at both the absolute number and the quality of WSEs in our client base. While volumes are down, we are quite pleased with the strong and increasing quality and profitability of our customers. Looking forward, we feel confident we have the high-quality client base alongside other levers at our disposal to achieve value creation in line with our medium-term strategy. Second, our health plan pricing relative to the market is important context. Partly because we had our own issues to fix, we moved earlier to address the escalating cost trend, taking a view that might initially have been thought to be conservative. That is, that the escalated trend would not abate in the short term. We now believe this assumption of persistent escalated trend is playing out as the prudent view. Moving more quickly and aggressively with health fee increases, which proved to be in line with the general health care market, we believe put us ahead of some other PEO competitors. While this has clearly impacted our WSE volumes, we believe we are largely through the steepest part of the repricing and set up well for 2026. Based on what we are seeing in our new business pipeline and hearing from brokers, the pricing gap appears to be tightening. With those 2 points as context, let's look a little deeper into our 3Q volume performance through the 3 drivers: customer hiring for CIE; retention; and new sales. Kelly will go into more detail on CIE later, but specific to the third quarter, we saw the normal exodus of summer seasonal workers in September. Even still, we are on track to see some overall improvement in CIE when compared with last year, albeit still at much lower levels than historical norms. On retention, while we remain on track to retain clients at or above our historical norm of 80%, we have seen a decline from prior year. It's worth noting that margins for terminated clients are considerably lower than for the overall client base. Further, in looking at our client exit research, it's clear that health plan pricing is the driver as it was cited as the number one reason for termination, up from being the fourth largest reason cited a year ago. Controlling for the impact of health plan pricing, attrition was down year-over-year. And indeed, we feel very good about our improving service delivery. More than a dozen years ago, we established the Net Promoter Score as our primary measure of success from our clients' perspective, and I'm happy to report that here in 2025, we've reached an all-time high in NPS. We believe there is a strong correlation between our investments and our service model and our strong NPS scores. On that front, we recently announced the launch of our AI-powered suite of capabilities, which harnesses our extensive HR knowledge and delivers tailored output for our customers. The evolution of our service model continues, and AI will play a central role in this evolution. Turning to new sales. Sales were down in the quarter, though we are encouraged by the quality of new clients added. Looking ahead to the fourth quarter, we expect improvement in our year-over-year performance, and we're excited about the January pipeline as well with strong contributions from the growth investments we've made. We continue to improve the retention of our senior, most productive reps, and the median tenure of our team continues to improve. At the same time, we've revamped our recruiting and training programs and have restarted our hiring with more confidence these new reps will reach productive status. Our preferred broker program, which is comprised of 4 national partners, is currently in market. As a reminder, a feature of this program is the alignment of targets for new sales and retention as well as building out dedicated quoting sales and service teams. This program is already generating a growing share of our RFPs, increasing our optimism for Q4 and 2026. We're also in market with our first set of benefit bundles, which seek to simplify the offering, streamline the sales process and better align cost and plan design needs for our clients. It's increasingly clear that simplified benefit offerings will be an important part of our growth equation. So on revenue overall, we believe we are building the foundation for predictable and sustainable growth. On margins, we're making progress towards our 10% to 11% target. The two key levers for improving margins are getting back into our long-term insurance cost ratio range and managing operating expense growth. The third quarter saw us, again, realize health plan increases per enrolled member of approximately 10.5%. This is the cumulative increase after plan design buydowns, which clients use to manage fee increases and also has the effect of reducing risk to TriNet. Looking forward, we're increasingly confident in our ability to return the insurance cost ratio back below the top end of our long-term range of 87% to 90% in 2026, while also allowing for more moderate and predictable pricing for our client base. On operating expenses, for the third straight quarter, we saw a year-over-year reduction, down 2% in 3Q. The drivers of this performance remain the same, the application of technology to our business processes and continued talent optimization. With our expenses and pricing levels well managed, free cash flow is improving, which enables us to return capital to shareholders consistent with our history. In the third quarter, we repurchased stock and paid dividends totaling $45 million. In conclusion, we have a high-quality client base that is increasingly advocating for TriNet. We have a talented and engaged colleague base and an increasingly broad set of marketplace partners. We're making progress on our growth and margin expansion initiatives and delivering against our financial objectives. Momentum is clearly building here at TriNet. With that, let me pass the call to Kelly for her review of our financial performance. Kelly? Kelly Tuminelli: Thank you, Mike. Before I jump into discussing the quarterly results, I do want to mention a few things about our leadership transition. My 5-plus-year tenure at TriNet working with our dedicated group of colleagues, who always put our customers first, has certainly been a highlight of my career. The entrepreneurial spirit of TriNet is unmatched, and it's been an honor to help move the company forward on many fronts, including a focus on capital management. I have confidence in the management team to finish 2025 strong and make significant progress towards the medium-term strategy and shareholder value creation announced last February. I will remain on Board as an adviser to help support the team as they work through the year-end process. Now let's jump into the third quarter results. During the third quarter, we demonstrated continuing progress on benefit repricing and a focus on efficiency and cost discipline, resulting in a quarter that puts us at the top end of our annual EPS guidance. Total revenue in the quarter was down 2% on a year-over-year basis. Total revenue performance in the quarter reflected our decline in WSE volume, but was supported by prudent benefit repricing, putting us back in line with the general cost trends in the health care market. Interest income and pricing strength in professional service revenue also supported total revenue performance. Similar to our second quarter, interest income was higher than originally forecasted, driven by increased balances attributable to the timing of certain tax refunds. The timing of these refunds remains intermittent and difficult to predict, particularly given the processing delays at the IRS. As we've continued our repricing focus, volume remained a headwind for revenue. We finished the quarter with approximately 332,000 total WSEs, down 7% year-over-year and 302,000 coemployed WSEs, down 9%. During Q3, we saw a continuation of many of the trends we've experienced in 2025. Attrition was elevated when compared to the last year due to our repricing efforts and new sales were down as our pricing reflected higher health care observed trends. CIE was flat to last year and a net negative in Q3 due to the offboarding of seasonal workers. Note that even with this, CIE is slightly higher than last year on a year-to-date basis by approximately 0.5 point. Our year-to-date improvement has been driven mainly by the tech vertical, but we've also seen strength in hiring in financial services. This modest year-over-year improvement in CIE is in line with the guidance we laid out at the beginning of the year. As Mike indicated, we expect to see an improved year-over-year comparison for sales execution in the fourth quarter, and our January pipeline is benefiting from our growth initiatives. We've also been quite pleased with the high-quality customers we have added. Furthermore, our January cohort represents our last outsized renewal, and it's our view that our pricing is increasingly aligned with claim trends and competition. Professional services revenue in the third quarter declined 8% year-over-year, largely due to two main reasons: lower WSE volumes; and the discontinuation of a specific client level technology fee of which we recognized $5 million in Q3 of last year. As the technology fee was largely fully recognized in revenue through Q3 of 2024, beginning in the fourth quarter, it will no longer be a significant negative prior year comparison. Professional services revenue was supported by low to mid-single-digit pricing strength and stronger than originally forecasted HRIS and ASO revenue. On an absolute basis, HRIS fees and ASO revenues, including those resulting from HRIS conversions, decreased slightly year-over-year as the company transitions away from a SaaS-only solution. However, our ASO conversion rates continued to exceed initial forecast, indicating ongoing demand for our services. And because of our ASO pricing framework at $50 to $75 PEPM, this strong demand partially mitigated the impact of reduced PEO volume. Insurance revenue and costs in the quarter each declined by 1%, resulting in an insurance cost ratio, just to touch over 90%, which was about flat to last year and slightly better than our embedded guidance. We attribute our improved performance to 2 items: our continued pricing discipline; and stabilization in health cost growth rates, albeit at elevated levels when compared with historical trends. While we're pleased with our pricing discipline, we do acknowledge the adverse impact it has had on both retention and new sales in 2025. On retention, after the successful implementation of our January 2026 renewals, we believe that the catch-up will be behind us, and our pricing will be aligned with health insurance pricing trends moving forward. On new sales, we believe that our pricing in the fourth quarter and fall selling season are already aligned with the market's perception of current health care pricing levels. Each bodes well for continued improvements in 2026. Turning to expenses. Expenses in the quarter declined by 2% year-over-year. Our continued disciplined expense management is driven by further automation and our workforce strategy. I would like to reiterate that with a portion of the savings we realized, we funded our medium-term strategic initiatives, which are intended to drive growth, improve our customer experience and implement process efficiencies. I continue to be impressed by the improvements our colleagues are making on the items that will truly matter to our customers. Third quarter GAAP earnings per share was $0.70, and our adjusted earnings per diluted share was $1.11. Our earnings were supported by continued improvement in our cash flow. In the quarter, we generated $100 million in adjusted EBITDA, representing an adjusted EBITDA margin of 8.2%. Through 3 quarters, operating activities generated $242 million in net cash and $191 million in free cash flow. Our free cash flow conversion now stands at 52% and is in line with our 2025 plan. Our capital return priorities for 2025 remain consistent. We aim to deliver shareholder value through continued investment and our value creation initiatives, funding dividends and share buybacks and maintaining a suitable operating liquidity buffer. In the quarter, we paid a $0.275 dividend per share, representing a 10% increase year-over-year and repurchased approximately $31 million in stock, bringing total capital deployment to $45 million. For the year, we've deployed $162 million to shareholders or approximately 85% of our free cash flow ahead of our annual target of 75%. With the improvement in our financial performance, we continue to move closer to within the top end of our targeted leverage ratio of 1.5 to 2x EBITDA. Now let's turn to our 2025 outlook. With just 1 quarter remaining and the benefit of 3 quarters of performance, we wanted to provide a little more color as to where we're falling within our annual guidance range laid out in February. Given some of the volume impacts, offset by other favorability in 2025, we expect total revenue and professional service revenue to both come in near the midpoint of our originally stated range. Our insurance cost ratio is trending slightly better than the midpoint. Altogether, this is bringing our adjusted EBITDA margin to the top half as well as our adjusted EPS closer to the top end of our originally disclosed range. In conclusion, we performed well in the third quarter, executing our medium-term initiatives, remaining disciplined in our pricing and prudently managing our expenses. While the operating environment remains challenging, especially for our customers and prospects, we are optimistic that our efforts to enhance our offerings are being received well in the marketplace. We believe that efforts to drive profitable growth, efficiencies and to return us to our targeted insurance cost ratio by 2026 are all on track. I'm proud of the continued execution by our dedicated colleagues, and I know our team is going to finish the year strong. With that, I'll pass the call to the operator for Q&A. Operator: [Operator Instructions] The first question comes from Jared Levine with TD Cowen. Jared Levine: Just wanted to start by double-clicking on the ICR. Just wanted to clarify, were there any onetime impacts to your 3Q performance here? And then as you pointed to returning to that long-term ICR guide in FY '26, can you just go over some of the assumptions there? Does that assume there's any kind of deceleration in health care cost trends there? Kelly Tuminelli: Jared, it's Kelly. Happy to respond. Regarding the ICR... Michael Simonds: Yes. I mean I think I'll take the second one, Kelly, first. On the assumptions for next year, we're going to stay pretty conservative about what health care trends is going to do next year. I think we've talked a little bit on this call that we saw about 4 quarters of very stable, albeit elevated trend. We started to see some of the shorter duration analysis show a little bit of improvement. We think it's reasonable to assume you know health -- Jared, on the margin just a tick or two lower than what we sort of experienced this year. But nothing that isn't already reflected in some of those duration curves overall. And then I think the first question was just about. Kelly Tuminelli: Onetimers, yes, really nothing notable in the quarter at all related to one-timers, Jared. Jared Levine: Got it. And then in terms of the sales headcount there, can you just update us in terms of your expectations for ending sales headcount for FY '25 here? And then how you're thinking about at this stage FY '26 in terms of continuing to grow that headcount? Michael Simonds: Yes, happy to do that. And the strength of our sales force, the productivity and tenure, as you know, Jared, is a big part of the investments we're making in growth. So in terms of tenure, I'll actually start there, we continue to see the median tenure of our sales force increase. We see turnover at the 3-plus years of experience in reps, particularly over 48 months, our most productive reps be at or below historical loans. And that's really, really important as we're taking that kind of quality of salespeople through the selling season and into 2026. We did slow down, as you know, new rep recruiting early in this year as we really revamped that process. We've retooled, we are doing experienced rep hiring, but also some right out of college hiring to help sort of build a stronger culture and hopefully, a longer tenure in that team. And that pause in the aggressiveness of hiring means we've got a smaller in aggregate, albeit more experienced sales force at the moment. I do expect that as those new trainees come on in 2026, we'll start to see the absolute number grow in terms of the sales force next year. Operator: The next question comes from Andrew Nicholas with William Blair. Andrew Nicholas: I wanted to hone in on your comments around rate increases and pricing relative to competition. Is there anything that you could say either qualitatively or quantitatively on maybe just the magnitude of difference between the rate hikes that you're going out to market with -- or even with your existing client base with versus maybe what you suspect some of your competition is having to do this renewal season? Michael Simonds: Andrew, I think we sort of tried to hit it in prepared remarks, but I think in general, when you think about health carriers out there, managed care, nobody saw the acceleration in trend come including us. We also had happened to be leaning in for about 6 quarters in terms of more aggressive and lower new business and retention pricing. So the timing wasn't good. We had some issues on our front that sort of it compelled us to move pretty quickly and pretty conservatively when it came to pricing. And I think at this point, that proves fortuitous for us. We're coming up on January 1 renewals being sort of our last kind of catch-up set of renewals. In terms of the magnitude of the difference, I wouldn't think -- it doesn't need to be sort of a massive gap to be consequential just given the absolute cost of health care today in the small cases commercial market. So I wouldn't quantify the number, but I would say the evidence is sort of pointing towards when we look at what we see in our pipeline, what we're hearing from our channel partners, kind of our most recent pretty good October sales month here sort of points to what that gap being through most of the year, tightening up here as we get to the end of the year and as we head into 2026. Andrew Nicholas: Understood. And then maybe just a higher-level question on client decision-making. It's been a choppy year for SMBs broadly with Liberation Day and tariffs and kind of all the uncertainty around that part of the market. Just curious what you're seeing in terms of business optimism or hiring plans or maybe just business owners' willingness to make budget decisions or HR decisions in this environment, whether or not there's any change in that relative to the past couple of quarters? Michael Simonds: Sure. Happy to do it. And I'm sure Kelly will have a couple of thoughts on what we're seeing maybe by vertical on the CIE front. I would say high level, actually, we sort of have seen a little bit of settling in when I'm talking to clients and prospects. Like you said, there was a lot of optimism at the very beginning of the year, and then there was an immense amount of uncertainty, and I think some of the uncertainty has now become a little bit the new normal and people are just sort of realizing we are where we are, and they are making decisions. I'd say because health care costs have been so challenging for the market in total, that what we're seeing a little bit is health care being pretty central to the PEO buy decision and people wanting to line that up around the January 1 start. So we see some things that we normally would see in November, December getting pushed to January 1st, and a little bit just health care-specific dynamic, maybe a little bit of a slowdown in the buying process. But in general, I'd say it's a pretty resilient small business client base that we're seeing in our verticals, and CIE isn't where we would want it to be, but it does look like we're on track to see a bit of improvement this year over the full year last year. Kelly, I don't know if you have anything to add? Kelly Tuminelli: Yes. I mean the only thing I would add, Andrew, to Mike's point, about 0.5 point better on a year-to-date basis related to CIE. But when you kind of pull the covers apart on that, what we're really seeing is there's less layoffs. So it's not that there's more people hiring, but there are less layoffs than there had been in the past. And it was a bright spot for us though, when we looked at most of our CIE growth has really been year-over-year in tech and financial services. Operator: [Operator Instructions] The next question comes from Kyle Peterson with Needham. Kyle Peterson: Thanks for the early call, make sure to get extra cup of coffee here. But I wanted to start off particularly on some of the new logo pipeline. I know you guys mentioned attrition has picked up a little bit, it sounds like with some of the insurance pricing, which obviously is kind of a necessary thing, given the environment. It sounds like you guys are a little ahead of some of your competitors. So I just wanted to see if you guys had any thoughts on if you think there's an opportunity to maybe gain share or increase new logo sign-ups when as some of these other guys catch-up and push their own repricing through their books within the next, whether it's 6 to 15 months or whatever the cycle ends up being for them? Michael Simonds: We appreciate the early start, Kyle, on the extra cup of coffee. I think there is a little bit of an element. We've talked about it for a long time here at TriNet about repricing on our cohorts on a quarterly basis. I think over the last 4 quarters or so for the reasons we've talked about, we're probably a little bit quicker and a little bit more conservative to move those prices on the health side up. We do look at our pricing on new business and a cohort of our renewals every 90 days or so. So I think it's both the aggregate level and then the pace at which we put that pricing through tends to be a little bit quicker than maybe the average market participant. And I think it's a reasonable assumption to say that while we certainly aren't forecasting a big falloff in health care claim cost trends, we are seeing that tail down just a little bit. And I think we can be responsive to that over the next 12 to 18 months, maybe a little bit quicker than the average market participant. But I think really what that does is as that gap to the market narrows, and we get in a position there where the broader value proposition can just shine through a little bit brighter. And for me, and I think for the team here, the fact that we've got a greater percentage of our clients advocating for us, you saw the kind of record high on the NPS. The fact that double-digit growth in broker-driven RFPs as that channel is really starting to open up. We've got a more tenured sales force. Our biggest 4Q wins so far actually is a benefit bundle proposition to a large employer that had a very distributed workforce, and we were able to bundle up the benefits in a way that sort of met their need for simplicity and hit a price point that made sense to their budget. So I think there's a bit of an opportunity here relative to pricing, but I think ultimately, it's just about kind of clearing the decks. So the investments we're making in growth can really come through. Kyle Peterson: Okay. Fair enough. That's good color. And then I guess just a follow-up on interest income. I know that's been a big swing factor, and it's been pretty resilient this year. I know there's some timing impacts and rates maybe haven't come down as fast as originally thought. But I guess, how should we think about that line item moving forward, especially just given some of the timing shifts on tax returns, it seems like rates are going to drift down some, but then you guys should be building cash too. So I guess like what's a good run rate for that line moving forward? And how should we be thinking about the impacts of the timing shifts and the outsized benefit this quarter? Kelly Tuminelli: Kyle, it's a great question because it has been definitely a bright spot on our revenue for the year, for sure. We have had some catch-up interest associated with IRS tax refunds, and that did occur again this quarter. It's a little uncertain due to the fact that the IRS is currently shut down. But other than that, we're -- just have small balances that we're still expecting to receive some level of interest on. So I can't really give you the forecast for catch-up interest for delayed payments there. But I think as we're all watching what's going on with rates, we would expect those to come down, but while we're building our cash buffer back up. Kyle Peterson: Okay. I guess then, I guess, just as kind of a house, is there like a rough amount of the catch-up interest that has benefited this quarter or anything? Any color you guys can give? Kelly Tuminelli: Sure. In terms of the catch-up interest, it was roughly $3 million this quarter. So that was the amount that I would kind of consider unusual. Our balances are a little bit higher right now as well before we distribute some of those to our clients as well. Operator: The next question comes from Andrew Polkowitz from JPMorgan. Andrew Polkowitz: Before I ask my question, Kelly, I just wanted to congratulate you on a great tenure. Kelly Tuminelli: Thanks, Andrew. I appreciate it. Andrew Polkowitz: Of course. First question from me. I wanted to ask if you could provide an update on what you're seeing on the ASO offering? It sounds like interest is tracking a little bit better than expected there, so figured I'd start there. And maybe as a quick follow-up to that question. Is there a different competitive set that you're kind of competing against at this stage for ASO or is it really just kind of converting existing HIS at this point? Michael Simonds: Great question. And we are. So I think we made the decision to exit the SaaS-only business because we really do feel like, competitively, our advantage is the combination of really strong technology and outstanding colleague support. And so we sort of made a set of assumptions around the rate at which the ideal profile of customers that are currently sitting on the SaaS-only product would buy-up. And we've done pretty considerably better than we would have thought, which was really encouraging. And then the second piece, Andrew, is of late here in the last quarter or so, we've seen organic new sales coming in and our forecast coming up on that front as well. So this is sort of a long-term bet for us, and I think will be a meaningful contributor to our longer-term growth. And I think partly, it's because to your kind of what's inferred in your question, we've got clients on the PEO side and their needs change over time. And so they may want to unbundle certain parts of that offering, and ASO can make a lot of sense for them. I think the competitive set is probably a little bit of a Venn diagram. It overlaps in certain respects with some of the traditional competitors we have on the PEO side. I think we're also seeing a lot of success in a much more fragmented ASO and much more sort of locally delivered ASO market where kind of having the depth of expertise and then sort of the strength of technology platform on a national scale, I think, sets us up well against that sort of local fragmented customer or competitor base. Andrew Polkowitz: Got it. That's helpful. And maybe for my follow-up question, I'll just ask around the guidance. So very clear that revenue kind of pointing from the midpoint EPS. ICR on the little bit to the stronger end of the range. I just wanted to ask the question, is there anything we should consider like what the unknowns are that would point to the higher or lower end of the range? Understanding there's only about 2 months left in the quarter, but still on January 1 selling season is sort of in-flight right now. So just wanted to ask kind of the range of outcomes embedded there. Kelly Tuminelli: Good question, Andrew. And we have tried to pivot to annual guidance just to make sure that we're really focusing on the core direction of the business, et cetera. We're not expecting anything unusual at this point in the fourth quarter. we pointed towards the top end of the EPS range overall. And that was also helped by capital management throughout the year 2 and partly through share repurchase. But ICR, obviously, will have some minor level of fluctuation that will impact EPS in a little bit more disproportional way. But that would be the largest winner. I think we've got a pretty good eye on both new sales and retention from a volume perspective. So I really wouldn't point anything out of the normal seasonal impact. Operator: The next question comes from David Grossman at Stifel. David Grossman: I just had 2 really quick questions. One is on the CIE commentary. Is growth, would you say, improving year-over-year? Is that less negative versus growth? I just wanted to clarify and make sure I'm understanding that correctly. And then secondly, as I look into 2026, if we remain in a stable environment, and we know that we have lower attrition, the gap in pricing is improving and CIE is improving, is there any reason to think that in a stable environment, WSEs won't grow next year? Kelly Tuminelli: David, let me take the CIE question, and then I'll pass it over to Mike to take overall growth questions about next year. Regarding CIE, I did make the comment earlier on Jared's question around less layoffs. CIE, we expect to be really low single-digit positive for the year on a net basis. Just when you peel apart -- or pull up the covers, you do see that while hiring has been pretty stable at a low level, we are seeing just less layoffs. So net-net, when those two net out, it's a small single-digit positive, but about 0.5 point better than last year. Michael Simonds: And then on the second question around getting to growth in 2026, I have to take one step back, David, and say, we laid out a series of objectives, a medium-term strategy. Two component parts of that, let's get revenue growth going. Certainly, volume growth would be a sort of component part on that side and then get the EBITDA margin improved. In aggregate, we're very much on track, maybe tracking a little bit favorable. I'd say within that, we're probably a tick or two stronger, quicker to the margin improvement and maybe a tick or two slower to sort of the outlook on revenue growth. I think that affords us the ability to do a little bit of rebalancing here in the short term as we kind of head into 2026. So I would stop sort of predicting kind of volume growth or WSE growth, but I would say just because CIE is going to be a little bit of a wildcard, but I do feel like getting past January 1, our last catch-up renewal, as we work through 2026, being on track for total revenue growth to reemerge. We certainly are feeling bullish on that prospect. I hope that's helpful. David Grossman: Right. And then, I'm sorry if I missed this, if you mentioned this earlier, however, are you seeing -- if the pricing discrepancy between you and the market is compressing, if you look sequentially throughout calendar '25, has the attrition been diminishing on a relative basis each quarter by virtue of that price differential diminishing? Michael Simonds: Yes. I think the way I would sort of actually think about that is we brought on, as you talked about and sort of laid out at the beginning of the year, a cohort of business over about 6 quarters. That tended to be skewed pretty heavily to Jan 1. So that sort of throws out -- sort of throws off the retention patterns that doesn't have that kind of sort of natural, what you might expect, improving. So I do think we'll look to this getting through this January 1st renewal. I do think we're going to remain above our historical average of 80% retention. I am looking forward to the sort of last catch-up being in the rearview mirror and getting out into 2026, back into that long-term insurance cost ratio range of 87% to 90%. I think the team has done a very good job of sort of balancing retention, taking a couple of cycles for a cohort or two to kind of get back to where we need to be. I think that was the fair and balanced things to do for these small businesses. But yes, in general, I'd say, the end is in sight from what we can tell in terms of catching back up to where we need it to be. David Grossman: And then just lastly, you gave a metric on the broker channel. I think about the percentage of RFPs that are coming in, is there anything that you can -- I think it was double-digit growth in RFPs in that channel. Is there anything you can tell us about the character of the business that's coming through the channel versus your existing growth? Michael Simonds: Yes, it matches up very well from a vertical point of view. And I think as we're sort of building out, we're learning a lot about these relationships, and I think really good partners in the channel. They want to understand what kind of client is going to be the best fit for TriNet and their job is to match-make obviously. So I think that's coming through really well. I think our proposition comes through really well. I'd say, on average, maybe the one difference we could point to is, the average size of prospect tends to be a little bit bigger, not dramatically so, but a little bit bigger. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Michael Simonds for any closing remarks. Michael Simonds: Thanks, Drew, and thank you all for the early start this morning. Hopefully, you're leaving with a better understanding of both our strengthening results and a really positive outlook. Here at TriNet -- and I do want to thank Kelly one more time as we are wrapping up our last TriNet earnings call. Kelly, I appreciate everything you've done to help make TriNet the strong company that it is and all the support you provided for me in coming in and that you will provide in making this a really seamless and successful transition. I know you've already got a couple of Board seats and you're looking to add to that portfolio over time, and I can't imagine a better person to help guide a company. So thank you, Kelly. Much appreciated. And with that, operator, that concludes our call. Kelly Tuminelli: Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Ladies and gentlemen, a very warm welcome to the GSK Q3 2025 Results Call. I'm delighted to be joined today by Emma Walmsley, Luke Miels, Deborah Waterhouse, and Julie Brown, with Tony Wood, David Redfern, joining for Q&A. Today's call will last approximately 1 hour with a presentation taking around 30 minutes and the remaining time for your questions. Please ask only one to two questions so that everyone has a chance to participate. Before we start, please turn to Slide 3. This is the usual safe harbor statement. We will comment on our performance using Constant Exchange Rates, or CER, unless otherwise stated. I will now hand over to Emma on Slide 4. Emma Walmsley: Thank you, and welcome to everybody joining us today. Please turn to the next slide. Our third quarter results once again demonstrate GSK's continued strong performance with positive momentum driving an upgrade in our guidance for the year. They also further demonstrate the quality and strength of GSK's portfolio with sales driven by sustained growth across specialty medicines in RI&I, oncology and HIV. Total sales were up 8% for the quarter, with leverage delivering core operating profit up 11% and core earnings per share up 14% to 55p. Alongside this, we're continuing to make excellent progress in R&D, strengthening our late-stage portfolio and already securing four FDA approvals this year, including BLENREP last week and with the fifth, depemokimab before year-end. Cash generation also continues to be very positive at GBP 6.3 billion for the year so far. This supports investment in our growth priorities and returns to shareholders, including a dividend of 16p for the quarter. And finally, I'm very proud of the progress we continue to make with our trust priorities, in particular, this quarter with the positive Phase III data reported for our low-carbon version of Ventolin. This successful transition will reduce GSK's carbon footprint by up to 45%, and it's a meaningful development for the 35 million patients who rely on Ventolin worldwide, and we expect to launch in 2026. Next slide, please. Our #1 priority remains investing for growth, and I'm pleased with the progress we are making, both in the late-stage portfolio and in the work ongoing to build the next wave of innovation at GSK. With the addition of efimosfermin, the long-acting FGF21 for steatotic liver disease, we now have 15 scale opportunities with peak year sales potential of greater than GBP 2 billion, all with the potential to launch before 2031. By the end of the year, we expect new pivotal trials to have started for several of these 15 opportunities, depemokimab for COPD patients, efimosfermin in MASH, GSK'981 for second-line GIST and our GSK'227 ADC in extensive stage small cell lung cancer. It's worth noting that those last 3 assets have all come from focused, successful business development and BD remains a key driver of our pipeline expansion. And we continue to add high-value innovation at earlier stages of development. For example, I'm excited by GSK'261, a new monoclonal antibody for polycystic kidney disease, which received orphan drug designation by the FDA. Lastly, and very importantly, we continue to optimize our supply chain to scale up capacity for our new medicines and vaccines. Last month, we confirmed our intention to invest $30 billion in R&D and advanced manufacturing in the U.S. over the next 5 years, including the imminent construction of a new biologics flex factory in Pennsylvania. Next slide, please. Since 2021 and then GSK's successful launch as a new focused biopharma company, we've delivered 18 consecutive quarters of profitable sales growth, upgraded annual guidance each year, improved our medium-term outlooks and upgraded long-term outlooks twice from an initial GBP 33 billion by 2031 to now more than GBP 40 billion, all underpinned by a much stronger balance sheet. We've all been resolutely focused on this step change in sharper operational performance alongside accelerating investment in R&D and significantly improving the quality and scale of GSK's innovation. So today, GSK is a very different company in performance, pipeline and prospects. And this team is determined to sustain and improve upon this track record. As we look ahead, we are again upgrading our guidance for the year with meaningful improvement for 2025 sales and profits. And this momentum positions us well as we go into 2026 and to deliver on the long-term commitments for growth we've set out for shareholders. So let me now hand over to the team to take you through more of the detail on our performance, starting with Luke. Next slide, please. Luke Miels: Thanks, Emma. Please turn to the next slide. In Q3, we delivered growth across all our product areas and in the regions with GBP 8.5 billion of sales, up 8% versus last year. Growth in the quarter was driven by Specialty Medicines, up 16%. And and another quarter of strong Shingrix, Arexvy and meningitis demand in Europe. And in the U.S., we navigated the impact of the Medicare redesign from the IRA and the impact is now expected to be closer to the lower end of our GBP 400 million to GBP 500 million range. Next slide, please. Specialty Medicine continues to be the most important driver of our diversified business with double-digit growth once again in all therapy areas. Starting with RI&I, sales were up 15%, driven by strong demand. Benlysta, our treatment for lupus grew 17% with global guidelines supporting earlier use of biologics and recommending Benlysta as a preferred treatment option. 84% of bio-naive patients are now starting on Benlysta, and we continue to differentiate with strong organ damage prevention data and a well-characterized safety profile. Nucala, our anti-IL-5 biologic, grew 14% in the quarter, driven by COPD uptake and continued growth across all in-line indications. Moving to our growing oncology portfolio, which is up 39%. Jemperli sales were up for the 10th quarter in a row as our teams continue to differentiate Jemperli from the competition, as the only immuno-oncology medicine to demonstrate overall survival in endometrial cancer. Jemperli's global market share in endometrial cancer is now higher than the leading competitor in DMMR. And Ojjaara sales were up 51% in the quarter, driven by increasing first- and second-line patient demand in the U.S. and volume growth in Europe following EHA, where new data emphasized the importance of early intervention. And BLENREP is now in the early days of launch with approval in 8 markets and more on that in a minute. And with the strong momentum we're seeing across RI&I and oncology and the continued performance of ViiV, we are now increasing our full year specialty guidance from low teens to mid-teens percentage growth. Next slide, please. In Q3, we had a very strong start for Nucala and COPD with the latest NBRx data showing we are now getting close to 1 out of every 2 prescriptions. Our differentiated label is enabling us to reach a wide spectrum of COPD patients, including those with emphysemia and EOS counts down to 150. We've now reached 95% of our top ACP targets and have a broad formulary coverage. In this population, hospitalizations remain a critical unmet need with 1 in 2 patients dying within 5 years of their first admission, and there is plenty of room to grow in this market with less than 5% biologic penetration in the U.S. The success we have had with this launch gives us further confidence in the potential we have for depemokimab, our long-acting IL-5, which we expect to launch early next year. There are 4 compelling reasons underpinning why we believe depe will be a very material medicine. First, there's plenty of room to grow in the market, starting with bio-naive patients as only 27% of them currently receive a biologic. Second, patients discontinuing therapy is an issue with up to 65% of new patients on current biologics discontinuing therapy within the first 12 months. And unsurprisingly, less adherent patients have worse clinical outcomes, including around a 30% increased rate of inpatient and emergency department visits. The 72% reduction that depe has demonstrated in hospitalization with just 2 doses a year is material. And finally, we know ACPs want this medicine with 86% of pulmonologists surveyed believing it could become a standard of care. Next slide, please. Our oncology portfolio is progressing well. Starting with BLENREP, we now have approval in 8 markets, 7 in Europe and international regions in the second-line plus population and now the U.S., where just last week, we received approval in the third-line plus setting. This U.S. approval is a significant step forward for the U.S. patients and the indication granted reflects that BLENREP has demonstrated superior efficacy versus the standard of care daratumumab triplet and now gives us certainty and the ability to launch. Data from DREAMM-7 in this population is very compelling with a 51% reduction in the risk of death and a tripling of median progression-free survival versus the dara-based triplet. We see a significant opportunity here as of the 71,000 patients in the U.S. receiving treatment today, over 1/3 are treated in the third-line plus setting. And BLENREP is the only anti-BCMA option, which is practically able to be used in the community where 70% of patients are treated and could benefit from a much needed novel MOA. We also have a new and significantly simplified REMS program, including, importantly, the use of optometrists versus the original REMS, which required ophthalmologists only. This will make it much easier for patients and HCPs to manage eye care. And while we anticipate a slower ramp-up in the U.S. with the initial third-line plus label, as we said previously, we will take the time to ensure a positive patient and provider experience to achieve the long-term potential of this highly effective drug. Our clinical development and evidence generation plan continues. And again, working closely with the FDA, this will now be expanded in the U.S. and will support the use of BLENREP in earlier and all stages of multiple myeloma globally. In summary, we expect BLENREP to meaningfully advance treatment options for patients with multiple myeloma, and we continue to expect BLENREP to be a material growth driver for GSK in the next 3 to 4 years. Moving to future indications for Jemperli. We're looking forward to the opportunity we have to change the lives of patients with rectal cancer. And following the transformative data showing a 100% complete response rate in Phase II, we initiated the AZUR-1 pivotal trial and expect to see results in the second half of 2026. And additional trials are ongoing to understand the benefit Jemperli can bring patients with colon and head and neck cancer. Finally, we continue to progress our key oncology pipeline assets, starting with our B7-H3 antibody drug conjugate or GSK'227. We're now recruiting for our Phase III trial in second-line extensive stage small cell lung following a clear signal we saw in the early-stage clinical data from Hansoh, our partner. And our KIT inhibitor for GIST, GSK'981 acquired earlier this year, will start Phase III in second line by the end of the year and first line in 2026. And GSK'584, our B7-H4 antibody drug conjugate is expected to advance to Phase III in endometrial and ovarian cancer next year. And overall, this oncology portfolio offers significant future growth opportunity for GSK and is a clear priority for investment and resources alongside RI&I. And with that, I'll now hand over to Deborah to cover our great momentum in HIV. Deborah Waterhouse: Thank you, Luke. Our HIV portfolio continues to deliver double-digit growth, up 12% in the quarter, primarily driven by 10 points of strong patient demand growth for our long-acting injectables and Dovato. Demand continues to increase across all regions and major markets, particularly the U.S., which grew 17% and where we saw total share gain outpacing the competition. We are delighted with the continued transition we are seeing to long-acting injectables. More than 75% of our growth now comes from long-acting injectables. And in the U.S., they already represent around 1/3 of our sales. Cabenuva, the first and only long-acting injectable HIV treatment regimen grew 48%, driven by strong patient demand. Our competitive performance is reinforced by the acceleration of Cabenuva switches from competitors in the U.S., which this quarter reached 75%. As we anticipated, in long-acting prevention, we saw continued positive momentum of Apretude in the U.S. with competitive growth also of 75%. This quarter, we shared results from CLARITY, a Phase I study comparing acceptability and tolerability of single-dose CAB LA for PrEP marketed as Apretude and lenacapavir. We know patient experience is an important factor for injectables. Results showed 69% of participants found CAB LA to be totally or very acceptable with 90% of participants and 86% of HCPs preferring CAB LA over lenacapavir in terms of injection experience after a single dose. These data add to the growing body of clinical and real-world efficacy, safety and tolerability data we have for Apretude and will help inform expectations and decision-making when initiating long-acting injectables for HIV prevention. We expect continued growth momentum in Q4. And so today, we are upgrading our 2025 guidance from mid- to high single digit to grow around 10%. Next slide, please. Our industry-leading pipeline with best-in-class integrase inhibitors at the core continues to progress and have multiple long-acting options with strong profiles that deliver what we know patients want and need. This pipeline will further drive the transition we are making in our portfolio to ultra-long-acting regimens and will help us navigate the dolutegravir loss of exclusivity towards the end of the decade. Building on our established 2 monthly injectable regimens, we believe 4 monthly dosing in PrEP and treatment will be important options, delivering longer dosing intervals and ensuring continuity of care. We have a confirmed date from Janssen on rilpivirine Phase III clinical trial supply that leads to a delay to the start of Quattro, our Q4M treatment registrational study to H1 2026. Despite this, we remain on track to file in 2027, and we look forward to launching this next wave of innovation in 2028. building on continued strength and performance of our Q2M Cabenuva, the world's first and only LAI for HIV treatment. At the launch of Q4M treatment, we still expect to have the only long-acting injectable treatment regimens on the market for years to come. Looking ahead to our twice yearly injectables, we're on track to confirm the dosing regimen for Q6M treatment in 2026 and expect to file and launch both Q6M for treatment and PrEP between 2028 and 2030. For Q6M treatment, we remain excited about the potential of VH184, our third-generation INSTI, which has the best resistance profile seen to date and IP protection through to at least 2040. To partner with our selected INSTI, we are evaluating 2 assets, VH499, a capsid inhibitor and N6LS, one of the broadest and most potent bNAbs in development. Regarding N6LS, this quarter, we again showed more positive results from Part 2 of our Phase IIb study in BRACE and are pleased to confirm the next phase of this study is now fully recruited. As a reminder, Q6M for treatment in PrEP is not yet in GSK's outlook for 2031. Our long-acting injectable portfolio is backed by 3 years of real-world evidence and implementation science. As we look to the future, we expect our industry-leading long-acting pipeline powered by unparalleled patient insight to deliver 5 launches through 2030. We remain confident in our ability to drive sustained long-term performance and look forward to sharing more at meet the management investor event in Q2 2026. With that, I'll hand back to Luke. Luke Miels: Thanks, Deborah. Turning to Vaccines. Sales were up GBP 2.7 billion in the quarter, up 2%, driven by continued strong demand for Shingrix, Arexvy and Bexsero, particularly in Europe, which was up 35%. Shingrix sales grew 13% overall, largely due to the strong performance in Europe, up 48%, where we're driving across multiple markets and with significant new uptake in France, and a strong performance in Germany, the Netherlands and Poland. In international, sales in Japan continue to grow following the expanded public funding. Ex U.S. sales now account for around 70% of global Shingrix sales. And in the U.S., penetration is now 43% of the eligible older adult population with immunization rates slowing as expected as we access harder-to-reach patients. In meningitis, our portfolio was up 5%, driven by double-digit growth for Bexsero in Europe, where the updated recommendation and reimbursement in Germany continues to pull through and in France following a meningitis B outbreak and the implementation of mandatory newborn vaccination requirements, along with new reimbursed cohorts. Also in the quarter, even though the ACIP recommendation came slightly after the back-to-school season window, we booked the first sales of our pentavalent vaccine, Penmenvy in the U.S. with initial CDC purchases. We expect this vaccine to simplify immunization schedules and contribute to increased coverage and protection against a serious life-threatening illness. Turning to Arexvy. Growth was driven by Europe with good commercial progress in Germany, Spain and Belgium. International also grew driven by tender volumes in Canada. And in the U.S., we maintained our market-leading share in the older adults population. However, the U.S. declined due to lower preseason channel inventory build and slower market uptake in the 60-plus population. In Q3, our flu vaccines were down in part due to competitive pressure in the market where we compete for healthy younger cohort populations who are harder to activate in older adults for flu vaccines. And Established Vaccines were down primarily due to the prior year impact of our divested brands. So in summary, with the Vaccines business, we now expect to land towards the top of our vaccines guidance range of declining low single digit to stable. And as we look forward, although we continue to remain cautious in the near term on vaccines in the U.S., we are confident in the prospects pipeline and benefit this business offers over the long term. Next slide, please. Turning to General Medicines. Sales were up 4%, driven by the strong growth of Trelegy in all regions, up 25% in the quarter. And the SITT class remains very strong, up around 23%, driven by GOLD guidelines, new data and competitive share of voice. Within the SITT class, Trelegy continues to gain more share than any other brand and is the top-selling brand for both COPD and asthma globally. We also have completed IRA negotiations on Trelegy in line with expectations and our outlook. The remaining portion of the portfolio was stable, reflecting continued generic competition and expected adjustments in rebates and returns. We continue to expect sales to be broadly stable in 2025 and are looking forward to future opportunities in this portfolio, including launching low-carbon Ventolin and further establishing our anti-infective portfolio through building access in the U.S. for Blujepa in uncomplicated urinary tract infections and also filing tebipenem in complicated UTIs by the end of the year. All 3 of these represent practical innovation for important areas of medical need. I'll now hand over to Julie. Julie Brown: Thank you, Luke, and good afternoon, everyone. Next slide, please. Starting with the income statement for the quarter with growth rates stated at CER. As already highlighted, sales grew 8%, driven by the specialty portfolio across HIV, oncology and RI&I. Core operating profit grew 11%, reflecting a 5% increase in SG&A as we continue to invest to support key asset launches alongside driving productivity. R&D growth of 10% was driven by accelerated pipeline investment across key specialty medicines. Our royalty income benefited from the Kesimpta performance as well as new RSV and mRNA royalty streams. Core EPS grew 14%, aided by a tax rate of 16% in the quarter and benefits from the share buyback, partially offset by higher NCIs relating to ViiV's strong performance. Turning to our total results. The significant growth reflects the Zantac settlement charge taken in Q3 last year. Next slide, please. The operating margin improved 90 bps in the quarter, largely driven by SG&A margin improvement of 70 bps. This increase demonstrates the efficiency gains achieved through our returns-based approach as we invest in new product launches whilst continuing to generate productivity improvements in the promotion of the existing portfolio. Additionally, in the quarter, gross margin improved, reflecting mix benefits from the continued transition towards specialty and R&D expenditure increased as we reinvest additional royalty income into our pipeline, supporting the acceleration of the ADC programs and pivotal trial starts for efimosfermin and GSK'981 in second-line GIST. Year-to-date, our operating margin is now 33.9%, up 100 bps at constant exchange rates, driven by sales mix, productivity gains and growth in royalties. Next slide, please. Turning to the cash flow with commentary before the one-off impact of Zantac payments. Cash generated from operations year-to-date was GBP 6.9 billion, improving GBP 1.7 billion, benefiting from increased operating profit, favorable movements in return and rebate provisions and the CureVac IP settlement announced in August. This was partially offset by increased working capital, impacted by higher Arexvy and Shingrix collections in Q1 of last year. Free cash flow increased GBP 1.8 billion versus last year, driven by strong CGFO and favorable phasing of tax payments, partially offset by higher spend on in-licensing deals. Zantac payments year-to-date totaled nearly GBP 0.7 billion, and we expect the remaining GBP 0.5 billion to be paid by the end of the year, drawing a line under the settlement agreed and disclosed last October. Next slide, please. Turning to capital allocation. In line with our framework, we continue to deploy cash in a disciplined manner and underpinned by a strong balance sheet. Our net debt to core EBITDA ratio remains broadly aligned with the end of 2024 at 1.3x. Our priority is always to invest for growth as demonstrated by our sustained acceleration of late-stage R&D, the next wave of pipeline innovation and targeted BD. In 2025, we have signed multiple deals, including the acquisition of IDRX-42 and efimosfermin as well as the Hengrui licensing agreement and earlier-stage pipeline and platform technologies. We have also made GBP 3 billion in shareholder distributions so far this year through the dividend and the buyback program, of which GBP 1.1 billion has been executed so far with a cumulative total of GBP 1.4 billion expected to be completed by the end of the year. Next slide, please. As Emma shared, we are upgrading our guidance on the back of the continued strong performance this year. We are raising our full year sales expectations from 3% to 5%, to 6% to 7%, with underlying upgrades for Specialty, including HIV, and we now expect to be towards the top of the vaccines range. Alongside this, we're also raising our guidance ranges for operating profit to 9% to 11% and EPS to 10% to 12% -- looking through the P&L guidance, we maintain that gross margin will benefit from product mix, partially offset by supply chain charges of around GBP 100 million to be taken in Q4. SG&A will grow at low single digits for the year as committed, including Q4 charges of around GBP 150 million to fund further productivity initiatives. And R&D continues to increase ahead of sales as we reinvest incremental royalty income into our pipeline. We are upgrading our expectations for higher royalties to GBP 800 million to GBP 850 million, supported by income from the CureVac settlement announced in August and lower net interest costs than previously guided due to the strong cash generation and the later timing of Zantac payments. Finally, in line with previous guidance, we expect the tax rate to be around 17.5%. In summary, we look forward to delivering a fourth consecutive year of double-digit EPS growth, notwithstanding the Q4 charges of around GBP 250 million, demonstrating the successful execution of our strategy since we became a stand-alone biopharmaceutical business. As a reminder, our guidance is inclusive of tariffs enacted and indicated thus far. We are positioned to respond to these with mitigation actions identified. And looking beyond, we remain very confident in our medium and longer-term outlooks to 2026 and '31. Next slide, please. Moving to our road map, which illustrates our progress towards major milestones and upcoming value unlocks. We have made good progress through 2025, and we expect to continue to build momentum as we move towards 2026. Over the coming months, we will continue to focus on flawlessly executing the 5 key asset launches. The FDA regulatory decision for depemokimab is due this December. And we are looking forward to delivering multiple pivotal readouts across our 15 scale opportunities, including bepirovirsen, cabotegravir, camlipixant, depemokimab in EGPA and Jemperli in rectal cancer next year. And with that, I am pleased to hand back to Emma. Emma Walmsley: Thanks, Julie. So in summary, our Q3 results demonstrate the continued momentum in our business with strong financial performance reflected again in our increased guidance for 2025 and through meaningful R&D progress. Our portfolio continues to demonstrate strength and quality and we're excited by the prospects in our pipeline. All of this positions GSK strongly for the next phase in the company's development to deliver our long-term outlooks, outstanding impact for patients and sustained value for shareholders. So I'm now going to open up the call for Q&A with the team. But before I do so, of course, we know that alongside questions on our results, many of you will be eager to ask our new CEO designate for his views on the future. Well, Luke and I both respectfully ask that you don't. I am, of course, so delighted and very proud to be passing the baton to Luke, but that is in January. And today, we'd like to focus on our Q3 performance. So with that, let's please now open up the call for your questions with the team. Operator: Thank you very much, Emma. The first question comes from Peter Verdult from BNP Paribas. Peter Verdult: Pete Verdult here, BNP Exane. Two quick questions. Firstly, for Julie or Emma, there's a EUR 6 billion revenue gap between market expectations in 2031 and the GSK revenue target over EUR 40 billion. If we move BLENREP's obviously a major point of disconnect. But can you just remind us which other assets you believe are being materially underappreciated? And then secondly, I hear you about not asking questions about strategy, which I will -- won't go down, but just a factual question for Luke. Is it your intention to either reiterate or tweak the go-forward strategy at the full year results? Or do we have to wait for your unveil later in '26? Emma Walmsley: Thanks. Well, I'll ask Julie just to comment on the difference between our full team shared confidence in the short, medium and long-term outlooks and where the market is today. As we've said before, it is largely in oncology and RI&I. The only other point I would make is that as well as a gap between the top line, there is also quite a material difference, as we've said before, in our view of the continued leverage of SG&A and where the market currently sits. But Julie, do you want to comment just quickly on that? Julie Brown: Yes, sure. Thank you very much, Emma. Peter, for the question. So the major areas, as Emma mentioned, oncology and respiratory, immunology and inflammation. And we do think the data readouts and commercial execution will make the difference here. But clearly, the BLENREP launch is one of the areas. Within oncology, I think people are also waiting for the rectal readout in Jemperli. And then the other difference, of course, is the ADCs recently licensed in from Hansoh, which we're very optimistic about in terms of the future. Within respiratory, I have to say the gaps are closing. They've improved. So we've obviously got the depe PDUFA date in December this year. People are clearly waiting for that. And then the other one, of course, is camlipixant, where we've got the data readout from CALM this year and then CALM-2 next year. So we think these are going to be the key trigger points that will make a difference between ourselves and consensus. Emma Walmsley: Thanks, Julie. And as you pointed out before, it's always we know, going to be a combination of the launch execution delivery as well as the data that comes. And it is quite pleasing with our upgraded guidance this year as a reminder that our initial outlook of 33 billion to be delivered by 2031. We are well on track to be delivering this year, 6 years early. So Luke, the second part of the question was related to what's coming despite our shared request in what's coming for 2026. And as usual, we are not going to give a huge amount of detail now about what's coming in '26, but we do want to all as a team reiterate our very high confidence in those not only '26 outlooks, but also '31 outlooks, which are forecasted by this team and committed by this team, as you've heard us all do together again today. At the beginning of -- with the full year '25 results, you'll hear the outlook for '26. And then later on in the year, the building blocks to delivering that longer-term 31 outlook. But Luke, I know you don't want to say too much, but is there anything else you'd like to add to that? Luke Miels: Sure. Thanks, Emma. Thanks, Peter. Look, what I'll say is, look, the number 40 is doable, and I stand behind it. Look, the majority of the products in it were forecast by me. Emma Walmsley: Right. Well, that's clear. And you'll hear more next year. So next question, please. Operator: Next question comes from Matthew Weston, UBS. Matthew Weston: Two questions, please. The first for Luke on Shingrix. There was a great benefit ex U.S. from the rollout in France, both in Q2 and Q3. Can you give us some help for the pushes and pulls on Shingrix into '26? Should we assume that there's been a France bolus, which wanes next year? And then we need a geography to take up the baton. If so, which one? Or do you think there's just consistent rollouts, which mean Shingrix ex U.S. can keep growing? And then the second one for Julie, another quarter of great margin leverage. I know this -- I promise it's not really a '26 guidance question. But can you at least help us with pushes and pulls on OpEx? So obviously, a statement about R&D reinvestment in 4Q -- how much should we assume that carries on, but also depemokimab, Nucala COPD and BLENREP launches, should we think of needing more next year? Emma Walmsley: Right. So Luke, first on Shingrix and then Julie, on our continued drive for meaningful SG&A leverage, please? Luke Miels: Thanks, Matthew. I mean the short answer in Europe is yes. I mean if you step back, we've quietly pursued a 3-stage strategy, and I've mentioned this on multiple quarterly earnings calls when Shingrix has come up in line with the current label. The first step, of course, was max the U.S. and get to a point where we penetrated and where that starts to slow. So we've got an immunization rate of 43%, which is in line with the 3% to 5% increment that we've signaled. It's very much linked to flu though, and flu is softer. And then the plan, of course, was within the U.S., which we started to pivot on to focusing on the comorbid and high-risk subgroups. And that's just started now in June, and I think the results are encouraging. Maybe with hindsight, we could have gone there earlier. But again, we're getting traction there. So that's a good sign, but the U.S. will still be tough because of sort of macro factors around vaccines, which I doubt we'll get into later. In Europe, I mean, really, the strategy was to maintain pricing discipline and then build the evidence of the launch in Europe and Japan, and that's exactly where we are now. So the average immunization rate in the top 10 markets ex U.S. is around 10%, about 9.7% to be exact. So there's more opportunities, more work to do as we broaden those populations in those countries. And then the third part, which we're really not in yet, is a pivot to emerging markets in the midterm with more pricing flexibility. We did start there with China. We had a bit of a challenge there, but we've got a pathway, again, focusing on comorbid and that is resonating despite a tough backdrop. So it's very much a midterm story with China and emerging markets. But yes, net-net, I think we're in good shape with Europe, and we just need to keep that going. Emma Walmsley: Right. Thanks, Julie? Julie Brown: Thank you very much. Thanks for the question. In terms of -- first of all, we're confident in reaching '26 margin target that we laid out of more than 31%. To your point about investment in R&D, we have deliberately been putting more investment behind R&D now for a number of years, and we expect the same next year that R&D will grow ahead of sales. And then in terms of the investment in the launches, we are totally investing in the new launches. We're here to grow the business. So definitely investment gone already into BLENREP, depemokimab coming up, et cetera, Nucala COPD. These are big areas of investment. The thing that we're doing in parallel, as you've probably seen, is that we are driving productivity benefits also through SG&A and the gross margin. And basically, we're looking at operating model cost and tech to modify and simplify what we do. These are really important components. And we now have a track record of doing this. We've guided at more than a 31% margin by '26. This will be over 500 basis points of accretion for the company between '21 and '26, which is really a considerable achievement as well as funding those launches. Emma Walmsley: Yes. And as I said, I think we all expect that to continue. I mean just don't underestimate how much technology is changing the way you can effectively and efficiently do sales and marketing work very differently than it has been the history of this industry, and we're all seeing that change happen whilst allowing us to invest very competitively behind the launches that you're considering -- continuing to see us deliver competitively on. Next question please. Operator: Next question comes from Michael Leuchten from Jefferies. Michael Leuchten: Two questions for Luke, please. One for depemokimab with the pending approval. Luke, can you update us on your latest thinking on phasing of access, likely source of business for the product into 2026? And then BLENREP, there's been a lot of debate after the approval on label, scope, REMS and the like. Is there any learnings you can point to from the -- albeit early experience in Europe or small experience in Europe that helps us understand sort of how the shape of the curve could look like in the U.S. Emma Walmsley: Luke? Luke Miels: Thanks, Michael. I mean I'll start with BLENREP first. Yes, I think there's a number of lessons. I chair a task force every 2 weeks to look at this to ensure cross-functional learnings, and we're certainly incorporating those. I think the key, again, no surprise is that once people have experience with this product, they tend to be, how would I say, pleasantly surprised by the reputation leading into this versus the experience of using it. And that's why we've been very focused on supporting physicians with those first 5 patients to ensure that they understand the dosing and how to manage that and how to hold doses and integrate that into their practice. And that's everything that we will then take into the U.S. We also have close to 8,000 patients now who've been exposed to BLENREP globally. So we've got a lot of clinical and operational experience in those centers as well. On depe, look, it's obviously a competitive environment right now. So I'll be careful around some of the phasing around access and our strategy there. But what I will say is I think this is quite a fascinating opportunity. The basic facts when I try and look at that sort of simplify things is that you've got a lot of eligible refractory patients who, by definition, are at risk of exacerbation. And in the U.S., access is actually extremely good for all biologics. Yet the conundrum, the paradox is that only 27% of them actually get a biologic. And then I think a few physicians must scratch their heads on this one. Those that do get a biologic, we see this with our data, it's true with Dupixent, Fasenra, et cetera. After 12 months, you're losing around 2/3 of them. So -- and of course, if you're not adherent, you are put on a biologic for a reason. And if you're not adherent, then you have a higher risk of an exacerbation and subsequent ER visit, for example. So for us, there's a clear opportunity here for ATP-driven administration with long intervals between dosing and a strong efficacy that's associated with that. The market research is very, very consistent. This is probably the most market research product in GSK. And yes, 86% of pulmonologists say this could be a new standard of care when we show them the target label and 82% of pulmonologists said they would consider using this product ahead of other MOAs. So our strategy is very simple. We will be focusing on the naive new patients that are first going on to biologics. Emma Walmsley: I think this is just an extraordinary opportunity when you see the material difference in compliance the material reduction, 72% reduction in the kind of attacks that cause hospitalization and consequently, a very significant cost sparing benefit for health care systems in such a scale disease as asthma. And then, of course, we're very excited about taking depe into COPD and other indications, too. Operator: Next question comes from Luisa Hector from Berenberg. Luisa Hector: And maybe I could take this chance, Emma, end of an era. So thanks to you on behalf of all of us, many insightful conversations and I think many significant achievements whilst navigating some of the challenges. So thank you very much. And my questions would be on business development because we've seen a very neat series of small deals. So where are we now in terms of appetite capacity for the next round of deals and any changes in terms of size or area phasing, et cetera? And perhaps a quick check on the comments you made on J&J and rilpivirine. Should we assume that they can now supply everything you need and that this would not be any kind of constraint when you get closer to filing and launch? Emma Walmsley: Great. Yes. I mean I think we are really supremely confident in our long-acting portfolio, both because of the momentum in the business and the prospects in the pipeline. I'll ask Deborah to talk about that. And in terms of Look, and once again, Luke and Tony and David have been all been co-architects of some deals that we are extremely pleased with the progress on. It's great to see 3 out of the 4 Phase III or the pivotal trials that are due to start at the end of this year are from deals that we've been very pleased to sign. We're thrilled with the discipline we've put through in terms of value and returns when we look at these deals, whether it's in the -- what's become more fashionable FGF21 market or indeed our ADC plays or of course, we're very excited to see what's going on in terms of pipeline development in China and thrilled to see where that partnership with Hengrui will do. And then, of course, once again, we added a couple more deals just this week in our earlier stage pipeline because we're all very focused and you're all very focused on the models of what's happening with the [ Core ] 15, but I know how much the team are also thinking about that next wave of development through the 2030s when we come out the other side of successfully digesting dolutegravir. So I think you should expect that BD will continue to be a very -- it's about half of our pipeline, and it will continue to be a very material contributor to our pipeline with a focus on RI&1 and onc and the kind of scale and pace. But we're always going to be looking out at things and review it very, very regularly. And obviously, the market stays competitive, and we're right in the middle of that. So not much more, I think, to add on that. But let's get back to long-acting. Now 1/3 of our -- or 30% of our business in the U.S. already. So Deborah, do you want to talk about that and the pipeline question? Deborah Waterhouse: Yes. Thanks, Emma. So just to start, delighted with the Cabenuva performance, 75% growth in the quarter. And actually 75% of our Cabenuva switches now come from competitors. And our long-acting injectable performance is at the heart of why we've been able to upgrade our HIV guidance this quarter. So let's just talk a little bit about Q4M. So our Q4M QUATRO Phase III study start is going to be delayed into H1 2026, and that's due to a delay in the delivery of recovering clinical trial supply by Janssen. There is no ongoing issue, which would cause us anything but complete confidence from Janssen. They're a great partner. This is just a one-off. I think the key thing to communicate is that this is a clinical trial, supply delay is not related to efficacy or tolerability concerns at all, and we remain committed to 2027 file and 2028 launch of Q4. We've looked over the financials and there's no material impact on outlook from the delay because we've got Cabenuva in the market already, and that product is performing so well. Demand is high. We've got really fantastic momentum. And whilst we're disappointed, obviously, not to be able to launch Q4M at the end of 2027, as we originally said, actually, this is a marketplace where there's no competitor for a long, long period of time. So we are the only long-acting injectable in treatment, and we're going to remain that way for the foreseeable future. Cabenuva will power on, and we will do everything we can to get Q4M into the marketplace as soon as we can. And then obviously, we've got Q6M coming next year. We will be doing our regimen selection for Q6M, and then we will be launching that asset as the next phase of our long-acting injectable journey. Emma Walmsley: It's just so important to remember that we are the only one on the treatment market for a very long time ahead, and that is a business that continues to accelerate momentum. Deborah Waterhouse: And there are obviously, Emma, as we've seen ourselves, some sort of bumps in the road of long-acting injectables that we and our competitors experience. So I think it's just a complicated area, mainly around CMC. But in terms of the patient benefit, really significant and the demand from patients is also very material. Operator: Next question comes from Sachin Jain from Bank of America. Sachin Jain: Just a follow-on actually to the Q4M question. So thank you for that update, Deborah. I wonder if you could just talk about the commercial impact of delay relative to Gilead's weekly oral len plus islatravir, which is probably 6 to 12 months ahead. We hear mixed KOL feedback on weekly oral versus Q4. Secondly, I wonder if you could just update on U.S. policy. So any color you're willing to give on ability to do a deal with the administration given your high Medicaid exposure? And then how is dialogue around IRA going? And then just one quick clarification, if I can chance my arm for Luke as a follow-on to earlier question on BLENREP depe. Clearly bullish commentary, Luke, but just trying to triangulate versus '26 consensus for both, which is around GBP 200 million. I know it's a tough question, but any color directionally would be helpful. Emma Walmsley: Luke, do you want to say anything on that? Luke Miels: Look, I would just say these are big assets in the long term. I can't give any sort of color, but clearly we're going to approach both assets very aggressively. And I would just point to the performance in Nucala COPD, where in May, we had 0% market share, and we've now got 46% of those new patients in COPD against Dupixent. That's not a read across depemokimab. It just tells you that the team is very effective at executing, and we're going to be focused on that asset and BLENREP already in the field and receiving very good feedback. Again, it's going to be more of a stage process to give people experience and confidence to use the product more broadly. Emma Walmsley: Great. So on MFN, I'm not really going to give any more detail or get ahead of anything, except to say, as you would expect, we're engaging, as I've said, very constructively with the administration. Medicaid is 10% of our total U.S. business. I'm really confident in our ability to navigate this over the last 4 years through a variety of different environments. The strength and quality of our portfolio has continued to allow us to do repeated upgrades and navigate through these kinds of challenges. The U.S. is our #1 priority market. We've committed to very material investments there. And we fully agree that we should be partnering and working towards being in a place where step change innovation can be made affordably available and sustainably available for innovators to American patients. And we also fully agree that we'd like to see all countries recognize the value that innovation can bring -- to bring down the demand care on health care. So the demand, sorry, curve and therefore, the cost on health care. So continue to engage here and we'll keep you updated and very much bearing in mind and sits with a strong underpin to our confidence on our outlook overall. You mentioned IRA. I think Luke already said it. We're very pleased to have concluded the latest rounds of IRA negotiations and all fully factored into our outlook. So nothing more to report on that. And on islatravir, I think that is an important point to remind people of. Deborah Waterhouse: Yes. Thanks, Sachin. So there is an expectation that LEN plus islatravir will launch in 2027. All of the research that we have done indicates that the once weeklies will cannibalize other orals. And actually, there is on that particular asset, a bit of a mixed view, firstly, because of the history of islatravir and the CD4 depletion. But secondly, I mean, we absolutely believe that you need to have an integrase at the core of any 2-drug regimen, whether it is an oral weekly or a long-acting injectable because integrase have got incredible potency, tolerability, high barrier to resistance and 78% of those people who are on treatment today are on an integrase inhibitor because they are the cornerstone of HIV treatment. Now we know that obviously, the other once weekly from our competitor, which is the prodrug of LEN and an integrase inhibitor is on clinical hold. So again, you've just got the islatravir plus the lenacapavir option in '27, and we don't think that's going to be a challenge to our Q4M, one, because the long-acting injectables is a very unique value proposition; two, because we've got an entity at the core of that particular regimen. So we're feeling very confident about our ability to keep driving our HIV business forward and growing strongly and helping GSK navigate through the loss of exclusivity of dolutegravir. Operator: Next question comes from Simon Baker from Redburn. Simon Baker: Two, if I may, please. Luke, going back to something I asked you on the BLENREP call on Friday around the 2031 target. Back in '21, you gave a number of peak sales estimates for products in RSV, BLENREP, Juluca and Jemperli. You've reiterated the EUR 40 billion target. I just wonder if you could give us thoughts on the pushes and pulls. You always said that there were a lot of factors going towards the aggregate figure, but just a check on where you see the pushes and pulls there would be very helpful. And then for Deborah on HIV and the Q4 slight delay, that pushes it a little bit closer to the Q6 launch, but not materially so. So I'm guessing you've always thought that it's not one duration fits all. I just wonder if you could give us some thoughts on how the long-acting market will pan out with the various injection duration options that you will be offering? Emma Walmsley: So I'm going to come to Deborah first on this. But also -- and I will turn back to Luke. But just to be clear, as we've already said, it will be beginning of next year when Luke will give an outlook for '26 and more likely much later in the year when he will talk about the building blocks to deliver on more than 40 and his more than 40 in 31. So I just want to give Luke the permission not to get into detail of the ups and downs as the portfolio continues to mature. But Deborah, let's come to you first. And Luke, if you want to add anything to that, then I'll let you. Deborah Waterhouse: Thanks for the question, Simon. So with Q2M, 15% of patients would be willing to take that regimen to treat their HIV. When you get up to Q4M, it doubles to 30%. And then when you get to Q6M, half of the people who are living with HIV and all of our research say that they would be willing and keen to take a 6-month long-acting injectable. Within the research, though, and with physicians, too, you are right. Some people say, actually, I would like to give Q4M to my patients on an ongoing basis because I like to pull them back into the doctor's office 3 times a year to have viral load testing, sexually transmitted disease testing and all the things that they do to care for their patients. Others are very keen to see that their patients go to Q6M. So there will not be one size fits all, but what there would be is a market expansion that is significant as we extend the duration between administration from 2 to 4 to 6. And obviously, when we get to Q6M, it's a brand-new set of medicines because you've got the third-generation integrase inhibitor, VH184, which has a unique resistance profile and is a third-generation integrase inhibitor. And then you have a capsid inhibitor or N6LS depending on which regimen we select for our Q6M, and it's great to have options. So feeling very bullish about the future of Q6M, but also see a place for Q4M as patient choice remains critical. Emma Walmsley: Thanks, Deborah. Luke, any comments you want to add? Luke Miels: Thanks, Simon. I mean I would just say, again, confident overall in the late-stage assets. And yes, we look forward to updating everyone with the team next year. In terms of BLENREP, I mean, look, it's going to be material. I said that over the next couple of years. And the key is obviously the initial launch and then the pathway to second line, which Tony is very much in hand and the usual pushes and pulls with competitive data sets. Operator: Next question comes from Sarita Kapila from Morgan Stanley. Sarita Kapila: Thanks for the color on Nucala. I was just wondering if we could have a little bit more on the rollout in COPD, how the launch is going versus your initial expectations and where you're seeing the most use? Is it in the 150 to 300 eosinophil group? Or is it in the over 300 where it would be more head-to-head with Dupixent? And then the second one on Jemperli, please. It seems to be a very strong rollout in the U.S. or momentum in the U.S. How penetrated are you now in endometrial cancer? And is this momentum sustainable into 2026? And should we think about Jemperli being able to get to your guide of over $2 billion in the existing indications? Or would you definitely need the pipeline to hit that? Emma Walmsley: So we'll come to Luke on both Nucala and Jemperli, but I think it would be good as well when we've heard on the Nucala launch, just to hear a little bit from Tony because I think we are all want to know, we're all getting more and more ambitious on the portfolio for COPD, whether that's depe or the other assets that we're bringing forward. I know when we announced the deal we just did, the statements that it's going to be the leading cause of hospitalization in coming years. And we're talking about hundreds of millions of people. So this is really a scale disease where we have a lot of expertise for the pipeline coming forward. But in terms of what's in hand right now, do you want to comment on Nucala and? Luke Miels: Yes. I mean -- thanks, Sarita. It's broad. I mean when I was talking to the BU head in the U.S. about this, he said broad several times, broad label, broad uptake, broad resonance. And I mean, another market research point that's interesting is 9 out of 10 U.S. pulmonologists strongly agree that preventing severe exacerbations is essential to COPD management. I'm not sure about the 1 in 10. I don't suggest you go and visit them. Yes, clearly, it's landed well. But as I've said on other calls, this is a population of prescribers that only use it in 1 in 3 patients for many reasons. So that is just a balancing caution, but how we're going against Dupixent is very encouraging. Yes, it's across the label, both bronchiotetic emphysemia and different EOS levels. Tony Wood: Just moving on and on Jemperli. In terms of endometrial, obviously, we're pleased that we have the only and first label with dual primary endpoints of PFS and OS and endometrial cancer. We're following that up with a study called DOMENICA, which is looking at evaluating gemperirdine a chemo-free regimen. Importantly, as well, obviously, the rectal studies continue to progress well, where we have fantastic complete responses. Just a quick reminder on some of those programs for you, AZUR-1, which is the locally advanced MSI-H rectal results, which we're expecting to read out in the second half of '26. AZUR-2, which is colon cancer, and there's an interim for that in '28 and the JADE study, which is in the unresectable head and neck setting for which we're also expecting readouts in '28. So lots of momentum going around Jemperli to continue to support the growth of that medicine. Emma Walmsley: Anything you want to say on COPD? Tony Wood: On COPD, just look, I'm delighted with where our COPD portfolio is currently sitting. You may have noticed we have now 3 Phase III studies starting in COPD. There are the ENDURA-1 and 2 studies in the more typical COPD population and a study called VIGILANT, which is looking at earlier COPD patients. These are individuals who are not treated typically with bios, but for which they have secondary factors. that predispose them to rapid progression. Coming along behind all of that solidly is the long-acting TSLP and IL-33 options. And as Emma has mentioned, the ongoing option in PD3/4 and the latest deal that we have with Empirical that was announced this week with an entirely new novel mechanism, which is [ oligo-based ]. Luke Miels: Yes. And Sarita, back on your question on Jemperli and endometrial. And I think the good news overall, if you just look just in the last 12 months, you've gone from 80% of ONK using IO typically in endometrial to now 96%, which is great. 90% of these patients are now on some form of IO. For us, there are clear opportunities if a physician can accurately cite the RUBY overall survival figure, then the likelihood of using the drug is double that versus someone who can't. So that's our focus is the DMMR population. We do have the broad label, of course. MMRP tends to be more dominated by pembro. But globally, there's about a 5% difference in market share in our favor against pembrolizumab, which is very encouraging. Emma Walmsley: Yes, lots coming on. Operator: Next question comes from Zain Ebrahim from JPMorgan. Zain Ebrahim: This is Zain Ebrahim from JPMorgan. So my first question is on BLENREP. You talked about it, but you mentioned that you expect to see a material growth driver over the next 3 to 4 years. So how much of that growth do you expect to come from the U.S. based on the current label versus ex U.S.? And how much of that is driven by the expected indication expansion in 2028? That's my first question. And my second question is just on general medicines. It sounds like the Trelegy IRA negotiation was in line with your expectations. So how are you thinking about the development of general medicines over the midterm? Emma Walmsley: Yes. I mean, on GenMed, we're not going to change our '21 to '26 guidance, which we upgraded slightly because of the operating performance. So there's no more update on that. And I'm not sure, Luke, how much you want to itemize. I know Darzalex is about half x. Luke Miels: Yes, that's right, Emma. I mean, I think, look, the priority is to get to second line in the U.S. to match the rest of world label. The U.S. initially will be ahead of Europe because we're launching. But as markets like Germany and Japan come online, that should balance out over time. Emma Walmsley: Yes. And I think as Luke can tell you went through in great deal of detail on the calls. There is a material opportunity in third line, and we have a good pathway to getting to second line. And in fact, studies planned, as you all know, in first line, too. So I think this is definitely one to watch as part of our broader oncology portfolio, which continues to build. So look, I just want to say one last thing because I know that was our last question, and we went -- because we had a technical issue, I think, at the beginning, so apologies if you were made to wait. You do know this -- I know this is my last quarter to report as CEO. And I do want to just take a moment to thank everyone on this call for your time and engagement with me and most of all, with this tremendous team who over the last 9 years together have transformed our great company's performance, pipeline and prospects. And in doing so, we've set out a clear pathway for patient impact at serious scale, already 2 million -- 2 billion, sorry, people around the planet. And I firmly believe that GSK's value for shareholders will be fully recognized and sustained. And when you step back and reflect, it's really hard to think of a sector that matters more than ours, where innovation and trust really can change people's lives and drive sustained performance and value for shareholders. And all of us, whether it's those of us here in this room or everybody on the call, well, we're all part of a really extraordinary incredible industry, and it's a privilege to be part of it, and it is not a responsibility to leave lightly. I am so delighted and very proud to be passing the baton to Luke and to be leaving all that GSK has to offer in such fantastically good hands. So I just wanted to finish up the last time wishing everybody listening in just great good fortunes for the future. And I, of course, look forward to cheering Luke and all the wonderful people working at GSK to a lot of further success as they combine science, technology and their talent to get ahead of disease together. Thank you all very much. Luke Miels: Bye-bye.
Operator: Good day, everyone, and welcome to the Opera Limited Third Quarter 2025 Earnings Call. [Operator Instructions] Please be advised that today's call is being recorded. [Operator Instructions] I would now like to turn the call over to your speaker today, Matt Wolfson, Head of Investor Relations. You may begin. Matthew Wolfson: Thank you for joining us. This morning, I am joined by our CEO, Song Lin; and our CFO, Frode Jacobsen. Before I hand over the call to Song Lin, I would like to remind you that 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 the safe harbor statement in our earnings press release, as well as our annual report Form 20-F, including the risk factors. We undertake no obligation to update any forward-looking statement. During this call, we will present both IFRS and non-IFRS financial measures. A reconciliation of non-IFRS to IFRS measures is included in today's earnings press release, which is distributed and available to the public through our Investor Relations website located at investor.opera.com. Our comments will be on a year-over-year comparison unless otherwise stated. With that, let me turn the call over to our CEO, Song Lin, who will cover our third quarter operational highlights and strategy, and then Frode Jacobsen, who will discuss our financials and expectations for the remainder of the year. Song? Lin Song: Sure. Thank you, Matt, and everyone else for joining us today. These are certainly exciting times for Opera and for our industry. And while it's only been 2 months since our last release, it already feels like ages ago. The product opportunities around AI that we have been advocating and preparing for over the past years are coming to fruition, and I could not be more pleased about our strategic position in this rapidly evolving landscape. And while this is playing out, we combine our strategic positioning for the future with a healthy business that continues to scale faster than we have expected. I will start with some of the big industry things that have happened since we last spoke. First, the remedies phase between the U.S. DOJ and Google came to a conclusion in which it became clear that Google can continue to compete for U.S. traffic in the same way as other players in the broader and rapidly evolving content discovery landscape. While anything else would have been quite surprising, it was good to get clarity on that. Second, the broader recognition of the web browser strategic importance continues to increase, even if the opportunities for Opera might not be fully appreciated yet. Household AI names are investing heavily to expand their reach and knowledge about the fuller context of end users with the browser being the focal point of attention. Opera's advantage in this situation is our agnostic approach to the underlying large language models that powers our browsers. We believe in an increasingly broad landscape of AI services that assist users across a multitude of areas from information gathering to making purchasing decisions to producing content and performing tasks. We believe that these services all come together in the browsing experience, in particular, on computers where most of us are spending an increasing amount of time as more products and tools are becoming web-based. And crucially, we don't believe people will install one browser for each use case or each AI services. The browser needs to work across all platforms and its approach to assist the user has to be powered by the right tool for each job. That is where Opera Neon comes in as an early stage window into how we see the future of browsers. Office browsers are not AI professional windows nor are the tools to lock users into a specific large language model. Rather, we offer the most sophisticated alternatives targeted to a growing segment of users that care about the functionality of their browser. This includes how we integrate services, manage tabs and workspaces, optimize memory and battery utilization, not to mention the design and visual customizations. We differ from others in that our specialization is the browser itself, and we use that skill set to create the best possible AI experiences. We know that people are different and the one-size-fit-all system does not work for everyone. Our flagship browser, Opera One is carefully tailored for people who want to have the richest possible browsing experience, while Opera GX and Opera AL both rethink what browsers should be for their core audiences. All the Opera browsers ship with a free and advanced LLM agnostic AI solution. Opera One was the first of our free browsers to receive the new chat functionality. Opera Neon complements this with being tailored for the most advanced and demanding users out there, those who want to participate in shaping the future of web browsing and believe AI agents will be a core part of their experience when doing so. Those of you who have experienced the early release of the Opera Neon browser have seen how we believe AI can integrate into the existing workflow in a way that people are already used to working as opposed to existing within a terminal like process remotely operated in a server form. As we evaluate our strategic position, we take pride in the exceptional quality of our products and the rapid expansion of partnership opportunities. Such partnerships, along with the efforts of multiple niche players in term of promoting browser choice, significantly increased public awareness that alternatives exist. In an environment where more users are actively considering switching browsers, we are well positioned and eager to compete for the most discerning and demanding users, offering them innovation, reliability and a truly differentiated browsing experience. And while running at full speed to seize these opportunities, we are proud to have a already healthy financial profile of growth, profitability and ability to turn capital to our shareholders. The third quarter experienced year-over-year revenue growth of 23%, as always, all organic and compared to guidance of 18% to 21% growth. Our $152 million of revenue in the third quarter was a new record. And for the first time, our annualized ARPU crossed $2 per user, growing 28% year-over-year to an annualized level of $2.13. Our revenue outperformance leads to adjusted EBITDA of $36.3 million, also above the high end of our previously issued guidance and also setting a new quarterly record. This translates to an adjusted EBITDA margin of 24%, expanding versus the first half of the year as expected and marking our 18th straight quarter as a Rule of 40 company. As Frode will detail shortly, the Q3 results and trajectory with which we enter Q4 allow us to raise our revenue guidance well beyond the Q3 overperformance. Our updated midpoint estimate now exceeds $600 million and represents 25% growth for the year as a whole. Taking a step back, our 2025 guidance has reached nearly 4x the revenue we had in 2018, the year we went public, and our CAGR over these 7 years is 21%, another feat to be proud of. Our company was recognized by Fortune Magazine this month, which named Opera in its 2025 list of the 100 fastest-growing companies based on growth in revenue, profits and scope returns. I wanted to spend the next few minutes on the launch of Opera Neon and what it tells you about how we see the future of AI-powered browsing. Currently, Neon is a premium subscription-based browser that showcases our ambition to transform web browsing. Opera Neon implements native AI assistant functionality that can step in at any point in time as we browse. As you are logged into your services in the browser, Neon acts locally on your behalf and supports you with everything from deep research to new task such as filling out forms, comparing products across sites and acting as your personal assistant with the efficiency befitting a browser veteran. The key innovation is architectural. Instead of adding chatbots to existing browsers like some of our competitors, Opera built a task-based system where AI agents operate directly in your authenticated browser session. This overcomes the limitation of cloud-based AI tools and stand-alone apps. They cannot access your logged-in account or interact with real website. Neon can because it runs locally in your browser where you have already been authenticated. Benefiting from our task architecture, Neon is also able to define the right context for a given task without the need to access or upload the entire set of OpenTabs or your browsing history to a platform in the cloud. This is putting privacy first and represents another competitive benefit of Opera's architecture. We are also tackling the complexity that hinders broader AI adoption. With so many AI services and models, users struggle to choose the right tools. As a independent player, we are introducing a new interface where Opera Neon guides users to the right group of agents for any task. And while we are on the topic of agents, one of our own agent, Opera Deep Research is already scoring better than the deep research capabilities of those AI-first platforms as we showed in our press release last week. It shows the benefit of combining the strengths of different large language models as we do not invest in the already crowded LLM landscape. Opera Neon is a product tailored for the most advanced and AI-forward users, but our mission is to expand these innovations in our mainstream products such as Opera One and Opera GX. As we evolve our monetization of AI opportunities and our industry partnerships, we will be able to facilitate an increasingly advanced experience for our total user base, that's the future that we are really excited about, and you'll see us acting rapidly on those fronts as well. While I wanted to mostly focus today on how we see the AI opportunity, there are also other highlights worth mentioning. Last time we updated you on how far along we've come with MiniPay. Since we last spoke 2 months ago, MiniPay has grown the number of noncustodial wallets to over 10.5 million, up from 9 million during our last report, while the number of transactions has increased to almost 310 million from 250 million as of this morning. We are building MiniPay with multiple use cases in mind. Building upon the power of stablecoins, it can allow immigrants working abroad to quickly and cheaply send money home. It allows the traveler who does not have access to local payment rails pay like local and can even facilitate payments to global freelancers in USD. We are a deep believer in how new technology can be used to facilitate transformation and have an exciting pipeline of partnerships and product features that we plan to launch in this space. Finally, I'm going to briefly touch on Opera GX, the browser for gamers. We ended the quarter with 33 million users, up 3% year-over-year and with a new ARPU record of $3.69 on an annualized basis. Opera GX has recently expanded its offering with exclusive in-browser gaming deals and introduced advanced features like smart home integration designed for tech enthusiasts seeking seamlessly device control. The browser also continues to enhance its AI capabilities by deploying faster, more powerful models, further improving performance and user experience for the gaming community. Lastly, GX modes allow users to personalize their browser even further, including animated courses for a highly customized and immersive experience. We are also excited about our continued sponsorship of the League of Legends World Championships currently underway. To conclude, I'm incredibly excited about our ability to innovate and take our browser offering to the next level. And at the same time, while it always feels like the future can't come fast enough, we also take pride in running a healthy business with solid revenue growth and profitability that directly benefits our shareholders through our recurring dividend program. Opera shows that it's possible to combine growth and strategic potential with healthy financials and meaningful return of capital to shareholders along the way. With that, I will now turn the call over to Frode to go into the financials in more detail. Frode Jacobsen: Thank you, Song. We are very pleased to report that the momentum in our business continues to outperform even our most recent expectations. Our third quarter hit a new milestone by exceeding $150 million of quarterly revenue coming in at $151.9 million, and we also reached our highest ever adjusted EBITDA at $36.3 million. Both came in above the high end of our guidance ranges and both come as a result of scaling new revenue partnerships, while also expanding browser classic revenue such as search. This quarter, we introduced a slight change in our revenue categories by reporting on total query-based revenue, which largely consists of the old revenue category search, but also includes revenue generated by other user prompts where we see increasing opportunities to monetize as we scale our business. For example, if the user has a dialogue with our AI assistant Aria and follows a paid recommended link or starts typing a search query in the URL bar and elects to follow an offer recommended partner listing from the drop-down menu. As a result, the new query revenue category includes the total of our potential ways to monetize a user's intent for online discovery. Advertising revenue in comparison is more lean back on the part of the user where we serve ads and promote partners that we think the user will be interested in, but without the user explicitly querying it. Our quarterly revenue, query revenue was $55.6 million, which represented a year-over-year increase of 17%. The old search category was the predominant component at $52.4 million, which represented 13% year-over-year growth and accelerated further versus the prior quarters, as well as the other query monetization that amounted to $3.2 million and tripled versus the year ago period, which has now been carved out of the advertising revenue category. Advertising revenue, net of the query monetization, as previously described, grew 27% year-over-year to $95.9 million. By the former definition, advertising revenue would have grown 29% year-over-year to $99.1 million. Once again, e-commerce was the primary driver of our advertising revenue growth, now representing about half of our advertising revenue and setting us up well for new records in the holiday season. Q3 costs came in according to our previous directional commentary. Cost of revenue items combined reduced slightly as a percentage of revenue versus the first half of the year and amounted to 34.6% of revenue, which was within the indicated 34% to 35% range. With the strong underlying performance, we allowed marketing to expand from $34 million in Q2 to $36 million in Q3, with a continued focus on the highest ARPU potential users, though remaining in the mid-$30 million range as indicated. Similarly, we recorded cash compensation cost at the higher end of the indication, predominantly as a result of increased provisions for annual bonuses in light of our trajectory, but also reflecting the weakening of the U.S. dollar versus our main salary currencies. Taken together with the sum of all other OpEx items pre-adjusted EBITDA showing a slight sequential decline and the revenue overperformance, we were still able to exceed our range for adjusted EBITDA. Our operating cash flow was $28 million in the quarter, representing 78% of adjusted EBITDA. Free cash flow from operations came in at $21 million or 59% of adjusted EBITDA. As always, we expect continued fluctuations in cash conversion on a quarterly basis due to impacts of seasonality and operational variations. Overall, we maintain a solid financial position with cash at $119 million, no financial debt and underlying cash generation well in excess of our dividend payments. Adjusted diluted EPS was $0.30 in the quarter, representing a relatively stable margin at increased scale. Now turning to guidance. For 2025 as a whole, our trajectory and the resilience that it has shown allows us to significantly raise our expectations for the year, continuing the trend from prior quarters. We now guide revenue of $600 million to $603 million or 25% growth over 2024. This updated range starts above the prior high end of guidance as we add an additional 2 percentage points of expected full year growth. Our guidance implied a further acceleration of annual revenue growth from 20% in 2023, 21% in 2024 and now 25% at the midpoint for 2025. Similar to before, given the hockey stick growth of the second half of 2024 and Q4 in particular, we have based our guidance on sequential modeling. The raised estimates capture the Q3 overperformance and adds a further incremental expectation to our Q4 guidance, resulting in a continued increase in our sequential growth rate. As before, this results in a relatively stable trend of quarterly revenue growth measured on a 2-year CAGR, which captures the scale we have built in recent quarters, while also evening out the growth profile. In terms of adjusted EBITDA, we lift the range to become $138 million to $141 million for the year as a whole or a margin of 23% at the midpoint. This reflects a continued expectation that the percentage margin in the second half of the year will stay about 1.5 percentage points above the margin in the first half, even as the weakened U.S. dollar relative to other currencies continues to represent a headwind. Apart from such fluctuations, we see cost of revenue items stabilizing as a percentage of revenue and economies of scale continue to benefit us as an underlying trend. Cost-wise, we then implicitly guide to a full year OpEx base pre-adjusted EBITDA of $461 million at the midpoint. For the year, we expect the cost of revenue items combined to come in at about 35% of revenue following the continued growth of Opera Ads. Other cost items grow at a lower pace than our revenue and thereby reduce as a percentage of revenue relative to 2024. This includes marketing costs, which we expect to grow at high single digits from 2024 to 2025, compensation costs, which will increase just over 10% and the sum of all other OpEx items pre-adjusted EBITDA will likely remain quite stable at the 2024 level. In line with this, we guide Q4 revenue of $162 million to $165 million, representing 11% to 13% growth or a 2-year CAGR of 20% at the midpoint and Q4 adjusted EBITDA of $37.5 million to $40.5 million or a 24% margin at the midpoint. Within the implied quarterly OpEx base of $125 million at the midpoint, we expect that cost of revenue items as percentage of revenue will be similar to the third quarter at about 35%. We expect marketing costs to increase by $2 million to $3 million relative to the third quarter, and we expect cash compensation costs to remain quite stable. The sum of all other OpEx items pre-adjusted EBITDA are expected to tick up such that the second half of the year as a whole becomes comparable to the first half as a whole. All in all, we find ourselves in a great position as we enter the seasonally strongest fourth quarter, and we are excited both about our commercial opportunities, as well as the broader strategic picture. With that, I'll turn the call back to the operator for questions. Operator: [Operator Instructions] We'll take our first question from Naved Khan with B. Riley Securities. Naved Khan: Great. A couple of questions from me. Maybe just on -- starting with Neon, been around a month since you took it out of the closed beta and opened it. Just curious about the traction you might have seen with it in terms of people who have signed on and how is the wait list for the product and how quickly you're moving through it? And also, maybe just talk also about the go-to-market strategy for Neon, both in terms of paid media and unpaid media and how do you plan to sort of drive the awareness for the product? The other question I had is around e-commerce. Curious about how do you see the growth in this line of business kind of sort of evolve going forward, not just necessarily in Q4, but actually more in 2026. How should we think about that? Lin Song: Yes. So, yes, it's Song here. I think I'll just first answer the Neon question and then Frode can also comment a bit on the e-commerce one. So yes, so, Naved, as also mentioned a bit on the script, very excited about the launch. Yes, more like at this point, of course, it's still invitation based because I think our philosophy that in the beginning, it is very important to have a group of founders that we want them to be closely working with us on potential features and also the direction of the products what they need among others. So, we are very excited to form this very close group that we can work with for the next months to come. And I think there will be also a key base for the future Neon programs. So, I think that's also why our intention that we make this premium invitation-based product at this point. But you're also right that I think within the next 1 or 2 months, we will also open up to the broader public and also receive even more interesting advises and also product developments. So I think that's, in general, how we see Neon. And then maybe also super quickly that I saw you also asking questions about go-to-market and then a few others. So, I guess for us, it's a bit slightly different, I guess, from some of the competitions that, of course, we are -- I think more like anything in the browser field offer is a household brand name. We have a relatively big already audience, and then we have a very mature way of marketing. So, I think for us, probably we think slightly less about a particular way of go-to-marketing, but instead of thinking of how we can engage all our existing user base and then how we can find out some of the audience, which will fit them more with Neon and how we can also position Neon together with other free offerings. So, I think that's for now how we think about it. But overall, I think Neon has been extremely well received. We saw many media coverage. We saw more than 1,000 articles and it keeps coming. And even on the surprise that even though we are still on the invitation, we saw a very good coverage. I think just today, I also saw some other medias publishing very favorable announcement of when they try Neon. The operator is by far the most efficient and the type architecture they also appreciate. So overall, quite excited about the launch, but I think this is still very early stage. We will excited even more how can we take it further. Frode Jacobsen: And now I can chime in on the e-commerce part of the question. I think we, of course, find ourselves in a very good, nice situation where the e-commerce revenue streams have scaled extremely rapidly now over the past 18 months, still approximately doubling at a year-over-year basis this far into growth spur. The nice thing I would say is that I believe we are still under-indexing in terms of e-commerce as part of the advertising -- online advertising markets overall and perhaps for the browser in particular, which is so well suited to promote e-commerce partners. Operator: We'll take our next question from Ron Josey with Citi. Ronald Josey: Maybe a quick follow-up to Naved as it relates to Neon browser and adoption trends. I think Song, you mentioned on the call, it's tailored for the most advanced users. Just in this first wave, just talk to us a little bit more about the behaviors that you've seen from these users. Anything stood out, what you've learned here as you go to general market or call it, open it up to beyond just the invite list. And then on commerce specifically and not as much on the e-commerce side, but just I wanted to get your thoughts on Agentic commerce just as checkout mechanisms change as MiniPay becomes a bigger part of the business. But help us understand how you're thinking about Agentic commerce going forward. Lin Song: Yes, it's actually -- it's something else I think I'll cover a bit. It's also some of very interesting discussions in the market there. So, first of all, just talk about Neon. I think for now, actually, it's really well to get all those user feedbacks. So I think as also mentioned about earlier that I think for now, our strategy is really -- we are not really super eager to get so many users because we do have massive amount of users using us anyway, but more important to us to form a close community and hear their feedback on Neon and in particular, Agentic browsing. So yes, we have received a very good feedback. For instance, one thing I would say stood out is that it's also in relation to what we also call out later about Agentic e-commerce, right, that I think for now, everybody feels that it is definitely the future that imagine the future that you don't really have to spend too much time on browsing, but simply ask agent to browse for you to buy books on Amazon to buy shoes among others. So, it is definitely working as of now. That's actually one of the major use cases that we saw happening on Neon that people actually use it to buy a lot of interesting content e-commerce wise. And for us, I would say what I think we stand out and what we also be proud of is the efficiency because there are some other Agentic solutions out there, you can try yourself, right, which is rather slow and sluggish. And -- but even more important on the back end is that I think many of them using -- have to rely on visual models, which are very costly that they almost cost 10x more tokens or whatever and also being slower, right? So I think what we have been extremely happy about and also what our focus is, is that how can we use capability of a browser because at the end of the day, browser have access to all the layout doom trips in a technical sense and how we can even use text to be extremely efficient to analyze all those elements and to move forward. So, I think that's so far what we have been probably received the most praised that we are able to execute those task very efficient, faster than others. And also people may not realize also that because of the past architecture, we are able to do this like we are able to execute multiple tasks as well, right, which is a better architecture than many others. So, this is what I'm really feeling proud of and user are appreciative, even though sometimes maybe some users feel that sometimes we can, of course, by design, be slightly more aggressive, partly just because we want those advanced users to influence what the agent can be doing, right? But this is actually in connection with your other question that -- I think our view is just that for now, agentic is definitely the future, everybody see it, but it's still not as efficient as a real human being, right, because it takes too long to do any transactions. However, we believe that within a shorter time frame, maybe a few months' time, hopefully less than 1 year that the ways the work like us and others, there is possibility to make sure that in certain task that agent will perform better in the browser other than the human be more efficient, and that will be the point where we will see more and more of those, I would say, agentic e-commerce coming along. And like I think also touched base on the cost part of it that -- at least for the architecture that we are using, it's actually very cost efficient without need to quote the exact numbers. I think -- for now, what we see that the cost of the agentic browsing due to e-commerce is actually very reasonable compared to the amount of the money that people will spend. And even if you compare to the commissions compared to whatever we can earn as an advertiser, it still leaves a big margin for us to be able to use agentic e-commerce to help move this forward. So, this is actually something which we also spend a lot of time on and it's very important for us. And I think in some cases, we may be 10x more efficient than our competitions, which we are quite proud. And I think this is also a major base of potential agentic e-commerce in the future. That being said, there are some other considerations that we're also closely following up. I think reason just because we are not only an agentic browser company, we are also advertisement company, as you see, that will grow very nicely of e-commerce. So, there are certain concerns, I would say, from e-commerce players that maybe some of them do not want to just be a pipe, right, that they do want to also have a better exposure of the goods and e-commerce, even in the agentic browsing scenario. So I think that's also something maybe we are a bit differentiating from others that we also take this into consideration that we also make sure that our partners do not end up as a pipe, but rather that they also end up as an interesting destination that not only agent but the audience can also have a chance to see and browse through all the different groups and perhaps have more selections. So, yes, so I think this can be too long discussions along the way, but it's definitely very interesting to see how this evolves. Operator: We'll hear next from Eric Sheridan with Goldman Sachs. Eric Sheridan: Maybe if I could squeeze in two, we continue to hear a fair bit around the overall macro environment and how it might be impacting digital advertising. Would love to get your sense across your array of advertisers, how you would characterize the current demand environment and how you're thinking about that environment sort of evolving in the forward forecast. That would be one. And then two, coming back to MiniPay, can you talk a little bit about how you see that building in terms of scale as we look out to 2026 and beyond? And how you think that will tie into the broader services layer of your offering in terms of driving overall ecosystem strength? Lin Song: Sure. So yes, it's something else. So, I think I will also try to answer that, and then Frode will also chime in for many insights on the advertisement and as well, right? So okay. So, I would almost say that I think in a broader advertisement scape, there are different changes and shapes and forms, right? But I would almost say that at least in the angle where we see e-commerce, especially performance-based e-commerce, the fact that it is actually tightly related to whatever -- more like the actual purchasing. For now, we definitely see from our end that it's still on a growing path. Simple fact has been that -- at least from what we can see users are more and more buying with partners like us, and they get very good recommendations since it's also performance-based. There's less concern, I guess, from advertisers of is there enough brand richness or whatever. So I guess that's why for us, at least we are growing more than 100% year-over-year, and we see that trend definitely not slowing down, but rather continuous and very excited about it. That also fit into well with the agentic browsing scenario just because, again, it's performance-based, right? At the moment, it doesn't matter if you are a people or if you are an agent to bought something, I guess, some people are equally happy. So I think that is definitely positive. But more like -- on the other end, though, I do see that this is more like just a general feeling, right, that there are, of course, also discussions around, okay, now if the agents are doing a lot of stuff, well, let's say, traditional display advertisement or well brand or whatever still make sense and how is the best way to nail that because potentially, it's not real people, but actually agents who are doing that. I think that also posed some of the threat to some of the e-commerce players as we commented earlier that for them, of course, it's very scary if they end up at the end of the pipe, right, if they end up as only as a good delivery storage house or whatever, while all the others are taken by the other AI players if someone just directly use AI to direct a purchase or whatever, right? So, we see those things. So -- but that being said, I would say that actually put browser into a very good position because unlike at least some particular AI chat clients, we – our browser at least make sure that all the web pages and all the goods are showed up in front of people and even in front of agents for that sake so that there are enough exposures of those things, which can be immersive as well. So, I would almost say that at least we saw potentially at least benefit impact of for the browser players, while I would imagine that for some of the pure chat-based e-commerce solutions that might actually cause a issue for some of the ad players. So that's how we see it. But again, we can have longer discussions along the way. And then super quick for MiniPay. Yes, like I think, indeed, our feeling in that, of course, stablecoin is definitely going, it's definitely staying and it's growing strong. And also, it actually helps facilitate large part of payments even fit into agentic scenarios it's just because it's very naturally fit into agentic scenarios where all -- like everything can be combined. So we do have that as part of consideration. For us, I think maybe the only comment would just say that I think we will hopefully land some bigger partnership discussions and bigger cooperation with industrial players in stablecoin field in certain areas and markets to drive both adoption, but also hopefully to have even wider use cases like we commented about the local payments -- better integration with local payments, but also potentially integration with e-commerce and a few others. So, yes, so that is definitely coming. And we will -- yes, hopefully, there will be quite a lot of announcement in the next few weeks and months to come. Operator: We'll hear next from Mark Argento with Lake Street. Mark Argento: Just a couple of quick ones. Just turning back to advertising and the e-commerce opportunity. Could you just -- it's not still 100% clear to me what's kind of the gating factors are there in terms of the growth. Obviously, it looks like the business is growing extremely rapidly. But is it working with more e-commerce partners? Like what -- I guess, what are the mechanics there to better or to see additional growth or ultimately better understand that long-term opportunity? Frode Jacobsen: Yes. Frode here, I can start. I think we try to focus on the leading players by region and develop deep partnerships with them, and that allows us to really do a good job on targeting. All our revenue is performance-based. So there, we certainly share the interest on doing well. And then I think just to tie it a little bit to Eric's question before, of course, the year started out quite volatile in the macro-wise picture and also around the e-commerce. And then I think that we reflected by being quite cautious in our guidance as we progressed. And then I think the nice thing that we are reporting on today as well is that we are seeing the resilience in what we are building. We are sort of seeing a stabilization around this, and we're able to grow well in our key regions, Western markets driving our growth. Mark Argento: That's helpful. So, when you say working with partners, are those in particular, e-commerce, the bigger e-commerce players? Or is it brand specifically or both? Frode Jacobsen: It's the big players by region, so within the U.S., within Europe and Asia. Mark Argento: When you say players, I'm assuming you're talking about e-commerce vendors, the Amazons of the world or the Walmarts or those types of guys? Frode Jacobsen: Exactly. Mark Argento: Got it. That's helpful. And then in terms of more just kind of a couple of housekeeping things. Any update on OPay? I was digging around OPay, it's been a little while, I hadn't realized that the company hasn't really done any capital raising or really not a whole lot of activity, at least in the capital markets, the private capital markets since 2021. Still plans there in terms of an IPO? Is 2026 going to be the year? Any thoughts on that? Frode Jacobsen: Yes. I think updates on OPay, the company is doing really well. It's scaling rapidly. And as you say, it's been multiple years since their last real financing round, and they are essentially then operating also a profitable business. So I think that's a very good basis. We're very pleased with the company's performance. But for details, I think I'll have to leave it to them to control what they share about their business and when. Our strategy as a founding investor and no longer being operationally involved is that over time, we will monetize our stake in OPay, and it's very natural for us to consider that in the context of the company becoming public. In terms of timeline for that, again, it's not our decision, but we always think that or we think that the company is doing well, and it's definitely moving in the right direction. Lin Song: Yes. Maybe also I'll just comment -- maybe I'll just comment a bit that at least based on public information, right, you probably see that OPay is doing extremely well in Nigeria. It's by far the dominant players. By public information, you can also see that it is the -- very exciting to see that it is now the second most used DAUs. This is very unusual for a fintech app. So of course, very proud that we are able to incubate and support the company in early stage. But like, yes, as Frode is saying, the company is doing extremely well. It's very dominating in the area. So of course, as a shareholder, very happy to see if it's -- and will be supportive, if it's plans to also go on into further capital market-related activities, very excited. Mark Argento: Hopefully, hear more on OPay here soon. Operator: We'll go next to Jim Callahan with Piper Sandler. James Callahan: And I appreciate you breaking out the sort of other query revenue. Can you just talk about contractually how this revenue works and maybe just explain a little bit more about it at a high level? Frode Jacobsen: It shares the characteristics of search and that it's a revenue share models where we drive traffic to partners, whether it's a search engine or another partner and collect revenue share based on what the partner is then generating off that traffic. So, I think the reason we wanted to group this and create the one category is it's a much better view of our revenue mix in terms of what we monetize as a direct result of the user looking for something as opposed to the more classic lean back, as I said, advertising monetization. James Callahan: That's helpful. I mean it seems the growth has been pretty impressive. I guess where -- like how early would you say you are in kind of monetizing that opportunity? Frode Jacobsen: I think a lot of our strategy evolves around creating opportunities for user to essentially have a dialogue with the browser, whether it's the agent or integrating with Aria, as well as broader opportunities. So, we certainly think that both our key revenue streams, query and advertising have a great potential in terms of ability to scale as we keep executing on this. Operator: We'll hear next from Lance Vitanza with TD Cowen. Lance Vitanza: I have 3, if I can get them in. The first is back on Neon. And specifically, how should we think about competitive positioning there? I mean ChatGPT has Atlas, Perplexity has Comet. How does Neon stack up? And how do you expect the market to evolve in terms of how many AI browsers can the market ultimately support in your opinion? Lin Song: Yes. Okay. So, I will take this one. So yes, so like again, very interesting discussion. So okay. So I think our belief is like this, right, that I think we also commented a bit on the script that I think our strength fundamentally is that we are not a manage model company. We are not really -- we don't really see us -- I don't think actually all the see us also as competition. I think for us, the biggest strength will be that we are horizontal instead of vertical, right? So to us, it's about how we can work with all of those guys, both on the free browsers, but also Neon to provide the end user the best experience. For instance, yes, so like use different models to -- for different scenarios. So I think that is always our best approach. And we believe that there will be so many cases that users simply would not want to be locked into one single large language model when they are doing browsing. So I think that's definitely our competitive advantage on this that we are rather neutral. In the same way that even in days when we are integrating the search, right, we are not really buying into one player. And I think agentic are even much, much more actually afraid of locked in, I would say. So I think we are in a pretty good spot on that. And then -- but then in particular, right, I think there's also many different -- for instance -- for us, it's -- we talk about -- for me, for instance, if we talk about agentic browsing part, we focus about one efficiency because we feel that it's very important that the user can get results fast. It's very important that agent can achieve whatever needed to be done more efficient than human being, right, and cost with affordable cost and the ability that we are able to utilize different large language model in different cases to facilitate that is a big help. And then I guess the other thing, maybe I'll quickly comment is also again about privacy, right? That fact that we have a past architecture and the fact that we are not locked into any single large language model helps because there will be users which don't want to everything on their browsing to be logged by a particular large language model because this is very -- like it's very different when you chat something on it and everything go browsing with on it. And so that's why we actually designed in a very careful way that it's only a particular task particular context. We will use the context to give you best advice. And even that, we don't really upload all of those to a particular large language model or to your personal account, right? So I think there are plenty of use cases, we believe that we are better solution in those scenarios. And those are a few simple examples, right? And then just also to say that not only Neon, but also what we have on Opera One and Opera GX, the free watching are actually will be comparable to also those guys, maybe accepting agentic browsers, everything else, I think we will be comparable, even more efficient. And so all of those are actually important value propositions, I think, for Opera as a whole to facilitate the AI browsing. Lance Vitanza: Super helpful. So, then the next one is on MiniPay. Obviously, tremendous growth there in the past couple of months. Remind me, is there a plan to monetize that activity? Or is this just about capturing engagement and driving sort of user growth in the browser? Lin Song: Yes. So just to say that MiniPay, of course, are already revenue generating. It is actually due to some of our partnerships. It is actually have sizable revenue being generated. I think the only thing just to add at this stage, we probably would like to invest all the revenue back into marketing, both for promoting itself, but also for work with our partners, which we really think is -- some of them are very industrial important to further facilitate penetration, I would say, of stablecoin and Wave 3 technology into many regions that we would like to penetrate. So like when we talk about, okay, we had that experience in the past, which is super successful. And we think maybe there's something we can replicate or even bigger opportunities. So yes, so I think that's how we see it. Lance Vitanza: And then last one for me on GX. The user base has kind of plateaued there at 33 million. Is that a pause? Or has the product kind of matured? And we think out a year from now, should we think that the GX user base could it be notably higher at the end of next year? Or is this just 33 million is kind of where we stay? And then in that case, can we expect revenue will continue to grow in the face of a potentially flat user base? Lin Song: Yes. So okay, I think I'll also to this one and then Frode can also follow up, right? So okay. So, first of all, I think for us, of course, as a company, we focus a bit more on revenues and a bit more potential because I think fact has been add as a browser company, you have such a big user base compared to many others that sometimes we have been more disciplined, we focus a bit more on the regions and the areas where we can earn more money. So that's one. And then also just to say that, of course, we're actually also seeing very nice growth on Opera One because of AI. So that I guess some of the users, they might actually choose Opera One instead just because AI is so successful. And of course, to us, it doesn't really make a huge -- we just want users to choose whatever they fit into, whether they choose Opera One or GX, we have no strong fit in, right? And also some choose even Opera or Neon. So like GX is actually, I would say, one of the audience which are very AI saturated. So it's natural that some of them might also go to Neon, which I think we're all extremely happy about, we have no issue on that, right? So -- so that being said, I think there's definitely still growth potential for GX. There's many interesting regions that we are wanting to go into. There are many activities that we are also planning around Neon and product launches. Also with the AI upgrade, I think it will bring GX to be also as sophisticated and maybe as Neon and others will be. So there's many things -- many interesting aspects ahead that we are very excited. So I think we still remain very positive about the GX. Lance Vitanza: Oh and congrats on the becoming CEO. I mean, a long overdue, but it's great to see that recognition. Operator: And with no further questions in queue at this time, I'd like to turn the floor back over to Song Lin for any additional or closing comments. Lin Song: Yes. So okay. So like guys, thank you, everyone, for joining us today. I think as you guys see that we're very excited. We have been looking forward to sharing those updates with you on the product launches we have been seeing, but it's also good to share all those financials. And as mentioned, we will keep you posted with both even more product updates and also hopefully, even better financial releases as we continue our journey. Have a good day to you all. Operator: Ladies and gentlemen, that will conclude today's event. Thank you for your participation. You may disconnect at this time, and have a wonderful rest of your day.
Salvador Villasenor Barragan: Good morning, everyone. I'm Salvador Villasenor, Head of Investor Relations at Walmex. And I want to thank you for joining once again to our live Q&A session following our third quarter results, which were published yesterday evening. As always, we will make every effort to answer as many questions as we can in the 45 minutes we have scheduled for this call. [Operator Instructions] I will now hand over to our recently appointed CEO and President of Walmart de Mexico y Centroamerica, Cristian Barrientos, who will present the team and give his initial remarks before going into the first question. Please, Cristian, go ahead. Cristian Barrientos: Thank you, Savor, and good morning, everyone, and thank you for joining us today. We're hosting this live Q&A from Costa Rica right after our Board meeting yesterday. I am here with Paulo Garcia, our CFO; with Javier Andrade, our recently appointed CMO for Mexico; and Cristina Ronski, our CEO for Walmart Central America. Before we begin, I would like to share a few reflections from my first 90 days since rejoining Walmex now as the CEO. Over the past 3 months, I have spent time visiting many of our stores and distribution centers across both Mexico and Central America, and I have seen at firsthand how we are delivering our purpose. It's been energizing to see the evolution of the business since I left the region almost 3 years ago. Even more exciting are the opportunities that I see going forward. I'm convinced that with our renewed focus on the execution of our fundamentals, the strength of our people and the newly appointed leadership team, we are very well positioned to take Walmex to the next level. So now we are open to your questions. Operator: The first question is from Mr. Alejandro Fuchs from Itau BBA. Alejandro Fuchs: My question would be for Cristian, maybe on Bodega, I wanted to discuss a little bit some of the performance of this quarter, looking at same store sales per format, right? It seems that it's falling a little bit behind Sam's and supercenter in the context of kind of easy comps, right? So I wanted to get your thoughts on these first ones that you just discussed in Mexico. Coming back, having had a lot of experience with the brand for so many years. What are some of the strategies that you're thinking for Bodega maybe to grow a little bit faster its semester sales. And maybe you can share a little bit of the early strategy, maybe early findings that you're seeing at Bodega and how do you see it performing for the future? Cristian Barrientos: No, Thank you very much. And as we mentioned, Bodega performed in the quarter, a little bit behind Sam's. But we are seeing a really strong business in the 3 formats. We are seeing in this quarter evolution in terms of the relative performance against different banners, and we are seeing more than 20 weeks gaining share in Bodega. So we're confident that with the value proposition that we had in place are performing well. We have been improving. And as I mentioned in the webcast, we are very focused in things that we can control, means EDLP, availability and the evolution on demand. We see a ton of opportunities in all our business and particularly in Bodega, trying to create access to low-income customers to the -- to the prices that we can deliver for them. So we can accomplish our purpose to save them money and live better. So we're very confident with the future of Bodega and with our 3 banners that we have. I don't know if you have more to add there, Paulo. Paulo Garcia: No, I think it's okay. As you said, Cristian, I think it's -- we talk extensively about that, it's pushing the 3 priorities. Alejandro, it's about the pricing, the new investments. It's about actually availability, making the product available to the customer and accelerating e-commerce. And with that, I think we will continue gaining the trust and the preference from our customers. Operator: Our next question is from Mr. Ben Theurer from Barclays. Benjamin Theurer: I wanted to follow up a little bit on kind of like Alejandro's question, but more broader in terms of like the traffic versus ticket performance. And then at the same time, we've obviously seen a little bit of a weaker opening versus a year ago and particularly in Mexico. And I wanted to understand how you're thinking about the need or the opportunities to open stores if at the existing, you have like traffic pressure to a certain degree. I remember we got the announcement earlier this year during your Capital Markets Day about the commitment to open a lot of new stores over the next coming, I think it was 5 years or until the end of the decade. So as we think about it, the need to open stores, while at the same time, we're seeing at the existing stores traffic decline. With what you've seen over the last 90 days, and it might be early on, but do you think there's a need to potentially revisit what's out there in terms of like openings just to avoid cannibalization? And how should we think about the pace of openings throughout the fourth quarter and ultimately, those stores coming online that might be already under construction? Paulo Garcia: Yes, Ben, a very good question that you're putting on the table. So at the moment, we don't see a need, Ben, to review our ambition in terms of store openings. I think we talked about 1,500 stores in the next 5 years. So we still stick to that. Yes, you already alluded to the fact that we didn't open probably as much as we were expecting in Q3, and there was a little bit of slowdown in that openings, but we have a pipeline, a huge pipeline now for the Q4, a little bit like we tend to do it at the end of the year. But to go directly to your question, at the moment, we don't see necessarily a need to review the store openings in light of potential cannibalization. As to what relates to traffic and ticket, what we are seeing at the moment, maybe I'll hand over to Javier to just give you a little bit more details in terms of how we're seeing traffic and ticket and a little bit the evolution of some of the categories. Javier Andrade: Yes. Basically, Ben, regarding traffic, what we see is a reflection mainly of the customer backdrop that we're seeing in the retail, but we see a positive trend in the last quarters, and we feel very optimistic about Q4 and what's coming for us for seasonal. We've seen a lot of engagement of the consumers regarding seasonalities and everything that's about to come in on Buen Fin and Fin Irresistible. And the other thing, even though we see inflation in some categories. We're also investing in price, we can give access to the consumer even though we see inflation in some categories, we're also investing in price so we can give access to the consumers to better prices and help them save money and live better. So we want to grow even faster instead of just following inflation. And as I said, we're optimistic about what's coming for Q4. Operator: Our next question is from Mr. Froylan Mendez from JPMorgan. Fernando Froylan Mendez Solther: Can you hear me. Well, I guess I'll take the question, but I cannot hear your answer. I don't know why. We had some improvement this quarter, but this is something that you mentioned that there is room to further increase. I would like to know what are the steps being taken? And what was... Paulo Garcia: I think we need to move to the next one. Let's move to the next one. Sorry. Froylan, we are moving to the next one. If you come back and you can hear us, we'll come back to you. Operator: Our next question is from Ms. Irma Sgarz from Goldman Sachs. Irma Sgarz: Welcome to the new appointments on the leadership team. I was excited to see the positions filled and good luck with your new responsibilities. Just 2 quick questions on the gross margin. I understand that the pressure that you posted in the third quarter came specifically also related to the inventory reductions that you are aiming for. So I was wondering if you could just point out if that was concentrated in specific categories or specific formats if that was perhaps more sort of general merchandise related rather than sort of the consumables side and perhaps concentrated in certain formats and how you see that need to adjust your inventories going forward? Or if that's sort of more concentrated and behind you from what your comments on the guidance for the fourth quarter, it sounds like it sounds like it's behind you. And then the second question is just on the private label. I'm curious, just Cristian and Javier, maybe to hear your thoughts about where you feel sort of when you take an assessment of where you're doing well so far and what you still need to be doing on the private label side, especially given that, if I may say, it feels like consumer attitudes are changing towards private label in Mexico and they have been changing over the last couple of years. And where do you feel -- you did call out general merchandise. I think you had in some categories, higher penetration. But on the consumables side, I'm curious like sort of how you're thinking about the strategy there. Paulo Garcia: Thanks, Irma. Thanks for your question. As usual, spot on, by the way, on the first question and what you just said is spot on, on all you said. So as you know, we've been talking about that we wanted to address our inventories. You probably have seen the improvements that we've done in inventories of almost 3.5 days, days on hand, and we still see an opportunity going forward. In terms of what it relates to investments to If you say, expedite some of this more and healthy inventory that we have, I think it's probably most of it behind us. And as you said, it's mostly in general merchandise and because the general merchandise tends to impact a little bit more a banner like Walmart, but at the end of the day, it tends to grow across all the banners. I'll now pass on the second question to Javier on the private brands and Cristian can also build. Javier Andrade: Yes. Okay. So thank you for your question, Irma. As you said, I see a huge opportunity in private label now. Even though we're performing good and we increased 100 basis points this quarter in penetration. I see a big opportunity in terms of surety of supply that we're working with the global sourcing team, and we're also trying to leverage as much we can from other markets. In groceries, consumables and even fresh, we are improving our capacity to bring in products for the customers and give access to them to better qualities and best prices. And for us, private label is going to be important because it's a huge component of the EDLP approach that we have for the future in the company. So you will see more to come in terms of private label. But basically, we're going to make sure that we have the best assortment possible for each of our business formats and making sure that we cover all the needs that every customer has in our different businesses and also in our different channels. So we're focusing on improving as much as we can all our processes, and we will leverage as much we can with global sourcing and other operations in Mexico. We're also working here with suppliers, specifically to drive efficiencies that we can translate those efficiencies into better costs and better price for the customer with local suppliers. So overall, private label is going to be important, and we're going to be speeding to develop our private brand to the maximum potential that we can. Cristian Barrientos: If I may add, Irma, the private label points. As you saw in the webcast, we just hiring [ Prativa ] from international to lead Sam's U.S. -- Sam's Mexico, sorry. And Prativa has a ton of experience before managing private labels in the U.S. So we are seeing a tremendous opportunity to work together between China and the U.S. trying to improve our penetration in Member's Mark in Sam's also. So it's a complement that Javier mentioned before in self-service. So we are taking advantage of the global brand that we are and bringing talent to Mexico to help us or to work together in terms of the business of Sam's some and also with some knowledge about private brands. So we're very confident for the future and the opportunity that we have to improve more our private brands program. Operator: Our next question is from Mr. Ulises Argote from Santander. Ulises Argote Bolio: Congrats, Cristian and the recently appointed leadership team. Actually, we had 2. So the first one for Cristian. Maybe I wanted to get your sense. Obviously, you were a long-term participant here in the Mexico market, then you went to Chile and now coming back. So I wanted to get your thoughts there. What are your kind of recent impressions on the current state of the market. Any relevant change that you're seeing there in competitive dynamics. Any relevant opportunities that might be worth tackling kind of on an initial basis. And then the second one for Paulo. Maybe if we could just get a little bit more details on the one-off that you mentioned yesterday impacting the net income. Any color that you could add there would be really helpful. Cristian Barrientos: Thank you very much for your question. And as you mentioned, I moved in these 7 countries in the last 14 -- 13, 14 years. And my first reaction, if I can compare both countries, it's incredible how similar the situation that we are looking today in Mexico were with the situation that I founded in 2023 when I landed in Chile because both countries were growing 0%. And we saw in Chile and also here in Mexico, the huge opportunity that we have to focus on the fundamentals with the idea when the -- let me say, the economy will recover, we will take advantage of -- we will be better prepared to capitalize all the sales that we're looking for. And that's happened in Chile. We moved from 0% and the retail -- the economy grew to 2% and the business there took advantage of that. So we are looking something similar here in Mexico, focusing on the things that we can control, and that is why we set very clear our priorities to go back, let's say, to these fundamentals as EDLP, availability and of course, the e-com acceleration that we have a huge opportunities, both in Mexico and Central America. So we're very optimistic for the future, and we are focused on these 3 priorities to take advantage in the coming -- in the next year. Paulo Garcia: Just on the second question, Ulises. So I already alluded to the fact that it's a nonrecurring item. So in a business of this size, once in a while, some of these topics pop up. I think I also wanted to give a little bit more reassurance to the market in terms of what we expect going forward. Obviously always the change in laws and regulations that we cannot control the tax effective rate. But actually, we see that hovering more around the 25%. And I think that's probably what is meaningful at this stage for you guys. Operator: Our next question is from Mr. Bob Ford from Bank of America. Cristian Barrientos: Bob, are you there? Operator: Our next question is from Alvaro Garcia from BTG Pactual. Alvaro Garcia: Congrats, Cristian, on the new role. I noticed in the release that used that you mentioned SG&A should sort of gravitate back to high single-digit growth in line with sales, and I found that a slight change relative to sort of the comments at Walmex, which were you should expect SG&A to continue to grow above sales. So I was wondering if maybe you could expand on that comment. Was that specific to this coming fourth quarter or for the full year or medium term? Any color on that would be helpful. Paulo Garcia: Yes. Thanks for the question, Alvaro. So I think what we said is twofold. One is, as we said it in the beginning of the year in terms of the guidance, we do expect to have for this year, high single-digit growth in terms of SG&A, which is much different than what we have said in the past. And for that means we continue to invest behind in the business. We always shed clarity on that token, but also driving efficiencies. And actually, these days also more midterm efficiencies also fueled by AI. I think in terms of also what we said it was that we do expect that SG&A to grow more closer to sales. That's our expectation there, Alvaro. So that's also what we want to see going forward. Alvaro Garcia: Great. And then just one. Maybe for you Paulo, could be for Cristian on gross margin. This Is a business that over the last 10 years has seen a 300 basis point increase in gross margin, which by Walmart standards, I think, is pretty darn high. So in the context of really doubling down on EDLP and really being true to that purpose, how do you feel about gross margin investment over the medium term? Paulo Garcia: Yes. I'll say and then Cristian can immediately jump and chip on that. You clearly see that -- so we have been investing behind pricing behind and we find our customers to help them save money better, as we said it. We do want to continue to invest more. We want always to invest, have the lowest prices in the market. As part of that investment, private brands penetration increase is also a part of that and a more EDLP approach, Javier can allude to the fact that we can do that in a better way than we've done in the past. I think we want to have the right P&L shape, Alvaro. So of course, we want to invest behind our customers. It's also important to know, and you know it very well and a few others as well, the shaping of P&L is also somewhat changing as we have the new contributions from the new businesses. That is helping our gross margin. We have easily around always 20 to 30 basis points in our gross margin as a positive effect that we want to invest behind our customers. And to do that, we need to, of course, continue to work on SG&A efficiencies to get it closer to sales, certainly keep it high single digit. I think if we do that and we sweat more the investments we do in terms of gross margin, we will be putting more money in the pocket of our customers. Cristian Barrientos: And also, if I may add, Paulo, around ecosystem, ecosystem is helping us to improve our profit, where we separate internally gross profit through commercial margin. And we have seen a more stable commercial margin. And also, we are working on managing the approach in our Tier 1, Tier 2, Tier 3 connect with the EDLP approach. And we have seen, as Paulo mentioned, opportunities or better participation on margin in private brands and also managing -- better managing our Tier 3 to improve maybe our mix in the total box, and that is why we are seeing a more stable margin. But we -- as I mentioned before, we strongly believe in the EDLP, and we will be focused on EDLP, trying to maintain as stable as we can our flow of merchandising and connect with our purpose. Operator: Our next question is from Mr. Antonio Hernandez from Actinver. Antonio Hernandez: Congrats on your results and the new appointments. Just wanted to follow up on Ulises' previous question regarding more than the macro environment, are you seeing anything more specifically on how consumer environment or the consumer's mindset has shifted or changed from your previous stage here in Mexico and Central America or more specifically in Mexico. Are you seeing any type of difference from back there to right now. And maybe also on the competitive environment competition. Cristian Barrientos: Well, to be very honest, only 90 days. And my first reaction is I had the privilege to travel in these 3 years that I landed in Chile to Mexico. And I see a more advanced or a more advanced market in terms of the -- how open we are to take, let me say, some technologies and connect with the e-commerce side. And that is why we put the e-com acceleration as a key priority. We are taking advantage of the brand that we are and bringing, as you saw in our webcast, single hallway to provide to our customer a less friction experience, connecting on-demand with 1P, with 3P, and we are seeing a very good adoption for customer. So if I may say something, it's going to be around technology. I've seen in my first 90 days, customer more open to receive these kind of technologies, open to give us, let me say, their cell phones and allow us to build this beneficial program. And with that, we can use data and be more precise in terms of selecting the assortment, in terms of price elasticity. So I'm seeing a more advanced customer, let me say, and very open to receive this kind of new technologies and reduce friction for them? Operator: Our next question is from Mr. Renata Cabral from Citi. Renata Fonseca Cabral Sturani: Congrats Cristian for the new position. My question is about the One Hallway that the company delivered this quarter. So if you can give some color for us on the main milestones that you are seeing now in terms of store coverage or plug in more vendors from the U.S., for instance, in terms of overall opportunities. Of course, we always look at what Walmart U.S. did, but we understand that there are some differences in terms of the market, maybe other opportunities as well. So if you can give us some color of what you see ahead for this One Hallway would be really helpful. Javier Andrade: Yes. Thank you, Renata, for your question. I'm very excited about sharing some ideas and thoughts about One Hallway. Let me start by saying that we are focusing very strongly in on-demand first just to make sure that we are protecting our core with groceries, consumables and fresh. And with One Hallway, we have now the opportunity to simplify the access and the experience for the customer where they will see all the opportunities in items and experiences in just one place in our digital platforms. And as you said, similarities between U.S. and Mexico are bigger than what we expected at the beginning. And basically, when we started the shift to One Hallway, we leverage all the technology from the U.S., the search engine and the technology. And what we're seeing now is interesting because we were expecting kind of a downside of the business during the transition. And with all the learnings that we have from the U.S., we were able to have a better transition in Mexico. We're seeing more loyal customers to our platforms. We're seeing more bigger baskets, if I may say, the customers are now purchasing groceries, consumables and GM, not necessarily just from on-demand, also from extended assortment, and we're working. And we recently shared inside the company that one of the core strategy is going to be cross-border. So marketplace is going to have a huge acceleration in the upcoming weeks and months. So what I can say is that we feel very confident that we're going to be leading the omnichannel experience for the customer, for every customer in Mexico, and we will give them access to the digital economy also through the ecosystem. So we are closing the loop, and we're going to be expecting growth and sustainable growth for the future with One Hallway. Renata Fonseca Cabral Sturani: Super good. Just a quick follow-up. For us, it's clear the potential for top line growth for 2026. In terms of margins, do you think that in 2026, that will be also accretive or that will take some time? Paulo Garcia: I think do you refer to the margins here in e-commerce in the marketplace, Renata? Renata Fonseca Cabral Sturani: Yes. Paulo Garcia: So I've always alluded to the fact you guys know if that if you think about our on-demand business, it's a profitable business already. We always said that our extended assortment business of 1P and 3P in a different stage, it's pretty much a business of critical mass. So critical mass here is important. So we are in that journey. So we actually see a lot of value creation can be created in the future as we go through that journey in improving the volumes that we pass through the 1P and in particular, marketplace. Operator: Our next question is from Mr. Andrew Ruben from Morgan Stanley. Andrew Ruben: Just one quick follow-up on the e-commerce side. For Marketplace, we saw [ celebrace ] grew 30%, but there was a 30% decrease in SKUs. So just trying to understand the strategy and what drove the divergence. And then just a second item, there was a quick mention of tariffs within the release or the conference call. So I just wanted to clarify, is that more of a general statement on macro uncertainty? Or are there specific ways that the tariff backdrop has been impacting business. Paulo Garcia: Yes. If I can just start on the second one. I think it's more just a general statement, Andrew, the way you put it. I think we're just seeing that was a little bit the uncertainty around tariffs, but also a little bit the uncertainty around the TMEC agreement. What it does at the moment is just it's hampering a little bit the investment in Mexico or the big investments. So that ultimately, hampering the investment leads to less job creation that you used to do it in the past. I think that creates a bit of uncertainty and therefore, impacts the consumption. I think that's the statement. I think if you think about tariffs as such and direct impact to our business, we're not seeing necessarily a meaningful impact of tariffs in our business. To the first question. Javier Andrade: Yes. And basically, to your question about SKUs and sellers, it was temporary because of the transition we were doing in technology, but we expect to recover very fast in terms of SKUs and sellers. And we're working closely with the U.S. to expedite this. So we know that it's important for us to have the right value proposition in every category. So it was just temporary. Operator: Our next question is from Mr. Froylan Mendez from JPMorgan. Fernando Froylan Mendez Solther: I want to ask -- I'm sorry, if they already asked, I couldn't hear most of the call, but on working capital, we saw an improvement in this specific quarter. Can you give us some color on what changed? And what are your expectations in the mid and long term on your working capital cycle. I guess, it's for an additional improvement, but more color on how sustainable is this quarterly improvement? If it had more to do with your pricing strategy or just the temporary and the type of SKUs that were sold during the quarter, what are different from the previous ones? More color on that would be highly appreciated. Paulo Garcia: Thank you for the question. So we've alluded in the past quarters that we were actually attacking our working capital. We are not necessarily entirely happy with the performance that we had on inventory days. You have that quarter 2 was already a better performance than the previous quarters. And this quarter, in particular, a reduction -- a significant reduction 3.5 days versus where we were a year ago. I think you can expect us continue to tackle inventory, continue to improve. I think ultimately, if we have less inventory in the store, it leads to more productivity. If it leads to more productivity, leads to money that we have at hand to be able to invest behind prices and therefore, put the spinning wheel to work and for to get more growth, you should expect that to continue to happen consistently in the coming months and not just necessarily a one-off. You do also -- there were concerns also in the past, Froylan, about our DPO and the fact that was increasing. That has to do, of course, we had to reduce purchases in the past to address inventory, now gets to a more stable level. If you remember, I said that in the prior quarter, and I think that's what you can expect going forward. Fernando Froylan Mendez Solther: Excellent. And if I may, just on your comments on what to expect into the fourth quarter, you said that between the second and third quarter, does that mean you are reiterating your top line guidance into the year? And when you say that SG&A should grow in the same level as top line. Should, we not expect then EBITDA margin expansion, but let's say, a stable gross margin for this year? Paulo Garcia: I said 3 things for the quarter, Froylan, and just to allude to the things we said. One, we did said one thing on guidance for the Q4 on growth indeed, and we expect growth to be along the lines of what we saw in Q2 and Q3. And if that's true, then you can do the math versus what we previously had said overall for the full year. I think we are focusing on what we can control and what we have the line of sight. We have line of sight. The good -- as Javier was alluding to for the peak season, and we expect along the lines of what we did in Q2 and Q3. On SG&A, as you've seen in this quarter, we grew only around 5%. As you know, there will be phasing. Sometimes you invest more, sometimes you invest less, so you create more efficiencies, but we stick to our objective to continue delivering the high single-digit growth. And then -- and when you think more in the mid and long term, we definitely want to see SG&A more in line with sales in order to deliver the near-term stabilization of the margins that we promised. That's the second. And the third one that we said for the -- I said it for this particular quarter, Q4, is that we expect a sequential improvement in terms of profit delivery. We always said that Q3 was going to be better than H1, and it was. And we expect a Q4 that will be better than Q3. Operator: Our next question is from Mr. Bob Ford from Bank of America. Robert Ford: Congratulations on the new role, Cristian. Just curious how you're thinking about evolving trends in small box retail in Mexico, maybe historically why Walmex has not really leaned into proximity in the past and how we should think about Express or other proximity formats moving forward? And then also in the footnotes of the results for the last couple of quarters, there's been a note about transfer pricing and tax risk. And I was just hoping you could expand upon that, particularly in the context of this little hiccup on tax expense. Cristian Barrientos: Yes. So first, if you -- on the proximity. Paulo Garcia: Yes. So let me start with the second question, and Cristian can talk a little bit more about how he thinks about proximity risks, and I can build on that. So Bob, so this is what we saw in the quarter. It's just a one-off that we saw it. It doesn't relate with the footnotes that you're alluding to in terms of the transfer price risk or any anything that will be linked to that, Bob. Cristian Barrientos: And in terms of proximity, if I may answer your question, we changed brands in 3 or 4 years ago. And we -- personally, I truly believe that we have a huge opportunity to continue to expand our business in -- Supermarket business. We have a ton of experience here in Central America. We have more than 100 stores here. We have almost 100 stores in Mexico also, but with a different size. So in the middle class that is very big in Mexico, we are seeing a lot of white spaces. That is why we changed the brand. We have a strong -- or, let me say, a better presence in Mexico City, but we have a huge opportunity to grow this supermarket business in regions in Mexico. We recently opened 2 stores with very good performance, and we have planned to continue to open this one because we have seen a lot of white spaces in the region. So we're very confident with these kind of stores or business because of the experience that we have in Walmart. Operator: That was the last question. I will now hand over to Mr. Salvador Villasenor for final comments. Salvador Villasenor Barragan: Thank you very much. We would just like to thank everyone for joining us once again and looking forward for our fourth quarter results and talking to you soon. Operator: Walmex would like to thank you for participating in today's video conference. You may now disconnect.
Operator: Good morning, and welcome to Otis' Third Quarter 2025 Earnings Conference Call. This call is being carried live on the Internet and recorded for replay. Presentation materials are available for download from Otis' website at www.otis.com. I'll now turn it over to Rob Quartaro, Vice President of Investor Relations. Please go ahead. Robert Quartaro: Thank you, Sarah. Welcome to Otis' Third Quarter 2025 Earnings Conference Call. On the call with me today are Judy Marks, Chair, CEO and President; and Cristina Mendez, Executive Vice President and CFO. Please note, except where otherwise noted, the company will speak to results from continuing operations, excluding restructuring and significant nonrecurring items. A reconciliation of these measures can be found in the appendix of the webcast. We also remind listeners that the presentation contains forward-looking statements, which are subject to risks and uncertainties. Otis' SEC filings, including our Form 10-K and quarterly reports on Form 10-Q, provide details on important factors that could cause actual results to differ materially. Now, I'll turn it over to Judy. Judith Marks: Thank you, Rob. Good morning, afternoon and evening, everyone. Thank you for joining us. We hope that everyone listening is safe and well. Starting with Q3 highlights on Slide 3. Otis delivered strong third quarter results and returned to growth, as we executed well on our service-driven business model. Organic sales in the quarter were up 2%, driven by Service, which grew 6%. Notably, modernization organic sales grew 14%. Adjusted operating profit margin expanded by 20 basis points overall, driven by Service margin expansion of 70 basis points. This strong performance, together with a lower share count, drove a 9% increase in adjusted earnings per share in the quarter. Our Maintenance portfolio continued to grow 4%, and we are on track to approach 2.5 million units in our service portfolio by year-end. Modernization order growth accelerated to 27% and backlog increased 22%. New equipment orders grew 4%, returning to growth for the first time since the fourth quarter of 2023, supported by moderating declines in China and good momentum across the other regions. Adjusted free cash flow increased sequentially as anticipated to $337 million, giving us good line of sight to deliver our adjusted free cash flow outlook of approximately $1.45 billion for the full year. We opportunistically completed approximately $250 million in share repurchases during the third quarter, bringing the year-to-date total to approximately $800 million, fulfilling our full year outlook. We continue to innovate both in our product and go-to-market approaches. For example, we recently launched Otis Arise MOD packages in our EMEA region, which represents our largest modernization opportunity currently. Otis Arise MOD is a new suite of flexible, phased modernization packages designed to help building owners upgrade their elevators in a way that creates less disruption for passengers and provides customers with options for a phased project and predictable budget. Otis Arise MOD reflects our commitment to customer-centric innovation and positions us to capture long-term modernization demand across the region. Also, during the quarter, Otis was named a TIME magazine's list of the world's best companies for 2025, and again, recognized by Forbes as one of the world's best employers. These recognitions reflect our commitment to our absolutes, our strong culture, global impact and commitment to excellence. Turning to our orders performance on Slide 4. Combined New Equipment and Modernization orders grew 9% in the quarter, with notable strength in Americas, EMEA and China. Our combined backlog increased 3% and excluding China increased 11%. Our total backlog, including maintenance and repair, remains near historically high levels, which should support growth in the coming quarters. New Equipment orders increased 4% in the quarter. And excluding China, we saw a robust 7% growth, with EMEA up high teens, driven by Southern Europe and the Middle East, while Americas grew mid-single digits. The strength was partially offset by a low single-digit decline in Asia. We have seen improvement in China year-over-year comparisons, and we expect China New Equipment orders to be down mid-single digits for the second half of the year. At constant currency, our New Equipment backlog declined 1% year-over-year, but excluding China, it grew 8%. We had our highest modernization orders since spin, up 27%, driven by strong 20-plus percent orders growth in Americas and China and high teens growth in EMEA. Our quarter end backlog grew 22%, positioning us well for the coming quarters. We continue to believe we're in the early innings of a multiyear growth cycle in modernization driven by the aging of the 22 million unit installed base. All regions contributed to our Service portfolio growth of 4% in the quarter. We saw low teens growth in China, mid-single-digit growth in Asia Pacific and low single-digit growth in Americas and EMEA. Our global teams continue to execute well. And this quarter, we secured a number of strategic customer wins that underscore our ability to deliver differentiated solutions, deepen relationships and expand our footprint across key markets. In the Americas, we secured a project at 100 McAllister in San Francisco, a landmark 1930 Gothic Revival and Art Deco building that serves the University of California law school. Otis will install 5 Gen3 elevators with Compass destination dispatching, delivering advanced vertical transportation while preserving the building's historic character. The project is being managed by Plant Construction, a long-standing Otis partner, and highlights our commitment to quality, innovation and heritage preservation. In China, Otis was awarded the largest bond-funded elevator renewal project in Shanghai with 106 units at the Sunshine Waterfront Residential Community. We're upgrading legacy Otis roped elevators to our Otis Arise MOD packages, preserving key components to optimize the bond budget and adding AI-enabled safety cameras to prevent e-bike entry. Our customer has requested handover by year-end with a fast-paced schedule requiring 10 units replaced every 10 days. This project showcases our ability to deliver safe and efficient solutions under tight time lines. In Dubai, we've secured a new project with Sobha Realty to equip Sobha Sea Haven, a premium residential development in Dubai Marina. Otis will supply 29 units, including 25 SkyRise elevators and 4 Gen2 machine room-less high-speed systems, as well as our EMS 2.0 Elevator Management System. This project further reinforces our presence in the high-end residential segment and marks an important step in building a strong relationship with Sobha Realty. In South Korea, Otis was selected for the landmark K-Project, the first urban architectural design innovation project designated by the Seoul Metropolitan Government. We'll provide a total of 54 units, including 25 SkyRise elevators and Compass 360 destination management system to optimize passenger journeys. This project highlights our role in shaping next-generation urban mobility, and we're proud to support this innovative development in Seoul. Finally, last week, I had the privilege of joining our customers at the celebratory ribbon cutting of the new JPMorgan Chase Global Headquarters in New York at 270 Park Avenue. Otis installed 89 units, including 72 high-performance SkyRise elevators and 12 escalators and introduced our Compass Infinity AI dispatching system, which continuously learns and optimizes passenger flow. We're proud to support JPMorgan Chase at this landmark site and beyond. Turning to our third quarter results on Slide 5. Otis delivered net sales of $3.7 billion with organic sales up 2%. Adjusted operating profit margin, excluding a $17 million foreign exchange tailwind, increased by $16 million driven by strength in the Service segment. Adjusted operating margin expanded by 20 basis points to 17.1%. Adjusted EPS grew approximately 9%, or $0.09 in the quarter, driven by strong operational performance, favorable foreign exchange rates, a lower tax rate and a lower share count. Adjusted free cash flow was $337 million in the quarter and $766 million year-to-date. With that, I'll turn it over to Cristina to walk through our results in more detail. Cristina Mendez: Thank you, Judy. Starting with Service on Slide 6. Service organic sales grew 6% with growth in all lines of business. This acceleration represents the highest organic Service sales growth this year, in line with expectations, and demonstrates the fundamentals of our Service flywheel. Maintenance and repair organic sales grew 4%, with maintenance driven by 4% portfolio growth and 3% positive price, partially offset by mix and churn. Our Repair business continued to accelerate to 7% growth year-over-year. After the first half of the year, marked by the transformation changes in our branches, as expected, Repair activity is improving in the second half. And we expect Repair sales to continue ramping up to 10% growth or above in the fourth quarter. Modernization sales also saw significant acceleration in the quarter, with organic sales growth of 14% on the back of our robust growing backlog at the end of the second quarter. Furthermore, the outlook for modernization remains strong. And the aging installed base should continue to support sustainable modernization growth in the coming years. Service operating profit of $621 million increased $49 million at constant currency with higher volume, favorable pricing and productivity more than offsetting higher labor costs and mix and churn. Operating profit margins expanded 70 basis points to 25.5% in the quarter, the highest margin expansion of the year, and marked another record quarter in Service margins since spin. Turning now to New Equipment on Slide 7. New Equipment organic sales declined 5% in the quarter, as the strength in Asia Pacific and EMEA were more than offset by declines in China and the Americas. EMEA sales grew 3%, driven by robust growth in the Middle East, while Europe was relatively flat. Asia Pacific grew high single digits, driven by strong growth in India, Japan and Southeast Asia, partially offset by weakness in Korea. Americas declined 7%, as we continue to work through last year's backlog. However, thanks to solid orders performance for 5 consecutive quarters, Americas growing backlog provides line of sight for the region to deliver positive new equipment sales growth in the near future. Excluding China, our New Equipment backlog grew 8%. And while China is still relatively weak, the sales decline versus the prior year is expected to moderate in the second half. China New Equipment sales declined approximately 20% in the third quarter. New Equipment operating profit of $59 million declined $24 million at constant currency, and operating profit margins declined 170 basis points to 4.7%. The operating profit decline was driven by lower volumes and favorable price, tariff headwinds and mix. These were partially offset by productivity, including the benefits of restructuring actions. The margin decline was more moderate than anticipated thanks to better-than-expected sales, especially in Americas, and ongoing efforts to reduce cost as part of our China transformation. Due to our progress, we now anticipate 2025 in-year savings of approximately $30 million from the China transformation, as we have captured more than $20 million year-to-date. On an annual run rate basis, we continue to target approximately $40 million per year. Our average savings targets have not changed. We continue to expect 2025 in-year savings of $70 million and to reach annual run rate savings of $200 million by the end of the year. Note, we have reduced our expected full-year '25 restructuring and transformation costs to approximately $220 million. I will now turn it back to Judy to discuss our 2025 outlook. Judith Marks: Thanks, Cristina. Starting on Slide 8 with the market outlook. Before discussing our updated 2025 outlook, I'd like to briefly discuss our global market expectations. We've continued to see improvements in the Americas. Therefore, we are upgrading our outlook to up low single digits. This upgrade is supported by continued growth in the U.S. and Canada, particularly within the infrastructure and residential verticals. Notably, we've also seen encouraging developments in the data center segment this quarter, a vertical, we believe, holds strong potential for sustained growth given increasing demand for digital infrastructure. Our outlook for EMEA and Asia remains unchanged with EMEA growing low single digits and Asia declining high single digits. In EMEA, we continue to see greater than 20% growth in the Middle East supported by strong projects activity and urban development. Central and Southern Europe are on pace for mid-single-digit growth, partially offset by softer trends in Western Europe and the U.K. and Nordics. Within Asia, our outlook for China is unchanged, down low teens. Overall, we continue to expect a mid-single-digit decline globally. But while new equipment industry orders are expected to decline this year, we anticipate the industry installed base will continue to grow mid-single digits, with low single-digit growth in Americas and EMEA and mid-single-digit growth in Asia. This growth reflects the 830,000 units that were installed 2 years ago that are now rolling off their warranty period. Turning to our financial outlook. We continue to expect our Service segment to drive full year revenue and profit growth. We anticipate total net sales of $14.5 billion to $14.6 billion, with organic sales growth of approximately 1%. The third quarter marked our return to organic sales growth, driven by accelerating repair and modernization as well as moderating declines in New Equipment organic sales. We expect these improving trends to continue in the fourth quarter. These trends should also flow through to the bottom line. Our adjusted operating profit outlook is $2.4 billion to $2.5 billion, up $75 million to $95 million at actual currency, including the impact of incremental tariffs imposed in 2025. We've narrowed the range and increased the midpoint of our adjusted EPS outlook to $4.04 to $4.08, representing an increase of 5% to 7% compared to 2024. We anticipate adjusted free cash flow of approximately $1.45 billion for the year, in line with the midpoint of the previous guide. As I previously mentioned, in the third quarter, we completed our full year target of approximately $800 million in share repurchases. I'll now pass it back to Cristina to review the 2025 outlook in more detail. Cristina Mendez: Thank you, Judy. Moving to our organic sales outlook on Slide 9. We continue to expect organic sales growth of approximately 1% for the full year, driven by strength in our Service business, partially offset by a decline in New Equipment as we work through last year's backlog. Within New Equipment, we have improved our Americas organic sales outlook to down mid-single digits due to improving shipments in the second half of the year. We have seen 5 consecutive quarters of orders growth in the region, and we have a solid backlog entering the fourth quarter. Asia is still expected to decline low teens with high single-digit growth in Asia Pacific, more than offset by a greater than 20% decline in China. As mentioned before, the China New Equipment sales year-over-year decline is moderating sequentially in the back half of the year, thanks to an easy comparison. And taken together, we expect New Equipment organic sales to decline approximately 7% for the full year. We maintained our growth outlook across all segments. Maintenance and repair is expected to grow mid-single digits, within range of our previous outlook. The change to mid-single-digit growth is mainly rounding given maintenance and repair has grown 4% year-to-date, and we expect approximately 5% growth in the fourth quarter. We anticipate repair to continue ramping up with growth accelerating to 10% or above in the fourth quarter. We are pleased to see the repair backlog normalizing with shorter execution time driving customer satisfaction. And we are well resourced to execute as we have continued to ramp up field mechanics similar to last year. In modernization, after a solid third quarter, we have good line of sight to deliver approximately 10% growth in 2025 on the back of our strong backlog. Turning to our financial outlook on Slide 10. We now expect adjusted operating profit to grow $75 million to $95 million on an actual currency basis, including the impact of tariffs. On a constant currency basis and excluding the impact of tariffs, we expect adjusted operating profit to grow $65 million to $85 million. We continue to anticipate a tariff impact of approximately $30 million for the full year, assuming current reciprocal and Section 232 tariff rates. As a reminder, the tariff impact is primarily in our pre-2025 backlog, as we have adjusted contract terms and pricing. Adjusted operating margin is expected to expand by approximately 30 basis points, in line with our previous expectations. Cash flow has sequentially improved in the third quarter, and we have good line of sight to deliver the guide of approximately $145 billion for the year, as we anticipate fourth quarter cash flow to be in line with last year. Looking at the big picture, 2025 is on the pace to be another challenging year in New Equipment with sales declining over $350 million at constant currency, similar to '24. Despite of ongoing challenge in New Equipment price and volumes, we are effectively managing costs to mitigate our decremental margins. At the same time, we expect to deliver another year of solid adjusted operating profit growth, thanks to the strength of our service flywheel, with 5% topline growth, driven by volumes and price, and ongoing margin expansion driven by density, productivity and our UpLift program. Moving to 2025 EPS bridge on Slide 11. We are narrowing the range and raising the midpoint of our outlook. With only 2 months to go, we now have good visibility for full-year results. We expect full-year adjusted EPS of $4.04 to $4.08. This is driven by a strong operational performance in our Service segment, partially offset by a decline in New Equipment. Favorable foreign exchange rates and a lower share count are expected to offset headwinds from tariffs and higher interest income -- interest expense. Taken together, this represents adjusted EPS growth of 5% to 7% for the year. While it is too early to provide formal 2026 guidance, we remain confident we can continue to deliver solid earnings growth in the coming years through the strength of our service-driven business model. The global installed base continues to expand supporting mid-single-digit growth in our service portfolio, which should continue to drive our maintenance and repair business. We are also in the early innings of a multiyear growth cycle in modernization, due to the aging of the installed base. Combined with our productivity and cost savings initiatives, we have a strong foundation to continue delivering sustainable revenue and earnings growth. With that, I will kindly ask Sarah to please open the line for questions. Thank you. Operator: [Operator Instructions] Your first question comes from Joe O'Dea with Wells Fargo. Joseph O'Dea: Can you talk a little bit about the efforts that are underway on the maintenance side in terms of what you're doing on retention and recapture? And when we think about that growth might be pacing kind of in the 3% range, on revenue, kind of what your visibility is with respect to the timeline to see that stepping up as you achieve some of your targets around retention and recapture? Judith Marks: Yes. Thanks, Joe. As we've shared all year, we were not pleased with where we ended 2024, and we made a conscious decision to invest, invest in our service excellence, invest to make sure that we could retain our customers more. We'll share those outcomes at fourth quarter statistically. But I will tell you, it's going to be a long journey. We should see some sequential improvement, but returning to the 94% retention rate will take sustained time to rebuild customers' trust, as well as to gain them back. Having said that, we continue to add about 100,000 units this year. And as I shared in my opening remarks, we're going to approach 2.5 million units in our portfolio. That gives us the density, not just for maintenance and for productivity and maintenance, but it gives us additional repair opportunities, and we'll talk more about that, I'm sure, this morning. So we had good line of sight. We understand our conversion rates. We'll share those as well. We're pleased with where those are heading directionally. And again, our focus is on customer satisfaction and driving retention rates up. Recapture rates, we're pleased with as well, both Otis and non-Otis equipment, and we'll continue to drive towards portfolio growth. We'll share more at our Investor Day next spring, but we do believe that we should be growing at higher than a 4% portfolio. We're pleased we've done that now for over 2 years after being a traditional 1% growth, but there's more to happen in the maintenance portfolio, so stay tuned. Joseph O'Dea: I appreciate those details. And then on Americas and New Equipment, and what you're seeing and a little bit better outlook there. Just in terms of any more color on kind of how the last few months have kind of unfolded when you talk about infrastructure and resi as some of the verticals where you're seeing a little bit better activity. Were these things that were in the pipeline, you just didn't think they were going to happen in the back half of the year? And any other color on what you attribute some of the demand kind of coming through here to? Judith Marks: We're much more positive on Americas growth based on 2 factors. One, the demand we're seeing, and that's even -- that's only with one interest rate change, but the demand we're seeing. Residential, as I said, infrastructure are driving most of these improvements, but all geographies in the Americas showed growth this quarter. So we were very pleased with that. The second thing we're seeing, Joe, is on the New Equipment execution side that gets us equally excited about the future. We had shared with you last quarter that we had started seeing some challenges at job sites where there had been slowed down by other trades. As we came through this third quarter, we saw that basically being eliminated and back to a normal cycle of construction at New Equipment sites. So with the backlog growing in New Equipment in the Americas, and this was our fifth straight quarter of growth, in especially in Americas, about 4%. That 4% is on top of 23% same quarter last year. So Joe and our team are just really driving -- Joe Armas, driving this growth on growth. And we have our great Gen3 core product that's out there. We're addressing so many different segments now. And so we're really seeing that growth, and then, it's going to come through. It's 5 quarters now. We say there's about an 18-month lag, especially in North America from the time we take an order until we see that revenue come through, which is why we're feeling good about Americas revenue in the next few quarters. Operator: The next question comes from Nigel Coe with Wolfe Research. Nigel Coe: So really nice momentum in repair activity. I think you said, Judy, 10% growth in repair in the fourth quarter. Just maybe just talk about sort of the visibility on that. And really what's driving this sort of this crunch towards growth in the back half of the year? And then just maybe the implied maintenance growth would be probably sub 4% when we back out repair. I know that mix is a negative headwind to the kind of the core maintenance growth rate. So maybe just talk about where are you seeing the pressure points on mix and how that resolves or kind of improves as we go into 2026. Judith Marks: Sure, Nigel. I will -- let me take the repair, and I'll hand over the maintenance to Cristina. If you look at our sequential repair improvement, started out fairly anemic at 1% growth in the first quarter, went to 6% in the second quarter. We were 7% this quarter, and we have line of sight to at least 10% in the fourth quarter, which gives us the confidence for the outlook for maintenance and repair to be mid-single digit. Especially now through October, we're seeing orders pick up as well. So that gives us even more confidence in repair. But I was pleased to see us really -- with that revenue growth, 2 straight quarters, 6% and 7% and now 10%, we are going to turn that backlog much quicker. And Cristina mentioned that helps with customer satisfaction. No one wants to wait in the queue to get an elevator or an escalator repaired. So we have made sure we have our mechanics available, the parts available, and we put a concentrated effort to backlog conversion. . And that rolls through to modernization backlog conversion as well. You'll recall that was 5% second quarter. Now, again, for organic, it's 14% this quarter, and our backlog is still growing. So we've got pretty good line of sight to the Service revenues and what's going to happen in the fourth quarter. And especially in repair, as you know, the elevators are aging. We've got 8 million plus over 20 years old. And when they don't become modernized, they do tend to break more frequently because of usage and age. And so we think the repair business is going to stay strong. I think it will -- it could moderate over time back to kind of more traditional mid- to high single digit versus 10%, but we think it's going to remain strong. Cristina, I'll turn maintenance to you. Cristina Mendez: Yes. Nigel, on maintenance, we have always said that we like seeing maintenance and repair together because depending on where you are in the world, the contractual setup is different. You have places where everything is included, therefore, everything is in maintenance, others, where the maintenance fee is smaller, but then we have a lot of repair activity. So it's better to see them together. But talking about maintenance specifically, our performance this year has been very stable. Year-to-date, we have grown maintenance 3%, and we expect this to continue going forward. The formula is as follows: we are growing portfolio of 4%. We have a 3% price, and that means that there is a headwind in mix and churn. And this is exactly the area we are focusing on at the moment. Judy mentioned before, all the actions around customer retention improvement, investment in service excellence. This is going to be a mid-term journey, but we are positive about the initial results we are getting from those investments. And the other headwind will be the geographic mix of the growth, and we are also focusing on growing in high-value markets. And also focusing on a more sophisticated price algorithm. So with all of these components, we expect maintenance growth to improve going forward. But again, the best way to look into this is to bundle maintenance and repair. Nigel Coe: Okay. I think we'll follow up offline on this for more detail. Maybe just a quick one on 4Q new equipment margins. 3Q came in a bit better, obviously, not great margins, but it came in a bit better than we expected. I'm just wondering if the furlough maybe wasn't quite as impactful as expected. And then, the question we're getting is normally 4Q margins would be much lower in New Equipment than 3Q. That doesn't seem to be what you're signaling. So just maybe talk about that as well. Judith Marks: Let me talk to 3Q. So we had 2 things really help us on margins in 3Q; one, our team in China really accelerated. We entered this year -- as I step back, we entered this year knowing we needed to transform our China business. And our team took that on. We did our China transformation, and we're now going to achieve $30 million in savings. We've already achieved $20 million now. We're going to achieve $30 million. That all gets reflected in that cost takeout line in New Equipment. So by accelerating that, that helped. The other thing that helped was just more shipments than we had originally predicted out of our North America factory in Florence. So those are the 2 reasons that drove the margin expansion. Cristina Mendez: Yes. And on Q4, Nigel, so we expect margins to be around 4%. Q4 margins are seasonally lower than Q3, but we also need to bear in mind that because of the New Equipment segment getting smaller, there is much more volatility on margins. Having said that, because of the positive trends we see in the moderating decline in New Equipment sales, together with the accelerated savings in China transformation, we are positive about New Equipment margins being around 4% in the quarter, that full year would be approximately 130 basis points down versus previous year. Operator: The next question comes from Jeff Sprague with Vertical Research. Jeffrey Sprague: Can we just talk a little bit more about price? You noted price continues to be up on the Service side. I would suspect there's still a meaningful geographic difference China versus rest of the world, but can you give us a little more color on what you're kind of booking on new business today? Judith Marks: Yes. In terms of Service pricing, like-for-like pricing increased 3 points in the quarter. Obviously, inflation has receded somewhat in most of the world. But in mature markets, where most of our Service portfolio resides now, Jeff, EMEA was up low single digits. They had a tougher compare because of their ITC program in Spain. So they did have a tougher compare, but they're doing really well. And Americas was up mid-single digits, and Asia Pacific up low single digits. In China, as you know, the margin drivers are less on price and more on density and everything else. Mix and churn for Service was flat. Now China Service, our team continued to grow our Service portfolio in the teens yet again. And our Service units, that was the 16th straight quarter of teens growth in our China portfolio. We believe we're going to end the year approaching 500,000 units of those 2.5 million units in China. So our Service revenue there was up slightly. And our China team, I would tell you, to put it all in perspective, Cristina said maintenance repair, I would say, add maintenance, repair and modernization in China. Our China modernization was up substantively. Our orders were up 150-plus percent in China for modernization. When we look at those bond-stimulus orders, we were ready earlier this year. We're going to convert a lot of those to sales. We have a tough compare in fourth quarter from last year on those. So I wouldn't expect that similar number. But the China team has just really brought home this mod stimulus to where we do believe we are leading the order value in China amongst all of our peers for the mod residential bond program. Jeffrey Sprague: Interesting. And then on the new equipment side, can you kind of do a similar kind of geographic rundown for us on price? And I think Cristina said, only pre-2025 backlog has not been repriced. I wouldn't imagine there's a whole lot of pre-2025 backlog left, but maybe I misunderstood the comment there. Judith Marks: Yes, there's still some pre-2025 backlog left in the U.S. So I think when you're looking at, will there be some tariff impact in 2026 based on what we know today of reciprocal and 232 tariffs, there will be some. It should not be as much as we had this year, but there will be some. When we think about New Equipment pricing, it's up low single digit outside of China. And obviously, China, the pricing was down roughly 10% in the third quarter. And what we have done to really drive back to close to price cost neutral is use cost-out, productivity, tailwinds on commodities and our China transformation program. So all of those have contributed. I would tell you, strategically, we were prepared for this. And in the New Equipment market in China, Jeff, we are seeing sequential improvement. The second half, we think is going to be down 10% versus down 15% for the first half. And our team outperformed that. Our third quarter New Equipment orders, and as you look at the second half, we really expect to be down mid-single digit versus second half last year. That's to me that the real turn in for us on stabilization. Operator: The next question comes from Steve Tusa with JPMorgan. C. Stephen Tusa: Can you -- I guess you talked about retention, is it still getting better sequentially? And do you still have a target for year-end to be -- for retention to be at least up year-over-year, getting better? Judith Marks: I think it's very slightly improved. When we lose a customer, they do a multiyear service contract with someone else. So that's why it's so impactful and why we're laser focused on it to make sure that we're completing -- having the right quality of service, completing everything on time, being responsive to our customers. But I wouldn't anticipate a step function improvement, Steve, when we report this after fourth quarter. We've made the investment now, but it's going to be day-to-day, customer to customer, making sure that anyone who's going to renew, we're focused on them, and we're making the right investments now to keep them. C. Stephen Tusa: Got it. And then just on the Services growth for the fourth quarter. It does look like if repair is going to accelerate, I don't know, it's like the comp is like on mods, but if you're kind of stable on the maintenance side, that you should see an acceleration in revenue growth in the fourth quarter at Services, right, from 6% to maybe close to 7%? Cristina Mendez: Yes. Steve, for the fourth quarter, we expect Services to be around 6%. And you rightly said, repair is going to continue accelerating. We expect repair to be 10% or above, which, by the way, is the growth we had last year in Q4. So this demonstrates that repair is back on track and kind of normalized. On the other side, mods is going to be 10% versus 14% in Q3, reason for that is the calendarization of the bonds execution in China. Last year, bond projects, that are the subsidized projects, were very concentrated in Q4. China grew in Q4 more than 100% revenues there. This year is more level loaded between Q3 and Q4. So it's going to be 6% for the quarter. C. Stephen Tusa: Got it. And then just one last nitpick. But if I do -- you said new equipment was going to be down 150 basis points, I guess, was that a fourth quarter comment or an annual comment? Cristina Mendez: No, an annual comment. What I said is that New Equipment margin is going to be 130 basis points down versus prior year, full year. C. Stephen Tusa: 30 or 50? Cristina Mendez: 130. Judith Marks: 130, she means. C. Stephen Tusa: Okay, great. Okay. Okay, that makes more sense. Okay. Got it. Okay. Just making sure I had the numbers right. Operator: The next question comes from Amit Mehrotra with UBS. Amit Mehrotra: I just wanted to ask about Service margins. And maybe structurally, as we think beyond the fourth quarter, obviously, it was nice to see the expansion of the third quarter, we're up 40 bps year-to-date, is kind of that 50 basis point expansion algorithm still structurally right? I'm just thinking about, obviously, the net impact of higher mod mix in revenue that seems to be accelerating in '26 given the order growth. You're obviously making a lot of investments to -- that maybe serve as a debit to density, if I'm thinking about that correctly, to drive retention higher over time. I assume that's a little bit of a headwind. I'm just trying to understand, as we look beyond '25, like are those net headwinds to that margin expansion algorithm in Service? Cristina Mendez: Yes. So we are very pleased with the margin expansion in Service in Q3. It was 70 basis points, 25.5% margin, the highest margin rate in Service we have had since the spin. The reason for this strength is essentially very good performance in volumes, both repair and modernization ramping up. Volumes drive productivity, drives absorption. Also, mod ramping up in principle is a headwind in margin rate, but we also see mod margin rates improving sequentially. We have good line of sight to reach 10% margin rate for mod in the midterm. And we see this sequentially happening quarter after quarter. And last but not least, on repair, we also have the flow-through of a better price, so we see the rate of repair improving because of the price increase we executed in Q2. So with all of this, we expect full-year margin for Service around 25%, which is going to be 40 basis points up. And going forward, we are going to be laser-focused on growing service contribution in dollar basis. And we have very favorable tailwinds for that. So one is the volume growth, we have price and we have productivity. From a rate perspective, mods will be slightly a headwind. And we are also going to calibrate investments in order to continue growing top line, but the focus is going to be service contribution growth in dollar basis. Judith Marks: Yes, Amit, it's Judy. I would also tell you every quarter since spin, so 22 quarters, this is our 23rd, we have increased Service's adjusted operating profit dollars. And as Cristina said, it's going to be those dollars versus sustained margin rates at the levels we've shown now going on 6 years. Those dollars will contribute in terms of profit dollars, and they'll contribute in terms of cash as we grow the portfolio. Amit Mehrotra: Got it. Okay. That's helpful. And just a quick follow-up on China. You mentioned pricing was still weak in China, but some of the data that we look at, kind of assumes or shows that it's finding a floor. I don't want to get too cute with the data, but when you look at the month-to-month trends, it feels like it's finding a floor. Is that appropriate or accurate? If you can just comment on what's happening on the pricing side in China in real time? Judith Marks: Yes. Real time, we are seeing stabilization in the second half, and it's what we predicted in January, that we thought the first half would still see a fairly significant decline, but we're seeing that sequential improvement in China in the New Equipment market. And so, we are leading in the infrastructure segment. We're leading in the high-rise segment in China. And we are making sure that the units that we bring into our portfolio are actually -- that we win in New Equipment will be a higher conversion probability for us into the Service portfolio. As we look at our China business as a whole, China, just like last quarter, represents 12% of our global revenue, and it's now similarly 21% of our New Equipment revenue for the quarter. Our Service business now in China is 40% of our business in China. And so this 40% would equate to a few -- quite a few years ago, 15%. So we have had this focus on conversions, on New Equipment driving our Service flywheel, and China has done a great job to now make us a 60-40 business, New Equipment to Service, in terms of revenue. And that Service business in China is going to continue to grow between portfolio growth, which will drive maintenance and repair and modernization growth, which in China, they tend to modernize at the 15-year point. We have all indications that this bond modernization stimulus will continue into 2026. And as part of the 15th 5-year plenum, some of our interpretation of what's happening there is there's a focus on quality and digital versus involution, that we believe that the mod bond will continue potentially after 2026 as well. It may look a little different in terms of how much stimulus the government contributes versus the consumer, but we are making sure that we are optimized in bond and in regular modernization in China. Operator: The next question comes from Chris Snyder with Morgan Stanley. Christopher Snyder: Judy, you mentioned it's going to take time to get the retention rate back to where it was. And I think you specifically said you have to rebuild some customer trust. I guess, can you just maybe talk a little bit about why that trust has deteriorated over the last 12, or maybe it's been longer than that? Any color there would be helpful. Judith Marks: Yes. Thanks, Chris. And it's -- listen, this is something that we own. This is mainly about operational execution versus these customers going somewhere else just for price. I want to be clear about that. The good news is it's something we own and we can control and we can address. But we've gone through some changes in personnel, as you can imagine, as we went through our UpLift program. And some of those were customer-facing, although most of those were back office. We know that we can become more accurate in everything from invoicing to that. And we've now focused on having a GBS partner to help us do that. So we're taking actions. We're adding mechanics. Cristina said, we've added pretty comparable numbers of our field professionals this year. And I have to thank our field professionals for the work they do and how they represent our company every day because they are the heart and soul of this company. So we've added more where perhaps we had gotten to some ratios where we weren't able to deliver the outstanding service that we should and we commit to. So we're making sure we have better coverage. Some of that is an investment. We think that investment is worthwhile because of our Service flywheel, and we're going to continue to do that in all parts of the globe, but especially in our high-value -- lifetime value countries where we understand really the value of every service contract and every unit in our portfolio. Christopher Snyder: I really appreciate that. If we -- I guess, to follow up, is a lower retention rate have an impact on the rate of margin expansion in the Service business? I would imagine that retention is very good incremental business. And now, if you guys need to go out in the world and win more new work from someone else, would that be maybe lower incremental margin because there's more costs associated with winning new business rather than retaining business you already have? Judith Marks: Chris, the best business for us is when we convert a New Equipment customer into our portfolio to start. And then, depending where you are in the world, maybe 1 to 4 years later or more, we want to retain them with another Service contract. Even though, during that period, we've got inflationary adjustments, we've got price adjustments and we're servicing the customer. So you are absolutely accurate that that's -- those are the customers we want to retain because of the contribution margin that they drive. When we lose them and replace them with what we call a recapture, and we share the recapture rates, we'll share those as well in fourth quarter, they're strong, but obviously, to recapture from someone else, you have to take it away from them. We don't always just do that with price, though, which is your margin comment of why that would be lower. It is inherently lower, but we add functionality like Otis ONE. And we add other value differentiators, and we bring them back also on a road to modernization and a path there. So for us, the long-term value of that makes sense, but there is some margin headwinds by that loss of retention, absolutely. Operator: The next question comes from Nicole DeBlase with Deutsche Bank. Nicole DeBlase: Just a couple of tie-ups from me since we've gotten through a lot of questions on the call. I guess maybe first, if we look at 4Q EPS, I think typically, you see like about a mid-single-digit decline. If I look back into your history, post spin, you're embedding something more like 1% this quarter. So just can we understand what's maybe a little bit better this year than what you've seen in the past? Cristina Mendez: Nicole, yes, so on EPS growth, we are planning $0.11 of growth in Q4 versus $0.09 in Q3. This is essentially coming from operating profit. So operating profit performance will improve because of New Equipment decline of sales moderating, as we have seen in Q3. So it's continuing the trend we saw in Q3. And on the Service side is the acceleration of repair plus also ongoing margin expansion, although Q4 is typically a lower margin rate quarter from a seasonality perspective, both on New Equipment and Service, and we are considering this seasonality. But we have very good line of sight to deliver this EPS growth because essentially, as I said before, it's continuing the trend of what we have executed in Q3. Nicole DeBlase: Cristina, super helpful. And then, on the buyback, you guys have basically completed your $800 million commitment for the year. Should we assume that you're done? Or is there room to maybe execute more buybacks if you see the opportunity in the fourth quarter? Judith Marks: Yes. In terms of capital allocation, Nicole, we are we are sticking with our capital allocation model in general, which includes beyond dividends and buybacks, also includes some M&A activity. Our M&A activity through the third quarter is up more than most years. We've already invested a little over $100 million in M&A, as we went through the third quarter. So we've been looking at all different cash usage. Again, these bolt-on M&As really give us that addition. They give us additional maintenance. They give us additional mechanics. They give us additional density. And they are very -- they are accretive, if not in year 1 by year 2. So they make sense for us. And now that more have become available, we've been using cash deployment to do that. So to answer your question specifically, we are -- we believe we are through. We still have authority from our Board, obviously, in terms of the capacity to do more, but we were opportunistic. Unfortunately, our stock price dropped fairly significantly after 2Q earnings, and we were opportunistic then to buy more shares back. Operator: The next question comes from Julian Mitchell with Barclays. Julian Mitchell: Just wanted to start with the free cash flow because I guess you've had this trend in Q3 and recent years, where the adjusted operating margins rise year-on-year, but the free cash flow margin falls. So just wanted an update on, do you think that can turn around anytime soon? And maybe clarify a couple of things on the free cash, specifically one would be around, how do we see the burden from cash restructuring changing from here? And also wondered how the rise in modernization affects the free cash flow dynamics of the business, if at all? Cristina Mendez: Yes. So, Julian, on cash flow, Q3 was a sequential improvement versus Q2. We delivered $337 million, that was $100 million better than Q2. And in terms of conversion rate, it was around 81%. This is much below the conversion rate we have historically had, and we are convinced that our business model should be at 100% conversion rate. The reason for this is the working capital buildup related to the change of the business mix. So year-to-date, our New Equipment sales have declined $300 million versus Service growing $340 million. And as you know, New Equipment has a more favorable working capital compared to Service. But all of this is just temporary, and we are confident that as New Equipment stabilizes and Service continues growing, we are going to come back to the regular levels of 100% conversion rate. In fact, for Q4, we are planning cash flow to be around $700 million. That's the same amount of cash we generated in Q4 last year. And we have positive signals that gives us the confidence that we are going to deliver. One is the fact that the orders in New Equipment turned positive in Q3 were plus 4%. And as you well know, we have advances coming from these bookings. You also mentioned modernization, and you are totally right, modernization working capital is pretty similar to New Equipment. It's at the end an installation project. And we also get advances from those projects. And last but not least, New Equipment sales are moderating. And there is a component of the transition of our collection's activity to a third party. We have recently outsourced this process to a third-party partner. We have seen a performance not at great levels so far, but we see it improving going forward, and we are confident that with all of this conversion rate in the year, it's going to be above 90%. And by 2026, we should be back to 100%. Julian Mitchell: That's great, Cristina. And then just my quick follow-up would be on the maintenance portfolio in the Service business. I think based on your comments, it looks like China will comprise maybe half, or almost half of your maintenance portfolio unit expansion in 2025. So just wondered if there was any update around the Service pricing and Service margin dynamics within China, please? Judith Marks: Yes. I don't think you will see China approach half of the portfolio growth next year, but we'll get back to you on that over time. We're very pleased with the growth we've had. But again, with this focus on the growth now being able to convert to service, we're being a little more disciplined as we go, so I would say that. In terms of Service pricing, again, with that discipline comes a little bit more focus on which tier cities we're going to serve. So we're not trying to cover the broader spectrum of countries. And if you look at where a lot of the property sequential improvement is, Tier 1 cities are doing the best. And the further out you go to Tier 5 and beyond, they're not. So we do have agents and distributors who can cover that if they choose, but we are -- as part of the China transformation, we've merged our 2 Service brands to make us more efficient and productive so that our Service contribution in China continues to improve. That will happen through density, and it will happen through us with our 2 brands. Now, being able to service and have shared routes, or even improved coverage, we think we're going to see that improvement come through in '26 as well. Operator: This concludes the question-and-answer session. I'll now turn to Judy Marks for closing remarks. Judith Marks: Thank you, Sarah. As you've seen, our Service flywheel is performing. This performance momentum is across the board in both segments and all regions. With the growing Service portfolio approaching 2.5 million units and an accelerating modernization business, we're confident we'll continue to deliver attractive and sustainable shareholder value for the remainder of this year and beyond. Thank you for joining us today. Stay safe and well. Operator: This concludes today's conference. Thank you for joining. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I'd like to welcome you to the American Electric Power Third Quarter 2025 Earnings Call. [Operator Instructions] I'd now like to turn the call over to your host for today, Darcy Reese, Vice President of Investor Relations. You may begin. Darcy Reese: Good morning, and welcome to American Electric Power's Third Quarter 2025 Earnings Call. A live webcast of this teleconference and slide presentation are available on our website under Events and Presentations. Joining me today are Bill Fehrman, Chair, President and Chief Executive Officer; and Trevor Mihalik, Executive Vice President and Chief Financial Officer. In addition, we have other members of our management team in the room to answer questions, if needed, including Kate Sturgess, Senior Vice President, Controller and Chief Accounting Officer. We will be making forward-looking statements during the call. Actual results may differ materially from those projected in any forward-looking statement we make today. Factors that could cause our actual results to differ materially are discussed in the company's most recent SEC filings. Please refer to the presentation slides that accompany this call for a reconciliation to GAAP measures. We will take your questions following opening remarks. Please turn to Slide 6, and let me hand the call over to Bill. William Fehrman: Thank you, Darcy, and welcome to American Electric Power's Third Quarter 2025 Earnings Call. I'm happy to be with everyone this morning. This is a transformative moment for our industry, and I'm proud that AEP is standing out among our peers as one of the fastest-growing, high-quality pure-play electric utilities. Over the last year and to ensure AEP is extremely well situated for unprecedented growth and value creation, we have welcomed several new proven leaders. We have made significant changes to the organization to grow financial strength and deliver constructive regulatory and legislative outcomes while at the same time, driving accountability and operational excellence. I believe this is a different AEP from the past. Our winning team is executing at an accelerated pace of play to grow this incredible company and deliver results for our customers and shareholders as we invest significantly in infrastructure across high-growth regions in our impressive 11-state service territory. align our business with state and federal goals and achieve positive legislative and regulatory outcomes and leverage our size and scale to manage cost and supply chain pressures. For example, AEP is one of the best positioned utilities in the industry with 8.7 gigawatts of gas turbine capacity currently secured from major manufacturers and a high-voltage equipment agreement in place with a key industry player. As a result of our tremendous progress and rapidly growing opportunity in front of us, we are extremely excited to announce our new increased long-term operating earnings growth rate of 7% to 9% for 2026 to 2030 with an expected 9% compounded annual growth rate over the 5-year period. This impressive growth rate is driven by one of the largest capital plans in the industry, $72 billion, which is underpinned by massive system demand and supported by a balance sheet demonstrating strong credit quality. There is a lot to be excited about at AEP. And in my remarks today, I will provide an overview of our strong financial results and outlook before speaking to the drivers behind our growth trajectory, our recent regulatory and legislative progress and our focus on affordability for customers. An overview of our new financial plans and key messages can be found on Slides 6 and 7 of our presentation. We are pleased to share that AEP reported third quarter 2025 operating earnings of $1.80 per share or $963 million. These results, in combination with our strong financial performance in the first half of the year and ability to execute, give us confidence in reaffirming our 2025 full year operating earnings range of $5.75 to $5.95 per share, while guiding to the upper half of this range. We are also unveiling our 2026 operating earnings guidance range of $6.15 to $6.45 per share, which is an approximate 8% increase based off the 2025 guidance range midpoint. In a few minutes, Trevor will walk through third quarter performance drivers and provide additional details surrounding our outlook for 2026 and beyond. Electricity demand growth is happening, and we are seeing it play out across the country in real time. Regions with concentrated data center and industrial development, including AEP's footprint, are emerging as clear winners. Large annual capital budgets from hyperscalers totaling hundreds of billions of dollars reinforce the conviction, strength and staying power of this demand growth. At a high level, AEP's revised long-term earnings trajectory has been updated to reflect the strong load growth we are experiencing across the communities we serve. We project a system peak demand of 65 gigawatts by 2030 within our diversified service territory, especially in Indiana, Ohio, Oklahoma and Texas. This growth is fueled by data centers, reshoring of manufacturing and further economic development, which we expect to create jobs in local communities and maintain affordability as our load grows by almost 76% in the next 5 years. The 65 gigawatt AEP system-wide projection now includes 28 gigawatts of contracted load additions on top of our existing 37 gigawatt system. These incremental 28 gigawatts, up from our formerly reported 24 gigawatts are backed by electric service agreements or letters of agreement, protecting us and our customers from changes in planned usage. I also want to emphasize that it is critically important that costs associated with these large loads are allocated fairly and the right investments are made for the long-term success of our grid. For that reason, we have secured commission approvals for data center tariffs in Ohio and large load tariff modifications in Indiana, Kentucky and West Virginia with pending tariff filings in Michigan, Texas and Virginia. These baselines are designed to protect other customers from bearing the cost of grid improvements required to meet the energy demands of large load customers. As you can see on Slide 8, we have unmatched transmission scale and expertise and large load customers are drawn to our footprint because of AEP's advanced transmission system. Through innovation, we pioneered the modern 765 kV transmission system in North America. These are the highest voltage lines that form the backbone of the transmission network. We have over 60 years of expertise in design, construction and operation of assets like these and many current industry standards and practices for 765 kV transmission were developed by AEP. Today, AEP owns and operates in excess of 2,100 miles of these ultra-high-voltage 765 kV transmission lines across 6 states, representing 90% of the 765 kV infrastructure in the U.S. This is more 765 kV lines than all other utilities combined, uniquely positioning us with the biggest electric transmission system in the country to attract customers who need large volumes of consistent and reliable power. Building on this, AEP was recently awarded 765 kV projects in the ERCOT Permian Basin and through the PJM regional transmission expansion plan, setting us up well for future growth opportunities. These transmission awards were included in our new $72 billion capital plan spanning over the next 5 years. By combining AEP's vision for a modern, reliable grid and our partnership with a major energy infrastructure equipment provider, we can accelerate the development of 765 kV projects that are essential to meeting future reliability, resiliency and energy delivery needs. Turning to Slide 9. We are focused on operational excellence to advance service and reliability interest in each of the states we operate in, while achieving constructive outcomes that are good for our customers and our shareholders. ADP's (Sic) [AEP's] operating company leadership is changing how we run our businesses, and we are working diligently with legislators and policymakers for constructive outcomes. I personally have been actively engaged and met with regulators and leaders across all 11 states that we have the privilege of serving, to better understand each of their needs and priorities. In addition to better serving our customers, all of these efforts will help us to reduce regulatory lag and improve forecasted regulated ROEs to 9.5% by 2030. This will support operating cash flows as we drive forward with $72 billion of infrastructure investment while maintaining affordability. In 2025, we have been involved in the passage of constructive state legislation. Some of these positive legislative outcomes include Ohio House Bill 15, which establishes a new regulatory framework with a multiyear forward-looking test period with true-up provisions for AEP Ohio rate cases. Oklahoma Senate Bill 998, which authorizes the deferral of plant costs placed in service between rate cases at PSO and Texas House Bill 5247 that allows for a single annual unified tracker mechanism to recover depreciation and carrying costs associated with capital investments at AEP Texas. The improvement in the customer experience and stakeholder relationships also results in positive regulatory outcomes as we put power in the hands of our local leaders to build financially strong utilities in the communities we serve. Our operating companies continue to advance ongoing base rate cases including AEP Ohio, Kentucky Power and SWEPCO in Arkansas and Texas. We look forward to working with stakeholders to achieve positive and balanced outcomes that benefit both our customers and investors. As an update on the case that APCo filed late last year in West Virginia, we are pleased that the commission issued an interim order with full approval of the $2.4 billion securitization proposal, which will enable the redeployment of capital throughout our business, while at the same time driving affordability to our West Virginia customers. However, we are not finished with the recent base case order in West Virginia. There is more work to be done as evidenced by APCo's reconsideration filing made last month centered around adjustments to the authorized ROE, capital structure and rate base. We continue to have conversations with state leaders regarding fair financial returns that they desire to attract more capital and make West Virginia an energy hub. Moving on to resource adequacy. Electricity demand growth is putting pressure on reliability, and this new demand is driving the need for generation diversity, including significant generation additions or retirement delays. I will highlight several recent key developments that help support AEP's generation resource adequacy needs and reinforce grid stability for our communities. In August, parties reached a unanimous settlement on I&M's acquisition of the 870-megawatt combined cycle natural gas generation facility in Oregon, Ohio. This follows commission approval of Green Country, which is PSO's 795-megawatt natural gas-fired facility in James, Oklahoma. In September, generation resource filings were submitted by I&M for up to 4.1 gigawatts and by PSO for approximately 1.3 gigawatts. And earlier this month, APCo filed an integrated resource plan in West Virginia for roughly 5.9 gigawatts of resource needs over the next 10 years, outlining our strategic approach to meeting future energy and capacity requirements through a balanced approach. In summary, additional capacity is needed to ensure the availability of continued reliable power for both current and future customer needs, while providing more efficient and timely regulatory approval processes. AEP is well positioned to be a significant player in meeting these generation needs. Beyond these filings and in line with our history of innovation, we continue to explore generation solutions for the benefit of our customers during this period of massive demand. We previously announced our participation in the early site permit process for 2 potential small modular reactor or SMR locations, one in Indiana and another one in Virginia. As we evaluate these exciting opportunities, our moving forward with SMR considerations will require strong capital investment protections, safeguards for our balance sheet and credit metric strength and clear regulatory and governmental support. And finally, as seen on Slide 10, I would like to reiterate that our team is keenly focused on customer affordability as we advance our $72 billion capital plan over the next 5 years. We are mitigating residential rate impacts through affordability levers, including incremental load growth, rate design, continuous focus on O&M efficiency and financing mechanisms like securitization. Earlier this month, AEP also closed on a loan guarantee from the U.S. Department of Energy related to upgrading 5,000 miles of transmission lines. The loan backs projects that enhance reliability while also supporting economic growth in our states and reducing bill impacts for customers. As we ramp up our investments in this electric infrastructure super cycle, more of the incremental costs are assigned to commercial and industrial customers who are driving the increased investment. We forecast residential customer rates to increase on the system average by approximately 3.5% annually over the 5-year period. This is relatively mild and below the 5-year historical average inflation rate of over 4%. Wrapping up, we have had an extremely busy and productive year so far with the entire team working at an unmatched pace to deliver results for all stakeholders. We are investing substantially to meet an extraordinary moment in our industry, engaging with our regulators and state leaders to deliver on their key policy objectives and taking concrete steps to keep customer bills affordable. I have great confidence in our strategy and team, and I am excited about the opportunities ahead as we drive growth and create value for our investors. With that, I will now turn the call over to Trevor, who will walk us through the third quarter performance drivers and provide details surrounding our incredible financial growth outlook. Trevor Mihalik: Thank you, Bill, and good morning, everyone. I'm excited to share several key updates with you today. I will begin with a review of our third quarter and year-to-date financial results, followed by an in-depth look at our newly established long-term operating earnings growth rate of 7% to 9% Building on Bill's comments, I will also highlight the exceptional load growth we are seeing, supported by the updated $72 billion 5-year capital plan. And finally, I will wrap up with remarks on our financing strategy. Let's now walk through our financial results starting on Slide 12. Operating earnings for the third quarter totaled $1.80 per share compared to $1.85 per share in the same period last year. This change primarily reflects the impact of the prior year sale of the on-site partners distributed resources business within Generation & Marketing. Turning to Slide 13. Year-to-date operating earnings totaled $4.78 per share, up from $4.38 per share in 2024. You will see that this represents an increase of $0.40 per share or approximately 9% year-over-year. This strong year-to-date performance was mainly driven by favorable rate changes across multiple jurisdictions, strong transmission investment execution and continued benefit from load growth. Notably, we saw significant commercial and industrial load growth of nearly 8% on a rolling 12-month basis as of September 30, 2025, compared to the same period last year. Recall, a majority of our large load customers are under take-or-pay contracts, which I'll address in more detail shortly. Additional information on our sales performance can be found in the appendix. These positive drivers were partially offset by increased spending on system improvements, depreciation tied to higher capital investments and interest expense. Similar to the quarterly results, our year-to-date performance in the Generation & Marketing segment reflects the prior year sale of the distributed resources business. While this transition led to a lower contribution from the segment, it was meaningfully offset by favorable energy margins, which helped support overall results. Our strong year-to-date results provide us with the confidence to guide to the upper half of our 2025 operating earnings range of $5.75 to $5.95. Please turn to the next slide. We've established our 2026 operating earnings guidance range at $6.15 to $6.45 per share with a midpoint of $6.30. This reflects nearly an 8% increase over our 2025 guidance midpoint and is fully aligned with our newly introduced long-term operating earnings growth rate. As Bill mentioned earlier, we are excited to announce our increased long-term operating earnings growth rate of 7% to 9% annually from 2026 through 2030 with an expected CAGR of 9% over the 5-year period. We anticipate growth to be in the lower half of the range for the first 2 years and at or above the high end of the range in 2028, 2029 and 2030. This outlook is supported by our exceptional load growth fundamentals, highlighted by 28 gigawatts of incremental and contracted load backed by electric service agreements or letters of agreement. This unprecedented demand serves as the foundation of our expanded $72 billion capital investment plan, positioning us to deploy the critical infrastructure needed today while actively shaping the energy infrastructure landscape of tomorrow, building a more reliable, resilient grid of the future. Turning to Slide 15. We're illustrating AEP's strong load forecast for the period from 2026 through 2030. There are 3 defining characteristics I'd like to emphasize. Our load growth forecast is big, conservative and drives our capital strategy. First, it is big. In this quarter alone, approximately 2 gigawatts of data center load came online, roughly equivalent to 2 large-scale nuclear power plants. And for the 28 gigawatts of forecasted additions, this is equivalent to almost doubling our current system. Customers behind this growth are substantial with approximately 80% coming from data processors, including large hyperscalers such as Google, AWS and Meta. These are well-capitalized global firms with sustained demand profiles. The remaining 20% is driven by new industrial customers. These include major projects such as Nucor Steel Mill in West Virginia and Cheniere's LNG facilities in Texas. Together, these diverse customer groups form a strong foundation of long-term partnerships in infrastructure development, driving substantial energy demand and economic growth to the communities that we serve. Second, it's conservative. Our forecast is not a theoretical model. It's built on signed contracts. From roughly 190 gigawatts of customer interest, we have distilled this down to 28 gigawatts of executed financial commitments. We have evolved our contracting strategy to sign full take-or-pay agreements earlier in the development cycle, helping us to filter out speculative load. Commission approved tariff reforms have strengthened these contracts, especially in our vertically integrated businesses but generation investments must be tightly aligned with the real demand to protect customer rates. Finally, this load forecast is the foundation of our capital plan. To serve this growth, AEP must deliver more than 100 million-megawatt hours of incremental power annually by 2030. Meeting this demand will require a scale of capital investment that sets a new benchmark for AEP. I will walk through the details of our large capital plan on Slide 16. Our $72 billion 5-year capital plan represents a more than 30% increase over our previous plan. Over 2/3 of this investment is directed towards transmission and generation, supporting the extraordinary load growth I mentioned earlier. In addition, nearly order of the plan is focused on strengthening our distribution network including system enhancement programs and other grid modernization efforts that are critical to improving reliability and performance for our customers. This capital plan drives a 5-year rate base CAGR of 10%, with nearly 90% of the investment recovered through reduced lag mechanisms, including formula rates, forward-looking test years and capital riders and trackers. Importantly, we are applying a ruthless capital allocation lens to every dollar we deploy, ensuring that each investment is aligned with customer needs regulatory efforts and long-term shareholder value. This disciplined strategy allows us to prioritize high-impact projects and maintain financial strength as we execute at scale. Let's turn to Slide 17 to discuss our high-growth transmission business. As Bill mentioned earlier, large load customers are drawn to our footprint because of AEP's world-class transmission system particularly our ultra-high voltage 765 kV backbone. Our unmatched expertise in the design and construction of ultrahigh voltage transmission continues to secure major projects. positioning AEP as one of the industry leaders best equipped to meet and capitalize on the accelerating AI-driven demand. Transmission is a core engine of value creation for AEP. In fact, more than 50% of our projected 2026 operating earnings will come from this high-growth business. Looking ahead, our transmission rate base is expected to exceed $50 billion by 2030. And generating substantial shareholder value through highly constructive regulatory framework. Next, I will cover our 5-year financing plan on Slide 18. This plan is built on strong cash flow from operations, driven by disciplined investment execution, favorable legislative and regulatory developments and a continued focus on cost management. It supports robust liquidity and with only about 25% of our outstanding debt maturing through 2030. In addition, we remain committed to returning capital to our shareholders through consistent dividend growth. A key component of the plan includes a modest amount of growth equity totaling $5.9 billion. In fact, we have limited near-term equity needs with over 80% of the growth equity projected to be issued during the back half of the 5-year plan. This financing plan is designed with flexibility in mind, enabling us to evaluate and deploy the most efficient financing tools to support our capital expansion. Over the planned horizon, we are targeting an FFO to debt ratio of 14% to 15% for both S&P and Moody's. We currently exceed our FFO to debt target with S&P at 15.7% this quarter and comparatively we are above our 13% downgrade threshold at Moody's. We expect to be near our 14% target with Moody's by the end of 2026 and in the targeted range for the remainder of the plan. Additional details on our third quarter FFO to debt metrics can be found in the appendix. Before we open the line for your questions, let's turn to Slide 19 and recap the key takeaways from today's discussion. Each one reinforcing why we are so energized about AEP's future as a high-growth, high-quality pure-play electric utility. First, we have delivered exceptional financial performance year-to-date which gives us the confidence to guide to the upper half of our 2025 operating earnings range of $5.75 to $5.95. This reflects not only disciplined execution as we leverage our size and scale but also the strength of our streamlined organization, which is driving accountability, operational excellence and results; second, we formalized our large $72 billion capital plan driving a 10% 5-year rate base CAGR with nearly 90% of investment recovered through reduced lag mechanisms. We're applying ruthless capital discipline to ensure every dollar deployed delivers on customer priorities regulatory alignment and long-term shareholder value. Third, today, we introduced an increased long-term growth rate of 7% to 9% and with growth expected to be at or above the high end of the range in the final 3 years of the plan. This marks a strategic step forward in our outlook grounded in real accelerating demand. Fourth, our earnings growth is underpinned by strong load growth, driven by our ultra-high voltage transmission backbone that continues to attract new customers into our footprint. This growth outlook is not only substantial, but it's also conservative and it forms the foundation of our $72 billion capital plan. Fifth, affordability and balance sheet strength remains central to our strategy as we execute our multibillion-dollar capital plan with discipline. We are forecasting average system residential customer rates to increase at approximately 3.5% annually through 2030, well below the 5-year average rate of inflation of 4%. This reflects our commitment to ensuring cost stability for our customers as we invest in the system. At the same time, our financing strategy is grounded in strong cash flow from operations with over 80% of growth equity projected to be issued during the back half of the plan. This approach is intentionally designed to support disciplined capital expansion through efficient financing while maintaining financial strength and flexibility. And finally, our momentum is further supported by constructive legislative and regulatory progress as we continue to empower local leadership and build financially strong utilities in the communities we serve. These efforts are expected to reduce regulatory lag, trim the gap between earned and authorized ROEs and support strong operating cash flows. I am truly excited to be part of this journey. I firmly believe AEP is one of the most compelling companies in our industry, uniquely positioned to lead, grow and deliver in today's transformative environment. With a clear strategy, the strength of our size and scale disciplined execution and unmatched infrastructure capabilities, we are well equipped to seize the opportunities ahead with confidence and create significant value for our stakeholders. We appreciate everyone's time today and your interest in AEP. We look forward to seeing many of you at the EEI conference in the next couple of weeks. And with that, I will now ask the operator to open the line so we can take your questions. Operator: [Operator Instructions] Our first question comes from the line of Ross Fowler from Bank of America. Ross Fowler: Just a couple of questions. If I'm looking at Slide 14, that looks like a pretty big earnings step-up as I look at the CAGR going out on the bars in 2028. Can you just kind of maybe Trevor, walk through the drivers of that? And is part of that maybe the schedule and timing of the Ohio rate case filing or under the new construct? Or how should I be thinking about it? Trevor Mihalik: Yes. Thanks, Ross, and I appreciate you joining today. We do see a lot of the earnings being driven by the capital plan. And certainly, in the middle part of the plan in '27 and '28 is when the most CapEx gets deployed. And so we're seeing about the capital plan peaking at about $17 billion in the middle part of the plan. And that's really what's driving a lot of the increase in the earnings for that step-up in that period. The other thing is, as you say, we've also gotten some positive legislative and regulatory outcomes that will manifest itself in that part of the planning cycle. And that includes the forward-looking test year in Ohio, Certainly, HB 5247 in Texas is a huge benefit to attracting capital to the state and having us deploy capital, which also is helping to narrow the gap around ROEs. And then also SB 998 in Oklahoma is another piece of legislation that also is helping narrow the gap. And so those are where you see that a little bit of the step change. And I know it's been a little unorthodox with regards to how we have put out the growth rate saying that we would be at below the midpoint of the growth rate in the first couple of years of the plan. And in fact, you can see us going from the midpoint of the $585 million to the $630 million in '25 to '26. But then we're pretty confident of being at or above the high end of the range in the back 3 years of the plan, and that's why we also put that 9% CAGR out there for the overall earnings. Ross Fowler: That's very fair, Trevor. And I guess as I look at Slide 18, talking about $5.9 billion of equity in the plan. How are you thinking about the composition of the business? Do you think there's more potential for minority stake sell-downs? Or how should I think about addressing that equity need over time? Trevor Mihalik: Yes. I'll take the equity, and then I'll let Bill address where he thinks we are with regards to potential any other sell-downs. But what we've tried to do is recall that we've said that we anticipate between 30% and 40% equity with regards to increasing the capital plan. And so when we laid out the $18 billion increase in the capital plan, this is roughly, call it, 33% of growth equity. The good news is because we've been very proactive under the $54 billion existing capital plan with both the asset sale in the Transcos this year as well as issuing the equity for the full 5-year plan, we really have a situation where a lot of that growth equity is now in the back end of the plan. And so what we will do is we're showing an ATM in 2026 of, call it, roughly $1 billion. And then we don't need equity for a period of time in the middle part of the plan. And then as we get to the back end of the plan, we'll either do an ATM or potentially a block equity deal in the back end of the plan. But again, I think this is very indicative of us saying we will issue equity to fund growth and great growth at that across the system. And then, Bill, do you want to take the question on any further sell-downs? William Fehrman: Yes. Thanks, Trevor. As Trevor noted, we're very encouraged by very favorable legislative and regulatory developments across our states. And our continued focus on disciplined cost management is going to continue to be a major effort of ours to support FFO. And so at this time, we're not planning any asset sales to fund the plan going forward. But obviously, we'll continue to assess things as they come up. Operator: Our next question comes from the line of Shar Pourreza from Wells Fargo. Our next question comes from the line of Steve Fleishman from Wolfe Research. Steven Fleishman: Congrats. The -- I guess, maybe, Trevor, on the '28 to '30, the part where you're kind of 9% or better. Is there like -- is there some type of shaping to that over those periods? Like does it accelerate higher? Or is it just pretty consistently 9% or better those years? Trevor Mihalik: Yes. Steve, I think where we are is it kind of gets back a little bit to Ross's question as we see the earnings step up in the mid part of the plan. And I would say what we're feeling pretty confident about is that giving the guidance where we said of '28, '29 and '30, we will be at or above the high end of the plan, I think you can assume that, that is pretty flat as of this point. Now I will say the good news is we continue to see a lot of growth, and we're excited to roll out this new plan. '28, '29 and '30 are out quite a ways with regards to the plan. And so it still gives us a potential to see incremental deployments. We continue to sign LOAs and ESAs. But right now, the way we've got it modeled, and again, this gets back to my mantra of make sure that we're very confident in the numbers we put out and deliver on those numbers. And so this gets back to the underpromise and overdeliver. And from my perspective, by saying that we're at or above the 9%, you can assume that, that's pretty flat in those 3 years at or above that 9%. Steven Fleishman: One just clarification. What's -- can you just clarify what the difference is between an LOA and an ESA? Trevor Mihalik: Yes. So really, an LOA for the letter of agreement is generally a first step before you get to an ESA. Both have financial obligations, but an ESA, an energy service agreement tends to be more binding. Now that being said, I will say down in Texas in ERCOT, we only sign LOAs and not ESAs. And so from that perspective, we want to make sure that when we talk about that 28 gigs, we're very confident in that because they're all under LOAs or ESAs. And in Texas, where there is no ESA, we feel very good about those LOAs that are getting signed down there. I will say, as we distill down from that 190 gigs and we continue to scrub that, that ultimately generates the 28 gigs of incremental load growth, I will say there are some LOAs that are executed that are not included in that 28 gigawatts as we continue to negotiate and work through to ultimately get to an ESA. So again, it gets back to my point in the prepared remarks where I said that it's real and it's conservative on the 28 gigawatts. Steven Fleishman: Okay. And then last question maybe for Bill. Just -- you mentioned something about a partnership with an infrastructure provider. Could you maybe give more color there? And just the turbine orders, like I think those are somewhat new, kind of when do those come in? And any update on Bloom, so just all your different partnerships and supply chain? William Fehrman: Sure. Thanks, Steve. So we're in the process of putting in place long-term supply framework agreements for the major equipment components that we'll need to deliver on the plan. And the good news for us is that we have in place significant agreements for turbines and for the high-voltage transmission transformer equipment that we need. And so I'm very comfortable with where we sit. The team has done a nice job of positioning us well to deliver on this. As I noted in my comments, I've added a lot of strength into this management team, particularly from Berkshire, who are very skilled at delivering multibillion-dollar capital programs and bringing them in to deliver. And so again, I'm quite comfortable with where we sit both on the management talent and on the major equipment that we have. On Bloom, we're still working with potential customers to deploy the additional megawatts that we have with them and look forward to hopefully having more to report on that perhaps by EEI. Operator: Our next question comes from the line of Jeremy Tonet from JPMorgan. Jeremy Tonet: Just want to look through the planned roll forward a little bit more as it relates to dividends. I was just wondering if you could talk a bit more specifically on what you see the DPS CAGR over that time period being, particularly in the back part of the plan. Trevor Mihalik: Yes. So Jeremy, I appreciate that question. What we've really done here is we just got out of our Board meeting and our Board did recently raise the dividend by 2% going into this next year. And we're also signaling that we are going to be at a 50% to 60% payout ratio. And the reason for this is because we have this robust capital plan and deploying capital is critical right now during this period of growth. And so what we've done is in the plan, we've assumed that the dividends are really increasing by the number of shares outstanding, and then we would make recommendations to the Board. As you know, this is a Board discretionary item and the Board would ultimately make the decision as to where we're going with the dividends. That said, certainly, the discussion that we had with the Board was they are supportive of us growing the dividend over a period of time. And I will say this marks 115 consecutive years of AEP paying a dividend, and we have had a continued dividend growth over the last, call it, a decade or so. And so this is something that we really look at as part of the overall total shareholder return and getting value back to our shareholders is both the dividends as well as the growing earnings over that period of time. So again, I would say, in conclusion, the Board is very committed to our dividend and getting a dividend that has a yield as well as a payout ratio that is well within the industry norms, but we did moderate it a little bit and made that recommendation to the Board given the 30-plus percent increase in the capital plan. Jeremy Tonet: Got it. That's very helpful. And then I just want to come back to the EPS CAGR, if I could, one more time to put maybe a finer point. When you're referring to the high end of 28% to 30%, is that year-over-year or CAGR? So basically, is this a CAGR of '26? Or is this year-over-year from '27 into '28? Trevor Mihalik: It's a year-over-year. Operator: Your next question comes from the line of David Arcaro from Morgan Stanley. David Arcaro: I was wondering if you could maybe just give a bit more of a sense of how the conversations are going with data centers and constraints on the system that you're seeing. So I guess I'm curious, are you able to keep up with the transmission capacity needs for data centers to handle all of this load growth? What's the wait time to connect that you're having to discuss with these customers? And is it fair to characterize a lot of this transmission CapEx that you're adding to the plan here? Is that opening up additional capacity to bring in these new customers? Wondering how that all kind of balances right now. William Fehrman: Yes. Thanks for that question. Really excited about where we sit in this regard. As we've noted in here, the increased incremental load growth projected through 2030 is the 28 gigawatts, up from the 24 gigawatts that we talked about before. And that demand growth is roughly 80% tied to data centers in the commercial class and about 20% tied to the industrials. Breaking that up a little more, about 75% is related to transmission and distribution, while 25% is tied to the vertically integrated utilities. And so as I look out across the RTOs, roughly half ends up in ERCOT, 40% in PJM and about 10% in the SPP. And so as we look at where we sit to connect these customers, clearly, we're working with them to site where we have available transmission today to help them with their ramp-ups in the manner in which they want to run their side of the business. And then in other cases, we're working with them to put in place behind-the-meter solutions. Obviously, Bloom is a part of that in certain cases. But we also have other strategies that we're deploying to support the data centers. And so for me, this company is all about serving our customers and trying to figure out a way to get them connected as quickly as they can. As we build out the transmission system, of course, that's going to open up additional opportunities to perhaps bring on more of that 190 gigawatts, but in the meantime, as Trevor noted, we're very focused on reporting what we have signed. We're going to underpromise and overdeliver in this area, but I couldn't be more excited with where we sit across our service territory. We are in, I would say, the cat bird seat with regards to connecting data center load. The 765 kV transmission network that we have provides us with an extreme competitive advantage for where these folks are trying to site. And so I just see an amazing future ahead of us in this area. David Arcaro: Okay. Excellent. Yes, that's helpful. And then I was wondering if you could characterize your strategy or your thoughts on the generation side as well for vertically integrated utilities. Just how do you manage the balance between how you're thinking about renewables, serving this new load versus gas? Yes, that's basically the question. Just as you see -- you've talked about peak load for sure, but you're seeing energy demands across the entire system and then, of course, peak as well. But yes, what's the balance there between renewables versus gas on the generation side? William Fehrman: Well, we're focused on doing what our states want as their energy policy. And so as we go across our major states and work with the customers in those locales, we'll move forward with the types of generation planning that they want. That, of course, gets sorted out generally through the integrated resource plans that we submit. And if you look at our major states, obviously, they're very much driven by gas at this point in time. That said, a number of our customers are still heavily interested in renewables. We have about a little over $7 billion in our capital plan for the deployment of renewables to support those customers. And so we're going to continue to go down that path and make sure that we're balanced between what the states want and what our customers want. And I feel very confident in our team that we have the capability to be able to deliver whatever approach those customers want to have in the states that they're located. Operator: Your next question comes from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: Nicely done. What a difference a year makes Absolutely. Wow, dream team here. Look, let me frame 2 questions. One, going back to the direction Steve was pressing you guys with respect to cadence. I mean, if you're accelerating towards the end of the plan, naturally, you'd ask, how does that trend beyond the current plan? And if I can cite evidence here, your peers in Indiana put out a growth rate that extends beyond 2030 at this point. How do you think about what you're seeing shape up, whether it's commitments for further ramp beyond 2030 and/or just being able to process some of that load in the longer term, right? I know that folks are trying to get in the queue quickly. But certainly, some of that's just going to take longer to process and drive growth beyond that period of time. How do you think about that 31%, 32%, if there was anything to say preliminarily? Trevor Mihalik: Yes. So Julien, I appreciate the question. And I tell you, this kind of gets back again to what I have said earlier that what we want to do is be very confident in the numbers that we put out and deliver on those numbers. And that's why I think this 9% CAGR and saying that in '28, '29 and '30, we'll be at or above the high end of the range, we have a great deal of confidence in that. What I want to do is ensure that we are going to deliver on what our commitments are over the next 5 years. And then as we continue to see opportunities roll in, we will revise that on an annual basis. That being said, I did intimate that of the 28 gigs that we say we see and are under firm LOAs and ESAs that there is some additional opportunity to see continued load growth on the system as we convert some of the LOAs that are currently being discussed and signed before they get to ESAs to come on. But what I don't want to do is put something out there that I don't feel very confident that we can deliver in. And that's why I'm very positive and comfortable with where we are on the 5-year and again, saying that we're at or above that 9%. And then I don't want to kind of try to sculpt that beyond or where that is in the '28, '29 period. And that's why I told Steve that we're going to be fairly flat in that area at the 9% or above. But again, what we're seeing is just incredible growth across the system right now, and that has been accelerating, and I think that will carry into the years beyond. Julien Dumoulin-Smith: And again, if I can go back to it and ask it in a slightly different manner. With respect to the current 5-year outlook, obviously, you have a lot of folks knocking on your door, right? You've got this 28 gigawatts, as you described, that you've got under contract. To what extent could you actually see positive revisions further as you convert some of the interest into more of those LOA, ESA term sheets? Is that conceivable? Or do you think given what you understand about your system that, look, this is pretty locked in and we frankly have a pretty rigid ability to accommodate more in this 5-year period? Trevor Mihalik: Yes. Look, Julien, I think we're excited about just like you said at the very opening comment here, what a difference a year makes and what we've been able to do within this 1 year as we continue to see this mass amount of growth on the system. And I know that some people say that we should be somewhat cautious in talking about the 190 gigawatts that are backing the 28 gigawatts, and those are in various stages of discussion. But again, we feel very good about that 28 gigawatts because of the 190 gigs behind it. And so I think that really could color your view as to where we are on the growth for the system, is it conservative given that you've got 190 gigs in various stages of discussion. And even if only a fraction of that were to come online, it's still a pretty compelling story from where we are today. Operator: Your next question comes from Carly Davenport with Goldman Sachs. Carly Davenport: Just a follow-up on some of the comments that you've been making on the LOAs versus ESAs. Are there LOAs outside of Texas that are in the plan? And then is there a defined term or gating factor for the LOAs that are included in the 28 gigawatts versus those that are not? Trevor Mihalik: Yes. So there are some LOAs outside of Texas. So again, in PJM, what we have is 100% of the increase is under LOA and then almost 80% is under ESA. Likewise, in SPP, 100% is under LOA and then there's a piece of it is under the ESAs. And then in ERCOT, of course, everything is under LOA. So again, what I want to emphasize, though, is these LOAs do have financial commitments associated with them, and that's why we have so much confidence in the 28 gigawatts, Carly. Carly Davenport: Got it. Great. And then just on the new transmission budget, curious what that assumes on the PJM open window opportunities. Is the most recent window sort of baked in there? Or is that a source as you think about potential upside opportunities on the transmission piece of the business? Trevor Mihalik: Yes, Carly, I would say we've taken into consideration into the 5-year capital plan, everything that we know with regards to existing transmission that we feel pretty confident about. But again, we continue to see opportunities around incremental investments in the transmission system, maybe not under new transmission lines, but certainly the continuation of the rebuilding of some of the infrastructure. But the PJM opportunities are built into this 5-year capital plan. Operator: Your next question comes from Nick Campanella from Barclays. Nicholas Campanella: A lot of good questions have been asked, but just maybe just on the earned ROE improvement, '26 through 2030, just what are you kind of holding your team to in terms of improvement year-by-year? Is that supposed to happen linearly through the plan? I know you have some big rate cases like Ohio that will be filed, which can kind of help catalyze that. But just maybe you can kind of comment on the cadence of ROE improvement between now and 2030 and what you expect year-by-year? William Fehrman: Yes. Thanks for that question. And first and foremost, I want to make sure that everyone knows ROE is front and center with us, and we've been spending an incredible time with the states and our regulators to look for improvements in this arena. And as I look back at where we were a year ago, our ROEs have shown steady improvement. And the drivers of that were constructive regulatory outcomes and pretty favorable legislative developments. And so I know that as we look forward, we're going to continue to drive better outcomes. But I really like where we're at. Just in the recent past, we've had a lot of success. If you look at AEP Transmission, AEP Ohio, I&M, all of those have posted ROEs near or above their authorized. AEP Texas is going to continue to improve their ROE rising to 9% in quarter 3 from 8.6% last quarter. And again, that's due to a great legislative outcome in HP 5247. And then at PSO, SWEPCO and Kentucky Power, while those are impacted by regulatory lag, we expect to see good improvements and really better outcomes due to the new base cases and the generation filings we're making there. And then I want to address West Virginia right upfront. It was obviously -- their ROE was affected by the most recent regulatory order we got, but we're fully engaged in West Virginia. We have filed for reconsideration. We're working with all the stakeholders there, and that continues to be a major focus of mine. I'm spending a significant amount of time in West Virginia to try and support a better outcome there. And so when I add all that up and I think about where we're at overall from where we were just a year ago with the focus that we've had on ROE, I feel very good about what we put in the plan. I know we're 20 basis points off where we thought we might be, but for me, when I look at the significant improvement we've had across all of our states, I'm very excited about what the team has done, and it just really sets us up very strongly for moving forward from here. Nicholas Campanella: Okay. Okay. And I'm sorry if I'm not understanding it fully, but just on the 7% to 9% because there's just this dual communication here. Just in '28, should we be growing that 9% plus off of '27? Or should we look at that as a CAGR from '26 and what 9% would imply for '28? Trevor Mihalik: Yes. So I think what you want to do is we've kind of bifurcated it into the 2 pieces here. And we've said for the first 2 years of the plan, we will be growing at below the midpoint of the 7% to 9%. And really on the back 3 years, we will be growing at or above the 9%. And so from a standpoint, that's why I gave the 9% CAGR over that 5-year period starting from the midpoint of 2025. And so I think what that does, Nick, is it really allows you to kind of walk out the EPS numbers almost on an annual basis here because I'm giving you the midpoint of the 2026 and then you can assume that the 2027 is kind of consistent with that growth. And then once we go up to '28, '29 and '30, we'll be growing at that basically high end of the range, at or above that high end of the range for an overall CAGR over that 5-year period of 9%... Nicholas Campanella: I'm sorry to make you repeat yourself and looking forward to EEI. Darcy Reese: Are you there, Colby? We have time for one last question. Operator? William Fehrman: Well, it sounds like the call is coming to a close. Really appreciate all of you joining us on today's call. I'd like to close with just a few summary remarks. So I'm very excited about when I think the -- about the opportunities ahead at AEP as we advance on our long-term strategy to drive growth and create value while enhancing the customer experience. I'm also extremely proud of the entire AEP team and particularly all of the strong support received from our Board of Directors. We're putting our robust $72 billion capital plan to work as we continue to grow the business across our large footprint and deliver on our commitments for the benefit of our customers, our communities and all of our other stakeholders and investors. And finally, if there are any follow-up items, please reach out to our IR team with your questions, and we look forward to meeting with many of you at EEI in a couple of weeks. This concludes our call. Thank you.
Operator: Good day, and thank you for standing by. Welcome to the Smurfit Westrock 2025 Q3 Results Webcast and Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Ciaran Potts, Smurfit Westrock Group VP, Investor Relations. Please go ahead. Ciaran Potts: Thank you, Sarah. As a reminder, statements in today's earnings release and presentation and the comments made by management during this call may be considered forward-looking statements. These statements are subject to risks and uncertainties that could cause our actual results to differ materially from our expectations and projections. These risks and uncertainties include, but are not limited to, the factors identified in the earnings release and in our SEC filings. The company undertakes no obligation to revise any forward-looking statements. Today's remarks also refer to certain non-GAAP financial measures. Reconciliations to the most comparable GAAP measures are included in today's release and in the appendix to the presentation, which are available at investors.smurfitwestrock.com. I'll now hand you over to Tony Smurfit, CEO of Smurfit Westrock. Anthony P. J. Smurfit: Thank you very much, Ciaran, for the introduction. Today, I'm joined by Ken Bowles, our Executive Vice President and Group CFO, and we appreciate all of you taking the time to be with us. I am very happy to say that we have again delivered on guidance in what is a challenging environment with an adjusted EBITDA margin number of USD 1.3 billion and an adjusted EBITDA margin of 16.3%. The quarter was characterized by some challenging months, specifically July in our North American region and August in Europe. Nonetheless, we were able to come through with the numbers we predicted and planned. Since our combination, our North American business has shown great improvement over the course of the last 16 months on both the commercial and operational front, that's reflected by an improved adjusted EBITDA margin of 17.2% for the quarter. As you will have heard us say, as we got to understand the legacy Westrock business, we have taken strong actions to remove uneconomic volume within our portfolio of businesses. This, of course, has resulted in a loss of volume as we transition and reposition our business. While there will be a time adjustment to this reposition, we believe we are clearly on the right track as we are already seeing quality customer wins. In addition to changing our customer portfolio, we're also continuing to rightsize the business by closing down inefficient or loss-making operations including the recently announced closure of a corrugated facility in California in addition to the 8 previously announced closures. In paper, we have already announced approximately 500,000 tons of capacity closure in both containerboard and consumer board grades. These footprint optimizations will be a continuing feature as we develop and grow our business. Turning now to EMEA and APAC. Our adjusted EBITDA margin of 14.8% is highly creditable given the environment that exists in the European sphere. We believe it clearly demonstrates the power of the integrated model, which is producing this resilient margin in an environment of paper overcapacity. Our mills continue to run optimally, while at the same time, our converting business are capitalizing on their outstanding leadership position in innovation. We believe this, combined with our insights into sustainability and the significant pending regulations from the European Union should give our customers confidence to help them in navigating this environment. In our LatAm business, with an excellent EBITDA margin of over 21% due to our strong market position principally -- these are principally in Brazil and our Central Cluster. Our sequential margin showed a small fall in the last quarter as a result of some operational issues in one of our larger mills in our Central Cluster, which is now being resolved. The region still has significant growth opportunities for us to develop in the years ahead. Turning now to the group and regional highlights. What I'm very happy with is the initial potential of the combination as evident in our cash flow performance in the quarter, with operating cash delivered USD 1.1 billion and an adjusted free cash flow of approximately USD 850 million -- USD 580 million. One of the things that especially pleases me about this number is that we're really only starting to get going on working capital optimization as we continue to focus on operating excellence. I'm also very happy to have the people in the new Smurfit Westrock have come together and adapted to the culture of the company and its values of loyalty, integrity and respect and safety adoption by everyone in the workplace. The group has also been working effectively on the synergy program, which Ken will speak on further, which is exceeding our expectations, especially when one looks at the commercial improvements that we can see across the businesses. Finally, in the group, not only in North America, but also in Latin America and Europe, we continue to optimize our asset base with the recent closure of a facility in Brazil and the transfer of equipment to other operating units, together with constant trimming of our assets in our European sphere. In terms of the regions, as I've mentioned, we continue to make excellent progress across our North American system. For example, in corrugated, our loss-making units have declined by almost 50% in a 1-year period with today, over 70% of our corrugated operations solidly profitable. And we expect significantly more progress to occur as we replace and swap out uneconomical volume. In our consumer business, this business is very well positioned with substantial investments and restructuring already done. With strong positions in SBS and CUK, we're actively working to transfer customers from CRB to these grades and have already switched about $100 million worth of business. We do, however, believe in offering all 3 substrates to our customer mix. Our first Global Innovation Summit was held in Virginia in September. And the rollout of our Experience Centers in our North American region, while in its infancy, is now happening. In EMEA and APAC, our integrated model is really proving the success of our business. Our mills are well utilized, and our outstanding position and innovative offering is retaining and developing customers. One of the great opportunities for us has been the effective integration of our consumer operations into our European business. We have a vastly greater customer base to introduce to our consumer operations into Europe, and moving these businesses back to local sales and manufacturing accountability has already started to see some significant benefits. And finally, during the quarter, the rationalization of 2 of our German converting plants has been agreed. This will significantly strengthen our leading German position as we await the inevitable upturn. Turning to Latin America. I'm increasingly excited about our Brazilian operations. The legacy Smurfit and legacy Westrock businesses are a perfect fit with one concentrated on recycled containerboard and the other on virgin kraftliner. Our converting businesses have quickly adopted our value over volume focus, which is already showing significant improvements. In our Colombian business, we experienced significant growth of 8% due to our commercial offering and the market developing as a growing exporter of fruits and vegetables. Across the region, we're capitalizing on many of the growth and development opportunities we have. For example, in Chile and Peru, where our volumes grew by 15% and 25%, respectively, during the third quarter. I'd like to give you a sense of the excitement that exists and is building in -- within Smurfit Westrock company today. We're a stronger and better company through the adoption of the owner-operator model. Everyone across our world is now responsible for their own P&Ls. This has unleashed a tremendous enthusiasm and internal competition to do better and lends itself perfectly into having a performance-led culture where everybody is responsible for what they do. I'm especially pleased that we have now initiated global and regional leadership programs, whereby over 300 managers will have started our group programs. In Smurfit Westrock, people are at the heart of everything we do, and we ensure that they have the tools to succeed in their job and to realize their potential. And our synergy programs and optimize asset base, together with our innovation offering and transfer of best practice will, we believe, contribute to superior performance in the future. I'll now hand you over to Ken, who will take you through the financials. Ken Bowles: Thank you, Tony. Good morning, everyone, and thank you again for taking the time to join us. On Slide 8, you'll see the business again delivered another strong performance in the third quarter, with net sales of $8 billion, adjusted EBITDA in line with our stated guidance of $1.3 billion, a very solid adjusted EBITDA margin for the group of over 16% and a strong adjusted free cash flow of $579 million. The performance reflects the strength and resilience provided by a diversified geographic footprint and product portfolio, particularly in the challenging macroeconomic environment, and of course, the commitment and dedication of our people to delivering for all our customers. Turning now to the reported performance of our 3 segments. And starting with North America, where our operations delivered net sales of $4.7 billion, adjusted EBITDA of $810 million and adjusted EBITDA margin of 17.2%, an excellent outcome. In the region, we saw continued margin improvement, predominantly due to higher selling prices, our operating model in action and the benefits of our synergy program, alongside input cost relief on recovered fiber, which combined to more than offset lower volumes and headwinds and items such as energy, labor and mill downtime. Corrugated box pricing was higher compared to the prior year, while box volumes were 7.5% lower on an absolute basis and an 8.7% on a same-day basis. An outcome very much in line with our ongoing value over volume strategy, which we estimate accounts for about 2/3 of that volume performance. Third-party paper sales were 1% lower, while consumer packaging shipments were down 5.8%. With shipments in our smaller Mexican operations being lower than our U.S. business, which saw volumes down 3.7%. Our differentiated, innovative and sustainable approach to packaging continues to resonate with customers, which, coupled with the empowerment of our people to drop uneconomic business and the implementation of our owner-operator model is driving continuous business improvement across the region. Looking now at EMEA and APAC segment, where we delivered net sales of $2.8 billion, adjusted EBITDA of $419 million and adjusted EBITDA margin of 14.8%. Despite the challenging market backdrop, our operations remained resilient with adjusted EBITDA moderately ahead of the prior year. This performance reflects the skill of our local teams in managing a highly volatile cost environment and underscores the effectiveness of our integrated operating model, where we have consistently delivered an operating rate in our containerboard mills in the mid-90s. Higher corrugated box prices year-on-year alongside lower recovered fiber costs and a net currency translation benefit were partly offset by headwinds on energy and labor and lower third-party paper prices, while corrugated box volumes remained flat on both an absolute and same-day basis. We believe we are the market leader in Europe with strong market positions and a proven operating model, supported by our best-in-class asset base, which allows our people to continue to deliver high-quality sustainable packaging solutions for all our customers. This position is supported by our approach to innovation, where we have a large data set and bespoke applications that place the customer at the center of that conversation. Our LatAm segment again remained very strong in the quarter with net sales of $0.5 billion, adjusted EBITDA of $116 million and adjusted EBITDA margin of over 21%. Corrugated box volumes were flat year-on-year or 1% higher on a same-day basis, with the demand picture in the region showing a marked improvement with strong demand growth in Argentina, Colombia and Chile, amongst others. All while our value over volume strategy continues to deliver strong results in Brazil as we have now largely phased out unprofitable legacy contracts with volumes, with volumes there moving into a more neutral position. The region successfully implemented pricing initiatives to offset higher operating costs [ and delivered ] another consistently strong performance with a small step down in EBITDA margin year-on-year due to a now resolved issue in one of our operations during the quarter. As the only pan-regional player, we believe that Latin America continues to be a region of high-growth potential for Smurfit Westrock, both organic and inorganic, and one where we are well positioned to drive long-term success. Slide 10 outlines our proven capital allocation framework. I don't propose to go through each of these [ frameworks ] today, but I would note that in February, we plan to provide detail on how we see capital allocation underpinning the achievement of our long-term business goals. What is new is that our CapEx target for 2026 will be between $2.4 billion and $2.5 billion, broadly in line with the current year. We continue to invest ahead of depreciation and so this level remains accretive to earnings as we invest behind identified growth, efficiency, sustainability and cost takeout opportunities. The core tenet of our capital allocation framework is that it must be flexible and agile. This was our approach at Smurfit Kappa and continues to be our approach at Smurfit Westrock. It is a proven track record of delivery, and we are already seeing the benefits of it since forming Smurfit Westrock a little over a year ago. Our approach to allocating capital is disciplined and rigorous and requires that all internal projects are benchmarked against all of the capital allocation alternatives and is, therefore, always returns focused. On our synergy program, I'm pleased to confirm we are delivering as planned and on track to deliver $400 million of full run rate savings exiting this year. And finally for me, as noted in the release, the year-to-date has been characterized by a challenging demand backdrop, and as a result, we expect to take additional economic downtime in the fourth quarter to optimize our system. If you recall, we set out our guidance for the year in April. And given the impact from the above, we are now marginally adjusting that guidance range to where we now expect to deliver full year adjusted EBITDA of between $4.9 billion to $5.1 billion. And with that, I'll pass you back to Tony for some concluding remarks. Anthony P. J. Smurfit: Thank you, Ken. I hope you get a sense from my earlier commentary and Ken's performance summary that we believe that Smurfit Westrock is very well positioned for continued performance as well and the economic growth as it revives, I would say the company has never been in better position. Throughout the company, all of the people that are aligned with this approach, and we can already see the tangible benefits of this as many loss-making operations move into profit and thankfully, with much more to come. Reflecting the generally well-invested asset base, our capital spend for full year '26 is expected to be in a $2.4 billion to $2.5 billion range. We believe this level enables us to accelerate cost takeout, increase operating efficiency and capitalize in high-growth areas. In parallel, we recently announced restructuring initiatives, which also allow us to continue to optimize our asset base. As a more general point, our philosophy has generally been to buy and not build. As we have typically acquired at a fraction of the replacement cost is invariably cheaper with an enhanced returns profile. On acquisition, our objective is always to optimize through measured capital allocation decisions. We will discuss this further in February, and Ken has already touched on this. The delivery of our synergy program, together with our ongoing capacity rationalization remains a constant focus. With a significant headcount reduction of over 4,500 people and an unrelenting focus on the owner-operator model, we believe our performance to date is an indication of our potential. We remain confident that our footprint remains unrivaled with strong and leading market positions in the majority of the markets and grades of paper in which we operate. There is no question in our minds that since Smurfit Kappa and Westrock combined, we are building a stronger and better business with management aligned with shareholders and developing our performance-led culture. Over the last 16 months, we have taken significant steps to build this better business, and we are increasingly confident in the future prospects. While for sure, the current economic outlook is somewhat muted, our view is that the steps we are taking, investments we're making, the alignment we have with shareholders and the culture we're building within Smurfit Westrock positions us to go from strength to strength as economies improve. We end full year '25 and enter '26 as a better and stronger Smurfit Westrock. To that end, in February '26, we will be setting out our longer-term targets, which are a bottom-up approach from all of our businesses, which will be designated to identify prospects for this company as we look forward into the future. So thank you for your attention, and I look forward to taking any questions that you may have. Thank you, operator. Over to you. Operator: We will now go ahead with the first question. This is from Mike Roxland of Truist Securities. Michael Roxland: Congrats on all of the progress. Tony, you mentioned obviously, weakness in the European market from both demand and price, is there anything you could do to expedite cost takeout? You mentioned, obviously, continuing to trim assets in Europe, rationalizing the 2 German plants. But given the weakness that persists there right now, can you expedite cost takeout to try to get things rightsized faster? Anthony P. J. Smurfit: Yes. I think -- Mike, thanks for the question. I would say that we have done a really good job over 15 years of optimizing our capacity in Europe. Obviously, there's always little things to be done, but we're running our system pretty well full in Europe with the exception of August and probably December, where we'll take some downtime because those months typically are months where the corrugated box plants close for holidays. So our system is pretty well optimized. Obviously, we continue to look at it. We're basically a low-cost producer in the European market. And when you look at our returns and you look at some of the other competitors' returns that have been publicly available. And obviously, we get a sense of how some of the private guys are doing. We're far exceeding the returns in Europe. And -- so unfortunately, it is a question you've already seen a number of mill closures around the place. I think we're going to see more, and I think that the pain is very, very real, and you can see even some public companies with negative EBITDA margins in the containerboard business in a very significant way. So I think the old saying, the worse it gets, the better it will get, well, it's pretty bad right now. And I think when it turns, it will turn very sharply. And so that's what we are waiting for. Obviously, as I said, that doesn't mean we're sitting on our hands doing nothing. We're continuing to close a few facilities here and there, not very big ones, but we've done a number of stuff. And we have a very, very active cost takeout program across all of the business to mitigate all of the wage inflation that we've had over the last number of years. But -- so cost reduction programs do not stop. They're continual, and we continue to look at our asset base and will trim if necessary. Michael Roxland: Got it. And then just 2 quick follow-ups. Any color you can provide in terms of how demand trended in both North America and Europe in September and what you've seen thus far in October and any outlook for November? And then just quickly on consumer because it was interesting, you mentioned transferring $100 million of CRB business to SBS and CUK. Can you just help us frame the logic behind those moves? Is it just a matter of wanting to run SBS more efficiently at a higher rate? And is there any margin uplift associated with that shift? Anthony P. J. Smurfit: Yes. Taking your second question first. I mean, basically, as the SBS price has trended downwards. Because SBS, you can run with a stiffer sheet and you can use a lower grammage, it's basically become competitive with CRB. And there are positive qualities to SBS versus CRB in the sense of brightness and transportation costs, so -- and runnability on printing machines. So I'm not saying that CRB is all bad. It's not. There are certain customers that will really want CRB. There are certain customers that really want SBS, and there are certain customers who want CUK. And clearly, where the positioning is right now, it's just advantageous for our customers to look at SBS and so we've taken that opportunity as well as some of the CRB issues where, again, you've got some opportunities to -- especially in the freezer for frozen products to move into CUK, which is something we're actively promoting. And I think, as I said, we've $100 million or so already transferred in the last 4, 5 months, and I think more to come. On the first question, Mike, just remind me what was it? Michael Roxland: Demand trends. Anthony P. J. Smurfit: Demand trends. I don't -- I could say that we were expecting to see an uptick in October, and we did not see it. Now you have to remember, Mike, one of the things that has happened is that we took on, as in legacy WestRock took on business in the latter half and first half of last year that we were running in the second half of last year. And a lot of that business that was taken on was not necessarily very economic for us. So we have been addressing that during the first half of this year. And inevitably, that's when we tend to see that exiting again. Some of it will come back as we are a good supplier. We're very reliable and high quality and high service supplier. So we expect some of it to return at prices as we've seen already in Brazil, for example. We expect some of it to return at a certain point in the future at the prices that make it economic for us. And if it doesn't, well, so be it, we'll go out and get some other business. But when you lose big chunks of business, Mike, it tends to go and get 10 chunks of smaller business, it tends to take you a little bit longer, and that's what we're seeing. But we have a huge pipeline of business in our system. We won't land at all. But certainly, our people are very comfortable and confident that we're going to get it. And as I said in my script, we're already seeing some very significant customer wins in high-quality names at levels that are going to be good for us to run that. Operator: Next question is from Phil Ng from Jefferies. Philip Ng: So Tony, you mentioned you're going to be taking some economic downtime in the fourth quarter. Curious what markets, is this North America? Is this Europe? How should we quantify the EBITDA impact? And appreciating you're walking away from -- you're taking a value-over-volume approach. But as we kind of think about how that translates, how should we think about that spread of your volumes versus the market overall, call it, the next 12 months? Anthony P. J. Smurfit: Yes. With regard to -- I'll let Ken take the downtime question. But with regard to -- we're sort of figuring out that -- we believe that the market is down somewhere around 3% or 4%, and we're probably down -- 5% of our loss of volume is due to our own decision making. That's the sort of number that we -- it's not going to be 100% accurate in that. It could be 3%. It could be 4% market down, but you saw one of our larger peers was down 3% in the quarter, and one would have said that they're probably winning some business in the marketplace. So therefore, taking that as a trend then I would say that the market is probably down a little bit more than that 3%. Ken Bowles: Yes. Philip, I think to take the second part of that question first, I think the simplest way to quantify the EBITDA impact is broadly, if you think about where our guidance was, [ where we're bringing to, ] call it, somewhere between $60 million to $70 million is the incremental impact of downtime in the fourth quarter versus what we previously would have said. I think, look, if we think about operating it in Europe and us in the mid-90s, unlikely to see any material -- for the remainder of the year, any material incremental downtime in Europe. So predominantly, it's going to be across the North American region because Latin America, we don't really see any downtime there either. Philip Ng: Ken, do you expect your inventory to be in a pretty good spot as you exit this year in North America? Ken Bowles: It's getting there, Philip. It's -- supply chains in North America is different than Europe in the sense that they're very, very long. So it takes a while to kind of get back to what you might like as kind of optimal inventory. The working capital as a percentage of sales for the group is probably around 16%, which is kind of higher than we'd like it to be. At Smurfit Kappa, we were down in kind of 8% and 9%. Don't expect us to get there over time, but certainly, somewhere in the middle there that the right answer is. You have to remember, as a third-party seller, Westrock over the years had grown into a number of different grades and a number of different widths of paper. So part of the optimization here is kind of bringing it back to not quite Henry Ford. We're getting it back to a place where it's a reasonable set of grades and flute sizes and widths that we feel are optimal for not only the paper system, but the corrugated system and a need for our customers. So it's all part of -- it all really comes back to helping our customers understand what their boxes need rather than just supplying what they think they might want. So I don't think we'll exit this year in perfect shape, Philip, but I think as we kind of move through '26, it gets incrementally better as we kind of understand the supply chains a bit better and rationalize kind of external board grades. Anthony P. J. Smurfit: Philip, if I can just add on to that, I'm really very excited about as we optimize our supply chain system and work through our board grade combinations that together with the corrugated businesses in our system, that this is going to present a big opportunity for us. But it needs careful thought and planning because as Ken has just rightly said, the distances in America are very big, and we've got to make sure that we get that right, but there's a lot of opportunity there for us to reduce stock. Philip Ng: Got it. And sorry, one last one for me. Tony, I thought your comment about pivoting some of your CRB and CUK business to SBS was fascinating. That sounds like a pretty attractive value prop for your customers. You gave us the CapEx guidance for '26 as well. Embedded in that, is there any mill conversions that you're possibly thinking in SBS? Or you feel pretty good about some of the opportunities you see in front of you on the SBS side, you're going to largely keep your footprint intact at this point? Anthony P. J. Smurfit: If you -- if I could just ask you to hold off until February for that because we'll give you a full answer then because clearly, we're working through some different strategies in relation to that, and then we'll give you a better -- once we've organized that, we'll tell you about that. But basically, we have some very, very good assets that we will continue to look at. And obviously, there's some that we will continue to evaluate and give you a better answer to those in February. Operator: Next question is from Gabe Hajde from Wells Fargo Securities. Gabe Hajde: I wanted to ask about the guidance, the CapEx guidance for '26 and maybe a little bit differently. I'm just curious if the organization for the year, if there's anything strategically that you guys are focused more on cash flow for 2026 versus EBITDA. Sometimes that drives different operating behavior. I'll just stop there. Ken Bowles: Gabe, no, not necessarily. I think it's more a case of the reality is that Smurfit Westrock should be -- and if you look at this quarter, particularly, a strong free cash flow generator irrespective of the CapEx cycle. I think what we've always done, though, is be very disciplined about when we place capital into the system and indeed adopting a kind of portfolio approach where you don't have, a, too many big programs in any particular year, any big systems that are taking all the impact in a particular year and no region that kind of has that impact. But I think it's fair to say that when we went through the cycle this year and to Tony's earlier point to Phil, building towards February, when we look at the capital requirements for '26, the reality is that all we feel we need to keep the system going and improving and growing is somewhere between $2.4 billion and $2.5 billion. And that ultimately means that we don't end up with any kind of big build for CapEx going into '27 , for example. But it's a normal phased approach. So no, there's never a case of trying to, if you like, try and get to a free cash flow number at the expense of EBITDA, that never is. I think it actually becomes more of a virtuous circle, which is you place capital into the system, we expect the returns out which should drive return on capital employed in one sense and also drive EBITDA. And then that capital goes back into the system. I sort of -- I look backwards, look forward a little bit here, Gabe, in the sense that as Smurfit Kappa, we place extra capital in the system, increase ROCE, increase the dividend, delevered and grew. So I think it's a model, if you like, from an owner-operator perspective and a philosophical perspective, that's worked in the past. So no, it's not that we take that kind of that choice. It's actually that's the capital we think the business needs to kind of drive and grow. Anthony P. J. Smurfit: Yes. And I'll just add to that, Gabe, that the whole philosophy of our company is to remain agile, as Ken as said, we adapt to the situation that's around us. And one of the key tenets of our business is never to overinvest and have too much investment going forward that we can't back out of, so to speak, so that we're in a position to be able to flex if we need to because that's what really hurts companies, if you can't pivot depending on the environment, either positively or negatively. And so that's been the hallmark of the success of Smurfit Group, Smurfit Kappa and now hopefully in the future, Smurfit Westrock. Gabe Hajde: I wanted to switch gears to Europe. You guys provided a little bit of color as to the -- I know the number kind of jumps off the page where you're underperforming the market. But over in Europe, I think up a little bit, 0.2% is pretty impressive. You talked about the mills running mid-90s. Can you provide a little bit of color in the markets whether it's geographic or end-use markets where you guys are doing particularly well? And then I guess, maybe a little bit on the margin side. Obviously, prices kind of came up quite a bit in the spring and early summer and have come down, basically kind of given back a lot of that. How should we think about that flowing through? Is that hitting Q4? Or is that really more of an H1 '26 event? Anthony P. J. Smurfit: Just on the markets, in general, I would say that the -- there's no real change to what we've said previously that Germany continues to be a laggard, some of the other markets in the U.K. The Benelux tend to be basically flat with some positive movements in Eastern Europe and in Iberian Peninsula, which is growing strongly. So in general, there's no real change into how the markets are operating. We sometimes flatter to deceive in Germany where things get really good for a couple of weeks and then go back to the norm. So I think we haven't seen any material positivity in the German market yet. But inevitably, that will happen. And as I mentioned in my script, we're about to close 2 facilities with improved facilities in the incoming plants that are receiving capital. So when Germany does turn around, we'll be even better positioned than we were before to take advantage of that. With regard to... Ken Bowles: On pricing, actually, third quarter in Europe, we saw prices tick up by about another 0.5%. So not quite done there yet on pricing. I suppose, ultimately, without a crystal ball and forecasting, I think where pricing goes from here depends on -- really depends on the same question we've had all day, which is where does demand go. Because ultimately that will feed into what happens with paper prices. But irrespective of that, it's very much a kind of second quarter, third quarter question on '26 anyway based on where we sit now. But I think it's fair to say that both regions have done really well in terms of pricing given the backdrop, I think particularly Europe in terms of price increases received and held, if you like, even through the third quarter. But I think it's demand dependent really in terms of where it goes from here. Anthony P. J. Smurfit: I think as well, Gabe, if you look at where the paper price is at the moment, it's uneconomic for at least 75% of the business, I would say. And I think that we're lucky that we're very integrated. We've got our own customer. Our paper mills have our own customer, which is ourselves. And we're able to run basically full, but most of the others, demand is relatively weak. And unless you're in the top quartile, you're not making any cash at this moment in time. And I would say you've seen that from the results of a number of players in the marketplace. And inevitably, that will change. The question is, is it first quarter? Is it second quarter? Is it third quarter? And how much hurt will be in the market before then? Operator: Next question is from George Staphos from Bank of America Securities. George Staphos: Congratulations on the progress. Tony and Ken, I guess, I have 2 questions for you. First of all, regarding the North American converting operations in corrugated. I think you had mentioned that 70% of the business now is at -- and I forget exactly how you termed it, but better or acceptably profitable levels. If you could talk a bit more about what that means, recognizing that the margin in North America is maybe one of the proof points there. Can you help us quantify how you're determining the 70%, if that's the right ratio? And what else needs to occur to move the ball further, recognize you made a lot of performance already -- progress already? Secondly, on the boxboard side, you made a couple of interesting comments about ultimately, in essence, the customer is going to choose a substrate that makes most sense. Each of them, whether it's CUK, SBS, CRB has -- have their own unique aspects. The fact that you're being able to move the SBS to a customer, when in theory, they would have already been in a grade that -- using your discussion point, they already would have liked to have been in, i.e., CRB. What's causing the move to SBS? Is it just purely where price is right now? Or what else are you reminding people of in terms of SBS' performance versus the other grades? Anthony P. J. Smurfit: Okay. Let me take the second one first, and I'll come back to the North American corrugated. Basically, on the 2, we've seen the SBS piece is more about brightness. There's a brighter sheet. Caliper, you can get the same performance from a slightly lower caliper. And then I would say, printability, stroke, machine efficiency on the customers' lines, which -- the 3 reasons why we've been able to sell SBS versus CRB. Of course, there will be some customers, George, as I said in my thing that will want CRB because it's a fully recycled sheet. And that's fine, too and -- if people want that. But we are selling SBS, and it's competitive with where SBS price has gone. It's basically competitive now with CRB. And so therefore, we're comfortable to sell it to customers, and we make good money at it at these current prices because, as I say, the caliper is lower. And we have basically our 2 SBS mills in the United States, are very good mills in Demopolis and Covington. So -- and then the CUK has got some unique properties for the freezer and strength for the freezer and again, a caliper issue that can help make it competitive against the CRB sheet. So -- but that's -- again, some customers will prefer CRB and we can offer them that too. So what we've been doing is because, obviously, we have got very, very good SBS mills and very good CUK mills that were -- we would offer them that. And as you know, we've closed the CRB mill. So we have open capacity to be able to sell SBS versus CRB. And that's been a big positive win for us, George, as we look forward, and it's going to be something that's going to continue, I would say. With regard to our North American corrugated business, I mean, I think this is where you really see the owner-operator model in action. We have empowered our people to basically act locally, get involved in local markets again, think about their local customers and to think about profitability. And a lot of business was taken on in legacy Westrock under the basis of a combined profitability. That is not the way we think. We think that's the road to [ predation, ] that's road to death in our business where you have 2 sets of capital needs and 1 profitability. And that's the way that we have, I suppose, continued to survive in Smurfit -- legacy Smurfit, legacy Smurfit Kappa is that we treat capital as a very important thing. And if you want to make a capital investment, you better be able to justify it. And if you got 2 operations with 1 profit that masks where you're making the money, then you're not making the right capital decisions. So what we've done is we've spent the first 6 months of our tenure as a combination, making sure that the P&Ls were done correctly, that the balance sheets of each plant were put into the right order. And then we've told our managers, this is -- you're now profitable for -- you're now responsible for your profitability. And of course, when you tell them that and they see customers with negative 30% or 40% margins based upon a fair paper price transfer, they're going to do something about it, and we expect them to do something about it. And if they don't do something about it, they won't be with us, frankly. So the reality is we are actively moving both at a national level and at a local level to make sure that accounts where you've got terrible margins are not run on our expensive valuable beautiful machines in our converting plants. And that's a process that's ongoing. It's one of the reasons why, as I mentioned to an earlier question, a lot of business was taken on prior to us coming on board, which was not economic, frankly. And we've had to address that, and that's gone away again. And sometimes it's gone back to the same homes it came from, which is quite -- kind of interesting. But so that's how we've -- pardon me. George Staphos: No, please go ahead, sorry. Anthony P. J. Smurfit: Sorry, George. So that's how we've moved very quickly from people understanding their profitability to changing a lot of the plants. So we've gone from -- we've cut our loss makers by 50%. And as we continue to address this, and there will be some plants that will make it. But inevitably, I'd say the vast majority will get to profitability in the next couple of years. George Staphos: Tony, just a quickie and feel free to punt to February, if you'd like. On boxboard, recognizing it's not the majority of your business, clearly. If there's some rollback in tariffs, how might that change your overall view of the attractiveness of SBS? Has -- said differently, has one of the things that's changed in the calculation, your ability to move more SBS been the fact that maybe some of the folding boxboard that was coming to the market has been, I wouldn't say, tariffed out, but certainly has more cost coming into the market. How should we think about that? Anthony P. J. Smurfit: Thank you. I don't think tariff really comes into our thinking here. I think Obviously, the price comes into our thinking because the price of SBS has come down a bit. So therefore, it's more competitive as a grade versus other substrates. And obviously, FBB against SBS with the tariff is making it more challenging. But I still think that the FBB is going to be sold in the United States irrespective because the price -- there's a lot of capacity in FBB specifically in Europe, and they're going to come anyway, I think, to the U.S. with all the added costs that's with it. So I think it's up to us to sell SBS. I think one of the things that for everyone here to understand that SBS is a myriad of different grades. I mean you've got cup stock, you've got plate stock, you've got lottery cards, you've got cereal boxes, you've got freezer box. There like -- there's very, very many different grades of SBS that are sold at different price points, that are sold at different quantities to different customers. And so our hope and belief is that we can continue to develop newer grades into SBS that will allow us to earn a material return going forward. And there's no evidence to say that, that should be otherwise. We've been getting new customers in lottery cards, for example, which is -- it's only 15,000, 20,000 tonnes, but every little bit helps, as they say, over here. And these are good grades of highly profitable business for us to develop in the years ahead. Operator: Next question is from Charlie Muir-Sands from BNP Paribas Exane. Charlie Muir-Sands: Just a couple, please. Firstly, on the revised guidance, it obviously implies a fairly wide range of potential outcomes on Q4. Just wondered if you could elaborate on the main outstanding uncertainties for the range. And then previously, you've been sort of talking about beyond the operational synergies, the $400 million, you talked about at least another $400 million of opportunities. I just wondered if you had any kind of updates on that. And then finally, you mentioned that one-off operational issue in Latin America. I just wondered if you could quantify that given it was relevant enough to call out again. Ken Bowles: Charlie, I'll take those. Start with the last one first. It was a kind of a continuous digester issue in [Technical Difficulty] in Colombia, which probably cost about $10 million in the quarter, but it's $6 million now. So that's the big impact there. In terms of the guidance range, it really, I think the more it has on the years gone past, December tends to be the swing factor here in terms of why we've kept a slightly -- and I wouldn't say the range is wider. I think we just moved down the midpoint a bit to take account of the downtime piece. But really, it's going to come down to where you see December -- sorry, where we see December. And as kind of Tony alluded earlier on, as we're kind of exiting into the quarter, we're not necessarily seeing a much improved demand backdrop. But equally, in our natural sense, we haven't given up hope and a sense of optimism that things won't get better even before the end of the year. So I don't think we can be that negative on the outlook. So really, it's around where does December sit in that conversation. In terms of the bit in the middle, I think George actually pointed to part of this answer in his question, which is when you look at the margin performance in North America, given everything that they've been dealing with in terms of where volume is, the incremental downtime, the headwinds, the performance of the margin in North America probably tells you that a chunk of that additional operational commercial improvement is coming through in the numbers already. Where that goes to, that's the kind of how long is the piece of string to kind of answer because look, it really depends on how many programs we can get at. It sort of goes back to Tony's point earlier on about the owner-operator model and really putting empowerment in the hands of every single GM or mill manager to drive their own business for the best returns, their cost takeout, their improvement programs, their delivery on CapEx. So yes, we're still, I mean, very comfortable, if not more comfortable with the well in excess of where the synergies ended. But I think it's fair to say we are beginning -- without being able to quantify it exactly, we are beginning to see the benefits of that coming through simply in the margin performance in North America alone and particularly in the corrugated division. Charlie Muir-Sands: Great. And you've obviously given us the 2026 CapEx and elaborated on the rationale for it qualitatively. But just in terms of the returns that you're targeting beyond maintenance or onetime depreciation, what kind of thresholds are you typically setting for the investments you want to make in the business? Ken Bowles: As a blend, Charlie, look, it won't be any different than we've had before. It sort of goes back to that portfolio approach of trying to drive the incremental return and return on capital forward. So generally, no more than the old system, we would expect that entire portfolio to kind of be in that sort of 20% IRR range, delivering kind of mid-teens, at least in terms of where ROCE sits as a result. That is, of course, dependent on what those projects do, particularly cost takeout. You're obviously going to get higher returns from sustainability, energy back-end projects. You might get lower returns in the early years, but history has shown us that as those projects embed and move forward, you have much better returns as they move out. So not pinning it necessary to a target return in individual projects. But as a portfolio, it has to drive forward in terms of where ROCE is because ultimately, that goes back to my comment earlier on, this is about capital in and cash flow out. So not a dissimilar profile to what we would see -- you would have seen previously in terms of how we characterize the deployment of capital and allocating capital in a kind of Smurfit context. Operator: The next question is from Lewis Roxburgh from Goodbody. Lewis Roxburgh: Just my first question is on cost. You mentioned in the last quarter, you expected some relief on OCC pricing. So I just wondered to see if that was playing out as expected and if you're getting any other relief from the other buckets like energy or that might just spill into next year? And then just in terms of CapEx, I just wondered some more detail how much of that spend might be related to the legacy Westrock assets versus other projects as well and whether this is sort of the new normal or further increases might be needed to tie into those realization synergies? Anthony P. J. Smurfit: I'll take the second piece, Lewis, and then I'll let Ken take the first piece. Basically, the CapEx number is slightly skewed towards the legacy Westrock assets because we are a very well-invested base in Europe and Latin America. So what we're doing is we're putting a little bit more capital into some of the box plants to improve the quality and service aspects to improve the corrugators. So all the things that we have done over the last 10 years in Smurfit Kappa, we're now implementing over the course of years, not just next year but the years going forward to continue to improve the legacy Westrock business and make it better -- even better than it is. So there's a slight skewing towards legacy Westrock, but not massively material because, as I say, we're in very good shape. In Europe, we invested for growth, and we've got very good assets in our European business. And while there's always growth opportunities like in Spain, like in Eastern Europe and specifically plant by plant. I think that as a whole, the European business is very well invested. And what we'll do over the next 3 to 5 years is continue to develop out our Westrock asset base -- legacy Westrock asset base. Ken Bowles: Lewis, I'll just take some of the bigger cost buckets and just -- alongside fiber because it's probably useful to kind of round some of them out for yourself and your colleagues. In terms of fiber, I think at the half year, we probably said that, that was going to be a tailwind of about [ 100. ] We probably see that in the about -- as you sit here today, somewhere between 130, 140 of a tailwind. Energy, I think at the half year, we might have said about 250 of a headwind. Probably coming in now, we probably see that about the 180 space. Labor, similarly, we probably thought about 200, probably down around the kind of 180 space as well now. Downtime is probably going the other way in that, in a sense where we would have thought downtime was probably going to be 150. It's probably anywhere between 180 and 200 at this space given what we now see for the fourth quarter. So they are really the big cost buckets in terms of the incremental changes that we would have said Q2 versus where we see the year panning out. Operator: Next question is from Anthony Pettinari from Citi. Anthony Pettinari: On the full year EBITDA bridge, maybe Ken, just filling in on the pricing side. Can you give us an update on where you maybe thought pricing would shake out midyear versus where you are and where you might end up with the full year guide? Ken Bowles: Yes. I think it's pricing broadly, we would have thought to plug that in there. I think we probably see pricing coming out somewhere between, call it, 830, 840 versus where it would have been about 900 at the half year. So a small call off probably because of the fourth quarter and where demand is going, maybe a little bit of price weakness there, but not materially down versus what we would have thought. Anthony Pettinari: And would that -- would North America be 700 or 750? Or -- between North American and Europe, how would that breakdown? Ken Bowles: I'll defer that, to read the segmental bridge [ to you guys when ] you get into the trenches with them later on. I think if that's okay, I just have to [ take them ] with me here. Anthony Pettinari: Yes, no problem, no problem. And I guess maybe just one follow-up. You mentioned energy projects, and I mean from other industrial companies and paper companies, we've heard a lot about cost inflation and particularly electricity with demand from AI and data centers. Can you just give us kind of a quick recap of where you are with kind of current energy projects, especially in North America and not to steal any thunder from February, but just how you think about the opportunity in energy at your mills going forward? Ken Bowles: [ Well, where do we start? ] Anthony P. J. Smurfit: Well, we just approved a large energy project in our Covington mill, which will actually move away from coal to natural gas. And that's going to be the IRR on that is depending on where you think the price of the commodity is a minimum of 20% and a maximum of 80% -- sorry, not even a maximum. It's not the maximum is not capped, but realistically, a 50% return for the mill. So I guess what we will be doing, Anthony, is just taking every energy project as it comes and what kind of return we can get on it. Specifically, the only one that we've approved since we've come in is that one. We use gas primarily in most of our facilities. We do a little bit of coal where we have to, and obviously, in other places where we can remove it, we will be. We have a large biomass project in Colombia, which is going to be coming on stream next year, biomass boiler, which is a considerable saving for us in energy. So we're -- we continue to look at energy projects. But with regard to how these AI data centers are affecting us, I haven't heard that they're driving any major cost increases for our mill systems where our mill systems are located. Ken Bowles: I think kraft systems by their nature tend to be fairly well served from a power plant, back-end perspective anyway in that sense. And so not necessarily totally insulated, but generally CO2 positive. But great source of their own energy from a kind of a turbine perspective. In addition to what Tony said, we have a kind of progressive program. We electrified some boilers in Europe over the years. We continue to invest towards the reduction in CO2. I mean, the added benefit from the project Tony talked about there in Covington is it reduces our group CO2 by 1.2%. So very important, if you like, as you look forward to where our customers need to be on scope through emissions and things like that. So there's always benefits above and beyond the pure EBITDA benefit we find to energy projects, and it sort of goes back to what we're trying to get to in terms of low-cost producer and where those mill sits, which allows us to kind of be at the forefront of where we do that. So generally, it's always going to be a progression towards either less reliance on some fossils and something else and more sustainable renewable fuels. But the system in and of itself is fairly well set as we start off. Operator: And the last question today is from Mark Weintraub from Seaport Research Partners. Mark Weintraub: A few quick follow-ups. First off, so with other box shipments in North America, do you have a sense as to when you think you might be inflecting more positively versus the industry? How long is the process of sort of the shedding underappreciated business likely going to persist? Anthony P. J. Smurfit: Maybe overappreciated business. We've given them boxes for nothing, Mark. So yes, I would say that -- I would hope that from the third quarter on next year, you'll start to see some positive movements. We're still -- we still have some businesses that are very poor piece of business that are under contract that will run out during the first and second quarter of next year. And then obviously, we'll have to go out and replace those or we'll retain them. We'll see how the customer reacts to our discussions with them at that time. But if I look at the amount of backlog and pipeline that we have for new business, it's colossal in the sense that I feel very comfortable that we're going to start landing a lot of that business. And we already have landed a lot of that business, frankly, but it just takes a little while to qualify and then get into the plant. So -- when I -- so I would say the third quarter of next year, you'll start to see us inflecting versus this year with better quality business in all of our facilities. Mark Weintraub: And then what's your strategy? What have you been doing vis-a-vis outside sales of containerboard in North America into either export or domestic channels? Anthony P. J. Smurfit: Yes. It's -- the export market, as you know, is weak and a lot of the capacity closures that have been announced in the industry have been geared towards the export market, specifically down into the South American market specifically. And so one of the things that I found out is that these people down in these countries have pretty big inventories. And I think we need some time for those inventories to shake out before we see movements in export prices to the positive because the export price is clearly too low for it to be viable for people to survive. We are selling some into the export market, but clearly, we don't want to sell too much into the export market at that price that's there. But I would say it will be like a eureka moment. At some point, things will change, and people will -- the price will move up very sharply in the export market because it's too low at the moment. But all of the capacity that's come out of the market isn't really affecting it at this time because the stock levels of most customers down there are very, very high. Mark Weintraub: And in the domestic channel, I mean, historically, the legacy Westrock business had sold a fair bit to independents, et cetera. Has that continued? Or has there been some change in that regard? Anthony P. J. Smurfit: We do have outside customers, and they're important outside customers, and they're generally long-term outside customers, people that we served for a long period of time, and we continue to do that. And there's been no real change on that as I can see it. Mark Weintraub: Great. And one last quick one, just to squeeze in. So with the SBS from CRB, et cetera, I assume the customers are running that on the same machinery. And so is it pretty easy to switch back and forth between the grades depending on the variables at play? Anthony P. J. Smurfit: Yes. I mean, basically, yes. I mean you might need a technician to run a lower caliper product on the board just to adjust the machine slightly, but there's no real big -- one of the things that we have heard from our customers is that our -- the SBS runs better than the CRB. But I'm sure if you talk to somebody who runs CRB, they're going to say the opposite, but that's what -- that's what our people tell us from the customer. But I'm sure you can get someone else to say exactly the contrary. But I believe that to be the case because it's a cleaner sheet. Operator: Thank you. I will now hand the conference back to Tony for closing comments. Anthony P. J. Smurfit: Thank you very much, operator. I want to thank you all for joining us today. We remain very excited about the future of the Smurfit Westrock business. We're enthused about a lot of the changes that are happening -- that have happened and that are already happening. And we look forward to the future with great enthusiasm. So thank you all for joining us, and I look forward to seeing many of you in the months ahead. Thank you all. Operator: Thank you. This concludes today's conference call. Thank you for participating, and you may now disconnect. Speakers, please stand by.
Abel Arbat: Good morning, everyone. This is Abel Arbat speaking from the Capital Markets team at Naturgy. And we thank you for joining our results call for the first 9 months of 2025. Next to me sits the Head of Financial Markets and Corporate Development, Mr. Steven Fernández; and the Head of Control and Energy Planning, Ms. Rita Ruiz de Alda. As usual, we will begin with the presentation and leave Q&A for the end. Please submit your questions in written form, through the webcast platform during the presentation and we will address those at the end of the presentation. So without further ado, I'm going to hand it over to Steven to start off on the presentation. Steven Fernández: Thank you, Abel, and good morning, everyone. As you have seen this morning, this presentation is basically divided into 3 main sections that we're going to go through. Firstly, we're going to review the results for the first 9 months of the year. Then we're going to give you a little update on the reestablishment of the company's free float following recent moves. And finally, we're going to give you some glimpses into the outlook for the remainder of the year 2025. If we move over to the results, the key highlights that we'd like to discuss basically, as you can see, we've had an overall robust operational performance amid a challenging and uncertain geopolitical backdrop. We are, as a result of that performance, on track to deliver on its 2025 guidance, building again on a track record of commitment and delivery. On the capital markets front, we have increased the free float for the company and subsequently, the share liquidity, positioning us to return to the MSCI indexes. As a reminder, the free float for the company has increased from 10% to almost 19% in record time and preserving value for shareholders. As a result of this effort, as I mentioned previously, liquidity has improved, and the monthly average trading volumes are up 2x versus the first half of the year. Our solid balance sheet also continues to provide flexibility and optionality. And we also remain committed to an attractive shareholder remuneration. As a reminder, the second 2025 dividend of EUR 0.60 has been approved by the Board, and it will be payable on November 5 on track for a minimum annual total DPS of EUR 1.7 per share. If we move over to review the results, what you can see is that average Brent prices were 14% lower in the first 9 months of the year compared to the same period last year, decreasing from $83 to $71 per barrel. In contrast, natural gas prices increased across key benchmarks. For example, the TTF was up 26%, the Hub up 58% and JKM up 17%. Hence, we have witnessed a decoupling of gas and oil indexes during the period. Geopolitics also weighed on energy markets during the first 9 months of the year, although volatility has thankfully gradually eased in recent months. Iberian electricity pool prices for its parts showed an increase from EUR 52 per megawatt hour in the first 9 months of 2024 to EUR 63 per megawatt hour in the first 9 months of this year, mainly driven by higher demand for gas-fired generation in the period, along with higher gas prices. As a result of this scenario, we take a quick look at the results for the period. EBITDA amounted to EUR 4.21 billion. Net income amounted to almost EUR 1.7 billion. A reminder that the dividend that we have paid so far this year amounts to EUR 1.1 billion and net debt for the group amounts to EUR 12.9 billion, which, by the way, does not include the proceeds from the bilateral sale and subsequent total return swap we have entered into. The results, therefore, maintained record levels while delivering on shareholder remuneration and maintaining a strong balance sheet. As we will review in the coming pages and especially with the help of Rita, during the third quarter of 2025, market trends and business dynamics have remained broadly in line with those that we had seen in the first half of the year. Moving over to the income statement. EBITDA remained in line with last year, although 2025 shows stronger underlying results as it does not include relevant extraordinary items contributing to it as 2024 did. And in terms of EBITDA contribution by business, 49% was generated by networks and 51% by energy management, generation and supply. In terms of activities, you also see a balance here with 54% of the EBITDA being generated by gas with the balance from electricity. And again, in terms of the geographical diversification, a little bit more than half of the EBITDA generated in Spain with the balance coming from all our other operations abroad. The group's diversification across businesses, activities and geographies continues to support its earnings resilience. And the way of its regulated activities provide us with cash flow predictability. So all in all, the earnings were [ 6% ] higher compared to last year in the period, reaching almost EUR 1.7 billion. If we turn over to the cash flow, free cash flow after minorities reached almost EUR 2.2 billion, demonstrating strong cash flow generation for the first 9 months of the year. In this period, the company invested EUR 1.2 billion, roughly of which 45% was allocated to networks, 35% to renewables and the balance of the business accounting for 20% of these investments. This growth -- this shows greater focus on the networks CapEx versus renewals compared to 2024 and is aligned with the company's financial discipline. Also note that EUR 169 million of hybrids were amortized during the period, which means only EUR 330 million of hybrids remain outstanding. We will continue to follow a strict financial discipline, deploying capital to ensure value creation on our investments. As a reminder, we believe in value over size. So all in all, strong cash flow in the period to back investments and shareholder remuneration, as you can see. But if we then turn over to the net debt, you can see that the balance sheet remains strong, actually stronger than we had anticipated. In April and July, Naturgy distributed its 2024 final dividend and first interim dividend for 2025, respectively, both of them in cash at EUR 0.60 per share for a total of EUR 1.1 billion spent year-to-date. In June, the company also completed a EUR 2.3 billion tender offer on our own shares. And already in August, we were able to undertake a successful placement and return 2% of its capital to institutional investors in addition to 3.5% to a financial institution with whom we have signed a TRS. This places net debt as at the end of September 2025 at EUR 12.9 billion with a comfortable net debt to last 12 months 2025 EBITDA of [ 2.4x ]. Moreover, as you have seen, in October, the company also managed to undergo a second placement of treasury shares amounting to 3.5% of the share capital, which will be reflected in the net debt figures as of the year-end. The cost of debt remains at around 4%, while the percentage of fixed rates has decreased to roughly 66% in the lower interest rate environment. So all in all, you can see we have a strong balance sheet with low leverage post recent capital market transactions and free float increase that provides the company continued flexibility and optionality. And with that, I'll hand the turn over to Rita, who will go over the businesses. Rita de Alda Iparraguirre: Thanks, Steven, and good morning, everyone. Starting with Networks on Page 10. Networks reported a total EBITDA of EUR 2,098 million in 2025, representing an 8% decline when compared to 2024. This decrease was primarily driven by one-off positive impact in Chile last year and the depreciation of several Latin American currencies, most notably the Argentine peso. In Spain, Gas Networks experienced a remuneration adjustments foreseen in the current regulatory framework as well as increased demand in residential segment due to temperature effects. As highlighted in our latest results presentation, a public consultation was launched in July targeting companies in the sector and marking the start of the regulatory review process for the 2027-2032 period. In line with the regulatory calendar, a draft proposal is expected to be published by year-end or early 2026. In electricity, EBITDA increased driven by higher regulated asset base and the publication of the 2021 and 2022 definitive remuneration as well as retroactive impacts. The CNMC has already published a second draft of the resolution of the new regulatory scheme for the 2026-2031 period and the companies in the sector have already sent validations. In Mexico, results mainly impacted by negative foreign exchange effects compensated by tariff updates in July. In Brazil, results were also affected by currency depreciation. In Argentina, EBITDA has improved following a substantial tariff increase implemented in 2024 to offset inflation. At the same time, we are observing a rising trend in FX volatility, largely driven by electoral milestones. As mentioned in July, a new tariff review was approved for the 2025-2030 regulatory period, in line with our strategic plan estimates. This new regulatory review provides visibility to 2030 and includes monthly inflation adjustments within a stable regulatory framework. In Chile, performance declined when compared to last year due to an extraordinary effect in 2024 as the partial reversal of the provision related to TGN conflict. As we already mentioned in the last presentation, this legal process is now officially closed due to an agreement between both parties. In Panama, results were negatively affected by lower demand due to temperature effects and increased operating expenses from higher maintenance activity to improve quality standards. In summary, comparison is affected by extraordinary impact in 2024 and currency depreciation in Lat Am. Now turning to energy management on Page 11. EBITDA reached EUR 718 million, which shows an increase versus 2024 of 18%, mainly due to higher margins on hedge sales. On average, European gas prices were 26% over 2024 levels. As mentioned during the strategic plan presentation, the group is fully hedged for 2025, having adopted an active risk management approach in the context of high volatility and uncertainty. The figures already reflect current market conditions for gas contracts in 2025, while negotiations with Sonatrach are still ongoing. The group is continuously evaluating new gas sourcing opportunities to complement our portfolio as we consider natural gas, a key enabler, for the energy transition. Finally, last week, the EU formally adopted a prohibition on the purchase import or transfer of LNG exported from Russia into the European Union. The prohibition will be effective starting in January 2027 in the case of long-term gas contracts, such as the one which Naturgy holds with Yamal. Overall, the period benefited from effective hedging and diversified procurement portfolio. Continuing with thermal generation, EBITDA reached EUR 523 million, 22% over 2024 EBITDA levels due to higher activity in Spain, partially offset by lower revenues in Lat Am. In Spain, the increase in results was supported by higher demand for ancillary services from our combined cycle fleet. Naturgy holds the largest CCGT fleet in Spain with 7.4 gigawatts, acting as a backbone to energy security of supply. In Mexico, production and margins remained stable. However, revenues from availability markets declined, mainly due to exceptionally high revenue base in 2024. Overall, CCGTs continue to play a key role to ensure system stability. Let's turn now to renewable generation on Page 13. Renewable generation reached an EBITDA of EUR 452 million during the period, slightly above 2024. Spain renewable generation production was 8% lower when compared to 2024, mainly due to lower wind and hydro generation, given the exceptionally high levels of hydro production in our basins during 2024. This negative impact was partially offset by the commissioning of new installed capacity and higher electricity prices. In the United States, results are higher when compared to 2024, mainly due to higher energy prices. The group completed construction of its second solar plant in Texas, which has recently started operations. In Lat Am, activity continues with impact due to currency devaluation in Mexico and Brazil. And finally, in Australia, performance benefited from the additional installed capacity added when compared to 2024. All in all, higher results in renewable generation due to commissioning of new capacity and selective growth prioritizing value over size. Last, moving to supply. EBITDA has been EUR 500 million, a 16% lower when compared to 2024. It is important to remember that in 2024, we had an extraordinary impact due to the positive ruling in favor of Naturgy regarding tariff subsidies. Leaving this aside, the business performed relatively stable when compared to last year despite incremental margin pressure and competition. As margins have shown resiliency supported by higher visibility on procurement costs, but negatively affected by regulated tariffs. In terms of electricity, the group has expanded its client portfolio in a highly competitive environment, leveraging on its integrated model and diversified generation mix, however, impacted by increasing adjustment services costs. I will now pass the floor back to Steven to update you on the free float and outlook. Steven Fernández: Thank you, Rita. So I'll take you really quickly to Slide 16. Naturgy has increased its free float to return to the MSCI indexes. On the 24th of June of this year, as I mentioned previously, we successfully completed a voluntary partial public tender offer to repurchase up to 9.1% of our share capital aimed at restoring the company's free float and enhancing share liquidity. The offer targeted 88 million shares, again, 9.1% share capital at a price of EUR 26.50 per share, totaling EUR 2.3 billion. All reference shareholders participated in the tender, reducing their shareholdings, as you can see in the right-hand side of the page. Aligned with the strategic plan '25-'27, our objective was to reintroduce the repurchase shares into the capital markets to improve free float and liquidity. And to this end, we executed a series of transactions this year. On the 4th of August, we completed an ABB of 2% of the share capital. We signed a bilateral sale and executed a bilateral sale for 3.5% of the share capital to an international financial institution. Both transactions were priced at EUR 25.9 per share, reflecting the tender offer price adjusted for the EUR 0.60 dividend paid on the 30th of July and thereby preserving shareholder value. On the 7th of October, just a couple of weeks ago, we also completed a second ABB for 3.5% of the share capital. Following these transactions, Naturgy's treasury shares now represent approximately 0.9% of the share capital and our free float has increased to almost 19% versus 10% in the previous year. Through the disposal of approximately 9% of our shares and the reduction of reference shareholder stakes, Naturgy has reaffirmed its commitment to enhance share liquidity and increased free float, which are, as you know, key steps towards inclusion in major stock indices, particularly those of the MSCI families, where on the following weeks, specifically on 5 November of this year, we'll hopefully have some good news. these transactions were overall executed swiftly and at a value-preserving terms for shareholders, hence, delivering a key strategic plan objective in record time. If we move over to Slide 17, and we look at the share price and the liquidity evolution, share price remains above the levels at which the tender offer was launched, considering the dividend of EUR 0.60 paid in July. And liquidity has substantially improved with monthly average daily trading volumes of around 2x the volumes in the first half of the year. So in essence, we have managed to increase the free float and liquidity, reducing the holdings of our reference shareholders as intended while preserving shareholder value. And all of this has been achieved in barely 4 months. If we look at the rest of the year now, in terms of the energy outlook for the -- the current market forwards are anticipating a generally less favorable energy scenario for the TTF in the last quarter compared to the first 9 months of the year, but still maintaining levels of around EUR 32 per megawatt hour. On the other hand, market forwards for Iberian electricity pool prices are pointing towards average levels of around EUR 72 per megawatt hour, above the 9M '25 numbers, but below the comparable period in the fourth quarter of last year. Finally, Brent prices are expected to remain just below $70 per barrel, while CO2 prices are expected to remain fairly stable. So in essence, the current energy outlook and market forwards are aligned with our expectations and the basis of our guidance for the year-end. Indeed, when you think about the guidance, we are on track to deliver our 2025 numbers. After the results presented today and the perspective for the remaining of the year, we are obviously in a position to reaffirm this guidance for EBITDA, for net income, for DPS at a floor of EUR 1.7 per share and improving our net debt outlook from an expectation of a little bit less than EUR 14.7 billion to approximately EUR 13 billion by year-end as a result not only of the good performance of the businesses, but also as a result of the placements in the treasury stock. Our short-term priorities, however, remain unchanged. If we look at them on Page 21, for networks, we are looking for a final regulatory framework for electricity networks in Spain. We are proactively engaging regulators for Nedgia, so that's gas distribution and negotiation of extension in concessions in Lat Am, Brazil and Panama. We are continuing to advance in our OneGrid initiative, which implements operational best practices across geographies. In energy management, we maintain gas procurement contracts aligned with market conditions, continue to assess, as Rita mentioned, new gas procurement opportunities as a key energy transition enabler. And we are proactively managing the risk both through physical and hedging alternatives. In thermal generation, we continue to look for capacity payments. We continue to play a key role in the security of supply through flexible generation in all the markets where we operate. And we are engaging in the initial discussions for PPAs extensions in Mexico. In renewables, we continue to look at selective renewable growth, and that's basically focused on repowering, hybrids and batteries. And we continue to execute our ongoing developments. In renewable gases, we continue to ambition leading the biomethane in Spain. We have more than 70 projects under development currently. We are promoting networks injection and adequate regulation. And as a result of that, you can imagine that we are actively engaging all authorities to make sure that this is a viable alternative for the energy transition. Finally, in supply, we continue to look to grow our client base and continue to evolve our operating model, deepening our excellence in client service and maintaining a balanced integrated position. As you can see from the slide, we remain fully committed to executing on our strategic plan. So finally, to conclude before opening up the floor for questions, we are proud, we are happy to report a strong performance achieved amid a backdrop of macroeconomic uncertainty. This resilience reflects the solid fundamentals of our businesses and the effective execution of our strategic priorities and the hard work of all people from Naturgy. We are on track to deliver our 2025 guidance, building on a strong track record of commitment and delivery. We have increased the free float and liquidity to return to the MSCI indexes, delivering a key strategic plan objective in record time and at value-preserving terms. We retain a strong balance sheet, providing the company flexibility and optionality. And we continue to deliver on our DPS commitment of a floor of EUR 1.7 through the payment of a second interim dividend of EUR 0.60 payable on the 5th of November. And with that, happy to conclude our presentation and open to answer any questions you may have. Abel Arbat: Thank you, Steven and Rita for the presentation. So let's start responding to the questions received through the webcast, and we're going to start touching on a few generic or more strategic questions before getting into the business questions. So the first set of questions relates to the current balance sheet flexibility and what are our strategic priorities around this. What would be the preferred route to deleverage at the moment, either deploying M&A, increasing shareholder remuneration, maybe additional share buybacks or a combination of the above? Steven Fernández: Thank you, Abel. I mean, it's a wonderful problem to have. A company with a solid balance sheet that provides flexibility, and I highlight optionality. So the best way to answer this question is we have a strategic plan that goes from '25 to '27. We're going to stick to this plan. We're going to meet the targets in this plan. This plan does not contemplate inorganic growth, and it contemplates investments that have been disclosed to the market that provide shareholders in Naturgy with value creation. If market conditions change and we are in a position to identify more organic growth opportunities that continue creating value for shareholders, and obviously, accelerating that organic growth could be an option. Alternatively, if opportunities present themselves for inorganic growth that makes sense, that could also be an optionality that we will explore. But I think the most important point is, again, to highlight our strategic plan does not contemplate external growth and it contemplates organic growth that focuses on delivering value as opposed to gaining footprint or size. Abel Arbat: Thank you, Steven. And in this context, would the company consider any further measures to increase the liquidity similar to the ones that we have executed in recent months? Steven Fernández: The company has a treasury stock position right now of 0.9%. Look, I mean, we're in no rush to deliver that to the market. We'll do that when and if the conditions are right at a time of our choosing. What I would say is that having done the bulk of the work, that 0.9% is not really going to move the needle. Abel Arbat: Thank you, Steven. Then there are a few questions around our portfolio of businesses. And if we think that there is anything that we consider noncore or that do we have any plans for portfolio optimization in Lat Am. Again, I think that Steven already mentioned that the plan is only based on organic growth, but do you want to... Steven Fernández: So the plan does not contemplate disposals or sizable disposals. We have taken quite a bit of time to review our existing portfolio, are satisfied with the positions that we have. We see potential in the countries where we operate in Lat Am, and we have no intentions at this stage in rotating assets. Abel Arbat: Perfect. Moving on to a more specific question around free cash flow. There's a question around the positive working capital contribution in the 9 months 2025 and whether or not do we expect any reversal of that positiveness into Q4? Rita de Alda Iparraguirre: The evolution of the working capital in the company is normally influenced by seasonal demand patterns, fluctuations in energy prices and also the negotiation of gas contracts with our suppliers. In this case, working capital evolution is strongly affected by balanced regularizations with our gas procurement suppliers in 2024 and 2025. We could expect partial reversal of our working capital in the future according to contract agreements. Abel Arbat: Okay. Thank you, Rita. Moving now on to various questions on each of the businesses. And I'm going to start with Networks and Networks Spain and particularly Spanish electricity networks. There are a number of questions around the second regulatory proposal, how it compares versus the current one, what's our opinion on its attractiveness, the treatment on OpEx and so on and so forth. So perhaps we could give high-level view on the topic. Rita de Alda Iparraguirre: Yes. Well, as probably everyone knows, the CNMC has already published a second draft of the resolution of the new regulatory framework covering the 2026-2031 period and companies in the sector have already submitted their comments. The published proposal introduces a shift to a TotEx-based remuneration model, along with an adjustment factor linked to increasing contracted power. The second proposal reduces OpEx cut, but still fails to incentivize efficiency and instead penalizes the most efficient operators. Moreover, the proposed methodology does not incentivize reaching the investment volumes outlined by the ministry, which are necessary to achieve decarbonization goals. We expect a final resolution before the end of the year. Abel Arbat: Thank you, Rita. So Again, a number of questions on how this proposal on electricity distribution in Spain could affect the upcoming regulatory review in gas distribution. So could we share our views on the Spanish gas networks' upcoming regulatory review? Do we have any visibility? Do we expect any changes in the current methodology and parametric formula? Rita de Alda Iparraguirre: Okay. So the CNMC indicated that the first draft of the remuneration methodology should be ready by the end of 2025 or beginning of 2026. From our point of view, continuing with the parametric model would be a sizable option to provide stability and predictability to the sector with appropriate adjustments to reflect the exceptional inflation of the current period. Furthermore, we see this new regulation as an opportunity to incentive new renewable gases, smart metering and also to bet for the decarbonization of the gas network. Abel Arbat: Thank you, Rita. Okay. So now moving on to Networks Lat Am. There are a few comments around the FX headwinds that we've experienced this year. And how this is expected to impact the company going forward and also with a view of the EUR 3 billion target by 2027. Rita de Alda Iparraguirre: So in terms of the developments in Lat Am networks, I would say that we have 3 main priorities. The first one that is the most important is obviously the negotiation of the concessions in Brazil in 2027 and Panama in 2028, as Steven mentioned before. Second, obviously, we are also -- one of our key priorities is to manage regulatory management that -- so we aim to obtain fair tariff reviews and also inflation updates to compensate for inflation -- for depreciation rates. In the case of Argentina gas, as I mentioned before, the new tariff review published this year includes monthly adjustment inflation, which is an important milestone for us. And additionally, we continue to focus on what we call OneGrid initiative, which consists of sharing implemented operational best practices across geographies in order to position Naturgy as best-in-class operations and continued efficiency gains. Abel Arbat: Thank you, Rita. We move now on to the questions around our liberalized activities. And in particular, there are a few questions on energy management. So perhaps starting on what's our expectation for energy management margins in Q4 and also what's our outlook for gas prices and spreads going forward? Can we comment on our hedging levels and the key drivers going forward? Rita de Alda Iparraguirre: So forecast for the upcoming winter indicates a moderate price environment for gas in Europe, mainly driven by adequate underground storage levels. We have an 83% storage levels currently in the European Union and the absence of major changes in the global LNG demand market, particularly due to declining demand from China in the last months. However, main price drivers will be more linked to winter temperature trends, demand requirements for power generation and potentially geopolitical developments we've seen in the past. In this context, the company will actively optimize both physical sales and financial hedging to manage its risk exposure and the underlying scenario. Likewise, negotiations with Sonatrach for 2025-2027 gas procurement prices are ongoing with -- to maintain gas procurement contracts aligned with market conditions. Abel Arbat: Thank you, Rita. Then a few questions on the recently approved ban of importing Russian gas into Europe. And the questions primarily relate to any contingency or breach of contract risk. Then there is also questions around the margin contribution from our contract from Yamal and possible replacement alternatives to that contract. Rita de Alda Iparraguirre: So yes, on Thursday, the European Council officially approved the 19th sanction package, which includes a ban on Russian LNG imports effective in January 2027 for long-term contracts. The European Commission is working to provide a legally sound and effective toolkit for companies to achieve the targets avoiding legal problems. While the contribution from the affected contract relevant for Naturgy is 35 [ kilowatt ] hour per annum. The impact is expected to be mitigated through our diversified gas portfolio and access to market purchases. As we mentioned during the presentation, we continue to assess new gas procurement opportunities as we are confident that natural gas and LNG constitute a key energy transition enabler in the future. Abel Arbat: Perfect. Thank you, Rita. Now a few questions on Spanish thermal generation, in particular, around the contribution of flexible generation or CCGTs in the context of higher demand and production in ancillary services. Do we expect this contribution to be sustained over time? What is the run rate that we expect for 2026? And if we can comment as well on our expectation for capacity payments and whether we have more visibility on this process? Rita de Alda Iparraguirre: Okay. So we expect more visibility on capacity payments and its design in the coming months. However, at the moment, there are no further indications on the matter. What is clear is that CCGTs continue to play a key role in the current environment, and we don't expect this to change in the near or medium term. The reinforced operating mode translates into higher demand and production in ancillary services that warranty the system stability and the security of supply. However, the launch of capacity payments, the incorporation of new batteries or the development of new infrastructure will obviously influence how restrictions are allocated in the future. Abel Arbat: Thank you, Rita. A question as well on data centers and what is our role? Do we see opportunities in the data center and how Naturgy is positioned to take advantage of the data centers build. Steven Fernández: So I mean, thank you, Abel, for the question. We are exploring opportunities that data centers present in Spain, namely through the procurement of energy and specifically on some of the sites that we have available, which are generating interest from international players with whom we are in the process of engaging discussions to see how we can work together. What I can tell you is that the model that we are pursuing is not one where the company will take up equity stakes in the data centers themselves or the data center projects themselves, but where the company will be in a position to provide access to the grid and provide electricity as demanded by the investors. Abel Arbat: Thank you, Steven. Now there's a question in renewable gases. What level of capacity is being developed? When we think these projects will start to see commercial operation dates? And what's our view in terms of what is needed for this business to take some speed and start gaining some critical mass? Can we comment on that, please? Steven Fernández: So look, what I would say is that this is a key area that we are developing right now, although admittedly not at the pace that we would like. We see renewable gases as a key solution for hard-to-abate businesses. They can already benefit from existing infrastructure. So we don't have to build brand-new infrastructure like in the case of hydrogen, for example. And by the way, when we say renewable gases, we mostly mean biomethane. So what the team has been doing so far is developing agreements and joint ventures with a number of other developers that provide us with access to good locations, good sites, which is our first process among a series of other processes, including the procurement of feedstock, et cetera. That will allow the company to jump-start its operations once we have adequate regulation that supports the development of biomethane in place. And therefore, the team is not only paying attention and spending time in identifying sites and signing agreements, but also in lobbying and explaining to the government and the regulator why it's important to develop a biomethane regulation that allows for the high-speed development and deployment of all the CapEx potential. So as a reminder, the strategic plan contemplates initial CapEx for biomethane, but the bulk of the CapEx, the way we look at it based on our assumptions, falls outside of the scope of the strategic plan. So it's highly unlikely that you will see very significant CapEx being developed or deployed before the end of year 2027. Abel Arbat: Thank you, Steven. Okay. So there are a few questions as well around the supply business. There is some margin construction in the recent quarter. So the questions relate around the outlook for energy prices and margins in gas and power supply in Spain and what are the repricing dynamics and so on and so forth. Rita de Alda Iparraguirre: Okay. So generally, the sector is experiencing, as you mentioned, high levels of competition and churn ratios in both gas and electricity. In the electricity segment, the group has expanded its client portfolio in a highly competitive environment. However, churn rates still remain high across the sector. In the gas segment, margins have remained resilient, supported by improved visibility on procurement costs, but negatively affected by regulated tariffs. Looking ahead, we expect margins in both gas and electricity to remain solid, leveraging on our integrated position. And we also anticipate maintaining or even growing our customer base, continuing the positive trend of serving electricity during the year. Additionally, the group is improving customer service and operational efficiency, thanks to the new digital platform. Abel Arbat: Okay. Thank you very much, Rita and Steven. I think that broadly concludes the questions received. There are a few more detailed and quantitative questions that the team will address subsequent to the call. And other than that, thank you very much for joining the results presentation, and we remain at your disposal for any additional questions you may have. Thank you so much.
Operator: Hello, and welcome to Amrize Q3 2025 Earnings Conference Call. [Operator Instructions] Also, as a reminder, this conference is being recorded today. [Operator Instructions] I will now turn the call over to Scott Einberger, Investor Relations Officer for Amrize. Scott Einberger: Thank you, and good morning. Welcome to Amrize's Third Quarter 2025 Earnings Conference Call. We released our third quarter financial results yesterday after the market closed. You can find both our earnings release and presentation for today's call in the Investor Relations section of our website at investors.amrize.com. On the call with me today are Jan Jenisch, our Chairman and CEO; and Ian Johnston, our CFO. Jan will open today's call with highlights from our third quarter results and the growth investments we are making in our business. Ian will then review our financial performance for the quarter and provide an update on our Project ASPIRE synergy program before turning the call back to Jan to discuss our outlook for the remainder of the year. We will then take your questions. Before we begin, during the call and in our slide presentation, we reference certain non-GAAP financial measures, which we believe provide useful information for investors. We include reconciliations of non-GAAP financial measures to GAAP in our earnings release and slide presentation. As a reminder, today's call is being webcast live and recorded. A transcript and recording of this conference call will be posted to our website. Any statements made about future results and performance, plans, expectations and objectives are forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ from those presented during the call due to various factors, including, but not limited to, those discussed in our Form 10 filings and in other reports filed with the SEC. The company disclaims any undertaking to publicly update or revise any forward-looking statements. With that, I will now turn the call over to Jan. Jan Jenisch: Thank you, Scott, and thank you all for joining us today for our third quarter earnings call. It is our first full quarter operating as Amrize and we made progress across our businesses, and I'd like to thank our 19,000 teammates who are serving our customers across all of our markets. Together, we delivered strong revenue growth of 6.6%, driven by continued infrastructure demand and an improving commercial market. Our Building Materials business had strong volumes and positive -- and we achieved very positive aggregates pricing, while a temporary equipment outage in our cement network resulted in higher costs for the quarter. Our Building Envelope business delivered substantial margin expansion driven by operational efficiencies and lower raw material costs. We generated strong free cash flow of $674 million, up $221 million from prior year. Building on our progress in the third quarter, we are raising our revenue guidance for 2025, and we are confirming our EBITDA and net leverage ratio guidance. Let's turn to the financials. We had strong revenue performance driven by volume growth across the business from cement, aggregates and ready-mix concrete to commercial roofing. Several positive developments contributed to our margins, including operational efficiencies in Building Envelope and strong aggregates and residential roofing pricing. Within Building Materials, the temporary equipment outage in our cement network affected our margins. During this time, we leveraged the strength of our footprint and network to continue serving our customers without disruption, which resulted in higher costs. We've now completed the equipment repair and all of our plants are operating as normal. We also had a material asset sale in the third quarter of last year, which impacted the year-over-year adjusted EBITDA comparison. Looking to the market environment. Our commercial customers have shown early signs of improvement. It's led by strong demand for data centers and energy projects. This is also reflected in the latest Dodge construction starts report, which shows new commercial construction starts are up 6.8% over the last 12 months. In infrastructure, demand continues to be steady with federal, state and local authorities prioritizing modernization projects. Within residential, new construction remains soft and a milestone season affected repair and refurbishment demand negatively. Looking to the future, we see strong long-term demand ahead of Amrize. As interest rates decline, we expect pent-up demand to unwind and construction activity to accelerate in both the commercial and the residential sectors. Megatrends, including infrastructure, modernization, onshoring of manufacturing, data center expansion and the need to bridge the housing gap will drive our long-term growth. We are uniquely positioned across infrastructure, commercial and residential construction with around and even split between new build and repair and refurbishment. Let's look at our investments. We continue to invest and execute on our key organic growth projects. In the fourth quarter, we will complete the expansion of our flagship Ste. Gen plant adding production capacity and improving efficiency at North America's largest and market leader cement plant. We are on track with our new state-of-the-art Malarkey Shingles factory, in Indiana, and we are progressing with the expansion of our St. Constant cement plant in Quebec. In the third quarter, we kicked off several additional projects in key markets. In the Great Lakes region, we are expanding our aggregates production to meet customer demand. And we are increasing production and improving efficiencies at our cement plant in Midlothian, Texas, to serve the Dallas-Forth Worth market. In Exshaw, Canada, we are expanding to serve the Calgary and Western Canada market. We will continue accelerating our organic growth investments to build on our market-leading positions and best serve our customers. I'd like to share some project highlights from the third quarter. In Louisiana, we won another data center project to supply 100,000 tons of cement. This is just one of 25 data center projects we have underway in 2025 as the AI boom continues to fuel construction growth. In Ontario, we are delivering ready-mix concrete and aggregates to help build a new battery plant, one of many examples of our advanced manufacturing and onshoring trends are driving construction growth. Our roofing team completed a large project for a new school outside of Houston, and we have many similar projects across Building Envelope, helping to build strong communities. To support a massive new LNG plant in Louisiana, we are providing over 75,000 tons of cement and over 1 million tons of aggregates as energy projects continue to drive demand. All these strong commercial projects reflect the megatrends underpinning long-term growth in the North American construction market. Our growth -- the growth of Amrize is directly connected to these trends. We have a few big pipeline of projects and new ones are kicking off each quarter. The actions we are taking from investing in our business to driving synergies are positioning Amrize to capitalize on the significant long-term demand in our $200 billion addressable market. I'd like now to turn the call over to Ian to discuss our third quarter financials in more detail. Ian Johnston: Thank you, Jan. I'll begin on Slide 11 with our results by segment, starting with Building Materials. Building Materials' third quarter revenue was approximately $2.8 billion, an increase of 8.7%. During the quarter, we saw strong volume growth in both our cement and aggregates businesses with cement volumes increasing 6% and aggregates volumes increasing 3.3%. We continue to see new infrastructure projects breaking ground, along with spending on data centers and energy-related projects. While there is still some uncertainty in the market, conversations with our customers are encouraging and our pipeline continues to grow. Cement pricing for the quarter was down 0.6%, while year-to-date, it remains up 0.6%. Over the last several years, we've seen consecutive cement gains, which are stabilizing this year with softer demand. We expect pricing to be flat on a full year basis and anticipate pricing to improve in 2026 as demand increases. Total aggregates pricing, including distribution revenue increased 10.1%. We continue to see healthy pricing growth in our aggregates business supported by strong market fundamentals and ongoing infrastructure demand. Adjusted EBITDA for the quarter was $902 million, and our adjusted EBITDA margin was 32.5%. The strong volume and aggregates pricing growth that I just spoke about were positive contributors to adjusted EBITDA in the quarter. These were offset by a temporary equipment outage in our cement network that lasted for several weeks during the quarter. With demand high, we leveraged the strength of our footprint and logistics network to move products from other plants to serve our customers. This resulted in approximately $50 million of higher manufacturing and distribution costs in the quarter, including the impact that lower production volumes had on fixed cost absorption. Through the combined efforts of our team, we were able to continue serving our customers without disruption. We have now completed the necessary repairs and our plants are operating as normal. In the fourth quarter, we expect to recover some of this lost production. Additionally, during the third quarter of 2025, we recorded $4 million of asset gains as compared to $43 million in the third quarter of 2024. Prior year included a $31 million gain on an asset sale specifically related to 1 transaction in Canada. While asset sales are a routine part of our business, the specific transaction from last year was large and we do not have a similar sized transaction this year. Moving to our Building Envelope segment. Third quarter revenue was $901 million, an increase of 0.7% compared to the prior year. Commercial roofing revenue increased in the quarter, supported by repair and refurbishment activity and system sales. Residential volumes were down in the quarter due to soft new construction activity and a milder storm season. Based on recent industry data from SPRI, we outperformed the market in commercial roofing in the quarter. Our Elevate business is performing well, and our system offering continues to resonate with customers. Last November, we closed the OX Engineered Products acquisition, which contributed $26 million to revenue in the quarter. As a reminder, we will begin lapping the benefits of this acquisition in the fourth quarter. Adjusted EBITDA was $217 million, and our adjusted EBITDA margin was 24.1% representing a margin increase of 190 basis points from the prior year. The increase in adjusted EBITDA was driven by several factors, including operational efficiencies, lower raw material costs, and higher residential shingles pricing. In the quarter, we saw improved operating performance in our Elevate business as the team executed well, driving efficiencies at the plant [indiscernible]. Price over cost in the quarter was down slightly versus prior year, but improved sequentially versus the second quarter. That's favorable raw material costs and higher residential shingles pricing, partially offset lower pricing in our commercial roofing business. Our team continues to drive synergies and effectively managed our cost base, resulting in an improved performance compared to the prior year. Moving to cash flow in the quarter. We generated $674 million of free cash flow, an increase of $221 million versus the third quarter of 2024. The increase was primarily driven by a net benefit in working capital. Taking a closer look at working capital, September was a strong revenue month, resulting in an increase in our accounts receivable and a modest use of cash, we expect to turn these into cash in the fourth quarter. In addition, as part of our project ASPIRE, we are working on vendor payment terms and to the benefit of the cash in the quarter. We also reduced inventory levels as a result of higher demand and lower production volumes. Finally, the timing of cash tax payments was a small benefit to cash in the quarter. As a reminder, we typically generate the majority of cash flow in the second half of the year, with the fourth quarter being our highest cash flow quarter of the year. Fourth quarter of 2024 was an above-average cash flow quarter. And while we also expect strong cash flow in the fourth quarter this year, cash flow for full year '25 is expected to be below 2024. This is primarily a result of lower net income on a full year basis and higher CapEx spend as we continue to invest in organic growth opportunities across our network. Turning to Slide 14. During the third quarter, we successfully reduced our net debt and strengthen our balance sheet. Net debt at the end of the third quarter was approximately $5 billion, down $612 million from the end of the second quarter and our net leverage ratio declined to under 1.7x, both benefiting from the strong cash flow we generated in the quarter. Our healthy balance sheet and investment-grade credit rating allows us to operate from a position of strength with the flexibility to pursue value-accretive acquisitions and allocate capital to growth projects. Lastly, I would like to provide a brief update on our ASPIRE program where we are leveraging our scale across 1,000 sites and 2 business segments to accelerate synergies. We made excellent progress in the third quarter. We have onboarded over 300 new logistics and service providers to optimize third-party spend, and we launched more than 100 projects to drive synergies across raw materials, services, logistics and equipment. This continues to be a top priority for all our teams, and we expect to begin realizing savings from our ASPIRE program in the fourth quarter. We are on pace to deliver the full 50 basis points of margin expansion beginning in 2026. I'll now turn the call back over to Jan to discuss our 2025 guidance. Jan Jenisch: Yes. Thank you, Ian. When we look at our guidance, I think I'm very satisfied with the good demand we saw with our customers in Q3, our first full quarter as Amrize and we see markets now have begun to stabilize, and we see significant pent-up demand backed by long-term megatrends. There are some uncertainties remaining with our customers. However, we are cautiously optimistic about our demand momentum to continue from now on. Building on our third quarter revenue, we are raising our 2025 revenue guidance, and we are confirming our EBITDA and net leverage ratio guidance. So for the full year, we now expect revenues to be in the range of $11.7 billion to $12 billion, adjusted EBITDA to be in the range of $2.9 billion to $3.1 billion and we expect to finish the year with a net leverage ratio below 1.5x. With this, I think we will now begin the Q&A process, and I turn over to Scott. Scott Einberger: Thank you, operator. We're ready to begin a Q&A process. Can you please explain the instructions? Operator: [Operator Instructions] Our first question is from Keith Hughes from Truist. Keith Hughes: The midpoint of the guidance implies flattish year-over-year EBITDA, I believe. Could you talk about some of the puts and takes that could be coming in the fourth quarter? It does sound like cement is going to have some positive carryover, but there must be some other things going against you. Jan Jenisch: We have a difficult time to understand the question. Would you mind to repeat the question? Keith Hughes: Your guidance seems to imply for the fourth quarter around flattish at the midpoint EBITDA year-over-year. Could you talk about what will be the positives and what will be the negatives you expect in the fourth quarter? Jan Jenisch: Yes. Thank you, Keith, for the question. Look, I think we -- again, we are very satisfied with the demand from our customers and the increasing number of projects we deliver and very happy to have the 6.6% sales growth in Q3. Now going forward, it's a bit tricky for Q4 to give guidance as we still have some uncertainties among our customers regarding tariff politics and also regarding future interest rates. So as you know, we do about half of our business is in the commercial market segment. So we have no project cancellations, but we have still a couple of -- or a significant number of projects sidelined, and they will be kicked off in our view as soon as the market environment is stabilizing. So it's not easy for us to forecast Q4. We are obviously very optimistic for the long term, but Q4 is not easy. So that's why we gave this guidance, which is, I would say, maybe a bit cautious overall to make sure we deliver what we promise. Keith Hughes: Okay. Just one final thing. It does appear from your previous comments that the production issues you had in cement, those are fixed and will not play a role in -- not play a negative role in the fourth quarter. Is that correct? Jan Jenisch: Yes. We are happy with our operational performance. It's basically for 2 items. We have this land sale in Q3 last year, and then we have this production outage, which is resolved. So we're looking forward to have solid margins in Q4 and in the coming quarters. Operator: Our next question is from [Anthony Pettinari] from Cementir Holding. Unknown Analyst: Good morning. I'm wondering if you could talk about cement market dynamics in a little bit more detail. And specifically, in terms of the confidence and potential price improvement in 2026, are you seeing specific things in your backlogs or the market or import dynamics that would give you kind of confidence in pricing momentum in '26? And as a follow-up, I'm just wondering if you could talk a little bit more about Ste. Genevieve in terms of the ramp-up and what -- how that's going? Jan Jenisch: And yes, we previously reported -- we come from challenging maybe past 2 years where we had lower demand for cement, which made it difficult or more challenging for us on the pricing. We are -- nevertheless, I think we are under the circumstances, we have almost stable cement prices for the year. I think that's not a bad achievement. And now we believe that this will change for next year. And we will -- especially with the volume growth we saw now in cement, which we believe will continue into next year, we will be -- it will be healthy pricing dynamics, especially in our inland markets, and we believe we are well positioned now to execute this. We are also here. We made very, I would say, focused investments here. So in Ste. Gen, the fifth mill to further increase our production, but also to further increase our efficiencies is on track, and we are planning to have the first production, which we are selling in November, so next month. Operator: Our next question is from Timna Tanners from Wells Fargo. Please go ahead. Timna Tanners: Okay. Great. Just wanted to follow up on the cement question and ask about pricing and if you're seeing any impact on -- from imports. So we've been hearing that there may be some price hikes announced and if you're seeing the impact from the tariffs reducing competitiveness of some of those overseas tons. Jan Jenisch: So in principle, we -- our customers largely recognize the value of a local producer like Amrize providing consistent high-quality products, local service and full reliability of supply chain and the logistics. In addition, our inland footprint in the hard end markets will make us very strong going forward. I think there's a lot of information at the moment in the market about price increases, about increasing import costs from tariffs and so on. I prefer not to comment on this. We're going to focus on ourselves, and we believe we have the right action plan in place to improve pricing for next year. Operator: Our next question is from Pujarini Ghosh from Bernstein. Pujarini Ghosh: So on the building products side, could you provide some color on the volume and pricing that you saw in Q3 and specifically commenting around the market share gains that you were referring to on the commercial side? Also, could you give some color around the 190 basis points of margin expansion we saw seems to be in sharp contrast with what some of your peers have been saying. So how are you getting this margin expansion? Jan Jenisch: Yes. Thank you for the question. So first of all, we're very happy we had a good commercial roofing business in Q3, with increasing volumes, but also with market share gains. So very happy to report that, that we have been very successful here with our customers to provide our systems with all the different membranes we are offering. In contrast to this, the shingle market is difficult. I think we shared the information with you. We have a very soft new construction market in residential. And also we have -- I think we see a softer storm season or something. So residential is a bit challenged. But overall, I think we are -- we have flat sales, which I think is quite a success in this market. And I'm especially pleased with the market share gains for commercial roofing. We have on the operational efficiencies, very happy that our teams put all the plans in excellent conditions. You always sometimes have hiccups. We have around 40 manufacturing facilities in Building Envelope, and we had a few we were walking on the last 12 months or so, and this all comes now to a very positive results basically with lowered cost and leading to then a significant increase in this EBITDA margin of 190 basis points. Operator: Our next question is from Cedar Ekblom from Morgan Stanley. Cedar Ekblom: I just wanted to ask a question on the commercial landscape as it relates to your Building Envelope and roofing business. We've obviously seen quite a lot of change on the distributor channel. We've had a lot of assets change hands, SRAs going to Home Depot and obviously a new entrant in QXO acquiring Beacon. I'd like to hear how you are seeing this play out for your business because there does seem to be at least some commentary from the distribution players that there might be a desire to be a little bit more aggressive on pricing with their OEM suppliers. Are you seeing that in the market at all? How would you respond to one of your distributors looking to sort of negotiate price and then linked question, can you comment on some of the new entrants actually on the sort of manufacturing side of things, if you have a perspective on, for example, Kingspan looking to add capacity? Jan Jenisch: All right. Cedar, thank you for the questions. I mean, look, we are -- first of all, we are not in competition with any distributor, we are partnering with distributors to make our products efficiently available for all the roofing jobs. You can see in our Q3 results that obviously, we don't see any impact from any consolidation in the distribution space. And it's important, I think, to note that all our efforts in building envelope and in roofing systems is to provide the best, most innovative systems for our customers, which are the building owners, which are the specifiers and are the roofing contractors. And we are focusing to make the best possible roofs and the most easy and efficiently installing roofs. This is all our focus. We do this with our innovation. We do this with our workforce for specification of roofing, inspecting roofs and then providing warranty for the roofs. This is our focus, and this is all underpinned by our strong branding of our strong brands. So -- and then we go direct, I think, in our roofing sales at the moment, we do about 30% direct and 70% goes through distribution. And these are just partners for us. We don't see any negative impact. And just important to understand that we focus on the end customer, and we have no real opinion on the distributors. However, if you want me to comment on the distributors, I think we have very good and very efficient distributors in roofing from the companies you have mentioned. So we're very happy to partner with them. They provide a great service. And again, we are not able to deliver every roof on overnight on time for the roofing jobs. This is why we have these very competent roofing distributors in the North American market. The question on new entrants in the roofing market is really -- we didn't have that in the last 30 years. The market is actually consolidating. And we believe it's very challenging to come in and start with a greenfield roofing business in the U.S. We haven't seen that in many, many years. And so we cannot comment. We have -- we are focusing on some of our other peers as we compete for this full nationwide distribution we are having, and that's our real focus. So we see any impact from greenfield, new entrants, very, very limited. We rather see roofing going for more consolidation. Operator: Our next question is from Adrian Huerta from JPMorgan. Adrian Huerta: Jan, if you can share with us how do you see the M&A environment over the next 12 months and potential opportunities within the different segments that you're in. Do you think there will be opportunities for Amrize to expand through M&A over the next 12 months? Jan Jenisch: Adrian, yes, look, we made it clear that part of our strategy is, of course, organic growth. We believe we will invest more into the business compared to recent years. But then in addition, we are very open of M&A. I mean, story of Amrize has been very much also driven by M&A. And we have a -- I think I would say we have a healthy pipeline here of targets and projects. And hopefully, we have some news for you in the months to come. Operator: Our next question is from Yassine Touahri from On Field Research. Yassine Touahri: Just a short follow-up on the volume in the fourth quarter. Do you have any view on what's happening in the cement business in October? And maybe a question on strategy. When you look at your Building Envelope business, it's mostly roofing, but you call that Building Envelope. And I think in your Form 10, you were mentioning wall solution. How do you think about the business in the next 5 to 10 years? Do you see any opportunity in the next 12 to 24 months to do a big platform deal? And if you see an attractive platform deal to complete this business line, what kind of maximum leverage you would be happy to go to in terms of net debt to EBITDA? Jan Jenisch: Good question. Look, first of all, to your pricing and volume question, first of all, I think the cement and aggregates pricing is set for the remainder of 2025, and we now shifted our focus for the pricing for next year. So for the fourth quarter, we expect the cement pricing to continue as we have seen it in Q3, but also then our strong aggregates pricing up 10%. We also expect this to continue into the fourth quarter. So demand is good in Q3. We have to just make the comment that our customers are still with certain uncertainties regarding tariffs regarding interest rates. But besides that, we believe there's a strong underlying demand makes it a bit more difficult to really guide the Q4, but we are very optimistic for next year. And also with that, we're going to have, we believe, healthy volumes and healthy pricing in 2026. So on Building Envelope -- I have to ask the other question. So on Building Envelope, I think you point out that we call the segment building Envelope and not roofing systems. And I think this is -- just gives us more opportunities into the future as we could expand in complementary applications and technologies. However, I asked my teams to focus on our core businesses as it is today, as we have this $200 billion addressable market in front of us. So that means we don't need to necessarily enter new segments to grow Amrize. We believe we have plenty of to grow. And then the Envelope gives us a little bit of extra vision and strategy for the years to come. Yassine Touahri: In terms of leverage, the maximum leverage that you would be happy to go to if you see interesting platform deal? Jan Jenisch: Look, I think, first of all, we are happy to have the balance sheet we are having. You see we're making progress now in Q3, further progress. Very happy to close the year where in the balance sheet, how we guided it. If we have attractive M&A transactions, and you remember, we have an excellent track record of value-accretive deals, we can go well above this. I think it's just important always you have a clear plan to further -- to go down again in the leverage. But we are not afraid to go up in the leverage for the right transaction. Operator: Our next question is from Tom Zhang from Barclays. Tom Zhang: Just housekeeping ones for me at this stage. Could you maybe just give a little bit of color around litigation, the $40 million that is not in the adjusted EBITDA. Could you just give us a bit of color on what that is about and which division it was booked in? And then also just on the guided corporate costs, I see it's come in quite a bit below the $75 million to $80 million number that you spoke about at the Q2 prints. Any color on why that's better? And is $75 million to $80 million the right number into Q4? Is there a bit of catch-up? Just a bit of help there for the modeling. Ian Johnston: Sure. Tom, thanks for the question. I think just to begin with the litigation, we're quite happy with the outcome during the quarter we were able to reach final settlement on several long-standing commercial litigation items. As you would expect, we cannot provide details related to specific litigation items, but we're quite happy with the conclusion on those particular matters. Regarding the corporate costs, we did guide at a little bit higher range. We do think we're making good progress. This was our first quarter as a fully independent Amrize. So we're quite pleased with our numbers being a little bit below what we expected. Our previous estimate was at the high end of what we'd expect. It's going to continue to evolve. We do think that the result in the third quarter was quite positive. We had some delays in terms of our assumptions on staffing and so forth. So it was a good outcome, and we think that we'll continue to refine that as we go forward. Tom Zhang: Okay. Maybe just to confirm, sorry, on the litigation that it wasn't sort of one major case. There was a few different outcomes. And so it's sort of spread across different segments. It's not like all in Building Envelope or in Building Materials. Ian Johnston: 5 That's correct. There were some long-standing items that we were able to resolve in the quarter as conclusive and it was a quite a good outcome from our perspective. Operator: Our next question is from Martin Hüsler from ZKB. Please go ahead, Martin. Martin Huesler: Yes. I hope you can hear me. I have a question. Can you give us a bit more background on the nature of this outage you were mentioning, if this was kind of maintenance driven or just about when and where this happened? Ian Johnston: Thanks, Martin, for the question. Yes, it happened in our Mountain region. It was a temporary equipment outage. We were down for approximately 6 weeks to repair the equipment, which resulted in reduced production. We also had increased distribution costs. The challenge here is that it was a very temporary in nature. However, given our extensive footprint and our network, we're able to leverage other opportunities to be able to supply and keep our customers satisfied. We were able to move product into the market and be able to meet the demand that was there. The equipment at the plant was repaired. Plant is now operating normal, and we expect that we'll be able to recover some of this production in the fourth quarter. Martin Huesler: That's helpful. And then maybe on volumes, because you had such a stellar growth in cement. However, pricing were down. I just want to double check if you think that's kind of are you chasing volumes and maybe give some price rebates? Or is this a different functions there? Jan Jenisch: Martin, no, we didn't really do this. I think we just had our customers starting more projects as reported, especially in this most important market segment of commercial projects. So very happy to see that. So the demand was not driven by us making any concessions on pricing. You will probably see in the market that we probably had the best pricing or we're going to be among the best pricing this year or something. And this is something also we couldn't change within the Q3 time span. So what makes us, I think, confident for the future. Operator: Our next question is from Juilan Radlinger from UBS. Juilan Radlinger: Two for me, please. So first of all, in building envelope, can you talk to what drove the positive pricing in resi shingles when volumes were negative? And was that both a year-on-year and a sequential comment on pricing, i.e., is pricing holding up? Or is it declining in line with the resi and reroofing weakness? That's number one. And then number two, in Building Materials, obviously, your volumes were very strong in Q3 and now based on your guidance for Q4, you're guiding to lower sales growth in Q4 than what we saw in Q3 implied. And I remember that Q3 last year was a very wet quarter for the industry in some states. So is it fair to say that easy comps played some role in the strength in cement and aggregates volumes in Q3 and Q4 will be a bit tougher just on a comps basis? Or is that something we shouldn't be thinking about? Jan Jenisch: No, I think to your last question, I don't think we should speculate about this at this point. As we talked about before, it's just difficult to guide now. We are happy with the project starts of our customers in Q3, and we believe this will be continuing from here. However, there are still uncertainties in the market, which makes it difficult to predict. So just have to take our guidance as a cautious guidance now for Q4. On the pricing side, I think we did a good step on the pricing on the shingles. So this is something we do early in the year, and this has continued successfully despite the decline in volumes in the market. Operator: Our next question is from Will James from Redburn. William Jones: Please could I just explore a little bit more on the confidence around pricing for next year in Building Materials. I guess on the cement side, just wondering your view on the extent to which it would rely on volumes being up next year? Or do you think price could make some progress even if volumes were flat? And then in aggregates, would you be willing to offer a view on what you might achieve potentially next year? Could it be another kind of mid- to high single-digit year on price? Jan Jenisch: I think it's the wrong time now to talk specifics about next year guidance or something. I think you should -- that we provide already a lot of comments on market dynamics and on our action plan to position ourselves well for next year, and this is what we are working on at the moment. But I don't want to give any more guidance regarding volume or pricing. I think we talked already quite extensively around it. William Jones: Okay. I might just ask a different one then please, which is just around your kind of demand views and whether there's any difference between how you see Canada and the U.S. in the mix? Jan Jenisch: No. We're seeing -- when you look at our results, we made good progress in Q3 in Canada and also in the U.S. Operator: Our next question is from Glynis Johnson from Jefferies. Glynis Johnson: Just a follow-up on the ASPIRE program because obviously you saw margin improvements coming through on the Envelope side, you have reported lower nonallocated costs as well. So I'm wondering how much of that actually is part of the ASPIRE program? Or is the everything for ASPIRE going to come from sort of the Q4 onwards? Ian Johnston: Yes. Thanks for the question. We do reference a little bit in the presentation deck. For instance, we had over 300 suppliers added to our portfolio. We have over 100 projects that have been kicked off. And we do expect to have some positive impact in our fourth quarter, but really all of this will begin to materialize into the 2026 season. We're on pace for our 50 points of margin expansion beginning in 2026. We had a number of actions within the quarter. We're quite happy with the way things are progressing, and we think that, that will continue into the fourth quarter. Glynis Johnson: Okay. But there was nothing in the Q3 in terms of the margin expansion or the lower corporate costs that you would say a part of ASPIRE? Ian Johnston: No. Very limited. Q3, we began this project in late April, early May. That's continuing. We have our teams mobilized. There's several hundred projects underway, but very limited in Q3. Operator: Our next question is from Arnaud Lehmann from Bank of America. Arnaud Lehmann: Just to confirm one thing on capital allocation. Can you confirm that you've not done any buybacks so far? And is it -- is share buyback something that could be possible in 2026? And maybe just in terms of just the idea of the model, you guide for D&A depreciation, $850 million, but the run rate is probably a bit closer to $900 million for the full year. Is there any reason why depreciation will be smaller in Q4? Ian Johnston: Arnaud, with regards to the buyback and dividends, that's a policy -- those are policy questions that we still have to work through the Board, and that would come up in early 2026. We haven't provided a framework for that yet, but that will be coming in due course once we have alignment with the Board and then going to shareholders. Regarding the D&A, thank you, the question. We do expect a little bit of reduction in the fourth quarter where we would have traditional equipment that would phase off in terms of their depreciation expense. So that should help us into the fourth quarter. Operator: Our last question is from Pujarini Ghosh. Pujarini Ghosh: One follow-up on the Building Materials margins. So on the face of it, we saw a sharp decline in the margin on the Building Material side. But even if we take off and adjust for the one-off outage this year and the higher land sales proceeds last year, we still see around 100 basis points of decrease in the margin. So what is causing this decrease? And do you expect to kind of recover this maybe next year? Ian Johnston: Obviously, we outlined in the presentation, the biggest factor being the plant outage that we had. We had basically 6 weeks to repair that equipment. That cost us $50 million. We had the significant variance in asset sales year-over-year. The other impact that's affecting us is lower pricing in cement. There's another decline of 0.6% in the quarter. And then there's some cost inflation that went along with that. But those would be the main items. We do expect to be able to recover some of that production volume going into the fourth quarter. That should help lift margins a little bit in the fourth quarter. But right now, all of that temporary nature of those shutdown issues are behind us. Pujarini Ghosh: So in terms of price cost, so you would say there's like probably more negative than the 0.6% pricing decrease in cement? Ian Johnston: Price cost in cement was negative. That's correct, because of those temporary cost increases in the -- in our Mountain region. Operator: Thank you. We have no more -- we have no further questions at this time. I will turn the call back over to Scott Einberger, Investor Relations Officer, for closing remarks. Scott Einberger: Thank you all for joining us today for our third quarter earnings call. We look forward to speaking with you in February for our fourth quarter call. Have a nice day.
Operator: Ladies and gentlemen, a very warm welcome to the GSK Q3 2025 Results Call. I'm delighted to be joined today by Emma Walmsley, Luke Miels, Deborah Waterhouse, and Julie Brown, with Tony Wood, David Redfern, joining for Q&A. Today's call will last approximately 1 hour with a presentation taking around 30 minutes and the remaining time for your questions. Please ask only one to two questions so that everyone has a chance to participate. Before we start, please turn to Slide 3. This is the usual safe harbor statement. We will comment on our performance using Constant Exchange Rates, or CER, unless otherwise stated. I will now hand over to Emma on Slide 4. Emma Walmsley: Thank you, and welcome to everybody joining us today. Please turn to the next slide. Our third quarter results once again demonstrate GSK's continued strong performance with positive momentum driving an upgrade in our guidance for the year. They also further demonstrate the quality and strength of GSK's portfolio with sales driven by sustained growth across specialty medicines in RI&I, oncology and HIV. Total sales were up 8% for the quarter, with leverage delivering core operating profit up 11% and core earnings per share up 14% to 55p. Alongside this, we're continuing to make excellent progress in R&D, strengthening our late-stage portfolio and already securing four FDA approvals this year, including BLENREP last week and with the fifth, depemokimab before year-end. Cash generation also continues to be very positive at GBP 6.3 billion for the year so far. This supports investment in our growth priorities and returns to shareholders, including a dividend of 16p for the quarter. And finally, I'm very proud of the progress we continue to make with our trust priorities, in particular, this quarter with the positive Phase III data reported for our low-carbon version of Ventolin. This successful transition will reduce GSK's carbon footprint by up to 45%, and it's a meaningful development for the 35 million patients who rely on Ventolin worldwide, and we expect to launch in 2026. Next slide, please. Our #1 priority remains investing for growth, and I'm pleased with the progress we are making, both in the late-stage portfolio and in the work ongoing to build the next wave of innovation at GSK. With the addition of efimosfermin, the long-acting FGF21 for steatotic liver disease, we now have 15 scale opportunities with peak year sales potential of greater than GBP 2 billion, all with the potential to launch before 2031. By the end of the year, we expect new pivotal trials to have started for several of these 15 opportunities, depemokimab for COPD patients, efimosfermin in MASH, GSK'981 for second-line GIST and our GSK'227 ADC in extensive stage small cell lung cancer. It's worth noting that those last 3 assets have all come from focused, successful business development and BD remains a key driver of our pipeline expansion. And we continue to add high-value innovation at earlier stages of development. For example, I'm excited by GSK'261, a new monoclonal antibody for polycystic kidney disease, which received orphan drug designation by the FDA. Lastly, and very importantly, we continue to optimize our supply chain to scale up capacity for our new medicines and vaccines. Last month, we confirmed our intention to invest $30 billion in R&D and advanced manufacturing in the U.S. over the next 5 years, including the imminent construction of a new biologics flex factory in Pennsylvania. Next slide, please. Since 2021 and then GSK's successful launch as a new focused biopharma company, we've delivered 18 consecutive quarters of profitable sales growth, upgraded annual guidance each year, improved our medium-term outlooks and upgraded long-term outlooks twice from an initial GBP 33 billion by 2031 to now more than GBP 40 billion, all underpinned by a much stronger balance sheet. We've all been resolutely focused on this step change in sharper operational performance alongside accelerating investment in R&D and significantly improving the quality and scale of GSK's innovation. So today, GSK is a very different company in performance, pipeline and prospects. And this team is determined to sustain and improve upon this track record. As we look ahead, we are again upgrading our guidance for the year with meaningful improvement for 2025 sales and profits. And this momentum positions us well as we go into 2026 and to deliver on the long-term commitments for growth we've set out for shareholders. So let me now hand over to the team to take you through more of the detail on our performance, starting with Luke. Next slide, please. Luke Miels: Thanks, Emma. Please turn to the next slide. In Q3, we delivered growth across all our product areas and in the regions with GBP 8.5 billion of sales, up 8% versus last year. Growth in the quarter was driven by Specialty Medicines, up 16%. And and another quarter of strong Shingrix, Arexvy and meningitis demand in Europe. And in the U.S., we navigated the impact of the Medicare redesign from the IRA and the impact is now expected to be closer to the lower end of our GBP 400 million to GBP 500 million range. Next slide, please. Specialty Medicine continues to be the most important driver of our diversified business with double-digit growth once again in all therapy areas. Starting with RI&I, sales were up 15%, driven by strong demand. Benlysta, our treatment for lupus grew 17% with global guidelines supporting earlier use of biologics and recommending Benlysta as a preferred treatment option. 84% of bio-naive patients are now starting on Benlysta, and we continue to differentiate with strong organ damage prevention data and a well-characterized safety profile. Nucala, our anti-IL-5 biologic, grew 14% in the quarter, driven by COPD uptake and continued growth across all in-line indications. Moving to our growing oncology portfolio, which is up 39%. Jemperli sales were up for the 10th quarter in a row as our teams continue to differentiate Jemperli from the competition, as the only immuno-oncology medicine to demonstrate overall survival in endometrial cancer. Jemperli's global market share in endometrial cancer is now higher than the leading competitor in DMMR. And Ojjaara sales were up 51% in the quarter, driven by increasing first- and second-line patient demand in the U.S. and volume growth in Europe following EHA, where new data emphasized the importance of early intervention. And BLENREP is now in the early days of launch with approval in 8 markets and more on that in a minute. And with the strong momentum we're seeing across RI&I and oncology and the continued performance of ViiV, we are now increasing our full year specialty guidance from low teens to mid-teens percentage growth. Next slide, please. In Q3, we had a very strong start for Nucala and COPD with the latest NBRx data showing we are now getting close to 1 out of every 2 prescriptions. Our differentiated label is enabling us to reach a wide spectrum of COPD patients, including those with emphysemia and EOS counts down to 150. We've now reached 95% of our top ACP targets and have a broad formulary coverage. In this population, hospitalizations remain a critical unmet need with 1 in 2 patients dying within 5 years of their first admission, and there is plenty of room to grow in this market with less than 5% biologic penetration in the U.S. The success we have had with this launch gives us further confidence in the potential we have for depemokimab, our long-acting IL-5, which we expect to launch early next year. There are 4 compelling reasons underpinning why we believe depe will be a very material medicine. First, there's plenty of room to grow in the market, starting with bio-naive patients as only 27% of them currently receive a biologic. Second, patients discontinuing therapy is an issue with up to 65% of new patients on current biologics discontinuing therapy within the first 12 months. And unsurprisingly, less adherent patients have worse clinical outcomes, including around a 30% increased rate of inpatient and emergency department visits. The 72% reduction that depe has demonstrated in hospitalization with just 2 doses a year is material. And finally, we know ACPs want this medicine with 86% of pulmonologists surveyed believing it could become a standard of care. Next slide, please. Our oncology portfolio is progressing well. Starting with BLENREP, we now have approval in 8 markets, 7 in Europe and international regions in the second-line plus population and now the U.S., where just last week, we received approval in the third-line plus setting. This U.S. approval is a significant step forward for the U.S. patients and the indication granted reflects that BLENREP has demonstrated superior efficacy versus the standard of care daratumumab triplet and now gives us certainty and the ability to launch. Data from DREAMM-7 in this population is very compelling with a 51% reduction in the risk of death and a tripling of median progression-free survival versus the dara-based triplet. We see a significant opportunity here as of the 71,000 patients in the U.S. receiving treatment today, over 1/3 are treated in the third-line plus setting. And BLENREP is the only anti-BCMA option, which is practically able to be used in the community where 70% of patients are treated and could benefit from a much needed novel MOA. We also have a new and significantly simplified REMS program, including, importantly, the use of optometrists versus the original REMS, which required ophthalmologists only. This will make it much easier for patients and HCPs to manage eye care. And while we anticipate a slower ramp-up in the U.S. with the initial third-line plus label, as we said previously, we will take the time to ensure a positive patient and provider experience to achieve the long-term potential of this highly effective drug. Our clinical development and evidence generation plan continues. And again, working closely with the FDA, this will now be expanded in the U.S. and will support the use of BLENREP in earlier and all stages of multiple myeloma globally. In summary, we expect BLENREP to meaningfully advance treatment options for patients with multiple myeloma, and we continue to expect BLENREP to be a material growth driver for GSK in the next 3 to 4 years. Moving to future indications for Jemperli. We're looking forward to the opportunity we have to change the lives of patients with rectal cancer. And following the transformative data showing a 100% complete response rate in Phase II, we initiated the AZUR-1 pivotal trial and expect to see results in the second half of 2026. And additional trials are ongoing to understand the benefit Jemperli can bring patients with colon and head and neck cancer. Finally, we continue to progress our key oncology pipeline assets, starting with our B7-H3 antibody drug conjugate or GSK'227. We're now recruiting for our Phase III trial in second-line extensive stage small cell lung following a clear signal we saw in the early-stage clinical data from Hansoh, our partner. And our KIT inhibitor for GIST, GSK'981 acquired earlier this year, will start Phase III in second line by the end of the year and first line in 2026. And GSK'584, our B7-H4 antibody drug conjugate is expected to advance to Phase III in endometrial and ovarian cancer next year. And overall, this oncology portfolio offers significant future growth opportunity for GSK and is a clear priority for investment and resources alongside RI&I. And with that, I'll now hand over to Deborah to cover our great momentum in HIV. Deborah Waterhouse: Thank you, Luke. Our HIV portfolio continues to deliver double-digit growth, up 12% in the quarter, primarily driven by 10 points of strong patient demand growth for our long-acting injectables and Dovato. Demand continues to increase across all regions and major markets, particularly the U.S., which grew 17% and where we saw total share gain outpacing the competition. We are delighted with the continued transition we are seeing to long-acting injectables. More than 75% of our growth now comes from long-acting injectables. And in the U.S., they already represent around 1/3 of our sales. Cabenuva, the first and only long-acting injectable HIV treatment regimen grew 48%, driven by strong patient demand. Our competitive performance is reinforced by the acceleration of Cabenuva switches from competitors in the U.S., which this quarter reached 75%. As we anticipated, in long-acting prevention, we saw continued positive momentum of Apretude in the U.S. with competitive growth also of 75%. This quarter, we shared results from CLARITY, a Phase I study comparing acceptability and tolerability of single-dose CAB LA for PrEP marketed as Apretude and lenacapavir. We know patient experience is an important factor for injectables. Results showed 69% of participants found CAB LA to be totally or very acceptable with 90% of participants and 86% of HCPs preferring CAB LA over lenacapavir in terms of injection experience after a single dose. These data add to the growing body of clinical and real-world efficacy, safety and tolerability data we have for Apretude and will help inform expectations and decision-making when initiating long-acting injectables for HIV prevention. We expect continued growth momentum in Q4. And so today, we are upgrading our 2025 guidance from mid- to high single digit to grow around 10%. Next slide, please. Our industry-leading pipeline with best-in-class integrase inhibitors at the core continues to progress and have multiple long-acting options with strong profiles that deliver what we know patients want and need. This pipeline will further drive the transition we are making in our portfolio to ultra-long-acting regimens and will help us navigate the dolutegravir loss of exclusivity towards the end of the decade. Building on our established 2 monthly injectable regimens, we believe 4 monthly dosing in PrEP and treatment will be important options, delivering longer dosing intervals and ensuring continuity of care. We have a confirmed date from Janssen on rilpivirine Phase III clinical trial supply that leads to a delay to the start of Quattro, our Q4M treatment registrational study to H1 2026. Despite this, we remain on track to file in 2027, and we look forward to launching this next wave of innovation in 2028. building on continued strength and performance of our Q2M Cabenuva, the world's first and only LAI for HIV treatment. At the launch of Q4M treatment, we still expect to have the only long-acting injectable treatment regimens on the market for years to come. Looking ahead to our twice yearly injectables, we're on track to confirm the dosing regimen for Q6M treatment in 2026 and expect to file and launch both Q6M for treatment and PrEP between 2028 and 2030. For Q6M treatment, we remain excited about the potential of VH184, our third-generation INSTI, which has the best resistance profile seen to date and IP protection through to at least 2040. To partner with our selected INSTI, we are evaluating 2 assets, VH499, a capsid inhibitor and N6LS, one of the broadest and most potent bNAbs in development. Regarding N6LS, this quarter, we again showed more positive results from Part 2 of our Phase IIb study in BRACE and are pleased to confirm the next phase of this study is now fully recruited. As a reminder, Q6M for treatment in PrEP is not yet in GSK's outlook for 2031. Our long-acting injectable portfolio is backed by 3 years of real-world evidence and implementation science. As we look to the future, we expect our industry-leading long-acting pipeline powered by unparalleled patient insight to deliver 5 launches through 2030. We remain confident in our ability to drive sustained long-term performance and look forward to sharing more at meet the management investor event in Q2 2026. With that, I'll hand back to Luke. Luke Miels: Thanks, Deborah. Turning to Vaccines. Sales were up GBP 2.7 billion in the quarter, up 2%, driven by continued strong demand for Shingrix, Arexvy and Bexsero, particularly in Europe, which was up 35%. Shingrix sales grew 13% overall, largely due to the strong performance in Europe, up 48%, where we're driving across multiple markets and with significant new uptake in France, and a strong performance in Germany, the Netherlands and Poland. In international, sales in Japan continue to grow following the expanded public funding. Ex U.S. sales now account for around 70% of global Shingrix sales. And in the U.S., penetration is now 43% of the eligible older adult population with immunization rates slowing as expected as we access harder-to-reach patients. In meningitis, our portfolio was up 5%, driven by double-digit growth for Bexsero in Europe, where the updated recommendation and reimbursement in Germany continues to pull through and in France following a meningitis B outbreak and the implementation of mandatory newborn vaccination requirements, along with new reimbursed cohorts. Also in the quarter, even though the ACIP recommendation came slightly after the back-to-school season window, we booked the first sales of our pentavalent vaccine, Penmenvy in the U.S. with initial CDC purchases. We expect this vaccine to simplify immunization schedules and contribute to increased coverage and protection against a serious life-threatening illness. Turning to Arexvy. Growth was driven by Europe with good commercial progress in Germany, Spain and Belgium. International also grew driven by tender volumes in Canada. And in the U.S., we maintained our market-leading share in the older adults population. However, the U.S. declined due to lower preseason channel inventory build and slower market uptake in the 60-plus population. In Q3, our flu vaccines were down in part due to competitive pressure in the market where we compete for healthy younger cohort populations who are harder to activate in older adults for flu vaccines. And Established Vaccines were down primarily due to the prior year impact of our divested brands. So in summary, with the Vaccines business, we now expect to land towards the top of our vaccines guidance range of declining low single digit to stable. And as we look forward, although we continue to remain cautious in the near term on vaccines in the U.S., we are confident in the prospects pipeline and benefit this business offers over the long term. Next slide, please. Turning to General Medicines. Sales were up 4%, driven by the strong growth of Trelegy in all regions, up 25% in the quarter. And the SITT class remains very strong, up around 23%, driven by GOLD guidelines, new data and competitive share of voice. Within the SITT class, Trelegy continues to gain more share than any other brand and is the top-selling brand for both COPD and asthma globally. We also have completed IRA negotiations on Trelegy in line with expectations and our outlook. The remaining portion of the portfolio was stable, reflecting continued generic competition and expected adjustments in rebates and returns. We continue to expect sales to be broadly stable in 2025 and are looking forward to future opportunities in this portfolio, including launching low-carbon Ventolin and further establishing our anti-infective portfolio through building access in the U.S. for Blujepa in uncomplicated urinary tract infections and also filing tebipenem in complicated UTIs by the end of the year. All 3 of these represent practical innovation for important areas of medical need. I'll now hand over to Julie. Julie Brown: Thank you, Luke, and good afternoon, everyone. Next slide, please. Starting with the income statement for the quarter with growth rates stated at CER. As already highlighted, sales grew 8%, driven by the specialty portfolio across HIV, oncology and RI&I. Core operating profit grew 11%, reflecting a 5% increase in SG&A as we continue to invest to support key asset launches alongside driving productivity. R&D growth of 10% was driven by accelerated pipeline investment across key specialty medicines. Our royalty income benefited from the Kesimpta performance as well as new RSV and mRNA royalty streams. Core EPS grew 14%, aided by a tax rate of 16% in the quarter and benefits from the share buyback, partially offset by higher NCIs relating to ViiV's strong performance. Turning to our total results. The significant growth reflects the Zantac settlement charge taken in Q3 last year. Next slide, please. The operating margin improved 90 bps in the quarter, largely driven by SG&A margin improvement of 70 bps. This increase demonstrates the efficiency gains achieved through our returns-based approach as we invest in new product launches whilst continuing to generate productivity improvements in the promotion of the existing portfolio. Additionally, in the quarter, gross margin improved, reflecting mix benefits from the continued transition towards specialty and R&D expenditure increased as we reinvest additional royalty income into our pipeline, supporting the acceleration of the ADC programs and pivotal trial starts for efimosfermin and GSK'981 in second-line GIST. Year-to-date, our operating margin is now 33.9%, up 100 bps at constant exchange rates, driven by sales mix, productivity gains and growth in royalties. Next slide, please. Turning to the cash flow with commentary before the one-off impact of Zantac payments. Cash generated from operations year-to-date was GBP 6.9 billion, improving GBP 1.7 billion, benefiting from increased operating profit, favorable movements in return and rebate provisions and the CureVac IP settlement announced in August. This was partially offset by increased working capital, impacted by higher Arexvy and Shingrix collections in Q1 of last year. Free cash flow increased GBP 1.8 billion versus last year, driven by strong CGFO and favorable phasing of tax payments, partially offset by higher spend on in-licensing deals. Zantac payments year-to-date totaled nearly GBP 0.7 billion, and we expect the remaining GBP 0.5 billion to be paid by the end of the year, drawing a line under the settlement agreed and disclosed last October. Next slide, please. Turning to capital allocation. In line with our framework, we continue to deploy cash in a disciplined manner and underpinned by a strong balance sheet. Our net debt to core EBITDA ratio remains broadly aligned with the end of 2024 at 1.3x. Our priority is always to invest for growth as demonstrated by our sustained acceleration of late-stage R&D, the next wave of pipeline innovation and targeted BD. In 2025, we have signed multiple deals, including the acquisition of IDRX-42 and efimosfermin as well as the Hengrui licensing agreement and earlier-stage pipeline and platform technologies. We have also made GBP 3 billion in shareholder distributions so far this year through the dividend and the buyback program, of which GBP 1.1 billion has been executed so far with a cumulative total of GBP 1.4 billion expected to be completed by the end of the year. Next slide, please. As Emma shared, we are upgrading our guidance on the back of the continued strong performance this year. We are raising our full year sales expectations from 3% to 5%, to 6% to 7%, with underlying upgrades for Specialty, including HIV, and we now expect to be towards the top of the vaccines range. Alongside this, we're also raising our guidance ranges for operating profit to 9% to 11% and EPS to 10% to 12% -- looking through the P&L guidance, we maintain that gross margin will benefit from product mix, partially offset by supply chain charges of around GBP 100 million to be taken in Q4. SG&A will grow at low single digits for the year as committed, including Q4 charges of around GBP 150 million to fund further productivity initiatives. And R&D continues to increase ahead of sales as we reinvest incremental royalty income into our pipeline. We are upgrading our expectations for higher royalties to GBP 800 million to GBP 850 million, supported by income from the CureVac settlement announced in August and lower net interest costs than previously guided due to the strong cash generation and the later timing of Zantac payments. Finally, in line with previous guidance, we expect the tax rate to be around 17.5%. In summary, we look forward to delivering a fourth consecutive year of double-digit EPS growth, notwithstanding the Q4 charges of around GBP 250 million, demonstrating the successful execution of our strategy since we became a stand-alone biopharmaceutical business. As a reminder, our guidance is inclusive of tariffs enacted and indicated thus far. We are positioned to respond to these with mitigation actions identified. And looking beyond, we remain very confident in our medium and longer-term outlooks to 2026 and '31. Next slide, please. Moving to our road map, which illustrates our progress towards major milestones and upcoming value unlocks. We have made good progress through 2025, and we expect to continue to build momentum as we move towards 2026. Over the coming months, we will continue to focus on flawlessly executing the 5 key asset launches. The FDA regulatory decision for depemokimab is due this December. And we are looking forward to delivering multiple pivotal readouts across our 15 scale opportunities, including bepirovirsen, cabotegravir, camlipixant, depemokimab in EGPA and Jemperli in rectal cancer next year. And with that, I am pleased to hand back to Emma. Emma Walmsley: Thanks, Julie. So in summary, our Q3 results demonstrate the continued momentum in our business with strong financial performance reflected again in our increased guidance for 2025 and through meaningful R&D progress. Our portfolio continues to demonstrate strength and quality and we're excited by the prospects in our pipeline. All of this positions GSK strongly for the next phase in the company's development to deliver our long-term outlooks, outstanding impact for patients and sustained value for shareholders. So I'm now going to open up the call for Q&A with the team. But before I do so, of course, we know that alongside questions on our results, many of you will be eager to ask our new CEO designate for his views on the future. Well, Luke and I both respectfully ask that you don't. I am, of course, so delighted and very proud to be passing the baton to Luke, but that is in January. And today, we'd like to focus on our Q3 performance. So with that, let's please now open up the call for your questions with the team. Operator: Thank you very much, Emma. The first question comes from Peter Verdult from BNP Paribas. Peter Verdult: Pete Verdult here, BNP Exane. Two quick questions. Firstly, for Julie or Emma, there's a EUR 6 billion revenue gap between market expectations in 2031 and the GSK revenue target over EUR 40 billion. If we move BLENREP's obviously a major point of disconnect. But can you just remind us which other assets you believe are being materially underappreciated? And then secondly, I hear you about not asking questions about strategy, which I will -- won't go down, but just a factual question for Luke. Is it your intention to either reiterate or tweak the go-forward strategy at the full year results? Or do we have to wait for your unveil later in '26? Emma Walmsley: Thanks. Well, I'll ask Julie just to comment on the difference between our full team shared confidence in the short, medium and long-term outlooks and where the market is today. As we've said before, it is largely in oncology and RI&I. The only other point I would make is that as well as a gap between the top line, there is also quite a material difference, as we've said before, in our view of the continued leverage of SG&A and where the market currently sits. But Julie, do you want to comment just quickly on that? Julie Brown: Yes, sure. Thank you very much, Emma. Peter, for the question. So the major areas, as Emma mentioned, oncology and respiratory, immunology and inflammation. And we do think the data readouts and commercial execution will make the difference here. But clearly, the BLENREP launch is one of the areas. Within oncology, I think people are also waiting for the rectal readout in Jemperli. And then the other difference, of course, is the ADCs recently licensed in from Hansoh, which we're very optimistic about in terms of the future. Within respiratory, I have to say the gaps are closing. They've improved. So we've obviously got the depe PDUFA date in December this year. People are clearly waiting for that. And then the other one, of course, is camlipixant, where we've got the data readout from CALM this year and then CALM-2 next year. So we think these are going to be the key trigger points that will make a difference between ourselves and consensus. Emma Walmsley: Thanks, Julie. And as you pointed out before, it's always we know, going to be a combination of the launch execution delivery as well as the data that comes. And it is quite pleasing with our upgraded guidance this year as a reminder that our initial outlook of 33 billion to be delivered by 2031. We are well on track to be delivering this year, 6 years early. So Luke, the second part of the question was related to what's coming despite our shared request in what's coming for 2026. And as usual, we are not going to give a huge amount of detail now about what's coming in '26, but we do want to all as a team reiterate our very high confidence in those not only '26 outlooks, but also '31 outlooks, which are forecasted by this team and committed by this team, as you've heard us all do together again today. At the beginning of -- with the full year '25 results, you'll hear the outlook for '26. And then later on in the year, the building blocks to delivering that longer-term 31 outlook. But Luke, I know you don't want to say too much, but is there anything else you'd like to add to that? Luke Miels: Sure. Thanks, Emma. Thanks, Peter. Look, what I'll say is, look, the number 40 is doable, and I stand behind it. Look, the majority of the products in it were forecast by me. Emma Walmsley: Right. Well, that's clear. And you'll hear more next year. So next question, please. Operator: Next question comes from Matthew Weston, UBS. Matthew Weston: Two questions, please. The first for Luke on Shingrix. There was a great benefit ex U.S. from the rollout in France, both in Q2 and Q3. Can you give us some help for the pushes and pulls on Shingrix into '26? Should we assume that there's been a France bolus, which wanes next year? And then we need a geography to take up the baton. If so, which one? Or do you think there's just consistent rollouts, which mean Shingrix ex U.S. can keep growing? And then the second one for Julie, another quarter of great margin leverage. I know this -- I promise it's not really a '26 guidance question. But can you at least help us with pushes and pulls on OpEx? So obviously, a statement about R&D reinvestment in 4Q -- how much should we assume that carries on, but also depemokimab, Nucala COPD and BLENREP launches, should we think of needing more next year? Emma Walmsley: Right. So Luke, first on Shingrix and then Julie, on our continued drive for meaningful SG&A leverage, please? Luke Miels: Thanks, Matthew. I mean the short answer in Europe is yes. I mean if you step back, we've quietly pursued a 3-stage strategy, and I've mentioned this on multiple quarterly earnings calls when Shingrix has come up in line with the current label. The first step, of course, was max the U.S. and get to a point where we penetrated and where that starts to slow. So we've got an immunization rate of 43%, which is in line with the 3% to 5% increment that we've signaled. It's very much linked to flu though, and flu is softer. And then the plan, of course, was within the U.S., which we started to pivot on to focusing on the comorbid and high-risk subgroups. And that's just started now in June, and I think the results are encouraging. Maybe with hindsight, we could have gone there earlier. But again, we're getting traction there. So that's a good sign, but the U.S. will still be tough because of sort of macro factors around vaccines, which I doubt we'll get into later. In Europe, I mean, really, the strategy was to maintain pricing discipline and then build the evidence of the launch in Europe and Japan, and that's exactly where we are now. So the average immunization rate in the top 10 markets ex U.S. is around 10%, about 9.7% to be exact. So there's more opportunities, more work to do as we broaden those populations in those countries. And then the third part, which we're really not in yet, is a pivot to emerging markets in the midterm with more pricing flexibility. We did start there with China. We had a bit of a challenge there, but we've got a pathway, again, focusing on comorbid and that is resonating despite a tough backdrop. So it's very much a midterm story with China and emerging markets. But yes, net-net, I think we're in good shape with Europe, and we just need to keep that going. Emma Walmsley: Right. Thanks, Julie? Julie Brown: Thank you very much. Thanks for the question. In terms of -- first of all, we're confident in reaching '26 margin target that we laid out of more than 31%. To your point about investment in R&D, we have deliberately been putting more investment behind R&D now for a number of years, and we expect the same next year that R&D will grow ahead of sales. And then in terms of the investment in the launches, we are totally investing in the new launches. We're here to grow the business. So definitely investment gone already into BLENREP, depemokimab coming up, et cetera, Nucala COPD. These are big areas of investment. The thing that we're doing in parallel, as you've probably seen, is that we are driving productivity benefits also through SG&A and the gross margin. And basically, we're looking at operating model cost and tech to modify and simplify what we do. These are really important components. And we now have a track record of doing this. We've guided at more than a 31% margin by '26. This will be over 500 basis points of accretion for the company between '21 and '26, which is really a considerable achievement as well as funding those launches. Emma Walmsley: Yes. And as I said, I think we all expect that to continue. I mean just don't underestimate how much technology is changing the way you can effectively and efficiently do sales and marketing work very differently than it has been the history of this industry, and we're all seeing that change happen whilst allowing us to invest very competitively behind the launches that you're considering -- continuing to see us deliver competitively on. Next question please. Operator: Next question comes from Michael Leuchten from Jefferies. Michael Leuchten: Two questions for Luke, please. One for depemokimab with the pending approval. Luke, can you update us on your latest thinking on phasing of access, likely source of business for the product into 2026? And then BLENREP, there's been a lot of debate after the approval on label, scope, REMS and the like. Is there any learnings you can point to from the -- albeit early experience in Europe or small experience in Europe that helps us understand sort of how the shape of the curve could look like in the U.S. Emma Walmsley: Luke? Luke Miels: Thanks, Michael. I mean I'll start with BLENREP first. Yes, I think there's a number of lessons. I chair a task force every 2 weeks to look at this to ensure cross-functional learnings, and we're certainly incorporating those. I think the key, again, no surprise is that once people have experience with this product, they tend to be, how would I say, pleasantly surprised by the reputation leading into this versus the experience of using it. And that's why we've been very focused on supporting physicians with those first 5 patients to ensure that they understand the dosing and how to manage that and how to hold doses and integrate that into their practice. And that's everything that we will then take into the U.S. We also have close to 8,000 patients now who've been exposed to BLENREP globally. So we've got a lot of clinical and operational experience in those centers as well. On depe, look, it's obviously a competitive environment right now. So I'll be careful around some of the phasing around access and our strategy there. But what I will say is I think this is quite a fascinating opportunity. The basic facts when I try and look at that sort of simplify things is that you've got a lot of eligible refractory patients who, by definition, are at risk of exacerbation. And in the U.S., access is actually extremely good for all biologics. Yet the conundrum, the paradox is that only 27% of them actually get a biologic. And then I think a few physicians must scratch their heads on this one. Those that do get a biologic, we see this with our data, it's true with Dupixent, Fasenra, et cetera. After 12 months, you're losing around 2/3 of them. So -- and of course, if you're not adherent, you are put on a biologic for a reason. And if you're not adherent, then you have a higher risk of an exacerbation and subsequent ER visit, for example. So for us, there's a clear opportunity here for ATP-driven administration with long intervals between dosing and a strong efficacy that's associated with that. The market research is very, very consistent. This is probably the most market research product in GSK. And yes, 86% of pulmonologists say this could be a new standard of care when we show them the target label and 82% of pulmonologists said they would consider using this product ahead of other MOAs. So our strategy is very simple. We will be focusing on the naive new patients that are first going on to biologics. Emma Walmsley: I think this is just an extraordinary opportunity when you see the material difference in compliance the material reduction, 72% reduction in the kind of attacks that cause hospitalization and consequently, a very significant cost sparing benefit for health care systems in such a scale disease as asthma. And then, of course, we're very excited about taking depe into COPD and other indications, too. Operator: Next question comes from Luisa Hector from Berenberg. Luisa Hector: And maybe I could take this chance, Emma, end of an era. So thanks to you on behalf of all of us, many insightful conversations and I think many significant achievements whilst navigating some of the challenges. So thank you very much. And my questions would be on business development because we've seen a very neat series of small deals. So where are we now in terms of appetite capacity for the next round of deals and any changes in terms of size or area phasing, et cetera? And perhaps a quick check on the comments you made on J&J and rilpivirine. Should we assume that they can now supply everything you need and that this would not be any kind of constraint when you get closer to filing and launch? Emma Walmsley: Great. Yes. I mean I think we are really supremely confident in our long-acting portfolio, both because of the momentum in the business and the prospects in the pipeline. I'll ask Deborah to talk about that. And in terms of Look, and once again, Luke and Tony and David have been all been co-architects of some deals that we are extremely pleased with the progress on. It's great to see 3 out of the 4 Phase III or the pivotal trials that are due to start at the end of this year are from deals that we've been very pleased to sign. We're thrilled with the discipline we've put through in terms of value and returns when we look at these deals, whether it's in the -- what's become more fashionable FGF21 market or indeed our ADC plays or of course, we're very excited to see what's going on in terms of pipeline development in China and thrilled to see where that partnership with Hengrui will do. And then, of course, once again, we added a couple more deals just this week in our earlier stage pipeline because we're all very focused and you're all very focused on the models of what's happening with the [ Core ] 15, but I know how much the team are also thinking about that next wave of development through the 2030s when we come out the other side of successfully digesting dolutegravir. So I think you should expect that BD will continue to be a very -- it's about half of our pipeline, and it will continue to be a very material contributor to our pipeline with a focus on RI&1 and onc and the kind of scale and pace. But we're always going to be looking out at things and review it very, very regularly. And obviously, the market stays competitive, and we're right in the middle of that. So not much more, I think, to add on that. But let's get back to long-acting. Now 1/3 of our -- or 30% of our business in the U.S. already. So Deborah, do you want to talk about that and the pipeline question? Deborah Waterhouse: Yes. Thanks, Emma. So just to start, delighted with the Cabenuva performance, 75% growth in the quarter. And actually 75% of our Cabenuva switches now come from competitors. And our long-acting injectable performance is at the heart of why we've been able to upgrade our HIV guidance this quarter. So let's just talk a little bit about Q4M. So our Q4M QUATRO Phase III study start is going to be delayed into H1 2026, and that's due to a delay in the delivery of recovering clinical trial supply by Janssen. There is no ongoing issue, which would cause us anything but complete confidence from Janssen. They're a great partner. This is just a one-off. I think the key thing to communicate is that this is a clinical trial, supply delay is not related to efficacy or tolerability concerns at all, and we remain committed to 2027 file and 2028 launch of Q4. We've looked over the financials and there's no material impact on outlook from the delay because we've got Cabenuva in the market already, and that product is performing so well. Demand is high. We've got really fantastic momentum. And whilst we're disappointed, obviously, not to be able to launch Q4M at the end of 2027, as we originally said, actually, this is a marketplace where there's no competitor for a long, long period of time. So we are the only long-acting injectable in treatment, and we're going to remain that way for the foreseeable future. Cabenuva will power on, and we will do everything we can to get Q4M into the marketplace as soon as we can. And then obviously, we've got Q6M coming next year. We will be doing our regimen selection for Q6M, and then we will be launching that asset as the next phase of our long-acting injectable journey. Emma Walmsley: It's just so important to remember that we are the only one on the treatment market for a very long time ahead, and that is a business that continues to accelerate momentum. Deborah Waterhouse: And there are obviously, Emma, as we've seen ourselves, some sort of bumps in the road of long-acting injectables that we and our competitors experience. So I think it's just a complicated area, mainly around CMC. But in terms of the patient benefit, really significant and the demand from patients is also very material. Operator: Next question comes from Sachin Jain from Bank of America. Sachin Jain: Just a follow-on actually to the Q4M question. So thank you for that update, Deborah. I wonder if you could just talk about the commercial impact of delay relative to Gilead's weekly oral len plus islatravir, which is probably 6 to 12 months ahead. We hear mixed KOL feedback on weekly oral versus Q4. Secondly, I wonder if you could just update on U.S. policy. So any color you're willing to give on ability to do a deal with the administration given your high Medicaid exposure? And then how is dialogue around IRA going? And then just one quick clarification, if I can chance my arm for Luke as a follow-on to earlier question on BLENREP depe. Clearly bullish commentary, Luke, but just trying to triangulate versus '26 consensus for both, which is around GBP 200 million. I know it's a tough question, but any color directionally would be helpful. Emma Walmsley: Luke, do you want to say anything on that? Luke Miels: Look, I would just say these are big assets in the long term. I can't give any sort of color, but clearly we're going to approach both assets very aggressively. And I would just point to the performance in Nucala COPD, where in May, we had 0% market share, and we've now got 46% of those new patients in COPD against Dupixent. That's not a read across depemokimab. It just tells you that the team is very effective at executing, and we're going to be focused on that asset and BLENREP already in the field and receiving very good feedback. Again, it's going to be more of a stage process to give people experience and confidence to use the product more broadly. Emma Walmsley: Great. So on MFN, I'm not really going to give any more detail or get ahead of anything, except to say, as you would expect, we're engaging, as I've said, very constructively with the administration. Medicaid is 10% of our total U.S. business. I'm really confident in our ability to navigate this over the last 4 years through a variety of different environments. The strength and quality of our portfolio has continued to allow us to do repeated upgrades and navigate through these kinds of challenges. The U.S. is our #1 priority market. We've committed to very material investments there. And we fully agree that we should be partnering and working towards being in a place where step change innovation can be made affordably available and sustainably available for innovators to American patients. And we also fully agree that we'd like to see all countries recognize the value that innovation can bring -- to bring down the demand care on health care. So the demand, sorry, curve and therefore, the cost on health care. So continue to engage here and we'll keep you updated and very much bearing in mind and sits with a strong underpin to our confidence on our outlook overall. You mentioned IRA. I think Luke already said it. We're very pleased to have concluded the latest rounds of IRA negotiations and all fully factored into our outlook. So nothing more to report on that. And on islatravir, I think that is an important point to remind people of. Deborah Waterhouse: Yes. Thanks, Sachin. So there is an expectation that LEN plus islatravir will launch in 2027. All of the research that we have done indicates that the once weeklies will cannibalize other orals. And actually, there is on that particular asset, a bit of a mixed view, firstly, because of the history of islatravir and the CD4 depletion. But secondly, I mean, we absolutely believe that you need to have an integrase at the core of any 2-drug regimen, whether it is an oral weekly or a long-acting injectable because integrase have got incredible potency, tolerability, high barrier to resistance and 78% of those people who are on treatment today are on an integrase inhibitor because they are the cornerstone of HIV treatment. Now we know that obviously, the other once weekly from our competitor, which is the prodrug of LEN and an integrase inhibitor is on clinical hold. So again, you've just got the islatravir plus the lenacapavir option in '27, and we don't think that's going to be a challenge to our Q4M, one, because the long-acting injectables is a very unique value proposition; two, because we've got an entity at the core of that particular regimen. So we're feeling very confident about our ability to keep driving our HIV business forward and growing strongly and helping GSK navigate through the loss of exclusivity of dolutegravir. Operator: Next question comes from Simon Baker from Redburn. Simon Baker: Two, if I may, please. Luke, going back to something I asked you on the BLENREP call on Friday around the 2031 target. Back in '21, you gave a number of peak sales estimates for products in RSV, BLENREP, Juluca and Jemperli. You've reiterated the EUR 40 billion target. I just wonder if you could give us thoughts on the pushes and pulls. You always said that there were a lot of factors going towards the aggregate figure, but just a check on where you see the pushes and pulls there would be very helpful. And then for Deborah on HIV and the Q4 slight delay, that pushes it a little bit closer to the Q6 launch, but not materially so. So I'm guessing you've always thought that it's not one duration fits all. I just wonder if you could give us some thoughts on how the long-acting market will pan out with the various injection duration options that you will be offering? Emma Walmsley: So I'm going to come to Deborah first on this. But also -- and I will turn back to Luke. But just to be clear, as we've already said, it will be beginning of next year when Luke will give an outlook for '26 and more likely much later in the year when he will talk about the building blocks to deliver on more than 40 and his more than 40 in 31. So I just want to give Luke the permission not to get into detail of the ups and downs as the portfolio continues to mature. But Deborah, let's come to you first. And Luke, if you want to add anything to that, then I'll let you. Deborah Waterhouse: Thanks for the question, Simon. So with Q2M, 15% of patients would be willing to take that regimen to treat their HIV. When you get up to Q4M, it doubles to 30%. And then when you get to Q6M, half of the people who are living with HIV and all of our research say that they would be willing and keen to take a 6-month long-acting injectable. Within the research, though, and with physicians, too, you are right. Some people say, actually, I would like to give Q4M to my patients on an ongoing basis because I like to pull them back into the doctor's office 3 times a year to have viral load testing, sexually transmitted disease testing and all the things that they do to care for their patients. Others are very keen to see that their patients go to Q6M. So there will not be one size fits all, but what there would be is a market expansion that is significant as we extend the duration between administration from 2 to 4 to 6. And obviously, when we get to Q6M, it's a brand-new set of medicines because you've got the third-generation integrase inhibitor, VH184, which has a unique resistance profile and is a third-generation integrase inhibitor. And then you have a capsid inhibitor or N6LS depending on which regimen we select for our Q6M, and it's great to have options. So feeling very bullish about the future of Q6M, but also see a place for Q4M as patient choice remains critical. Emma Walmsley: Thanks, Deborah. Luke, any comments you want to add? Luke Miels: Thanks, Simon. I mean I would just say, again, confident overall in the late-stage assets. And yes, we look forward to updating everyone with the team next year. In terms of BLENREP, I mean, look, it's going to be material. I said that over the next couple of years. And the key is obviously the initial launch and then the pathway to second line, which Tony is very much in hand and the usual pushes and pulls with competitive data sets. Operator: Next question comes from Sarita Kapila from Morgan Stanley. Sarita Kapila: Thanks for the color on Nucala. I was just wondering if we could have a little bit more on the rollout in COPD, how the launch is going versus your initial expectations and where you're seeing the most use? Is it in the 150 to 300 eosinophil group? Or is it in the over 300 where it would be more head-to-head with Dupixent? And then the second one on Jemperli, please. It seems to be a very strong rollout in the U.S. or momentum in the U.S. How penetrated are you now in endometrial cancer? And is this momentum sustainable into 2026? And should we think about Jemperli being able to get to your guide of over $2 billion in the existing indications? Or would you definitely need the pipeline to hit that? Emma Walmsley: So we'll come to Luke on both Nucala and Jemperli, but I think it would be good as well when we've heard on the Nucala launch, just to hear a little bit from Tony because I think we are all want to know, we're all getting more and more ambitious on the portfolio for COPD, whether that's depe or the other assets that we're bringing forward. I know when we announced the deal we just did, the statements that it's going to be the leading cause of hospitalization in coming years. And we're talking about hundreds of millions of people. So this is really a scale disease where we have a lot of expertise for the pipeline coming forward. But in terms of what's in hand right now, do you want to comment on Nucala and? Luke Miels: Yes. I mean -- thanks, Sarita. It's broad. I mean when I was talking to the BU head in the U.S. about this, he said broad several times, broad label, broad uptake, broad resonance. And I mean, another market research point that's interesting is 9 out of 10 U.S. pulmonologists strongly agree that preventing severe exacerbations is essential to COPD management. I'm not sure about the 1 in 10. I don't suggest you go and visit them. Yes, clearly, it's landed well. But as I've said on other calls, this is a population of prescribers that only use it in 1 in 3 patients for many reasons. So that is just a balancing caution, but how we're going against Dupixent is very encouraging. Yes, it's across the label, both bronchiotetic emphysemia and different EOS levels. Tony Wood: Just moving on and on Jemperli. In terms of endometrial, obviously, we're pleased that we have the only and first label with dual primary endpoints of PFS and OS and endometrial cancer. We're following that up with a study called DOMENICA, which is looking at evaluating gemperirdine a chemo-free regimen. Importantly, as well, obviously, the rectal studies continue to progress well, where we have fantastic complete responses. Just a quick reminder on some of those programs for you, AZUR-1, which is the locally advanced MSI-H rectal results, which we're expecting to read out in the second half of '26. AZUR-2, which is colon cancer, and there's an interim for that in '28 and the JADE study, which is in the unresectable head and neck setting for which we're also expecting readouts in '28. So lots of momentum going around Jemperli to continue to support the growth of that medicine. Emma Walmsley: Anything you want to say on COPD? Tony Wood: On COPD, just look, I'm delighted with where our COPD portfolio is currently sitting. You may have noticed we have now 3 Phase III studies starting in COPD. There are the ENDURA-1 and 2 studies in the more typical COPD population and a study called VIGILANT, which is looking at earlier COPD patients. These are individuals who are not treated typically with bios, but for which they have secondary factors. that predispose them to rapid progression. Coming along behind all of that solidly is the long-acting TSLP and IL-33 options. And as Emma has mentioned, the ongoing option in PD3/4 and the latest deal that we have with Empirical that was announced this week with an entirely new novel mechanism, which is [ oligo-based ]. Luke Miels: Yes. And Sarita, back on your question on Jemperli and endometrial. And I think the good news overall, if you just look just in the last 12 months, you've gone from 80% of ONK using IO typically in endometrial to now 96%, which is great. 90% of these patients are now on some form of IO. For us, there are clear opportunities if a physician can accurately cite the RUBY overall survival figure, then the likelihood of using the drug is double that versus someone who can't. So that's our focus is the DMMR population. We do have the broad label, of course. MMRP tends to be more dominated by pembro. But globally, there's about a 5% difference in market share in our favor against pembrolizumab, which is very encouraging. Emma Walmsley: Yes, lots coming on. Operator: Next question comes from Zain Ebrahim from JPMorgan. Zain Ebrahim: This is Zain Ebrahim from JPMorgan. So my first question is on BLENREP. You talked about it, but you mentioned that you expect to see a material growth driver over the next 3 to 4 years. So how much of that growth do you expect to come from the U.S. based on the current label versus ex U.S.? And how much of that is driven by the expected indication expansion in 2028? That's my first question. And my second question is just on general medicines. It sounds like the Trelegy IRA negotiation was in line with your expectations. So how are you thinking about the development of general medicines over the midterm? Emma Walmsley: Yes. I mean, on GenMed, we're not going to change our '21 to '26 guidance, which we upgraded slightly because of the operating performance. So there's no more update on that. And I'm not sure, Luke, how much you want to itemize. I know Darzalex is about half x. Luke Miels: Yes, that's right, Emma. I mean, I think, look, the priority is to get to second line in the U.S. to match the rest of world label. The U.S. initially will be ahead of Europe because we're launching. But as markets like Germany and Japan come online, that should balance out over time. Emma Walmsley: Yes. And I think as Luke can tell you went through in great deal of detail on the calls. There is a material opportunity in third line, and we have a good pathway to getting to second line. And in fact, studies planned, as you all know, in first line, too. So I think this is definitely one to watch as part of our broader oncology portfolio, which continues to build. So look, I just want to say one last thing because I know that was our last question, and we went -- because we had a technical issue, I think, at the beginning, so apologies if you were made to wait. You do know this -- I know this is my last quarter to report as CEO. And I do want to just take a moment to thank everyone on this call for your time and engagement with me and most of all, with this tremendous team who over the last 9 years together have transformed our great company's performance, pipeline and prospects. And in doing so, we've set out a clear pathway for patient impact at serious scale, already 2 million -- 2 billion, sorry, people around the planet. And I firmly believe that GSK's value for shareholders will be fully recognized and sustained. And when you step back and reflect, it's really hard to think of a sector that matters more than ours, where innovation and trust really can change people's lives and drive sustained performance and value for shareholders. And all of us, whether it's those of us here in this room or everybody on the call, well, we're all part of a really extraordinary incredible industry, and it's a privilege to be part of it, and it is not a responsibility to leave lightly. I am so delighted and very proud to be passing the baton to Luke and to be leaving all that GSK has to offer in such fantastically good hands. So I just wanted to finish up the last time wishing everybody listening in just great good fortunes for the future. And I, of course, look forward to cheering Luke and all the wonderful people working at GSK to a lot of further success as they combine science, technology and their talent to get ahead of disease together. Thank you all very much. Luke Miels: Bye-bye.
Operator: Good morning. My name is Michelle, and I'll be your conference operator. At this time, I would like to welcome everyone to ADP's First Quarter 2026 Earnings Call. I would like to inform you that this conference is being recorded. [Operator Instructions] I will now turn the conference over to Matt Keating, Vice President, Investor Relations. Please go ahead. Matthew Keating: Thank you, Michelle, and welcome, everyone, to ADP's First Quarter Fiscal 2026 Earnings Call. Participating today are Maria Black, our President and CEO; and Peter Hadley, our CFO. Earlier this morning, we released our financial results for the quarter. Our earnings materials are available on the SEC's website and our Investor Relations website at investors.adp.com, where you also find the investor presentation that accompanies today's call. During our call, we will reference non-GAAP financial measures, which we believe to be useful to investors and that exclude the impact of certain items. A description of these items, along with a reconciliation of non-GAAP measures to their most comparable GAAP measures can be found in our earnings release. Today's call will also contain forward-looking statements that refer to future events and involve some risk. We encourage you to review our filings with the SEC for additional information on factors that could cause actual results to differ materially from our current expectations. I'll now turn it over to Maria. Maria Black: Thank you, Matt, and thank you, everyone, for joining us. This morning, we reported solid first quarter results that included 7% revenue growth and 7% adjusted EPS growth. We achieved these financial results while also making meaningful progress across our strategic priorities. I will briefly review some additional highlights from our results before discussing our strategic progress. We delivered solid Employer Services new business bookings with growth accelerating from our fourth quarter last year, resulting in a record sales volume for our first quarter. Growth was healthy in our small business portfolio, which includes our retirement and insurance services businesses. We were also happy to see growth reaccelerate in our Employer Services HR Outsourcing business after a softer finish to last year. Overall, HCM demand remained relatively stable, and we experienced specific strength in ADP Lyric HCM. Our Employer Services retention rate continued to exceed our expectations and only declined slightly. Our overall client satisfaction score reached a new all-time high for our first quarter, reflecting improvements in each of our business units. Employer Services pays per control growth continued to moderate and rounded down to 0% for the first quarter with clients remaining cautious around adding headcount in the current environment. And last, our PEO revenue growth of 7% exceeded our expectations, helped by growth in 0 margin pass-throughs and higher wages. We are proud of our first quarter financial results and excited by the progress made across our 3 strategic business priorities. I will start with what we are doing to lead with best-in-class HCM technology. In the small business space, we continue to scale our embedded payroll solution. Embedded payroll saves small business owners' time by bringing payroll directly into the software platforms they are already using to run their businesses. We are pleased with our early embedded payroll sales collaboration and look forward to adding more partners over time to further extend the reach of our small business distribution network. We also continue to add functionality to our existing small business offerings. For example, earlier this month, we launched a benefits recommendation tool designed to help guide small business clients on the most suitable benefits options. Today, these recommendations cover group health and individual coverage health reimbursement arrangement or ICRA, and they will expand in the future to include our PEO. Our Insurance Services business also recently launched a digital option that enables small businesses to purchase ICRA plans directly on our RUN platform through our partner, Thatch. This opens up more choice for employees by allowing every team member to pick the plan that is right for them, health, dental, vision, all in one place. In the mid-market, we accelerated the deployment of Workforce Now Next-Gen. We reached an important milestone in the first quarter with more than 80% of our new mid-market clients in the 50 to 150 employee space were sold on this Next-Gen version of Workforce Now. Moving forward, we will continue to extend this solution to larger mid-market prospects to enable them to also benefit from its modern tech stack and enhanced functionality. In the enterprise space, ADP Lyric HCM continues to experience strong momentum. Lyric's new business bookings exceeded our expectations for the first quarter and its new business pipeline continues to grow. Among the many enterprise clients that started on Lyric during the first quarter was a large travel management company. This client selected Lyric for its AI-driven automation and flexible architecture. They are using ADP for payroll, HR time, benefits and talent in both the U.S. and Canada. Highlighting its positive reception in the market, Lyric was recently recognized by HR Executive as a top HR product of 2025 and honored at the HR Tech Conference in September. With respect to our WorkForce Software acquisition, we continue to make meaningful progress. By unifying workforce management, HR and payroll, we help our clients to gain better visibility, simplify their operations and lower overall costs. Our differentiated approach helped us win the time and attendance business of an existing payroll client in the student transportation business with thousands of employees. And just this morning, we announced the acquisition of Pequity, an innovative compensation management software provider. This acquisition will broaden ADP's capabilities to support the complex compensation planning needs of our clients who are looking for insight-driven compensation solutions that help them make informed pay decisions. Underscoring our commitment to leading with best-in-class HCM technology, we also continue to advance our AI initiatives. We deliver purpose-built AI to solve real-world problems for HR teams. Our latest enhancements to ADP Assist use the power of generative AI to analyze and resolve things like payroll anomalies by automatically identifying inconsistencies or deviations in the data, analytics requests that can take days to fulfill and routine compliance tasks, which pull teams away from strategic work. Utilization of ADP Assist is also increasing with more than 5.5 million client conversations over the last year. This helps reduce the need for clients to contact us as their questions are answered proactively within our products. As we look ahead, our vision for ADP Assist includes simple agents to handle everyday tasks, advanced agents to execute multistep processes, autonomous agents to go further, managing workflows from start to finish, being sure to keep humans in the loop where it matters. What makes our approach different from others is the scale of the data we use to power our agents and how we train them to work together. A single action sets off the right follow-ups for employees, managers and HR practitioners. It is in these connections where the real value is produced. We have an opportunity to use AI not just to speed up the client workflows, but rather fundamentally shift how work gets done. It's the difference between using AI to do things better and faster than before and using AI to do things better and faster than anyone else. Our new AI capabilities empower our associates to deliver on our second strategic priority, providing clients with unmatched expertise and outsourcing solutions. These internal AI tools provide our sales, implementation and service teams with client-specific insights to address market shifts, resolve unique challenges and ultimately deepen client engagement. Additionally, all of our developers are now equipped with coding copilot tools that are leading to measurable productivity gains. We also continue to expand our use of digital implementation for both small business and PEO clients. These AI initiatives create additional time for our associates to engage in higher value-added activities that support our clients' growth. Finally, we continue to execute on our third strategic priority benefiting our clients with our global scale. We bring value to our clients through our unmatched footprint in over 140 countries and continue to add to our global capabilities. During the first quarter, we also went live with our first GlobalView client in Costa Rica, where we now serve one of the world's largest employers. Further underscoring the quality of our global products, ADP was recently positioned as a leader in multi-country payroll by NelsonHall in its Payroll Reimagined 2025 meet and as an overall leader in multi-country payroll solutions by Everest in its 2025 PEAK Matrix. We remain confident in our ability to advance our strategic goals, drive our competitive differentiation and deliver strong financial results. And with that, I would like to take a moment to recognize our associates whose efforts and outstanding performance help us consistently deliver for our clients and maintain our record high client satisfaction levels. Thank you all. And now I'll turn the call over to Peter. Peter Hadley: Thank you, Maria, and good morning, everyone. I will start by providing some more color on our first quarter results and then update our fiscal 2026 outlook. Let me begin with our Employer Services results and outlook. ES segment revenue increased 7% on a reported basis and 5% on an organic constant currency basis in the first quarter. As Maria shared, ES new business bookings were solid to start the year. With a relatively stable demand backdrop and continued healthy pipelines, we are maintaining our 4% to 7% full year growth guidance. ES retention declined slightly in Q1 versus the prior year, but still came in better than we anticipated. We are continuing to forecast a 10 to 30 basis point decline in full year retention. ES pays per control growth rounded down to 0% for the first quarter, coming in slightly below our expectations. We are now forecasting pays per control to remain about flat for the full year. Client funds interest revenue increased more than we anticipated in Q1, helped by stronger average client funds balance growth. While the yield curve has declined marginally since our last update, this impact is more than offset by our stronger client funds balance growth. We are now forecasting average client funds balances to grow 3% to 4% in fiscal '26, and we are continuing to expect an average yield of approximately 3.4%. Accordingly, we are increasing our full year forecast for client funds interest revenue by $10 million to a range of $1.30 billion to $1.32 billion. We are also increasing our expected net impact from our extended investment strategy by $10 million to a range of $1.26 billion to $1.28 billion. Overall, we are maintaining our full year ES revenue growth forecast of 5% to 6%. Our ES margin decreased 50 basis points in Q1, reflecting integration and acquisition-related costs associated with the WorkForce Software acquisition, which closed last October. Moving on to the PEO. Revenue growth of 7% represented a solid start to the year with average worksite employee growth of 2% in the quarter. We saw continued growth in PEO new business bookings. However, PEO pays per control growth moderated in the quarter. As a result, we are continuing to expect fiscal 2026 PEO revenue growth of 5% to 7% and average worksite employee growth of 2% to 3%. PEO margin decreased 140 basis points in Q1, mainly driven by higher selling expenses, the timing of state unemployment insurance costs, 0 margin pass-through revenue growth and some onetime costs connected with the retroactive change in the deadline for filing certain employee retention tax credit claims. Putting it all together, we are maintaining our fiscal 2026 consolidated revenue outlook for 5% to 6% growth and our forecast for adjusted EBIT margin expansion of 50 to 70 basis points. We continue to expect our effective tax rate to be around 23% for the year. We also continue to forecast fiscal 2026 adjusted EPS growth of 8% to 10%, supported by share repurchases. I would also like to add a quick reminder of how we reflect the impact of our client funds investment strategy in our segment reporting. The results of our client funds interest revenue are reflected in our Employer Services segment, while corporate extended interest income, which represents the interest generated from the portfolio on the days that we borrow as well as the related short-term financing costs are both recorded in our other segment. Accordingly, from a segment geography perspective, some of the benefit we expect to receive from our overall client funds investment strategy in fiscal 2026 is recorded in our Employer Services segment, while the balance of this overall benefit is recorded in our other segment. This dynamic played out in our first quarter, and we expect it to continue throughout the rest of our fiscal year. Thank you, and I'll now turn it back to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Samad Samana with Jefferies. Samad Samana: Maria, I'll start with you. It sounds like the booking side is going well, both in Employer Services and PEO. And I thought it would be helpful if maybe you can update us on what the backdrop looks like in terms of deal cycles just looks like? And then how are you thinking about just time to close? And if there's been any change in what you're seeing in deal time lines, particularly with larger customers? And then I have one follow-up for Peter. Maria Black: Sure. Samad, thank you for the question. So overall, we feel okay about the HCM demand backdrop. I think we referred to it as relatively stable, and that's exactly what I would suggest that it is. It really doesn't feel like a lot has changed as it relates to the dynamic of the demand backdrop. We called out a bit of pipeline aging throughout fiscal '25. We saw that kind of continue into Q1. So we're really back to kind of those pre-pandemic. I used to call it, I suppose, the new normal or the old normal. I think it's just kind of normal. So I think it felt largely the same as it did as we finished up the year in terms of really across the board, whether it's in the down market, where we're measuring things like new appointments or it's in the upmarket that you asked about, Samad. With respect to deal cycles, I would say we haven't observed any meaningful changes in Q1. Samad Samana: Great. And then, Peter, as I think about the guidance, and I appreciate the color on the individual pieces and how you tend to maintaining it, and I know it's still early in the fiscal year. But particularly on Employer Services, if I think about some of the underlying pieces, it feels like there is a little bit of a downtick, whether that's pays per control, whether that's retention. So how do you get confidence in the range? And maybe just as we think about shorter term into the next fiscal quarter, how should we think about maybe where that should track and if there's any onetime things. I think maybe there was one less processing day last fiscal -- last year -- this time last year. So just maybe help us think of the guidance. Peter Hadley: Yes, sure, Samad. So I think there are a number of things. None of them are individually particularly significant, they're going in different directions. So as you pointed out, we have lowered our pays per control guidance to the lower end of that range. So again, when we're talking about tens of basis points of movement there, there's obviously some revenue and margin attached to that. Conversely, we have a relatively small uplift in our client fund interest revenue driven by the balances. Again, that's sort of a counteract. We also have a little bit of favorability on FX and sort of 1 or 2 other things. So I definitely feel very confident, I think, with respect to the guidance we have shared there. In terms of the quarterly cadence, so we actually had 1 extra processing day in Q2 last year. We also had some SUI revenue in the PEO pulled into Q2 last year. So we have to grow over that in the second quarter. There may be not a material difference, I would say, absent the anniversary of the WorkForce Software acquisition at the end of this quarter. So when you take that out and go back to sort of an organic constant currency type level, not a material difference, maybe a slight downtick in the revenue growth rate for the quarter, just growing over that extra processing day in the ES and a little bit of that SUI revenue pull forward that we're -- at this point, we're not anticipating in Q2. But in terms of the full year and in terms of Employer Services, I think the movements are relatively small and somewhat offsetting each other. So again, we feel just as comfortable with the range as what we were 3 months ago when we issued our initial guidance. Operator: Our next question comes from Mark Marcon with Baird. Mark Marcon: Congratulations on the -- on what sounds like a pretty good start from a sales perspective. Maria, you went through a number of different areas on -- in terms of new bookings. What area was the most surprising from your perspective? And in addition to that, can you just describe a little bit more about what you're doing on the embedded side? Like how widespread is that on the lower end of the market in terms of percentage of sales? And does that have any impact with regards to the economics of the business? Maria Black: Yes. Thank you. And thank you, Mark, as always, for the congrats on the good start. And we feel exactly that way. So I wouldn't say it surprised us, but it certainly pleased us to see that growth did accelerate in the first quarter. And I called out some of the highlights within our small business space. We saw specific highlights within retirement services, insurance. We were really pleased to see that the Employer Services, HR Outsourcing business, that we talked a lot about last quarter, a lot of those big complex deals that have big transformations, we are excited to see those cross the finish line and certainly continue to build the pipeline there. And then we were pleased also to see the continued interest and demand for Lyric HCM. So I wouldn't say that it surprised us. I think it pleased us to see the quarter kind of evolve that way. That said, though, as everybody knows, we still have the bulk of the year ahead of us as it relates to execution kind of broadly across each one of those areas. To speak to Embedded Payroll specifically, it is still very much early days. I think you know we're very committed to our partnership that we have specifically with Fiserv. We're also really excited about continuing to make progress on the embedded offering in general and other partnerships. So it is a big piece of our growth agenda and growth strategy within the down market. That said, though, we just rolled out the opportunity across the back book, if you will, of our partner just in October. So the bulk of, call it, the bookings contribution from Embedded is really ahead of us. It really doesn't contribute thus far in the numbers through the first quarter. And so we're excited about the sales collaboration and the progress we've made to integrate and scale the offering. We're also really excited to put CashFlow Central inside of the RUN offer toward the tail end of this year, if you will. So again, definitely a part of the strategic agenda, hasn't really contributed much to the sales results thus far. The bulk of that contribution is ahead of us. Mark Marcon: Great. And then for a follow-up, just you mentioned in terms of majors, Next Gen basically comprising 80% of the new sales in the core area within majors. Can you talk a little bit about what you're seeing in terms of the utilization of Next Gen with the clients? To what extent is the client satisfaction rate going up? What does it make you feel from a retention perspective as that continues? And any sort of impacts from a profitability perspective? Maria Black: Yes, great question, and it is exciting. It's incredibly exciting to finally see the Next Gen making progress at the levels that we reflected. So 80% across that core space of the mid-market. Obviously, our goal is to extend the reach throughout this fiscal year to broadly cover the mid-market. And part of that excitement is anchored entirely in what you just suggested, which is that we are seeing faster time to implementation. We are seeing better implementation satisfaction. We are seeing upticks in overall satisfaction. So as the mid-market has been making these investments into the products and the platforms, and we've been able to simplify really the experience for the clients, but also that experience for our associates to service our clients, whether that's while they're onboarding them or while they are servicing them, it's definitely making an impact, and that's exactly the journey we've been on, and it's greatly contributed over time as Next Gen has been scaling in the mid-market to those record level NPS results that we've been talking about in the mid-market. And certainly, we've talked a lot about the mid-market retention over the last few years. And we're confident that the product investments we're making, specifically Next Gen are driving a sustainable improvement in client satisfaction broadly across the mid-market. Peter Hadley: And I think just on the profitability piece, Mark, at the end there, we're also anticipating that this will lift our productivity. Certainly, we observe, as Maria said, not just more smooth implementations, but easier implementations, the ability for more digital onboarding as well as the number of client contacts for Next Gen clients is meaningfully lower than on the current gen solutions. So certainly, a profitability opportunity there as we roll it out further across the mid-market base. Operator: Our next question comes from Jason Kupferberg with Wells Fargo Securities. Jinli Chan: This is Cassie Chan on for Jason. Just a quick question from me and maybe a follow-up. So I mean, obviously, you guys talked about U.S. PPC coming in flat for the quarter, maybe a little bit below expectations. And now you guys are expecting the full year guide to be flat. I guess just diving a little bit deeper, what drove that weakness? And what gives you guys confidence that it won't maybe even decelerate or be down through F '26? Peter Hadley: Yes, I'll take that one. So I think we're talking about relatively small movements here, tens of basis points of movement. We were at a 0 to 1 range. We're just really guiding now to the lower end of that range. So it's not a -- I would say it's not a huge shift. Where we draw our guide from, our projection from and our confidence, I guess, is just with our own data. I mean, we -- obviously, we look at a lot of external reports. We have our own national employment report on this sort of stuff. But really, we're looking at the hiring in our own base the patterns that we see. And I think we feel confident that just given the magnitudes involved that, that is the right guide for now. And in terms of revenues and margins, again, not a meaningfully different sort of point from our initial guide, albeit the rounding, obviously has moved to the low end of the range from, call it, the midpoint, which I think in the previous earnings call, I think we did suggest that at that point, the midpoint felt more likely. Now we have moved a number of, call it, tens of basis points more towards the lower end of that range. We also said in the prepared remarks that we're rounding down to 0% at this point, and we expect that likely will continue through the balance of the fiscal year unless things change meaningfully in the macro environment. Jinli Chan: Okay. That's helpful. And then just on margins, I think you guys did around flat margins for the quarter and then you're maintaining the 50 to 70 basis points expansion for the full year. I guess, how are you expecting the rest of the year to shape up in terms of expenses and the margin dynamic there just so we have that model correctly? Peter Hadley: Yes, sure. So we're actually quite happy, not that we're shooting for flat, but we were quite happy with sort of beat our expectations. We alluded to the fact we're expecting some margin decline, mostly due to the fourth quarter of the WorkForce Software acquisition, so the acquisition-related expenses, some integration costs there. So we actually felt -- we actually ended up a little better than what we expected in the first quarter. That certainly helps. That anniversaries -- actually anniversaried about 2 weeks ago. So that -- call it, that drag element is behind us. The rest of the year, we feel pretty good about where the range is. We have a little bit of ramp in the second part of the year, which we are contemplating. And again, some of that is due to some efficiencies that we're driving in the business, some of the effects of some of our GenAI investments. But you should expect us to -- again, when you adjust for the WorkForce Software acquisition in the first quarter to see something similar in terms of the net result in the second quarter and then a little bit of a ramp in the back half of the year. Operator: Our next question comes from Kartik Mehta with Northcoast Research. Kartik Mehta: Yes. Peter, I wanted to start off with you. I think when you originally gave guidance for yet, at least for FY '26, you anticipated that pricing would be about 100 basis point benefit, a little bit lower than what it had been a little bit after COVID, but a little bit higher than pre-COVID. And I'm wondering if your expectations are still the same considering the environment has changed a little bit, at least economic environment. Peter Hadley: Yes, absolutely. No change at all actually in our price expectations. We've not seen anything in the first quarter that makes us feel like that needs to change. We do expect, as you said, Kartik, we're going to come in a little lower than where we were last year on price. Again, our philosophy has not changed in terms of sort of the long-term value proposition prices, a piece of that -- an important piece of that, but not the only piece of it. So -- and in terms of, call it, receptivity in the market and the client base, we feel like our price assumptions are appropriate and not expecting any -- necessarily anything meaningfully more or less than what we communicated last quarter. Kartik Mehta: Perfect. And just a follow-up, Maria. You talked about at Analyst Day, AI rollout, especially for the sales force and how that was helping them become a little bit more productive. And I'm wondering where you are in that rollout, maybe I'm not sure if you can give a percentage of the salespeople that are able to use the AI or what the plans are for kind of full rollout of that program. Maria Black: Yes. Great question. And I love this topic and love speaking about our sales force and our distribution and the investments that we make in them, in their ecosystem and specifically their technology. We talked a lot about at Investor Day, what we call the Zone, which is ADP's tool that we are rolling out across the sellers, leveraging generative AI to make them more productive. And so that's everything we've talked about in terms of sales modernization over the last year or so with respect to call summarization, pre-call planning, coaching, things of that nature. I believe at Investor Day, we cited that it was deployed across, I think, roughly 40% of our sellers. That has increased, Kartik. I don't know that I want to be in a position where every quarter, we're giving you the update, but it's definitely north of that at this time. We actually just had all of our sales leadership together across ADP at a meeting. And I have to tell you, I had a chance to see the preview of what's coming with respect to kind of the next iteration of generative AI inside of these tools, and it is it is unbelievable. Somebody used to do this job or the sales job for a living, although I still do. I have to tell you that this stuff is way ahead of its time. It's ahead of a lot of the tools and technology vendors that we even leverage. We're helping guide their road map, and it is going to be a game changer. And I think the most meaningful thing that I would say is sitting in that room with all of those sales leaders is their willingness to engage in these tools to help change the workflow of how our sellers actually go to market and engage and prospects and close and sell and even pass to implementation. And I think that's exactly the types of responsible leaders that we have that are willing to train these tools and make them useful and have those tools impact their sellers' productivity because that's really the end goal. So I don't want to unveil all those things to you right here on the earnings call. I really look forward to the data we get to show these things to you live, but they're pretty incredible. And as you can tell, I'm always bullish on the investments we're making into our distribution. As you know, it's a big competitive differentiation for us here at ADP. Operator: Our next question comes from Bryan Bergin with Cowen. Jared Levine: This is actually Jared Levine on for Bryan today. To start here on the PEO WSEs, I just want to confirm that actually came in line with your expectations for 1Q. And I guess what drives the confidence that you can accelerate that growth to hit the midpoint of the guide? Peter Hadley: Yes. Jared, it's Peter. I came in, yes, broadly in line with our expectations, maybe 10 basis points or so above actually. So we were happy with where the first quarter came in with respect to WSEs. Our confidence that we do have a little bit of a ramp, but again, not meaningfully different percentages. But if you're talking at 10 or 20 basis points, a little bit of a ramp in the second half of the year, which is really a bookings-driven assumption. We're not anticipating -- in the same way we spoke about with ES, we're not anticipating any ramp through the year in the PEO pays per control metric. So really, it's a bookings-driven assumption, and we are investing in the team, we feel the team is very well placed to deliver on that objective. Jared Levine: Great. And then in terms of the PEO July 1 enrollment period, can you talk about your performance there? Did you witness any change in participation rates, enrollment rates or any kind of buydown behavior? Maria Black: Yes, happy to take that. You're absolutely right. We just finished the enrollment period, proud of how the team executed through the cycle. I think there's no secret out there that health benefits are topical and on employers' minds. So continue to see the value proposition of the PEO and specifically how we structure our PEO win out there in the market and really help employers navigate these changing times. I will tell you, health benefits are and remain the norm for all of the higher wage industries that our PEO targets. Those participation rates that we've seen, they're actually the highest for us that they have been -- the highest levels, if you will, for the last 4 years or so. So we have seen actually a bit of a participation uptick. That's great to see because it does substantiate that we're selling to the right industries and those industries do value benefits as part of their offering to drive their overall employment -- or employer value proposition. So I think our PEO fits squarely into how difficult it is for employers to navigate in that size today out there. Operator: Our next question comes from Ashish Sabadra with RBC Capital Markets. David Paige Papadogonas: This is David Paige on for Ashish. I was wondering if you could just provide a little color on the acquisition that you made in the quarter, why it was needed? And I guess, what are the benefits and maybe financial profile if you had one? Maria Black: Yes. So perhaps I'll start. If my voice here holds up -- I'm so glad you asked. We're really excited. As you know, here at ADP, one of our strategic priorities is to lead with best-in-class HCM technology. And that's exactly what this acquisition brings for us. And so we're focused on bringing the best products and services to our clients. And while we've currently had offerings within this space, this is above and beyond what we've currently been offering, and we're really excited to fold this technology into our existing offer. And I think this acquisition is a great approach of how we're thinking about innovation, how we're thinking about the value proposition to our clients. Companies certainly need innovative compensation management software. That's exactly what this is. And so we're really excited to bring it into our portfolio and into our various platforms for both existing and prospective clients. So again, really excited about it, excited to announce it. And certainly, I'll take the opportunity just to welcome all of the associates of Pequity into ADP. Really excited about the work that we'll do together. And then, Peter, if you want to talk about the financials a bit? Peter Hadley: Yes, absolutely. The -- David, it's a small company today. So the financial profile is not meaningful in the context of ADP for this fiscal year. We're excited, as Maria said, about the opportunities for the product. It's an acquisition, a strategic acquisition. But in terms of the financials, not really noticeable in the context of ADP and has been contemplated in the outlook that we've reaffirmed today. So that's all I would have to say on the financial side of it. Operator: Our next question comes from Daniel Jester with BMO Capital Markets. Daniel Jester: Great. Appreciate all the color on the demand environment so far. Maybe I'll just tackle it from a little bit of a different angle. Anything that you'd call out with regards to the difference between sort of the U.S. and international markets? I know last fiscal year, there's maybe a little bit of choppiness on the international side, but just wondering kind of what you're seeing in that mix. Maria Black: Yes, sure. Thanks, Daniel. And choppy is one word. I think we like lumpy better than choppy, and that's not atypical for international for us. It's generally these are large complex deals. They do have a bit of a lumpy pattern to them. And certainly, while we did see a little bit of a softer quarter with international in the third quarter, we also saw incredible strength in the fourth quarter with international. So international, this quarter, Q1 of fiscal '26 were again a bit softer for us, but that's mainly, again, back to kind of the lumpy nature of it. It's not atypical on the heels of what was an incredible finish. The pipeline is solid. They're executing well, and they continue to remain laser-focused on executing throughout this fiscal year so that they can reaccelerate that growth for the finish. Daniel Jester: Great. And then maybe to go back to an earlier topic of conversation on the Workforce Now Next-Gen. For the 20% of new bookings who choose not to take it, is there any commonalities in terms of why that is or friction that you're seeing? And should the expectation be for that segment of the market at some point this fiscal year that gets to 100%? Or how should we be thinking about that? Maria Black: It is a fantastic question, one that I like to ask myself very often. The real answer is I don't know that we will get to 100% at the end of this fiscal because there are clients in that space. Certainly, the mid-market is a space that does a lot of acquisitions, things of that at nature, adds locations. So clients will always want to ensure they have kind of one offering, if you will. So the bulk of that 20% are clients that are, call it, knockouts in some capacity. The most common knockout is a client that's adding a location or adding a company to their existing portfolio. So that's kind of where it stands. Operator: Our next question comes from Tien-Tsin Huang with JPMorgan. Tien-Tsin Huang: Just a couple of questions. One, on the PEO side, thinking about WSEs and how that's tracking and your benchmarking versus your peers, how would you sort of rate your performance there? I'm curious because we're seeing some pretty wide variance in where that's coming out. So it does feel like ADP is doing well from a share side, but just wanted to get your impressions of that. Maria Black: Yes. So I think overall, we feel really positive about the momentum in our PEO. We did see PEO bookings growth continue through the first quarter. Although, listen, it moderated a little bit based on kind of the finish that PEO had in the fourth quarter. So there was a tiny bit of moderation, but it's still -- the growth continued through the first quarter. We actually were just down all of us last week down meeting with our PEO business and spending time with their leadership and their management. And they're squarely focused both on bookings, they're focused on driving retention, which improved slightly last year, and we continue to see slight improvement. And that is really what is going to drive that WSE growth. I would say in the context of others, I think we're winning. We have a winning hand structurally. We have a winning leadership team, really impressed with how they're aligned toward execution and how focused they are specifically on growth and WSE growth. So I don't know, Peter, if you have any comments with respect to our WSEs and versus the others. But I think, certainly, we feel as though we have a winning hand in the context of the other PEOs. Peter Hadley: Yes. No, I would just say, Tien-Tsin, I think you know this, everyone has a slightly different accounting convention for many of these things in the PEO landscape. So in terms of what we measure and how we measure our business, as Maria said, I think we're really happy. I answered the question earlier. The first quarter was slightly ahead, not meaningfully, but slightly ahead as opposed to the alternative, which is always good. So slightly ahead of our expectations on WSEs. And as we both said, we expect -- we have a winning team there, and we are expecting more booking success through the year that will drive the number up a little bit, but not markedly. We're still squarely in the 2% to 3% range. Tien-Tsin Huang: Okay. Good. No, I'm glad to hear it. Just my quick follow-up. I had to ask it here for you, Maria. It's nice to see you at the Fiserv Customer Conference. They're reporting results right now as well and the stock is down quite a bit because they're going through quite a bit of change, cultural shift. So just the commitment on -- obviously, you being at the event shows the commitment, but could this alter some of the -- maybe the targets that you're expecting from the partnership, given they're going through some restructuring there? And I don't know how much insight you have on that, but I thought I'd ask you on the call. Maria Black: Yes. No, I appreciate the question, and thank you. Listen, it was an honor to be there. I think it's almost exactly 1 month to the day that I was on stage with the CEO of Fiserv. We are very committed to this partnership. We're very committed to the sales collaboration, sitting up on that stage and looking out into a sea of analysts, but also potential clients, partnerships, banks. What I have to tell you is what we are doing with Fiserv and other embedded partners by serving up RUN in the platforms that they live and operate is a game changer. And we see that. By the way, we also see it inside of our own ecosystem of distribution. One of my favorite examples that I heard this quarter was a CPA that we've worked closely with for years in our downmarket, bring us a client of theirs that is currently leveraging Clover, and we have the ability to put, again, ADP inside of that Clover relationship with that client, and it made things much easier for the small business, which is the entire goal but also much easier for the CPA. So we're serving the ecosystem as well. And giving that client and the CPA the ability to kind of see their end-to-end cash flow. And so that's really exciting. I have to tell you the work that we've done from a technical perspective is great, from a sales collaboration is great, from a marketing perspective is great. There's no shortage of commitment to it. That said, though, we did just roll it out across the back book. I mentioned that a bit earlier, I think when perhaps Mark was asking about it. And so the bulk of the opportunity is still in front of us. It's very much early innings for us, but there's no lack of commitment. Operator: Our next question comes from Kevin McVeigh with UBS. Kevin McVeigh: I know you talked about the impact of the 1 processing day. Can you just remind us of what that sensitivity is in terms of what the impact is Q1 to Q2? Peter Hadley: Yes. I don't have the number to hand, Kevin, but it's not a big number. I've got Matt -- I'm just looking at Matt here. It's around $10 million... Matthew Keating: It's a modest impact, Kevin, small number. It's not going to be -- you'll see it a little bit, but not much. Peter Hadley: When I was talking about it earlier, I'm talking about -- in terms of the revenue growth rate, I think the main driver in terms of the second quarter revenue growth rate versus first quarter is the fall off of the acquisition -- the anniversary, I should say, of the acquisition effect. We might be talking 10-ish basis points, something like that for the processing day, but I don't recall the exact number, but it's not a meaningful number. It's just something you may observe in the growth rate cadence from Q1 to Q2. Kevin McVeigh: That's very helpful. And then can you just remind us because it was great to see that the increase in the float on both the client funds and the extended strategy. But obviously, the balances are pretty meaningfully different in terms of the principal rate. Just remind us why -- because both went up about $10 million. Is that just purely the difference in rate or timing? It's just -- it's a pretty interesting phenomenon. Peter Hadley: Yes. So our yield expectations essentially haven't moved. Yes, there's slight moves within the 3.4%, but -- because we did have a marginal adjustment, if you like, to the forward curves back in late July when we produced our initial guidance to when we produced this reaffirmation now, but it's really a balance-driven thing. So we saw, as you'll see, I think, in the reporting we did for the first quarter, we saw very strong balance growth in the first quarter. A lot of that is driven by continued strength in wage growth. We have contemplated both in the client fund interest as well as in the PEO -- excuse me, some moderation to wage growth in the rest of the year, which is why we're guiding to 3% to 4% as opposed to the 7% that we delivered in the first quarter. But the $10 million is really coming from the balances from the denominator, not so much from the movement in yields. Operator: Our next question comes from Dan Dolev with Mizuho. Dan Dolev: Sorry, and I was on a different call, so apologies if the question was asked. Like can you maybe touch again on that pays per control, lower pays per control, that would be helpful. We're getting a lot of questions about it. And apologies if that was addressed. Peter Hadley: That's okay. Dan, I'll take that. Again, we've -- you could say we've narrowed our range to the low end of the range. So again, we're talking about probably tens of basis points of movement in our projection on the full year, not meaningful amounts of revenue, not meaningful amounts of margin. It's there, but it's not particularly meaningful. Really, it's just come from the data we see in our own client base in terms of hiring levels. I should add to that in the context, we're also seeing very low levels of layoffs in the base. So it's a very static situation. It felt like a move to the lower end of the range we previously quoted is appropriate just given where the macro is, if that were to change. Obviously, our assumptions may evolve through the fiscal year. But right now, I don't think it's a big surprise that hiring is tight. And as such, we've just narrowed our expectation within the range that we previously guided towards the low end. Dan Dolev: Got it. And hopefully, I'm not redundant again because I should be on the entire call. But on these recent announcements, whether it's Amazon or whatever, is that changing the calculus or it's already included in your expectations? Peter Hadley: Not really. I mean these things -- they make news, obviously, they're headline worthy, but we have a very large base, 1.1 million clients and 26 million workers paid in the U.S. We pay Amazon, in fact, and that's a small fraction of -- a very small fraction of the number of workers we pay for Amazon. So these things are contemplated in our guidance. Again, what we're seeing in the wider macro data is certainly reduced hiring levels, but also, as I said a moment ago, very much reduced layoff levels to sort of lows we haven't seen in a number of years. So the whole hiring situation is relatively static and we believe contemplated in our guidance. Operator: Our next question comes from James Faucette with Morgan Stanley. Michael Infante: It's Mike Infante on for James. Maria, it'd be great to get your perspective on the stablecoin topic potentially being used as a mechanism to pay employees. We can obviously sort of debate the magnitude of adoption, but how do you think about your intention to support that as a rail? And how do you think about some of the regulatory compliance or tax constraints that would have to be cleared in the interim? Maria Black: Yes, it's a great question. We think about it a lot. We think about it from exactly what you're suggesting, which is from a regulatory perspective. So I think that's the big piece that we are keeping a keen eye on is with respect to the regulatory environment. And ultimately, once that clears, how ultimately we will be able to support our clients as they navigate that as an offer in terms of a payment should that happen. So I think those are the questions that we are keeping a keen eye on, both in Washington as well as kind of through the banking environment. But certainly, as it relates to the banking side from our end in terms of real time and rails, we are preparing ourselves for all possibilities as these things evolve. And from a strategic perspective, that's an imperative for us to always make sure that we are in a position to support how client employees want to get paid. And certainly, if things evolve, we'll be at the ready to do it. Operator: We have time for one more question. And that question comes from Zachary Gunn with FT Partners. Zachary Gunn: I just want to go back to last quarter, there's some commentary around the full year guide assuming a continued moderation in the macro. And I recognize just tightening the range on pays per control, more rounding on basis points. But I just wanted to see if that -- if the guide still has some level of moderation baked in or if we've seen the macro move towards those expectations? Peter Hadley: I think -- I mean, I think we have seen a little bit of that. The main metric I'm talking about is pays per control. So again, we said we expected to -- well, sorry, we rounded down to 0% in the first quarter, which was a little below our expectations. So I think we have seen some of that flow through. But again, I would say, consistent with what I've been answering some of the earlier questions, I don't think these are material moves away from where we originally envisage things. You can obviously see that our guide has been reaffirmed. And hopefully, you can tell that we feel confident about our ability to deliver on that guide, particularly when it comes to revenues impacted by things like pays per control. We have our float income going a little bit in the opposite direction. So I think we have the macro contemplated. Of course, things can change outside of our control that maybe none of us are aware of yet, but that's not our base case assumption. I think our base case assumption really is very similar to what we said 3 months ago. We're just sort of refining at the margins a little bit, some of the metrics like client fund interest and like pays per control, call it, either within or very close to edges of the ranges we previously shared. Operator: I'd now like to turn the call back over to Maria Black for any closing remarks. Maria Black: Thanks, Michelle, and thank you to everyone this morning for your interest. I have to say the last few weeks have been a time that I've been thinking deeply about all of our stakeholders, all of our investors, our analysts, the community, our associates. And I've been thinking a lot about who ADP is in our fabric and at our core. And I want to take a minute to really thank our associates for their undying commitment to our clients. It's really incredible to watch our values-driven culture come to life. One of those values-driven culture attributes is, as a company, we provide insightful expertise. So it's with that, I want to take a minute to genuinely thank and acknowledge ADP Research and the team over there who has been tirelessly and diligently innovating and executing over the past several weeks to bring to life a weekly estimate of the ADP employment, National Employment Report, known as the NER Pulse that was made available to all of our stakeholders at the same time yesterday. So this weekly measure is going to bring to life really the mission that they've had at ADP Research all along, which is about making the future work more productive through data-driven discovery. I have to say that we really mean it when we say that we're always designing for people here at ADP. It's in the fabric of who we are, and I'm incredibly proud to be ADP Red. Operator: Thank you for your participation. This does conclude the program. You may now disconnect. Everyone, have a great day.
Operator: Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to Garmin Ltd. Third Quarter 2025 Earnings Call. [Operator Instructions] I would now like to turn the conference over to Teri Seck, Director of Investor Relations. You may begin. Teri Seck: Good morning. We would like to welcome you to Garmin Limited's Third Quarter 2025 Earnings Call. Please note that the earnings press release and related slides are available at Garmin's Investor Relations site on the Internet at www.garmin.com/stock. An archive of the webcast and related transcript will also be available on our website. This earnings call includes projections and other forward-looking statements regarding Garmin Ltd. and its business. Any statements regarding our future financial position, revenues, segment growth rates, earnings, gross margins, operating margins, future dividends or share repurchases, market shares, product introductions, foreign currency, tariff impacts, future demand for our products and plans and objectives are forward-looking statements. The forward-looking events and circumstances discussed in this earnings call may not occur, and actual results could differ materially as a result of risk factors affecting Garmin. Information concerning these risk factors is contained in our Form 10-K and Form 10-Q filed with the Securities and Exchange Commission. Presenting on behalf of Garmin Limited this morning are Cliff Pemble, President and Chief Executive Officer; and Doug Boessen, Chief Financial Officer and Treasurer. At this time, I would like to turn the call over to Cliff Pemble. Clifton Pemble: Thank you, Teri, and good morning, everyone. As announced earlier today, Garmin achieved another quarter of outstanding financial results, reflecting the strength of our unique, highly diversified business model. Consolidated revenue increased 12% to nearly $1.8 billion, which is a new third quarter record, and we experienced strong double-digit revenue growth in three of our business segments. These results are even more remarkable, considering the strong comparison from last year when consolidated revenue increased over 24%. Gross and operating margins were 59.1% and 25.8%, respectively, resulting in record third quarter operating income of $457 million, up 4% year-over-year and pro forma EPS of $1.99. We are pleased with our results so far in 2025, and we are on track to achieve full year revenue of $7.1 billion as communicated in July. Given our strong year-to-date performance and outlook for the remainder of the year, we are raising our full year EPS guidance. We now anticipate pro forma EPS of $8.15 a share, reflecting in an increase of $0.15 over the prior guidance. In a moment, I will cover changes to the segment revenue model that is the foundation for our consolidated guidance. But it's important to remember that the segment model is simply a point-in-time guideline that evolves based on trends throughout the year. With the majority of 2025 behind us, and the momentum we are experiencing entering the important Q4 holiday season, we anticipate delivering another record year of double-digit growth in revenue, operating income and EPS. Doug will discuss our financial results and outlook in greater detail in a few minutes, but first, I'll provide a few remarks on the performance and outlook for each business segment. Starting with Fitness. Revenue increased 30% to $601 million, with growth led by strong demand for advanced wearables. Our performance can be attributed to the breadth and depth of our wearable product lines, which offer highly differentiated features across many different price points. Gross and operating margins were 60% and 32%, respectively, resulting in operating income of $194 million. During the quarter, we launched several new products, including the Edge 550 and 850 cycling computers that bring new coaching plans and cycling metrics to the Edge lineup, the Bounce 2 smartwatch for kids offering voice calling, messaging and geo-fencing alerts and the Venu 4 smartwatch with a premium all metal design, a built-in flashlight and many new health and wellness features. We also announced our collaboration with King's College London to study the health of women and their partners during and after pregnancy with an emphasis on detecting and managing potentially dangerous conditions such as gestational diabetes and hypertension. Garmin is the exclusive partner of King's College London for this study, which is one of the largest of its kind to incorporate wearables into study protocols and results. Given the strong performance of the Fitness segment and the demand we are expecting during the holiday season, we are raising our revenue growth estimate to 29% for the year. Moving to Outdoor. Revenue decreased 5% to $498 million, driven primarily by consumer auto and adventure watches following the 1 year anniversary of the dezl series launch as well as the highly successful fenix 8 launch. Gross and operating margins were 66% and 34%, respectively, resulting in operating income of $170 million. During the quarter, we launched the fenix 8 Pro, which adds satellite and cellular connections and offers a range of communications options, including voice, text, live tracking and SOS using the Garmin Response Center, making this smartwatch the ideal companion for adventures on and off the grid. In addition, the fenix 8 Pro lineup now includes a version with a microLED display. MicroLED has been highly sought after for its superior brightness and the ability and the fenix 8 Pro is the first device of its kind to offer this exciting new display technology. I'm proud of our global team who worked very hard to bring microLED technology to the wearable market. Also during the quarter, we entered a new market with the launch of our Blaze equine wellness system designed to help horse riders, owners and trainers monitor their horses' health and fitness levels. We are pleased with the performance of the Outdoor segment, but delivering back-to-back years of double-digit revenue growth has been more challenging than originally anticipated, following the 1-year anniversary of the highly successful product launches in this segment, most notably the fenix 8. The recent launch of the fenix 8 Pro partially offset pipeline fills from the previous year, but did not fully close the gap when compared to the fenix 8 launch. As it has in the past, product release cycles can create short-term noise, but in the long-term view, the Outdoor segment has been a remarkable performer and has a remarkable track record of growth. Considering our year-to-date performance and outlook for the fourth quarter, we now expect Outdoor revenue to increase 3% for the year. Looking next at Aviation, revenue increased 18% in the third quarter to $240 million, with growth contributions from both OEM and aftermarket product categories. Gross and operating margins were 75% and 25%, respectively, resulting in operating income of $61 million. During the quarter, we certified a retrofit integrated cockpit system for the Cessna Citation CJ1, which brings new capabilities and safety-enhancing technologies to this popular light jet. We also added Autoland and Autothrottle capability to the King Air 350, which is the largest and most complex aircraft to receive Autoland capability to date. And we announced additional certifications for our GFC 600 autopilot bringing the performance and safety enhancing benefits of our flight control technology to more aircraft models. Given the strong third quarter performance of the Aviation segment and recent trends, we are raising our revenue growth estimate to 10% for the year. Turning to the Marine segment. Revenue increased 20% to $267 million, with growth across multiple categories, including chartplotters, audio and cartography. Gross and operating margins expanded to 56% and 19%, respectively, resulting in operating income of $49 million. During the quarter, we expanded our trolling motor product lines with the Force Current, which is the industry's first hands-free Kayak propulsion system, and we expanded the Force Kraken lineup, which now includes a model with a 110-inch drive shaft for large fishing boats. We also launched the ECHOMAP Ultra 2 chartplotter offering a large 16-inch display, premium mapping and exceptional sonar capabilities. We were recently recognized by the National Marine Electronics Association as Manufacturer of the Year for the 11th consecutive year, and we received 8 Product of Excellence awards ranging from chartplotters to marine smartwatches, reflecting the strength and diversity of our product lineup. Given the strong third quarter performance of the Marine segment and recent trends, we are raising our revenue growth estimate to 10% for the year. And moving finally to the Auto OEM segment, revenue decreased 2% to $165 million as certain legacy programs approach end of life and were partially offset by growth in our most recent BMW domain controller program. Gross margin was 15% and was negatively impacted by an increase in accrued warranty costs associated with prior period sales, which contributed to the operating loss of $17 million. During the quarter, we shipped the 3 millionth BMW domain controller, demonstrating our capability as a respected Tier 1 supplier to the automotive market. We continue to achieve important milestones leading up to the launch of our next large auto OEM program, which is anticipated to add significant production volumes and expand the scale of our business. Given the year-to-date performance and recent trends, we now expect Auto OEM revenue to increase approximately 8% for the year. That concludes my remarks. Next, Doug will walk you through additional details on our financial results. Doug? Douglas Boessen: Thanks, Cliff. Good morning, everyone. I'll begin by reviewing our third quarter financial results and provide comments on the balance sheet, cash flow statement, taxes, updated guidance. Posted revenue of $1.77 billion for the third quarter, representing a 12% increase year-over-year. Gross margin was 59.1%, a 90 basis point decrease from the prior quarter. The decrease was primarily due to higher product costs. Operating expense as a percentage of sales was 33.3%, a 90 basis point increase. Operating income was $457 million, a 4% increase. Operating margin was 25.8% 180 basis point decrease compared to prior year quarter. Our GAAP EPS was $2.08, and pro forma EPS was $1.99. Next, we look at our third quarter revenue by segment and geography. In the third quarter, we achieved double-digit growth in 3 of our 5 segments, led by the Fitness segment with outstanding growth of 30%, followed by Marine segment growth of 20%, Aviation segment growth of 18%. By geography, we achieved double growth in all 3 of our regions, led by 14% growth in APAC, followed by 13% growth in EMEA and 10% growth in Americas. Looking at operating expenses. Third quarter operating expense increased by $76 million or 15%. Research and development increased by $37 million, SG&A increased by $38 million. Both increases were primarily due to personnel-related expenses. A few highlights on the balance sheet, cash flow statement, taxes. We ended the quarter with cash and marketable securities of approximately $3.9 billion. Accounts receivables increased year-over-year to approximately $956 million following the strong sales in the third quarter. Inventory increased year-over-year sequentially to approximately $1.9 billion. We're executing our strategy to increase inventory of certain product lines to support strong customer demand as well as mitigate the effects of potential increases in tariffs. For the third quarter of 2025, we generated free cash flow of $425 million, a $206 million increase on prior year quarter. Capital expenditures for the third quarter of 2025 were $60 million, which is $22 million higher than the prior quarter. We expect full year 2025 free cash flow to be approximately $1.3 billion with capital expenditures of approximately $275 million. During the third quarter of 2025, we paid dividends of $173 million, purchased $36 million of company stock. At quarter end, we had approximately $107 million remaining in the share repurchase program, which is authorized through December 2026. We had an effective tax rate of 21.2% compared to 17.9% in the prior year quarter. Increase in effective tax rate was primarily due to the new U.S. tax legislation enacted during the quarter, which changed capitalization requirements of certain R&D costs resulting in a year-to-date adjustment due to a decrease in certain U.S. tax deductions and credits. Turning next to our full year guidance. We estimate revenue of approximately $7.1 billion and gross margin of approximately 58.5%, both of which are consistent with our previous guidance. We now expect our operating margin to be approximately 25.2%, which is higher than our previous guidance of 24.8% due to lower operating expenses. Also, we expect a pro forma effective tax rate to approximately 17.5%, consistent with our previous guidance. Expected pro forma earnings per share is approximately $8.15 compared to our previous guidance of $8. This concludes our formal remarks. Bella, can you please open the line for Q&A? Operator: [Operator Instructions] Your first question comes from the line of Joseph Cardoso with JPMorgan. Joseph Cardoso: Maybe, Cliff, I just wanted to start off with, if we could dig into the downward revision to the Outdoor guidance. It looks like the revenue outlook is coming down roughly 10% here in the back half. I was just curious if you could share any additional color on the main drivers behind the deviation from your outlook 90 days ago. I know you touched on the fenix 8 versus Pro dynamic, but any other areas of the portfolio you're seeing sluggishness relative to your earlier expectations? And then I have a follow-up. Clifton Pemble: Yes. I think our remarks pretty much cover our thinking there. The fenix 8 Pro did launch fairly late in Q3, so it didn't have a lot of time to make an impact. And the results from the fenix 8 release last year were incredibly strong. And so I think that those are all factors as we look at the back half of the year that we're thinking that maybe our expectations were a little bit too high to begin with. But if you look at the long term over several of these major launches like the fenix 7 to fenix 8 and now to fenix 8 Pro, the overall growth of our watch category has been strong double digits and also ahead of the market. And so we feel like in the long-term view that these devices in the Outdoor segment in general has been a remarkable performer. Joseph Cardoso: Got it. And then maybe just switching gears a little bit here. When I look at the implied gross margin guide for 4Q, it appears you're embedding a seasonal step down. However, when we look at the historicals, it's not at the same magnitude that we've seen Garmin produce over a multiyear period, maybe more in line with recent trends. Can we just touch on the drivers behind that? Like what we're seeing in terms of driving a less seasonal decline related to mix? Less aggressive promotions? Is it more on the production side around utilization? Just curious any color you can share there? And then maybe just a quick clarification. Are you -- what are you guys assuming in the guide relative to FX headwinds and then potentially tariffs, if any, that are included in the guide? Douglas Boessen: Yes. This is Doug. Let me kind of give -- start out with the gross margin maybe first of all, the year-over-year on Q3. That is lower due to higher product costs. Part of that is relating to tariffs. Another thing relates to a strengthening of the Taiwan dollar, which does impact our cost of goods sold, as well as Cliff mentioned, there's warranty accruals like the prior year period sales. And that's partially offset by some favorable FX on sales due to the weakening U.S. dollar. And as it relates to Q4, if I look at the change basically from last year, this year in Q3, it's about the same change in Q4 there because we do have some of those higher product costs in there that we had to take into consideration. Now we also do have to remember that Q4 versus Q3, Q4 is a more promotional period of time for us, so we did factor that in. As it relates to some of our assumptions that are in there, as it relates to tariffs, we're factoring what the current tariff rates are out there. We are mitigating that due to certain things such as our higher levels of inventory to offset any potential increases in that. And also as it relates to FX, we did have -- as it relates to the top line, there are some tailwinds there from that standpoint. So we're factoring in similar type of trends in Q4 as we saw in Q3 from that standpoint. So in Q4, we think it's pretty well consistent with some of the trends that we're currently seeing there with tariffs, with FX, and then Taiwan dollar after consideration as well as the euro and those type of things in there. But as you mentioned, there are a lot of moving parts in gross margin, but we've factored most of those -- all those in that we did know about. Operator: Your next question comes from the line of Erik Woodring with Morgan Stanley. Erik Woodring: Cliff, maybe just to start, I'd love if we could maybe take a step back and for you to help us understand where exactly you think we are in the kind of cycle for Fitness and Outdoor? Obviously, a little bit different dynamics for each business, but obviously, really strong performance for multiple years on the back of new product launches and pricing increases. So where do we stand kind of in the cycle for each business? And then I have a follow-up, please. Clifton Pemble: I think we look at it as an ongoing opportunity and not necessarily as a cycle as in ups and downs, but we are a small but growing market share player in the overall wearables market. We have a very broad and strong product line about -- across both fitness as well as adventure watches. We see the opportunity to continue to grow with market share gains and innovation in our product lines. Erik Woodring: Okay. I appreciate that color. And then, Doug, if I could just turn over to you, maybe not necessarily core to any debates, but over the last 3 years, you've kind of guided CapEx up in the $300 million-plus range. And each year, it's kind of ended up lower than that. Just curious, again, kind of where you -- are you not able to find the dollars to spend? Or are there limitations to what you're just able to manufacture and that continues to get pushed out? Would just love a little color about kind of why spending plans are just a little bit lower than you had expected, just a bit of a continuation of '23 and '24. Douglas Boessen: Yes. Regarding cap expenditure, it's not an item where we don't have the money to spend. We do have $3.9 billion of cash from a standpoint. So it relates to CapEx, those estimates are done at the early part of the year, and we progress those throughout the year. And we have plans for those and sometimes some of those is pushed out. So it's simply a situation that we have expectations for those, just for one reason or the other, things just get pushed out. A lot of -- I should say a lot of those CapEx we have are really infrastructure to grow our business, for manufacturing, those type of things. And so it's just a situation where we come with that estimate and things just change during the year along the way and just kind of push those out. But but we're not taking anything off the table from a standpoint of CapEx. We still think we need to have that infrastructure for growth in the future. Operator: Your next question comes from the line of Tim Long with Barclays. Timothy Long: Two, if I could as well. First one, could you just touch on kind of channel inventory, what you're seeing there? I think you alluded to inventory related to tariffs a little bit earlier, but particularly in the Fitness and Outdoor segments, how you think the health of the channel inventory looks? And then second, just looking at the number, it looks like there was a little bit of a downtick in the Americas business in the quarter. Could you just touch on what drove that? And do you think there's -- that's a short-term blip or what could get that moving back growing sequentially? Clifton Pemble: Yes, Tim, I think that we view channel inventory as being healthy at this stage. The registrations and sell-out of our products has been stronger than the sell-in in recent, near-term weeks and months, and I think that's retailers positioning, getting ready to take things in for Q4. But the channel inventory looks very healthy and lean and ready for a good Q4 fill. There's really not a relationship between what we said about inventory and tariffs and channel inventory. When we talk about our inventory and bringing that in ahead of tariff impacts, that's inventory that we hold on our books, whereas the channel is a different consideration. We view the channel as being very lean. As far as Americas, I think the difference there is that some of the other regions did benefit from FX. So if you adjust for that, they tend to be very comparable. Timothy Long: Okay. So I was just asking about the sequential downtick in Americas. Is that mostly FX? Or was there something else going on there? Clifton Pemble: Yes. Again, I wouldn't read a lot into that. I think some of that, again, is associated with our product cycles as well as currency movements and all kinds of things. So it's -- there's a lot that goes into that. But I think in general, we're pleased with the performance of all of our geographies. Operator: Your next question comes from the line of Jordan Lyonnais with Bank of America. Jordan Lyonnais: I wanted to ask on autos. How should we think about the growth going into next year and until the BMW -- or sorry, the two 2027 contracts start up with new lines that are retiring? Clifton Pemble: Yes. So going into next year, as we've communicated, we've been in the peak adoption of the BMW program for a while now, actually have anniversaried that. And as some of these end-of-life programs wind down, 2026 could experience some revenue pressure because of those natural dynamics. We expect the new program to come online towards the back half of 2026. And so we're on track for that, and we continue to make progress in delivering that. Jordan Lyonnais: Got it. And on Aviation too, was there any greater driver of the growth that you saw between OEM and aftermarket that you could give more detail on? Clifton Pemble: Yes. I think they're both very comparable, both very strong for different reasons. The backlog in OEM, as you know, is very long. And so aircraft makers are building to that backlog, and we're benefiting from that. And in the aftermarket, the consumer behavior was resilient and people buying and equipping their aircraft. And so the trends are very positive there. Operator: Your next question comes from the line of David McGregor with Longbow Research. Joseph Nolan: This is Joe Nolan on for David. The fitness business saw another great quarter. Just if you could talk about what's driving the growth there? I know advanced wearables have been strong in recent quarters. And if you could just give any update on new user growth? Clifton Pemble: Yes. I think we saw growth across both kinds of products that we have in Fitness in terms of wearables that would be the running products as well as the advanced wellness products. And I would say that the registration behavior, the consumer behavior that we see on the registrations is very strong across the whole business, including all of our wearables in Outdoor and Fitness. The convincing majority of people coming to our platform are new users, and we're seeing strong double-digit growth in those registrations in new products year-over-year. Joseph Nolan: Okay. Great. And then fourth quarter promotions typically step up a little bit for the holiday season. Is it fair to expect a pretty comparable promotional environment compared to last year? Is there any puts and takes to think about within that? Clifton Pemble: I would say that -- I would call it comparable. We have a lot of products to offer, which is great for retailers because there's something for everyone. And so we have strong promotions planned. I'd say they're in line with what we've seen in previous years, and I think we're really excited about what we have to offer. Operator: Your next question comes from the line of Ivan Feinseth with Tigress Financial Partners. Ivan Feinseth: Congratulations on another record quarter and the great new cadence of -- a new product introduction cadence. On the launch of the Blaze, what kind of uptake have you been seeing so far? And what is your production run projection? Clifton Pemble: Yes. I think Ivan, Blaze has been great. It's gotten a lot of attention. I think this is a market that is underserved in terms of technology. And at the same time, I think it's a market that's very traditional. So while it's gotten a lot of attention, it will take some time, I think, to build the channel and the momentum there. But we're excited about the early start. And I think we also have plans to enhance the roadmap and offer more products as well. Ivan Feinseth: And what is kind of your target marketing strategy? And I mean, right now, one of the fastest-growing spectator sports is actually rodeos. So there's a lot of interest in horses and of course, traditional horse racing and horse training. So what's kind of your ideas for targeting -- penetrating the market? Clifton Pemble: Well, I think there's certainly different disciplines around horses. I think if you look at the common threads of each discipline, it's that the horse owners and the caregivers really love the animal, and they want to do the right thing by the animal. And so again, there's been hardly any tools available for people to assess horses, whether it's on the purchasing side, on the selling side of that as well as the training and the ongoing performance improvement of the animal. So I think that lends itself to a lot of opportunities of tools that have been available to people that can be applied to horses going forward. Ivan Feinseth: Then with the launch of the 8 Pro with the satellite inReach connectivity and also on the Bounce, are -- what is the percentage of people buying those that are signing up for the connectivity plans? Clifton Pemble: Well, I think those two products are specifically designed with connectivity features, so anyone that buys those products is probably going to sign up for the additional services that go along with that, and that's exactly what we're seeing. It does target a unique user case. So if you look at Bounce for example, it's not just a watch for kids, it's a way for parents to monitor their kids and to communicate with them, especially for those that don't want to yet provide a smartphone to their kids. And so it just means that when you buy that product, you will absolutely sign up for the service that goes along with it. Ivan Feinseth: And then with more and more products that you're launching, including inReach connectivity and also more people are signing up for the Messenger. What is kind of your vision for how inReach and the Messenger kind of grows the Garmin ecosystem? Clifton Pemble: Well, inReach and Messenger and our connected products have all been part of our strategy to offer off the grid communication and especially rescue services for people who are enjoying the outdoors. Things happen out there and consequently having the right equipment and having equipment that works, that connects to real people that can help you has been a unique differentiator for us. So we'll continue to work on products that fulfill that vision and continue to expand our product line. Ivan Feinseth: Good luck for a strong year-end finish. Operator: Your next question comes from the line of Ben Bollin with Cleveland Research. Benjamin Bollin: Cliff, could you talk a little bit about what you're seeing with respect to Auto on the accrued incremental warranty costs that you're seeing? And then any thoughts on where that Auto OEM margin structure looks over time? And then I have a follow-up. Clifton Pemble: Yes. I think the accrued warranty was an isolated situation where an issue arose in our product that we had to manage, and it did affect prior period sales. So there was a catch-up that went on with that, but that's been addressed and corrected. And I think the longer-term view on the margin structure is the same as what we've communicated before, where we're targeting mid- to upper teens gross margin and mid-single-digit operating margin in the segment when we're at scale. Benjamin Bollin: Okay. And then the other question, with respect to the broader component supply environment, I'm interested if you're seeing any scenarios or situations arise. Notably, advanced process nodes where any availability issues, you feel good on your ability to source memory, components into the out year given kind of the radical demand you're seeing from hyperscale and what they're buying? Any thoughts there. Clifton Pemble: I think there's definitely some impact you're seeing in the overall semiconductor market associated with these large-scale new initiatives that are going on with AI and data centers and that kind of thing. I think it overall will benefit customers and us in the longer term because semiconductor providers are focusing on more higher performance processors on more dense memory configurations which overall are a benefit to the products going forward with better features, more storage, more capability. Operator: Your last question comes from the line of Noah Zatzkin with KeyBanc Capital Markets. Noah Zatzkin: I guess maybe just on the Marine segment and the raised guidance there, is that purely idiosyncratic? Or is there something in the end market that you see kind of improving underneath that? Clifton Pemble: Yes, I think the end market is definitely stabilized, if not really even back on an uptick, especially when you look at aftermarket. And so the market dynamic is good at this moment. Consumers seem resilient and interested in the products that we're offering. And there's also an element of market share gains in that, particularly in chartplotters, trolling motors, audio and cartography. Noah Zatzkin: Great. And apologies if you touched on this, but just any thoughts around -- updated thoughts around tariffs would be great. Clifton Pemble: I think as we mentioned in our remarks, the tariff situation has been mostly stable for today's definition of stable. There can always be changes. But I think in general, we're managing through that. I think we've made all of the short-term adjustments that we had intended to make to our business model. And then going forward, we're focused on longer-term optimizations in our business, which is what we do as the normal course with tariffs or any other matter, we simply are always working to achieve the most efficient supply chain structure. Operator: That concludes our Q&A session. I will now turn the call back over to Teri Seck, Director of Investor Relations, for closing remarks. Teri Seck: Thank you all for joining us today. We are available for callbacks, and we hope you have a great day. Bye. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect. Everyone, have a great day.
Operator: Good morning, and welcome to Criteo's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. And I would now like to turn the conference over to Ms. Melanie Dambre, Vice President, Investor Relations. Thank you. Please go ahead. Melanie Dambre: Good morning, everyone, and welcome to Criteo's Third Quarter 2025 Earnings Call. Joining us on the call today, Chief Executive Officer, Michael Komasinski; and Chief Financial Officer, Sarah Glickman, are going to share some prepared remarks. Joining us for the Q&A session is Todd Parsons in his role as Chief Product Officer. As usual, you will find our investor presentation on our Investor Relations website now as well as our prepared remarks and transcript after the call. Before we get started, I would like to remind you that our remarks will include forward-looking statements, which reflect Criteo's judgment, assumptions and analysis only as of today. Our actual results may differ materially from current expectations based on a number of factors affecting Criteo's business. Except as required by law, we do not undertake any obligation to update any forward-looking statements discussed today. For more information, please refer to the risk factors discussed in our earnings release as well as our most recent Forms 10-K and 10-Q filed with the SEC. We will also discuss non-GAAP measures of our performance. Definitions and reconciliations to the most directly comparable GAAP metrics are included in our earnings release published today. Finally, unless otherwise stated, all growth comparisons made during this call are against the same period in the prior year. With that, let me now hand it over to Michael. Michael Komasinski: Thanks, Melanie, and good morning, everyone. Thanks for joining us today. What excites me most about this quarter isn't just the strength of our results, but how our business is growing into a platform that reaches far beyond any single channel or format. Consumer attention is more fragmented than ever across websites, apps, social feeds, connected TV and now AI-driven assistance. That fragmentation creates complexity for advertisers, but it creates opportunity for us. Criteo is built to meet shoppers wherever they are and deliver the outcomes brands care most about. Progress we're making in Performance Media, in Retail Media and in agentic AI shows our strategy is working, and our opportunity is only expanding. Since stepping into this role, I focused on getting close to our teams, our clients and our partners. And what I see gives me confidence that we are on the right path. We're building on our strengths and sharpening our focus, and we're seeing early results from our push for greater decentralization and agility. Our purpose is clear. We power shopper journeys that unlock commerce outcomes. We help brands, agencies and retailers connect with consumers wherever they are across every channel and every device. We've evolved from being an open web company to a diversified multichannel platform with about 85% of our media spend now happening outside of desktop display. Retail Media represents roughly half of our spend with strong growth across mobile, social and video, including CTV. This cross-channel diversification continues to set us apart from single-channel ad tech players and walled gardens. Criteo's diversified reach across these channels is a core strength that's often underappreciated. Our platform enables consistent, measurable returns across channels, delivering stronger performance than siloed alternatives. As advertisers focus on outcomes rather than media buying, they're looking for the ability to accurately measure performance across a variety of consumer touch points. Our data, our AI and our global reach create a foundation that gives us a distinct competitive edge to deliver measurable outcomes for our clients. With this strong cross-channel foundation in place, we're now focused on the next major shift shaping our industry, the rise of agentic AI. This is a natural extension of our strategy. Intelligent assistants are starting to guide people through their shopping journeys, helping them discover, compare and choose products in new ways. We see this as another channel where brands will want to engage because every major shift in digital has created more fragmentation, not less. We're moving fast to prepare for this future. Our MCP server is live and has powered our first client campaigns, proving the flexibility of our platform and new workflows. In Performance Media, we've developed new agents that let brands generate audiences or surface insights instantly, removing friction from data workflows. In Retail Media, we're piloting sponsored recommendations within retailer agents. These are clear signs of how our platform adapts to new behaviors and new channels. Looking ahead, the opportunity is to bring together the proven performance of recommendation systems with the usability of large language models. Our performance engine keeps getting stronger with every AI innovation we deliver, including our latest deep learning bidding model, and it's powered by one of the most complete sets of commerce data in the market. We combine normalized product information from thousands of e-commerce players with a global map of how people search, browse, consider and buy across categories. This curated view of products and shoppers reveals the connections that predict intent and enable precise product recommendations. It gives us a data set that is uniquely structured, granular and scalable, making our recommendations more accurate, more actionable and ultimately more valuable for clients and partners. And it's an advantage that is very hard to replicate. We're thrilled to be partnering on a proof of concept with a major AI-powered assistant to explore how our technology can seamlessly integrate into their ecosystem, a strong signal of how relevant we believe Criteo will be in the next phase of digital commerce. This includes exploring how integrating our product recommendation API into product level search can drive incremental performance and relevance for users. Turning to Performance Media. This part of our business is in the midst of an exciting transformation. We're moving from a managed service model to a self-service AI-first platform that can serve customers more broadly and capture a greater share of their budgets. This shift matters because self-service not only lowers cost to serve, but also opens the door to a much larger market by allowing our technology to integrate within partner ecosystems and reach a broader universe of SMB advertisers. At the center is our GO solution, where momentum is building quickly for our small and midsized clients. For example, 1 in 4 campaigns from small clients now run through GO, up from just 10% last quarter, and we expect that to double again by year-end. GO simplifies performance marketing through automation and built-in optimization, driving higher spend, lower churn and stronger return on ad spend. GO is also accelerating adoption in social, which now accounts for approximately 35% of our GO campaign revenue. As we continue to expand cross-channel access and full funnel capabilities, we see significant opportunity ahead. Progress we're making reinforces our confidence that Performance Media will become an even stronger growth engine for Criteo going forward. Our engine is purpose-built to optimize performance holistically across channels and throughout the full buyer journey. Social is a great example. With more than 3 billion daily active users, its share of Performance Media business has nearly tripled since last year. Cross-channel, full funnel campaigns for large enterprise clients drove 5x more new users and positive incremental return on ad spend, proving that our engine delivers true performance lift across CTV, social and video. We're also extending into connected TV, which is emerging as a new performance channel. Marketers can activate CTV campaigns through our Commerce Growth Demand solution or our Commerce Grid supply side platform, and the results are compelling. A food brand tripled household exposure and a luxury fashion brand lifted transactions per user by 50%, revenue per user by 25% and new buyers by 7%. With Criteo still underpenetrated in the second fastest-growing part of the digital advertising ecosystem, CTV represents a significant multiyear growth opportunity. Another area where we see significant opportunity is with our marketplace offering, which allows marketplaces to offer their merchants Criteo's targeting and retargeting tools. Marketplaces now account for more than half of global e-commerce sales, and our solution helps them unlock incremental ad revenue while strengthening merchant retention. This is a scalable new channel of distribution that accelerates adoption of our platform across a broader commerce ecosystem. Turning to Retail Media. It continues to be a powerful growth engine despite the near-term headwinds that we expect to work through in the coming quarters. This quarter, we drove over $450 million in media spend, up 26% year-over-year with more than 4,100 brands worldwide. We're making it easier for brands and agencies to plan, buy and optimize retail media spend through partnerships with Google, Microsoft and Miracle while also deepening agency relationships and bringing more brands onto the platform. Our new partnership with DoorDash underscores the strength of our demand generation engine. Our new API integration with Google is live. It is especially important because it captures brand search budgets that have historically sat outside of retail media, opening new spend opportunities. As Google's first on-site retail media partner, we're seeing strong interest from both existing and new retailers looking to take advantage of this integration. Search is one of the largest pools of digital ad spend. And as we roll out this offering through Google Search Ads 360 in the Americas in Q4, it gives us access to an estimated $172 billion in addressable spend, a portion of which we expect will move into Retail Media over time. While still early, we see this as a multiyear growth driver starting in 2026. We're also encouraged by the early traction of our Miracle partnership, which is opening up demand from mid- to long-tail advertisers and helping us expand with retailers, including Lowe's and Ulta Beauty as they grow their marketplaces. With Microsoft, we're excited to begin testing this quarter. We're rolling out scalable real-time bidding solutions that enable programmatic buying while ensuring retailers retain full control over their data and site experience. On the supply side, we're executing with strong momentum, led by the rapid success of our auction-based display format, which has quickly become the fastest-growing ad format in Retail Media. On-site display spend grew 42% this quarter and retailer adoption more than doubled with 41 retailers now live and more coming in Q4. It now represents 12% of our Retail Media business, up from 9% last quarter with meaningful upside as it can reach 30% to 40% of our clients' media mix. Our global retailer network continues to expand, now at 235 retailers, including Sephora, Fragrance Shop in the U.K. and Zepto in India and new market entries with Migros and Interdiscount in Switzerland and mass market (sic) [ Massmart ] in South Africa. Shoppable video is gaining traction, too, and contributing to the success of full funnel on-site strategies to drive over 5x higher conversion and 5x more new buyers than sponsored products alone. We're expanding offsite with Superdrug as our latest client to adopt the solution, and we see opportunities to extend Retail Media off-site into CTV and social. All of this reinforces our confidence in the long-term growth trajectory of Retail Media. Overall, we delivered solid results this quarter. Media spend grew 4%, representing a 400 basis point improvement from last quarter. Contribution ex-TAC increased 6% year-on-year and adjusted EBITDA margin came in above guidance. We have the right team and strategy in place to reaccelerate growth over the next few quarters, and the foundations we're building will drive multiyear benefits. As part of that effort, I am thrilled to announce that Ed Dinichert as our new Chief Customer Officer, a key addition to our leadership team who will further strengthen execution and ensure client success remains central to everything we do. This morning, we also announced our intention to redomicile Criteo to Luxembourg and replace our current ADS structure with a direct listing of our ordinary shares on NASDAQ. We view this as an important strategic step toward unlocking significant and sustainable shareholder value, which reflects our commitment to ensuring Criteo has the optimal corporate structure. It is expected to offer significant advantages over our existing structure, including eliminating most of the legal complexities currently applicable to Criteo, enhancing flexibility in capital allocation and broadening our shareholder base, and Sarah will provide additional details on this shortly. To close, Criteo has real momentum. We're executing with conviction, building on a durable strategy and positioning ourselves to capture the most important shifts in commerce and advertising. We're confident that this will translate into sustained growth and long-term value for our shareholders. With that, I'll hand it over to Sarah for more detail on our financial results and outlook. Sarah Glickman: Thank you, Michael, and good morning, everyone. We delivered strong Q3 results with significant operational leverage driven by top line growth and disciplined cost management. Revenue was $470 million and contribution ex-TAC increased to $288 million. This includes a year-over-year tailwind from foreign currencies of $6 million. At constant currency, Q3 contribution ex-TAC grew by 6% year-over-year, representing 15% on a 2-year stack. Client retention remains high at close to 90%, underscoring the resilience of our model. Macro trends remained stable throughout the quarter and during the back-to-school season. We saw higher advertising spend year-over-year across several key categories, including office supplies, furniture and personal care. In Performance Media, revenue was $403 million and contribution ex-TAC was $222 million, up 5% at constant currency and 10% on a 2-year stack. This was driven by our Commerce GO solution, up 6%, which leverages our large-scale commerce data and AI-powered audience modeling technology to connect advertisers within market shoppers. We also benefited from incremental AI-driven performance enhancements on top of the strong AI improvements we implemented last year. Ad Tech Services reduced Performance Media contribution ex-TAC growth by approximately 100 basis points due to lower spend in our media trading marketplace. Overall, we benefit from a diversified client base and a global footprint. By region, we saw media spend growth in Asia Pac and EMEA and softer but improving trends in the U.S. Travel remains our fastest-growing vertical, up 24%, with classifieds up 14% and marketplaces also performing well. Retail med spending was softer, including an 11% decline in fashion. In Retail Media, revenue was $67 million and contribution ex-TAC grew 11% at constant currency to $66 million, up 34% on a 2-year stack. Growth was driven by continued strength in Retail Media onsite. We benefited from the traction of our auction-based display offering and the addition of newly signed retailers. We continue to win new retailers across all regions. Media spend in Q3 grew 26% year-over-year, outpacing the market and reflecting share gains. We saw continued expansion with CPG and smaller brands, and we onboarded 100 new brands this quarter. Momentum with agencies also remained strong, and our 4,100 global brands are prioritizing Retail Media as a key performance channel. We delivered adjusted EBITDA of $105 million in Q3 2025, up 28% year-over-year, resulting in adjusted EBITDA margin of 36%, up 500 basis points year-over-year. This reflects strong operational leverage from top line growth, AI-driven productivity gains and cost discipline as well as lower-than-expected social charges for RSUs. We also benefited from approximately $8 million due to the timing of certain marketing expenses shifting into Q4 and lower bad debt expense. Non-GAAP operating expenses were flat year-over-year at $158 million in Q3, reflecting our disciplined resource allocation while enabling continued investment in product innovation. We continue to build on our strong operational fitness to enable greater scale and efficiency, including driving productivity gains through Commerce Go and AI-powered tools. Moving down the P&L, depreciation and amortization was $30 million in Q3 2025. Equity-related compensation expense was $15 million compared to $35 million in Q3 last year. Our income from operations was $52 million, up sharply compared to $10 million in the same quarter last year, and our net income improved to $40 million, reflecting both revenue growth and operational leverage and lower equity-related compensation expense. Our weighted average diluted share count was 53.8 million compared to $58.4 million a year ago, which resulted in diluted earnings per share of $0.70. Our adjusted diluted EPS was $1.31 in Q3 2025, up 36% year-over-year. Free cash flow was $67 million in Q3, up 74% year-over-year. We are delivering consistent upward momentum in adjusted EPS and free cash flow per share, demonstrating long-term value creation. We expect to deliver free cash flow conversion above 45% of adjusted EBITDA this year, excluding nonrecurring items. Criteo is a well-managed, resilient cash-generative business with the financial strength to invest for growth and return capital to shareholders. We closed the quarter with $811 million in total liquidity and no long-term debt, giving us the flexibility to execute our strategy and pursue disciplined balanced capital allocation. We are confident in our business strategy and the priorities remain clear: invest in organic growth, pursue value-enhancing acquisitions and return capital to shareholders. We deployed $11 million towards share repurchases this quarter, buying back about 0.5 million shares, reflecting our current constraints related to French law limits for share buybacks. Year-to-date, we have allocated $115 million to share repurchases and anticipate resuming our buyback program in Q4. We had $104 million remaining in our Board share buyback authorization as at the end of September. Turning to our financial outlook, which reflects our expectations as of today, October 29, 2025. We are reaffirming our full year contribution ex-TAC guidance and raising our adjusted EBITDA margin guidance to the high end of our range. For 2025, we continue to expect contribution ex-TAC to grow 3% to 4% year-over-year at constant currency. We estimate ForEx changes to have a positive full year impact of $12 million to $15 million. In Performance Media, we expect contribution ex-TAC to grow mid-single digits at constant currency in 2025. This reflects our solid performance in the first 9 months of the year, continued traction with advertisers to drive performance throughout their buyer journey and the ramp-up of Commerce Go, partially offset by lower ad tech services. In Retail Media, we expect to drive media spend growth ahead of the market and contribution ex-TAC growth is now expected to be at the low end of low to mid-single-digit growth range at constant currency. As previously communicated in Q4, we anticipate lower revenue due to scope changes with 2 specific clients, and we lap onetime tiered fees for our largest retailer in December 2024. Excluding these 2 clients, underlying Retail Media contribution ex-TAC growth for 2025 is expected to be in the mid- to high teens range, reflecting a slower ramp-up from certain new clients in Q4. We now project an adjusted EBITDA margin of approximately 34% for 2025. This reflects our confidence in operational leverage from top line growth, AI-driven productivity, continued cost discipline and the ongoing transformation of our operating model as we continue to invest in areas of growth, including agentic AI innovation. These investments will support continued top line growth and strong cash flow generation for the coming years. We expect a normalized tax rate of 22% to 27% under current rules and capital expenditure of approximately $110 million for the year. As a reminder, Criteo operates its own data center infrastructure, which supports our stability, flexibility, performance and cost efficiency. In 2026, we anticipate higher CapEx related to the renewal of certain large data centers. For Q4 2025, we expect contribution ex-TAC between $325 million and $331 million, down 3% to 5% at constant currency. We estimate ForEx changes to have a positive impact of $5 million to $8 million per year year-over-year impact from contribution ex-TAC in Q4. We expect adjusted EBITDA between $113 million and $119 million. This reflects continued high ROI growth investments in our platform and foreign exchange rate headwinds on our European cost base. It also reflects our return to office transition and higher Q4 marketing spend tied to product launches. Importantly, we anticipate that our Q4 trends do not represent our run rate for 2026. While we are not giving formal guidance for 2026, we currently anticipate overall low growth given the temporary retail media impact with a low point expected in Q1 given the onetime revenue from tiered fees in January 2025. Before I close, I'd like to touch briefly on our intention to redomicile to Luxembourg and list our ordinary shares directly on NASDAQ. This change is designed to enhance our capital management flexibility, eliminating restrictions that Criteo currently faces in relation to share repurchases and position us for potential inclusion in major U.S. stock indices. We believe it would expand our access to passive capital, triggering associated benchmarking from actively managed funds and broadening our shareholder base. We expect this process to be completed in the third quarter of 2026, subject to the prior consultation of Criteo's Works Council and shareholder approval. Looking ahead, we intend to pursue a subsequent redomiciliation to the United States, potentially as early as the first quarter of 2027 to further broaden our access to U.S. capital markets. In closing, our results reflect a resilient company with strong execution and consistent cash generation. Innovation and AI are deeply embedded in our DNA and drive how we deliver performance, scale and value for our clients. We are confident in our strategy, our team and our ability to drive growth, profitability and long-term value for our shareholders. And with that, I'll turn it over to the operator to begin the Q&A session. Operator: [Operator Instructions] And your first question comes from the line of Justin Patterson from KeyBanc. Justin Patterson: Great. Michael, I was hoping you could elaborate on just how your clients have responded to your agentic products. I know it's early, but would love to hear more about how you're thinking about that. And then as just a quick follow-up. You also called out CTV as a multiyear growth opportunity. What are some of the investments you need to make so that can become more material over the next few years? Michael Komasinski: Thanks for the question. Yes, we'll take both of those. On agentic, really, I'd say our opportunities are threefold, if I try to categorize them a bit. We have delivered internal agentic products around our current workflows. For example, the audience agents that advance how audiences are built and activated. We're moving towards real-time intelligence audience creation. It's less work, it's faster. And really, the goal is to enable brands and agencies to generate the right audience instantly without delays, and that's in market today. Similarly, campaign agents, right, where we build tools for agencies where they can access our growth engine directly. We can create and manage and optimize full funnel, cross-channel campaigns, just much simpler prompt-based interface really drives the modernization of that product. Second category would be how we integrate sponsored ads into retailers' own agentic chat-like experiences. So think of how we power Retail Media networks today, all retailers are going to need to beef up their agentic capabilities to create easier shopping experiences, and we can power that with a lot of the feeds and technology that we use to serve ads today. And then lastly, the one that we highlighted in the script is the potential partnerships with AI platforms that bring our product recommendation capability into their responses and make them better and more informed because of the breadth of data that we have in our engine combines nicely with the semantic capability that really is the way that the responses are generated in AI platforms. We put a blog post out on this and some social post a few weeks back, and that's the thesis that we're really working on now with one of the large platforms to test that theory and see the results. And then on CTV, I think I'll hand that one over to Todd, and he can elaborate on some of the investments required to scale that channel. Todd Parsons: Great. Thanks a lot, Justin. Just a couple of points on CTV. We have been investing on the supply side, specifically in the United States, but also beginning to fan out globally with direct relationships with CTV providers that are scaled. That gives us a basis for bringing cross-channel, full funnel tactics into play where CTV can help with product discovery at the upper funnel, customer acquisition in the middle funnel and obviously, performance, which we're seeing show up in GO, for instance, with social. We would expect the same thing with CTV. So we're doing 2 things: supply side integrations and on the demand side, working with our tactics to make sure that CTV shows up in each of those 3 categories so that our advertisers get to net new incremental audiences that are on CTV can be acquired. And then on the performance level can be reactivated in a variety of different lower funnel tactics. Measurement underpins all of this. And of course, for us, making sure that advertisers see performance at a constant level across their entire marketing mix is a very key point in bringing these 2 worlds together. Those are the 3 key investments, I would say. Operator: And your next question comes from the line of Ygal Arounian from Citi. Ygal Arounian: First, just a follow-up on the third opportunity like Michael or Todd or whoever, just on the partnership with the AI platforms. And I guess a ton of debate from investors on how agentic Commerce changes e-commerce product discovery and kind of where the transaction is owned. And it sounds like you're kind of integrating to be part of that. Just philosophically, how do you see that playing out? And is there any more you could share? I know you're not going to share the economics specifically, but how that model would work for you guys if more and more of the transaction is moving into that agentic AI platform? Michael Komasinski: Yes, sure. Ygal, great question. Certainly, the debate in the weekly press week-to-week. Look, we see the monetization strategies for those platforms probably skewing towards a native advertising solution. There definitely has been some headlines here recently with the commerce capability for single product checkout, which we think is interesting. But I think ultimately, those platforms probably move towards a native advertising solution, think of it as the modernization of paid search. And really, our solution works either way. It's sort of not dependent on that. What we're trying to do is bring an API data feed that allows product-oriented responses to simply be better. And so as AI platforms are competing for market share based on user experience and quality of response, data feeds like ours that are proprietary, deep, complete, really start to differentiate the types of outputs that those platforms are able to generate. And so we see them being interested in it sort of no matter what their monetization strategy is. And I'll hand it over to Todd, maybe just to kind of talk about some of the hypothetical economic models that might support that. Todd Parsons: Yes. I would say this, we see the affiliate model as being sort of an underpinning to the trading that will occur regardless of the native ad format and how it might present itself, Ygal. I think what's not happening in the dialogue today is enough attention is being given to how a merchant is going to participate and show up in that clearing. So when you don't know what the format is or how it's going to be traded, it's easy to neglect how a merchant might play. So we're spending a lot of time with data feeds, as Michael pointed out, working with our retailers, with our marketplace partners to help them get ready to show up in answers in a way that native formats might be agnostic to. So there's a very big investment on our end to make sure that retailers are ready to play regardless of format. And we think that some affiliate type setup will be the clearing capability for economics, but we're not sure of that either. What we're really focused on now is making sure that retailers are going to show up in Answers the right way. And that's the work that we're doing on the platform side or exploring with different platform partners. So we have a real advantage in that regard. Ygal Arounian: Great. That's fascinating shift in how e-commerce is going to play out. And then on the Google partnership, that seems like a pretty big deal to me, getting integrated into Google Search. You talked about brand dollars kind of being part of that and opening up incremental budgets. Just expand on that relationship a little bit more about I wanted to [indiscernible] just like how that rolls in terms of contribution and all that into next year. Michael Komasinski: Sure. Yes, happy to expand on that. Yes. Look, the Google partnership is exciting. We announced that back in August. And it really is another example of Criteo unlocking more demand for the Retail Media category. And obviously, it allows retailers to capture brand search budgets that have traditionally been outside of Retail Media, and it's going to give advertisers true cross-channel visibility into search performance. And so the incrementality comes from net new brands and new search budgets from existing mutual brands. And back to the sizing we talked about, obviously, it's a huge addressable spend at $172 billion. A portion of that will move in. And importantly, the API connection with Google is up and running now. So we will start to see campaign volume flow into the business across Q4, and then we'll open that up to the other regions in the first half of next year. So it's a strong multiyear growth lever, really probably starting more in 2026. And if you just sort of go off a few other things, from a take rate perspective, it's directionally neutral, the same demand side fee, whether a brand goes through SA360 or through CMax. In terms of measurement, retailers can choose whether they want to share click data with Google to enable that cross-channel measurement. And so Google has an incentive to prove incrementality. And importantly, we only share click data tied to Google campaigns, not all click data or broader user behavior on retail sites. So I think a real great win-win here for retailers, for Google to get access to the fastest-growing part of the ecosystem and for Criteo to continue to benefit from unlocking demand for our retailers, which is core to our mission. Operator: And your next question comes from the line of Mark Kelley from Stifel. Mark Kelley: I'll stick with the agentic theme. I wanted to get your thoughts on -- I think there's a debate across the investor base, not for just Criteo, but just the Retail Media category overall, where as people start to transact more inside agents, maybe that would be a headwind to Retail Media as we know it today, people not going to that e-commerce site. So fewer eyeballs to see Retail Media ads. But conversely, I think as people transact more inside these agents, it seems like you'll be able to tap more and more into the search budget. I know we just talked about the Google partnership. But I guess, how do we balance those 2 dynamics in terms of what you gain that you didn't have access to before versus what might be a headwind for retail media, if that makes sense? Michael Komasinski: It does. It does, Mark. And look, again, like a hotly debated topic, I think, week-to-week. I mean, at Criteo, we see agentic as an additional channel. We just don't subscribe to the notion that agentic platforms will essentially swallow or cannibalize the entirety of the commerce ecosystem. So this pattern that you see today of people doing discovery, getting shopping assistance agentically and then jumping into commerce sites to complete transactions, we see that pattern continuing. Now agentic may become a bigger channel in that mix at some point, but we just don't see it consuming it in entirety. I mean that would be a bear case for like all of retail and all marketplaces. So it's just not the future that we believe in. If you did see some of that channel shift, which I don't think has to be zero sum, by the way, retail could compensate by raising CPMs because you could argue that those placements are going to be even more valuable than they would be today. I think what also gets lost is that retailers won't stand still. They'll continue to add additional formats, improve their shopping and site experience, and they're competing for really the right to conduct business on their own channel versus an agentic channel. So I mean those are some of our thoughts. I guess we'll see how it plays out. But I think Criteo has got to play in that either way, right? We'll either play directly into that channel in some of the ways that we talked about earlier on the call or through some of our current means powering retailers as they serve up world-class experiences that give them the right to continue to command traffic and serve customers. Mark Kelley: That all makes sense. And then maybe a second question, just on Retail Media. Nice to see Activated Media accelerate in Q3. Possible to parse out, I guess, some of the new wins that you've announced, whether it's DoorDash or other ones, how that's layered in already? Or is that mostly kind of like a same-store sales number with your existing retailer footprint? Michael Komasinski: Yes. I mean I'll let Sarah comment a little bit about it because we were super excited about the 26% Activated Media Spend growth. And so you have the 2 factors that we've talked about in the past, scope reductions and then lapping the tiered fees. And then really the new things. We had a couple of new wins that just did not scale as quickly as we had hoped for in this quarter. And so that created a little bit of softness. But we think that we'll make that up as those programs get up and running for next year, Sarah? Sarah Glickman: Yes, most of Q3's activity related to our existing base. And within that, we had some more mature, I would say, customers, right, scaled base. But ultimately, some -- there's a little bit of softness in some of the beauty area. But the new wins that we have are starting to ramp up now. So we only announced, as you know, DoorDash a couple of -- really a couple of weeks ago. So that's starting to ramp up now. Operator: And your next question comes from the line of [ Tim Nolan from SSR ]. Unknown Analyst: Two numbersy questions, I guess. If you could help us understand a bit better as to how you beat so substantially on the earnings line in Q3. It looks like your CXT number was roughly in line with guidance, but you beat pretty substantially on the adjusted EBITDA line. And then as you move your domicile to Luxembourg and into the U.S., are there any financial implications we should be aware of the cost to do this, the tax implications, reporting, anything like that? Sarah Glickman: Yes. I mean just in terms of the beat for EBITDA, I mean some of that relates to the top line beat on CXT. We also benefited and continue to benefit from the operational leverage of just continuing to make smart investments. And there are a couple of, I would say, more onetime items. So our bad debt reserve are reduced. Our receivables are in really good shape, which also translates to great cash flow in Q3. And we have some shift of marketing spend from Q3 into Q4. So I would say a pretty solid list of kind of why we be, but most of it relates to, I would say, strong operational leverage. [indiscernible] redom? Sorry, I thought you said Q3. So yes, in terms of the redom, we don't see any material costs related to that, and we will isolate those within our filings so you can see what those costs are. Operator: And your next question comes from the line of Doug Anmuth from JPMorgan. Douglas Anmuth: I appreciate you highlighting the 3 major areas of the agentic opportunity. Are there any particular investments that we should be thinking about as you're heading into '26 required to build out those AI products? And then, Sarah, just on the few guidance, I know you shift with the 2 Retail Media clients. Is there anything to call out on the slower ramp in certain new clients that you mentioned? And then as we think of '26, any change to the headwind that you had called out earlier in the year kind of over the first 10 months of the year? Michael Komasinski: Thanks, Doug. Yes, I can take the AI investment one and then Sarah can follow up on the second half. I wouldn't say that there's any investments that are sort of out of the norm to continue to scale the 3 different categories that we've talked about or at least that we can see right now. Yes, I mean you can see a little bit of it in the quarter. There's some extra marketing costs that's going into launching Commerce Go, but that's probably just like kind of more of an increase on a run rate as we scale that self-service tool in the market. The things like the campaign agent and the audience agent have been developed very much inside the teams as they are today. And then we'll see how the pilot test goes with the agentic platform. I suppose that's a bit of a wildcard. We'll have to see how the test goes and then what would be required to scale that if that's a partnership that's going to take off. But obviously, it would be self-funded with some kind of a revenue model attached to it. Sarah? Sarah Glickman: Yes. I mean -- and I think just on the Retail Media, we have a strong base of clients, 235, 4,100 brands. We're continuing to see a very strong baseline of our revenue. And there's just a slower ramp-up of some of those new clients in the latter part of '25, which is not unusual. We've seen that in past years. Douglas Anmuth: And same -- Sarah, just to clarify the same kind of cadence that you had talked about through '26 in terms of headwind. Just want to make sure that we're on the same page there. Sarah Glickman: Yes. Yes, we still anticipate the $75 million. And I pointed out in the prepared comments that Q1 will be the low watermark. So then we had the tiered fees for December '25 and January '26 for our largest retailer. So our expectation is that will kind of -- it will be the same impact of about $75 million that we already discussed. Operator: And your next question comes from the line of Matthew Cost from Morgan Stanley. Matthew Cost: Commerce Go is coming up a lot. It seems like the launch is pretty exciting, talking about kind of doubling the number of campaigns from 10% by the end of the year for small customers. I guess how should we think about the contribution to growth for this product, especially as we look into '26 and beyond? Is this something that is sort of offsetting change in behavior for customers in other parts of the product portfolio? Or is it like really incremental in the way that we think it could kind of shift the growth trajectory for Performance Media? And then I have one follow-up. Michael Komasinski: Yes. Thanks, Matthew. It's a great question. It's a product we're really excited about. You can think about it in a couple of ways. One, there is a conversion of existing clients to the GO tool or to the GO campaign workflow. And in that case, what we're seeing is higher spend, lower churn, better results. And so those flow through in a couple of different ways for us that are great for the business. And then there is an incremental client gain angle as well as we roll out full self-registration, self-service early next year, we're looking to drive client count with that and bring on real net new customers. The other thing that's exciting about GO in that context is how it really makes our cross-channel proposition come to life. I think we mentioned in the remarks, right, we've got 35% of the campaign revenue flowing through social channel. It really is like an expression of that cross-channel, full funnel self-service proposition with a lower cost to serve model. And again, the results we're seeing from clients so far are they spend more, they churn less and they get better performance. So it's really a win-win all around. Do you have anything to add? Todd Parsons: Nothing to add to that at all. We're thrilled about it. We're excited. And it is already showing up in several ways as being significant with a lot of headroom. Michael Komasinski: And I guess, Doug, just to -- or Matt, just to put a punctuation on that, we do see this being a contributor to '26 growth. We'll do guidance on '26, obviously, at year-end results in February. But we do see this being a meaningful contributor to our top line next year. Matthew Cost: Great. And then just on the proof of concept with the major AI assistant that you talked about in the prepared remarks. Presumably, proof of concept is sort of an internal test that's not consumer-facing. If it's deemed to be successful by both yourselves and your partner, what are the next steps that come after that? Todd Parsons: The next steps will be entirely determined on the quality of the test. Like you said, it's a fairly limited test at this point to determine how the data that we have, the feeds that we have that Michael talked about earlier are contributing to better answers and product recommendations. So it's relatively contained. What we will see once we have that baseline is how we take that to scale to improve the way questions are answered across the larger base of that particular partner. And we don't know that yet. So we're very much in the evidence-producing phase of the trialing, and we'll have more on it, obviously. We're going to go step by step like we do with everything, produce a good result and build. Operator: And your next question comes from the line of Mark Zgutowicz from Benchmark. Mark Zgutowicz: Sarah, your net dollar retention was 107% for Retail Media in the quarter. And I'm just curious what was the incremental from offsite versus display? And then just hoping you could provide a little more clarity on your comment about the Retail Media trends being softer but improving in the U.S. and sort of what that means in terms of how we should be thinking about variables over the next 12 months in terms of gross spend versus take rate? Anything outside of the large client transition that we should be thinking about there? Sarah Glickman: Yes, absolutely. I mean in terms of most of the revenue came from sponsored, and we have seen that, I would say, consistently that sponsored and then our auction-based display ramp-up are where we see most of the uptick. And that's obviously off a scaled base. So there clearly are very fast growth within that, but there's also some more stable growth. Off-site, we now have 42 retailers, and I would say it's just over 10% of our revenue. In terms of what we're seeing for next year -- or sorry, rather of our Media Spend, in terms of what we're seeing next year, we are seeing the continued trend with auction display kind of continue to ramp up really sponsored being, I would say, the kind of lifeblood, if you will, of Retail Media, that's where we're seeing most of the expectation of our growth. And with adding more and more capabilities to that offering, that's where we'll see most of the growth. Off-site will continue to ramp up, but I would say that is absolutely secondary to the incredible traction of our sponsored advertising and on-site offerings. And what we're seeing for next year is that we continue to see our media spend growth across our client base, and we continue to add new clients to that. So we're continuing to see that we're in the right place with our retailers, and there's some new opportunities as we discussed with some of the agentic AI that we're partnering with our retailers on as well. So many factors for growth and obviously, the near-term impact in '26 have very much been offset by good traction across Retail Media. Operator: And your next question comes from the line of Richard Kramer from Arete. Richard Kramer: A couple of things maybe you haven't touched on so much yet. One is, Michael, can you speak a little bit to Custom Audiences share and the extent to which you're getting greater social media inventory from outside of Meta properties? It would seem pretty important for the potential resumption of growth or continued resumption of growth in Performance Media. And then maybe, Sarah, you mentioned all these new initiatives, specifically self-serve, and Michael made a few comments about the API relationship with Google, but mindful of the bid switch margin experiences. Can you talk about the relative economics of self-serve versus direct sales and the trade-offs that investors might expect to see in Activated Media growth, but also take rates? Michael Komasinski: Thanks, Richard. Yes, I'm going to have Todd take the Custom Audiences one as he is the architect of that in full. Todd Parsons: Yes, I can -- Richard, I would say this, the way we think about social right now is ensuring constant performance across Meta and open auction and going to CTV, as we talked about earlier in the Q&A. So in terms of other social, we look at global scale partnerships. I think we've talked about the fact that we're testing in TikTok as one of those. And there are a couple of other explorations that we've done. But really, we have plenty of headroom with Meta currently to optimize our setups for constant performance between social and the open auction. So that's why you're seeing the numbers show up the way that they are. So as much as we're excited about expanding the social footprint, we're doing it pretty thoughtfully with a global scale partnership set in mind and then making sure that we don't get lost in single channel setups that other competitors are emphasizing. We're all about holistic performance across social and open and Retail Media as it comes online, and we're very focused there. Sarah Glickman: Yes. And in terms of the margin, we certainly do see with self-serve, and I think it was answered well in terms of the traction we're seeing on scaling the media spend. So that's obviously beneficial. It just gives us top line leverage and it's optimized automated flows. We're using the same -- I would say, the same capability internally as well. So even if it is more a managed campaign, especially for our enterprise clients, we are starting and continuing to use more capability to optimize all of those campaign setup. So that's all good for margin. In terms of -- you referenced BidSwitch, I mean that is margin generating. So just to be clear on that. And while it's not as high margin as other parts of commerce growth, it does continue to contribute to our margin overall. But yes, we're seeing really strong traction of self-service. We continue to see optimization and what we need is that unlock of media spend, and we have many avenues that we're highly focused on to make sure we can scale that. Melanie Dambre: Thank you, Michael, Sarah and Todd. That concludes our call for today. Thanks again to everyone for joining. If you have any follow-ups, the Investor Relations team is available to assist. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Philip Ludwig: Welcome, everyone, joining us today for the Melexis Third Quarter 2025 Earnings Call. I am Philip Ludwig, Investor Relations Director, and I'm joined by today's speakers, CEO, Marc Biron; and CFO, Karen Van Griensven. We will start with brief remarks on the business and financials before taking your questions, starting with Marc Biron. Marc, the floor is yours. Marc Biron: Thank you, Philip. Hello, everyone, and welcome to this earnings call. In the third quarter of 2025, we delivered sales of EUR 215.3 million, landing just above the top end of our guidance. This confirms another quarter of sequential growth and demonstrate that the recovery, while very gradual, continues. The quarter-to-quarter sales growth was driven mainly by Europe, while Asia Pacific and the Americas were broadly stable. Asia Pacific continues to be our largest region with around 60% of the total sales. Within our product portfolio, the sales of our motor driver were strong during Q3, especially in automotive HVAC application as well as in thermal management for EV powertrains. Our pressure sensors also performed well, particularly for internal combustion engine such as fuel management and after-treatment system to reduce emissions. We launched an additional 3 new products during Q3 for a total of 9 products since the beginning of the year. This included a new magnetic sensor for small motor applications such as automotive seats and windows. We have also launched an upgraded sensor, measuring current voltage and temperature and enabling a more precise measurement in safety critical applications like automotive batteries and DC fast charging. The third launch was a motor driver for smart fans used for server cooling, which is a very demanded application linked to the AI trend. With a busy Q4 ahead, we remain well on track to approach the record number of product launches achieved in 2024. We have recorded new design wins in the third quarter, including the 2 largest design wins so far for this year. One of them was for a motor driver, especially designed for the 48-volt architecture of EV vehicle. This is a unique product, and we expect strong growth for 48-volt architecture, which has many advantages in terms of cost, in terms of electrical power density, not only in EVs, but also in robotics. Overall, we are booking clear progress on our strategy. The number of product launch is on track and will be similar to the record of 2024 with 19 or 20 product launches. We continue to expand our product portfolio with the ambition to address new customer needs in fast-growing applications driven by the electrification, the premiumization and the automotive trends. The opportunities outside of automotive are still very strong. For example, in robotics, we have provided our first tactile sensing solution to our customer. Last but not least, we continue to have strong traction in Asia, both in automotive and outside automotive. We will go in more detail on our strategic progress at our Capital Market Day on November 5. I will now hand it over to our CFO, Karen Van Griensven, to provide a detailed financial overview and outlook. Karen Van Griensven: Thank you, Marc, and hello, everybody. So the sales for the third quarter of 2025 were EUR 215.3 million, a decrease of 13% compared to the same quarter of the previous year and an increase of 2% compared to the previous quarter. The euro-U.S. dollar exchange rate evolution had a negative effect of 2% on sales compared to the same quarter of last year and a negative impact of 1% on sales compared to the previous quarter. The gross result was EUR 83.4 million or 38.8% of sales, a decrease of 23% compared to the same quarter of last year and an increase of 1% compared to the previous quarter. R&D expenses were 12.8% of sales. G&A was at 6.1% of sales and selling was at 2.3% of sales. The operating result was EUR 37.8 million or 17.6% of sales, a decrease of 41% compared to the same quarter of last year and an increase of 6% compared to the previous quarter. The net result was EUR 27.5 million or EUR 0.68 per share, a decrease of 46% compared to EUR 51.2 million or EUR 1.27 per share in the third quarter of 2024 and a decrease of 27% compared to the previous quarter. Moving to the outlook. Melexis expects sales in the fourth quarter of 2025 to be in the range of EUR 215 million to EUR 220 million. And for the full year 2025, Melexis expects sales to be in the range of EUR 840 million to EUR 845 million, with a gross profit margin around 39% and an operating margin around 16%, all taking into account a euro-U.S. dollar exchange rate of EUR 1.17 for the remainder of the year. And for the full year 2025, Melexis now expects CapEx to be around EUR 35 million, previously around EUR 40 million. So this concludes our remarks. We can now take your questions. So operator, please go ahead. Philip Ludwig: Thank you, Marc and Karen. Philip again. To reiterate, please ask one question with one follow-up at a time and if you have more questions, you can rejoin the queue. Operator, can you please give the instructions? Operator: [Operator Instructions] The first question comes from Francois-Xavier Bouvignies from UBS. Francois-Xavier Bouvignies: My first question maybe is on your top line. If I understand correctly, if you look at peers, visibility is still fairly low. So can you provide a bit more like color on what you see as much as you can into the start of '26? I mean, do you see in line with seasonality a good proxy at this stage? Or do you think the recovery can continue and you can have above seasonal trend into early '26? Marc Biron: Yes. Thank you for the question. As we have already mentioned in the previous quarter, and as you mentioned it, indeed, the visibility is quite limited. We have received a lot of short-term orders, even order within the quarter. And for all these reasons, indeed, the visibility is not -- it's less than in the past, I would say. Yes, we are also now in the middle of the annual price negotiation with our customers. And in those annual price negotiations, there is also the forecast discussion. And I think it's really too early. For all these reasons, it's too early to give a helpful view on '26 and even early '26. Francois-Xavier Bouvignies: Got it. And maybe on the gross margin side, I mean, I can see your inventories are -- on your balance sheet are all-time high. So I was wondering, how should we think about the gross margin directionally, I mean, from here? Because it seems that you keep your loading quite high. So you still produce a lot of inventories. So should we expect the gross margin to flatten from here as it recovers? So you have to sell inventories first and the loading not increasing much. I mean it seems that your inventories is quite high. So I was wondering how you want to manage it and what's the impact on the gross margin? Karen Van Griensven: Yes, the gross margin, as we mentioned before, it has quite some effects. That are, I mean, amongst others, the euro-U.S. dollar, which is specific for '25 and which will probably -- I mean, if the dollar is stable, will have limited impact next year. So that could have a positive effect moving forward. The same is true for cost of yield. Cost of yield today also in Q3 was still quite high. But we expect as from Q4 that we will see gradual improvement of the cost of yield also of the gross margin. So expectations are that over the next quarters, we will see a gradual improvement of the gross margin despite that inventories are so high. Does that answer your question? Francois-Xavier Bouvignies: Sorry, Karen. The cost of yield, what do you mean by that? I mean you mean the loading or why your yield would be below -- why yield would be below usual right now? Karen Van Griensven: It's higher than usual now, and it will go back to the more usual amount. So the yield is the way -- it has to do with... Francois-Xavier Bouvignies: I understand that, but why is it more. Karen Van Griensven: Why is it? Francois-Xavier Bouvignies: More than usual. Why... Karen Van Griensven: It has to do with the ramp-up -- that's already for more than a year. So it has to do with ramp-up issues that we had in one of the fabs and because it's a new process, new technology, and it often comes with, yes, ramp-up issues. But these ramp-up issues have been solved. That's why we will now expect better gross margins due to that effect. Francois-Xavier Bouvignies: And how much is it drag? Karen Van Griensven: How much -- yes, it has an impact, a negative impact of at least 2% today. Operator: The next question comes from Ruben Devos from Kepler Cheuvreux. Ruben Devos: I had a question regarding the design win for the motor driver on the 48-volt EV architecture. I was curious what's the step-up in Melexis content versus the 12-volt baseline? And when do you expect sort of sales to be visible here? Marc Biron: The 48-volt architecture is a kind of modern, let's say, new architecture that has been developed by some OEM. Yes, OEM specialized on the EV car. The advantage of this 48-volt architecture is that you can provide power without consuming too much current. And all the goal is to reduce the current consumption of the battery to keep the range high, but having more power in order to move some equipment that need power, then this 48-volt architecture is more and more used by the OEM. As a consequence for the IC manufacturer is that you need to develop specific IC that can, let's say, withstand this 48-volt. Yes, and Melexis, we have started to develop this product some years ago a bit in advance because we are close to the customer. Then it's -- as I mentioned, it's a unique product on the market. And then, yes, we have received our first design win in Q3 for such application directly from an OEM. And to answer your question, yes, what will be the outlook? Yes, it really depends on the speed of the adoption of those 48-volt architecture. But now we have in the making more and more products that are compatible with this architecture. Ruben Devos: Okay. And second question regards the China EV market specifically. So I think you've had a series of quarters where performance was better than in the other regions. I think now also in Q3, it was down, but still better than, for instance, North America. But just wondering around the latest ordering behavior, let's say, the sort of -- is there any change in tone from China, specifically the divergence between Chinese OEMs and what the Western platforms are doing? Marc Biron: Yes. Q3 was a bit lower, but we see already that in Q4, the order from China are back to, let's say, previous level. Then there was indeed a small dip in Q3. Is it linked to inventory correction? I don't know. I'm just assuming -- I don't know exactly what is the root cause. But yes, in Q4, it is back to the regular trend, let's say. Ruben Devos: Okay. And any visibility on early '26 or it's too soon to say anything about that? Marc Biron: Yes, it will be too soon indeed. As I answered before, it's too soon. In general, I would say the funnel of opportunity and the design win are still very strong in China. If we take the top 10 of our design wins in Q3, yes, 6 out of the 10 are coming from China. It's just to show that China is still very strong. Operator: The next question comes from Marc Hesselink from ING. Marc Hesselink: My first question is actually on the testing you're currently doing with the Chinese foundry. I think you intend to start the production there at the beginning of next year. So I just want to know any update that you can see, also maybe related to that yield that if you have some early indications how that's going? Marc Biron: Yes. Small correction, we intend to start the production during summer next year. You mentioned early next year. I would like that it's early next year, but yes, you are a bit too optimistic. It will be summer. Yes, it's for a current sensor that we have developed specifically for this market. We have now the first wafers and the development has been done. The design has been done. We have received the first wafers 2 weeks ago from the fab. Yes, we are now in the process to evaluate the product. It's too early to give any indication. But yes, the chip exists and the chip is working. We are now busy to evaluate the performance. Marc Hesselink: Okay. My second question is on cost, both OpEx and CapEx. Pretty good cost control over the quarter, both lower than expected, also lowering the CapEx guidance for the full year. Can you maybe explain a bit what's behind it? Is -- this is a reaction on maybe a bit longer gross margin pressure? Or is it simply you don't need to do those investments at this stage? Just why it's moving? What did you exactly do to have this good cost control? And what do you expect going forward? Karen Van Griensven: The cost control, given the uncertainties today, we are just putting control on our costs to make sure they don't increase in the current environment. Also over the next quarters, we want to continue that behavior. On the CapEx, yes, it has to do with the product mix. There are many elements that are at play. The product mix has an impact on the CapEx we need. But in general, yes, we see that the pickup is rather slow. It's pretty -- we have an increase quarter-on-quarter, but it is very slow today. So that, for sure, also has an impact on the current CapEx visibility. Marc Biron: And perhaps to complement, Karen, we could say that indeed, we pay attention to the CapEx. But for all the innovation aspect, all the development aspect, we don't reduce at all the CapEx. We are still up to speed on the development. Operator: The next question comes from Janardan Menon from Jefferies. Janardan Menon: I just want to ask a question on the non-automotive side. You seem to be doing quite a lot in terms of drivers for fan coolers, robotics, et cetera, on that side. The proportion between automotive and non-automotive has been roughly flattish at about 88-12 for some time now. When you look at 2026, do you see a possibility where your non-automotive will start growing faster than your automotive? Is that something you can say at this point based on your design wins, et cetera? And in that context, the tactile sensor for the robot, the design win you've got, what kind of -- are you shipping something there? And when can we expect some volume there? Marc Biron: Yes. On the first question on the overall revenue, let's say, from non-automotive for '26, I think we need to be patient. In the funnel of opportunity, in the design win, we really see that the non-automotive is more dynamic. I mean the increase is deeper or steeper in the non-automotive than in automotive. And we really see in the funnel much more dynamic for the non-automotive. Now we need time to convert this in real sales. It means I don't anticipate, I would say, in 2026 that it will become very, very visible even if -- yes, we are working on it. I'll give the example of the funnel of opportunity. I can give also the example of the product launch. We will launch probably 19 products in 2025 (sic) [ 2026 ]. And out of the 19, 9 will be for non-automotive. And we are really -- the machine is running full speed for the non-automotive product. We should be a bit patient for the conversions effects. Coming on your second question about -- sorry, coming on your second question about the Tactaxis. We will explain more in detail during the Capital Market Day next week. But for the Tactaxis, we have decided to not provide only a chip, but we are -- we want really to provide what we call the solution, which is more of a module. We will give more detail during the Capital Market Day. And we have indeed shipped the first module to our customers and now the customers are evaluating not only the chip, but really the module. But it's a big step for us. Janardan Menon: Understood. And just a clarification, if I may. The 2% of gross margin improvement from yield improvement, over what period do you recognize the full 2% or 200 basis points? Karen Van Griensven: It will take a few quarters, but we will probably see already an effect in Q4. It's because we need to go through our inventory before we see the full results. That's why it is gradual. Marc Biron: But we see it already in our test. I mean in our test results, we see that the problem has been solved, let's say. Operator: The next question comes from Craig Mcdowell from JPMorgan. Craig Mcdowell: First one on your auto business. We heard from a large peer that their conversations with OEMs and Tier 1 suppliers suggest that content growth and mix will be far less positive in '26 than in prior years. I understand you're going through sort of planning and budgeting and pricing negotiations, but it would be grateful to hear your perspective on content growth into '26 and what's showing up in your order books. Marc Biron: Again, I think it's too early to give comments on '26. We will give outlook for '26 in early '26. We see that -- yes, there is a bit of 2 different dynamics in Europe and in China. The European customer -- I would say, 1 year ago, the European customers were very cautious, okay? We see also that the Tier 1 and the OEM are reducing the headcount. And we see the consequence that they postpone new platform, they delay the innovation. I think since some months, this trend has been reduced, and we see a new dynamic, let's say, in the -- with our European customer. We speak about new platform, about innovation again, but it's quite moderate. If you compare with China, where in China, there is a lot of traction, let's say, for modern car, modern platform, a lot of premiumization feature in the car. There is a bit of 2 dynamics, I would say. It's why in our decision, in our budget, we want also to make sure we concentrate enough on the China market. Yes, in terms of content, because your question was about the content. Yes, I think long term, I think it's clear that the semiconductor content is increasing in the car. It's also clear that this rate of increase depends on the type of application. I do believe that it will increase more in China than in Europe for the reason I mentioned before. Operator: The next question comes from Robert Sanders from Deutsche Bank. Robert Sanders: Two questions, if I may. Firstly, in terms of the OEMs, they started recommencing R&D on ICE platforms. Is that a good thing for you given the innovation is coming back to sort of your legacy sockets? Or is that a kind of potential risk given that you might lose those sockets? Just interested what that means for your margins and content in ICE powertrains. And the second question would just be in China. Clearly, you've got quite capable competitors like NOVOSENSE in China. Given that the China EV market is kind of suffering from very severe excess inventory at the moment, is that a problem for your pricing discussions next year? I would expect that pricing pressure would intensify. Have you seen that so far in your discussions for next year? Marc Biron: Yes. The first question about the combustion engine. At the end, for Melexis, we have the same number of content in a combustion engine and in an [ electric ] engine. If the end customer selects an EV or a combustion engine car in terms of chip content, it's the same for Melexis. What is important for Melexis is that this -- if we come back on the combustion engine, the combustion engine is put on a modern platform because in those modern platform, there are much more comfort feature, safety feature, what we call premiumization, meaning that ICE or EV is the same for us. What is important if the OEM, let's say, reuse their ICE engine, it's important they put this on the new platform, which is the case because now when you buy a new car, you like to have, let's say, enough premiumization feature. And what we see what the OEMs are doing in Europe, indeed, they refresh their ICE engine, but they put it in a modern platform. Robert Sanders: And on the pricing erosion question? Marc Biron: Yes, sorry. Yes, on the pricing erosion, for sure, we like to go to China because there is a lot of content in the car, but there is also a lot of competition in China. You mentioned NOVOSENSE. Yes, it's a very serious competitor. And yes, 2, 3 years ago, the discussion with the customer were about number of chips, how many chips can you supply? It was the discussion 3 years ago, okay? Now the price or the cost is also part of the discussion. And yes, we have cost discussion with the customer. It's also why we are working on the diversification of our supply chain. It's also why we are working on our internal cost because indeed, we need to improve our cost base in order to be able to have market price with good margin in China. Robert Sanders: But would you say last year, BYD was asking for 10% price cuts from their suppliers. Would you say that's about par for next year? Or do you think it's worse because of the margin pressure they're facing? Marc Biron: I would say the price expectation from our customer last year -- I mean, the price reduction expectation of last year are similar to this year. But of course, they expect a lot and then all the negotiation starts, and we are able to reduce those expectations. It's why a bit as last year, I think, yes, we expect a price reduction, low middle single digit as last year, I would say. It's also important because you mentioned BYD, which is a very big customer. And of course, with this kind of customer, we have price reduction. But it's important to realize that we have a long, long, long tail of small customers. And with those small customers, we don't really discuss price. We have -- yes, I cannot give like that, let's say, the volume or the revenue taken by the top 20 customers. But yes, we have a very long tail of smaller customers when we don't discuss price. I mean that those price discussions at corporate level have a lower impact, let's say. Operator: [Operator Instructions] The next question comes from Michael Roeg from Degroof Petercam. Michael Roeg: I have 2 follow-up questions on inventories. One of the first analysts indeed mentioned that inventories were at record levels. And this is despite the fact that the scrap was above average, low yields, low gross margins. Now if your gross margin recovers because your yields improve, is there a risk that your inventories will grow even more than they already did in the last year? That's the first question. And the second question is, is your entire inventory immediately commercially available? Or is part of it stored in die banks? That's it. And then a follow-up afterwards. Karen Van Griensven: Our inventory is indeed at historical high levels. But we do not expect from here that it will further increase and the yield has limited impact on this, rather the contrary because it will mean that it goes hand-in-hand with better lead times as well, meaning that you need -- the need for inventory reduces. The second question was about die banks, I think. Marc Biron: Yes. I think indeed, the inventory is spread all over the supply chain, then we have part of the inventory is ready to ship because it need to go to be able to react quickly, but we have -- we keep as small as possible, let's say, the inventory ready to ship. And the rest of the inventory is across the supply chain at wafer level before the assembly, after the assembly. So the big part of the inventory is unfinished. Michael Roeg: Okay. But then coming back to those inventories, if you have better yields, then more finished product will end up in your inventories. I also heard that cycle times will be shortening. That means even faster ending up to the inventory. So that means that you must be selling out faster than today to get your inventories down. Marc Biron: No, because we will order new wafers according to the new yield. And indeed, if the yield is 2% higher, as Karen mentioned, we will order 2% wafers in such a way that we can keep inventory under control. Michael Roeg: Okay. Clear. That's clear. Then another quick follow-up question about China. You mentioned you have a very long tail of smaller customers in presumably automotive in China. There have been a lot of news articles about excess capacity among Chinese car manufacturers and the risks associated with that and that the government wants normal price behaviors and stuff like that. What is your -- how you say, counterparty risk with respect to these smaller customers? Do you have a debtor insurance so that -- suppose that one or more would go bankrupt that you still get paid? Yes. What's the situation on that? Karen Van Griensven: Yes, we -- in most cases, we have a distributor in between. So we deal with the distributor. We do not have an insurance, a debt insurance, but we monitor this very, very closely. And in cases where we are not confident in the repayment capacity, we ask for a prepayment as well. So -- and this happens quite a lot in China. That's how we monitor the situation there. Michael Roeg: So would you say that the risk of a smaller end customer lies with your distribution partner? Or has it happened that they try to pass part of it on to you as well in a situation like that? Karen Van Griensven: The risk is with the distributor. But, of course, we need -- I mean, the risk for us is on the financial stability of our distributor, of course. That's why we monitor that very closely. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing remarks. Marc Biron: Thank you, operator. In summary, after 9 months in 2026, Melexis continue to see sales trends improving. We continue adding innovative new products to our portfolio, and we concentrate resources to our faster-growing market. I would like also to highlight the Capital Markets Day that we will hold on November 5, next week. Thank you for joining our call, and goodbye. Operator: Thank you for joining today's call. You may now disconnect.
Operator: Good day, and welcome to the Orion Group Holdings Third Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Margaret Boyce of Investor Relations. Please go ahead. Margaret Boyce: Thank you, operator, and thank you all for joining us today to discuss Orion Group Holdings Third Quarter 2025 Financial Results. We issued our earnings release after market last night. It's available in the Investor Relations section of our website at oriongroupholdingsinc.com. I'm here today with Travis Boone, Chief Executive Officer of Orion; and Alison Vazquez, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we'll open up the call for your questions. Before we begin, I'd like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts are forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-Q and 10-K. With that, I'll turn it over to Travis. Travis, please go ahead. Travis Boone: Thank you, Margaret, and thank you all for joining us today. I'll cover our financial highlights and market update, and then I'll turn it over to Alison to discuss our detailed financials. Before I start, I'd like to highlight that Orion was recently recognized by E&R Magazine as #2 in the top contractors in transportation in the marine and port facilities category and #15 in the top 20 concrete contractors in the U.S. This recognition reflects the strength of our team, the quality of our work and the growing reputation we built in both the marine and concrete markets. Now onto the quarter. I'm excited to announce that we delivered another strong third quarter marked by top and bottom line results, robust cash generation, good bookings and market-leading safety metrics. We have also continued to advance strategic priorities, including expanding our bonding capacity by another $400 million, continuing to strengthen our Board with the appointment of Robert Ledford, being shortlisted on strategic INDOPACOM MAX and closing the sale of the East West Jones property in October. With a strong balance sheet, disciplined capital deployment strategy and focus on long-term strategic execution, our team is laying the foundation for Orion's next phase of growth. As we enter the fourth quarter, Orion is well positioned to take advantage of multiple growing tailwinds that span robust AI investment, increasing domestic focus on reshoring manufacturing, commercial and public investment in marine infrastructure and defense expansion across the Pacific. Our talented team is poised to build on our momentum and capture the exciting opportunities on our doorstep. Following another strong quarter of performance and with a favorable outlook, we are pleased to raise our FY 2025 annual guidance for revenue, adjusted EBITDA and adjusted EPS that Alison will cover in detail in her remarks. Moving on to our opportunity pipeline, bookings and outlook. Our aggregate pipeline is a healthy $18 billion with over $1 billion of opportunities that we have submitted and are awaiting award. During the third quarter, we booked over $160 million in new contracts and change orders that were balanced across our Marine and Concrete segments with each of our operating regions contributing wins. Starting with our Marine segment. Recent awards included installation of a crane trestle for a major transportation project and maintenance dredging for the Army Corps. Across our marine markets, activity remains strong with multiple opportunities advancing across all regions. In the Pacific, we are pleased that NAVFAC recently selected teams on which Orion is a key marine construction contractor on strategic multiple award or MAC contracts. As most of you know, these selections shortlist a group of prequalified contractors who can compete on future task orders, limiting the competitive landscape. Having been shortlisted based on our team's proven technical expertise, performance and safety record, we are now eligible to pursue work in the Pacific that leverages our core marine capabilities. Most recently, in September, our team was shortlisted on the $15 billion Pacific Deterrence Initiative contract or PDI MAC. This MAC streamlines the acquisition process for major infrastructure projects throughout the Pacific, enabling faster execution of essential projects across the INDOPACOM region. Larger opportunities under this MAC are expected to be procured in mid- to late 2026. In June, our team was shortlisted on the $8 billion Hawaii Wake Island MAC. These bidding vehicles are important milestones in our long-term growth strategy, and we expect that much of the Navy's specific infrastructure investment over the coming years will flow through these contract vehicles, along with several other MACs that we are also pursuing. Our Atlantic business continues to be hot in both project delivery and opportunity outlook. Constant focus on operational excellence, commercial discipline and pursuit prioritization combined to deliver strong profitability and a durable growth outlook ahead. The Gulf business is equally exciting with expanding backlog and an opportunity pipeline that gives us confidence in our growth outlook. We continue to see a healthy mix of negotiated private marine construction and dredging work supporting energy, chemical and bulk material clients, along with robust public sector federal, state and port authority opportunities. In summary, our Marine business is well positioned in growing markets that value our proven track record of executing safely with predictable excellence. Moving on to Concrete. Our concrete business continues to benefit from a strong growing near-term opportunity pipeline that spans data centers, multistory buildings, medical, warehouse and industrial manufacturing projects. Concrete awards in the quarter were led by multiple data center projects, a large cold storage facility and a handful of manufacturing and health care projects. Demand for data centers shows no sign of slowing and our deep partnerships and track record with major hyperscalers and general contractors in this space position us well from a competitive standpoint to continue to win work and capture that growth. Having delivered 39 data center projects, we've earned a strong reputation for reliability and performance, which we're now using to fuel expansion into Florida, Arizona and other high-growth data center markets. And finally, I'm very pleased to share that we closed on the sale of our East West Jones property in October for a purchase price of $23.5 million, something our team has been advancing for quite some time as many of you are keenly aware. We intend to use the proceeds to reduce debt and for general corporate purposes. In connection with the sale of this property, we also entered into an exclusive dredge spoils agreement with a buyer that gives Orion the right to deliver dredge spoils to the property for 10 years, giving our team a competitive advantage in the Houston Ship Channel. In summary, as we look ahead, I'm confident in our positioning and optimistic about the future. The AI boom, combined with lower interest rates and lucrative incentives for our clients to invest domestically are catalyzing our Concrete segment. On the marine side, increased federal investment in military infrastructure as well as port expansions and dredging that are required to keep pace with maritime transportation and logistics are clear catalysts to growth. I couldn't be more pleased with our talented team, and I'm excited about Orion's positioning to build on our momentum and capture the significant opportunities ahead. I'll now turn it over to Alison to review our financial results. Alison? Alison Vasquez: Okay. Excellent. Really good stuff, Travis. Thank you. Let's dive into the numbers. So first, the consolidated results for the quarter. We're pleased to report revenue of $225 million, operating income of $5 million, adjusted EBITDA of $13 million and adjusted EPS of $0.09 per share in the quarter, which results were generally in line with management's estimates and in line with our updated full year guidance, which I'll cover shortly. From a sequential perspective, these results represent 10% growth in revenue, 20% growth in adjusted EBITDA and 27% growth in adjusted EPS. The sequential top and bottom line growth were driven by increased volume, strong execution, favorable utilization, primarily in our Marine segment and reduced borrowing costs. As compared to the third quarter of 2024, our 2025 results were comparable for revenue, lower for operating income, adjusted EBITDA and adjusted EPS. This reduction was caused primarily by favorable project closeouts in 2024 that did not reoccur this quarter, an increase in SG&A to support and invest in business growth, a decrease in gain on sale of disposals as compared to 2024 and partially offset by reduced borrowing costs in 2025. I'm pleased to report that we generated $23 million in operating cash flow in the quarter and $14 million year-to-date. We wrapped up the quarter with $21 million of net debt or just under 0.5 turn of leverage on a TTM EBITDA basis, which is a very healthy place for Orion. As [ Boyce ] covered earlier, in October, we were very happy to close on the sale of the East West Jones property. The transaction resulted in a significant cash upside of over $22 million, net of commissions and taxes and a nominal book charge, which will be reflected in our fourth quarter results. We expect to use the proceeds to pay down debt and for general corporate purposes. From a backlog perspective, we added approximately $160 million in new awards and change orders in the quarter. And at quarter end, backlog stood at $679 million. Moving on to segment results. From a segment perspective, Marine revenues increased just about 2% over the third quarter of 2024 and 6% sequentially to $143 million in the quarter. And Marine adjusted EBITDA grew over 50% to $18 million in the quarter, which represents a 12% margin this period compared to 7% in the same quarter of 2024. Strong marine margins are attributable to a greater mix of higher-margin revenue, excellent execution and project closeouts and favorable equipment utilization. Concrete revenues decreased 5% over prior year and were up 17% sequentially to $82 million in the quarter, and Concrete incurred a $4 million loss in adjusted EBITDA for the quarter compared to a $4 million profit in the third quarter of 2024. The reported adjusted EBITDA reduction is primarily attributable to favorable project closeout benefits in 2024 that did not reoccur in 2025. Some weather issues in the quarter also impacted chargeability in our concrete business this quarter. For reference, Concrete's contribution EBITDA margin in the quarter was right at 2%. I'll wrap up with our guidance update. We're very pleased to update our full year 2025 guidance as follows: increasing our revenue guide to $825 million to $860 million; increasing our adjusted EBITDA guide to $44 million to $46 million, increasing our adjusted EPS guide to $0.18 to $0.22 and reiterating our CapEx guide of $25 million to $35 million. I'll now pass it back to Travis to wrap it up. Travis Boone: Thanks, Alison. We have all the pieces in place to finish the year strong, and I'm even more excited about what lies ahead in 2026 and beyond. I want to thank our shareholders for their continued confidence in us and our people for the exceptional work they do every day in the field to deliver safely for our customers. Operator, we're ready to take questions. Operator: [Operator Instructions] And our first question today will come from Aaron Spychalla with Craig-Hallum. Aaron Spychalla: First for me, I noticed a slide in the deck on the pipeline detail on award dates and opportunity size. Can you just maybe talk a little bit about that? Has that split by opportunity size been pretty consistent? And just any thoughts on expected traction with some of those larger opportunities? Travis Boone: Sure. Yes, we can hit on that slide. So it's -- we have been talking about our pipeline for a while and the increase in size of our pipeline. So we have been working to kind of provide some more information on the pipeline based on a lot of questions about it. And so we just tried to find a way to break it up so people could have a little better feel for what's in there, when it's coming and the size of the opportunity. So -- but generally speaking, I would say it's fairly consistent. Our pipeline for next year is very strong. We still got some good opportunities this year that we're working on bringing in the door and good, very, very strong opportunities for 2026. So anything to add to that? Alison Vasquez: Just to reiterate the comment from the call on the over $1 billion of award or projects and opportunities that we have that are in the queue awaiting award decisions. The number has stayed pretty consistent around that $1.2 billion, so over $1 billion, which is a really healthy place for us to be. That number has actually grown through the year if we look back through the earlier part of the year just because of some of the delays that we're seeing and some of -- with some of our clients and some of the pauses that our clients have put on. So it's nice to see that bids submitted and awaiting award number continue to be a very robust $1.2 billion. Aaron Spychalla: Understood. And then does that include the opportunity in Washington with the Estuary? Or maybe just can you give an update there on how that's progressing? Travis Boone: Good question. So that's the Deschutes Estuary project that we won almost a year ago, one, I believe, in late 2024, early 2025 time frame. It's not included in the pipeline. It's kind of in a weird spot where it's an awarded not booked project because we've won it, but it's not -- so it doesn't show up in backlog nor does it show up in our pipeline. It's in kind of a weird limbo spot until we actually get under contract to do the work, which is -- it's probably going to be about a year or so out before we actually start that work. So good question. Aaron Spychalla: Got it. And then can you just give a little bit more detail on the data center opportunity? Just how much of the concrete business does that represent today and maybe the pipeline there? Are you seeing quoting pick up? An average deal size pickup and just how you're thinking about opportunity there as we head into 2026? Travis Boone: Definitely, it's remained very steady on the data center opportunity side of things. We've been bidding quite a large number of projects on data centers. To your question specifically, it's about 27% of our pipeline is data centers and about 27% of our current revenue in the quarter, I should say. For concrete -- was 27% of concrete's revenue for Q3 was data centers and lots of continuing activity there with bid opportunities. Operator: The next question is from Liam Burke with B. Riley Securities. Liam Burke: Travis, you had -- or Alison touched on the negative operating profit for concrete. We're looking at sequential backlog step-up. Could we anticipate a more profitable mix in the backlog as we move into the fourth quarter? Travis Boone: Yes, definitely. We're expecting concrete to continue to be in a good place. As she mentioned, it's -- when you compare it over last year, it doesn't look super favorable based on some big pickups around this time last year. But as far as the concrete business, we remain confident in the profitability and the good business that it is. Liam Burke: Great. And have you seen any either good or bad movement on major projects due to policy changes with the administration? Travis Boone: None that affect us, no. We haven't seen any movement related to policy changes. The -- some of the movement that's happened has been related to -- there's been movement in the private sector over the last couple of quarters with awarding projects based on kind of uncertainty around tariffs and things like that. There's been some movement in other -- whether it's the Navy opportunities in the Pacific that I talked about last quarter, some of that slid out a year based on funding from Congress and some other things and -- but no policy-related shifts or changes. Alison Vasquez: Yes. I would just add that from a regulatory perspective, I mean, the deregulation that we're seeing happening is a benefit to our clients and some of the tax benefits that are coming in on deductibility of interest and deductibility of fixed assets, the acceleration of those things, those things should continue to the outlook for our commercial clients, especially. Operator: The next question will come from Brent Thielman with D.A. Davidson. Brent Thielman: I guess, Travis or Alison, maybe the first question just back to Marine. I'm trying to think through these really strong results here, the contribution from your two big projects to those margins. And then I guess, when we get into the point of what we think is kind of a sustainable margin threshold going forward for the segment, especially considering some of the somewhat slower bookings here in the last couple of quarters. Alison Vasquez: Sure. I'll start on that. From a margin perspective, we were really pleased with the Marine's performance in the quarter. And I would say that there were some -- we saw some benefits that came through some upsides, but I would also add that they were not unusual in terms of the amounts or the magnitude we had -- or the magnitude. We had really great performance across the business. We had great performance across the Atlantic in the Gulf. And we have really strong performance in dredging, which you'll see just the uptick in those when we publish the Q later today. But the dredging was very strong in the quarter, which ultimately benefits us top line and bottom line because of the very favorable equipment utilization that we get out of that. So while there were a handful of upsides that we recognized in the quarter, I wouldn't say they were meaningful. I would say that the more meaningful driver of performance was really the operational performance really led this quarter by dredging. So hats off to that team. Brent Thielman: Okay. And then the elevated SG&A, Alison, as you mentioned, is sort of a factor for the lower year-on-year EBIT performance. I guess your thoughts on where that goes going forward? What is that predominantly focused toward sort of how do you harvest that investment you're making in the business as we think about that going forward? Alison Vasquez: Sure. I would say that a couple of million of that SG&A uptick from a year-over-year perspective is related to investments in the business, like just directly advancement of or the expansion into the Atlantic or region for concrete into Phoenix, some of those offices that we're investing in that we're setting up so that they will fuel some of the organic growth that we are expecting going forward. And then I would say that probably the other big driver is there is some lumpiness associated with how certain employee costs were recorded last year as compared to this year that created a quarter-over-quarter increase, but from a sequential perspective, pretty consistent and in line. Brent Thielman: Okay. And then last one, just in consideration of the balance sheet here. You've obviously got the property sale, which comes in at the end of the year. Maybe just your expectations for cash flow in the fourth quarter, I guess, especially some of these larger projects wind down, presumably receivables come in. Should we -- or could we see a sort of a big windfall in cash flow into year-end? Alison Vasquez: The East West Jones, for sure, results in just a $23 million of cash that drops to the bottom line. Now that will go through investing. So that will be an investing activity, not an operating activity, but cash in our treasury, which is nice. And that cash, we have already received that cash. So it's nice to have that in our pocket now. From the rest of the business perspective, I don't see really a downturn in the cash collection cadence. The team is really focused on very keenly identifying, targeting and going after and reducing our past due balance sheet and really optimizing the working capital on the balance sheet. And I think that you can see that while we only report from a quarter-to-quarter perspective, you can see that really in the interest expense and the significant step down that we had this quarter on -- from an interest expense perspective. And that step down is related to just a significant amount of work that the team has put into optimizing the balance sheet so that we could minimize borrowings under the revolver. So do I think that from a fourth quarter perspective, we could see good cash? We will see good cash from East West Jones. We've not seen a slowdown in cash collection activity in the rest of the business. We have a couple of months to go, so we'll see. But so far through October, it's been good. Operator: The next question will come from Alex Rygiel with Texas Capital. Alexander Rygiel: Congratulations on the sale of East West. That's great news. Travis Boone: Alex. You've been hearing us talk about that for a lot of years. Alexander Rygiel: Good to see you got the sale done. Quick question for you on that. Is there a way for us to think about what the present value of the dredge spoil sort of 10-year agreement is at that site? Travis Boone: Yes. For -- probably we're going to keep the details on that just for competitive advantage purposes to ourselves. But it's -- we -- part of the reason we were okay taking a lower purchase price on that is because we were able to find a way to kind of use the property again through being able to use it for dredge spoils going forward. Alexander Rygiel: That's good news. And then as it relates to your expanded bonding capacity, can you talk about the value of bonds you have outstanding right now? And I guess what I'm trying to get to here is just what is the kind of remaining opportunity balance that you have with that new bonding capacity? Travis Boone: I'll say it this way. We had a fair amount of available capacity under our -- before we got this increase. What this does is just allow us to continue to bid larger projects and -- to facilitate the growth that we see coming here in the next few years. So we'll obviously -- we're going to keep working on adding additional bonding capacity to the mix to continue to kind of stay in front of our ability to grow and bid bigger projects. Alexander Rygiel: And then lastly, as it relates to the data centers, have you seen a notable increase in the size of the project opportunity for these data centers? And how does that compared to, say, two or three years ago? Travis Boone: Compared to two or three years ago, I would say definitely, there's some bigger ones in the mix now. We did do a large one a couple of years ago in North Texas. And -- but there's -- it seems -- and that was kind of a one-off, but it seems like now there are more of those larger type or larger data centers that we're -- that we have visibility to and are bidding on. We've talked about the one we're working on in Iowa. It's a large data center, a very large data center. Operator: [Operator Instructions] Our next question will come from Jason Ursaner with Bumbershoot Holdings. Jason Ursaner: Congrats on finally closing the East West Jones sale and a great quarter. It was about a year ago that I was asking you during the World Series about this Field of Dreams vision, and there was kind of clear daylight for significant growth in demand for the marine services coming over the next couple of years and just not a lot of contention, it felt like that you've kind of built the right platform to capitalize it. And so the question I have then was kind of really around execution and margin profile. And so it feels like kind of this year, some of those big pursuits with the Navy slid out a little bit, kind of started to talk about the transformational growth in 2026 and beyond. And so not a lot of change in the vision, but just kind of maybe this delayed onset. So just kind of to update on the overall long-term vision that you're building it and that it's coming. on the demand side, everything from your prepared script, the bonding, the preapproved MAC team kind of sounds like there's still a lot of clear catalysts that all the growth is coming and answered it a little bit in the Q&A, but maybe just reiterate anything that could cause shocks to that investment in the Pacific and just sort of this whole vision of demand materializing. And then to the extent that it does kind of come the way you're envisioning, whether you still think it's likely to translate to some of those long-term profitability targets that you previously laid out? Travis Boone: Sure. Yes. Thanks, Jason. I think you kind of answered your question for me, I think, a little bit, but it definitely -- we -- the way we saw it a year ago, we still see the same -- we still see everything the same, if not even more confident now because we've delivered on getting some things accomplished over the last year that we were working toward. And so as far as the vision, if you will, is still the same. The only thing that's changed a little bit is some of those delays in some of the bigger contract opportunities in the Pacific that slid out a year. So that's really the only thing that's changed from a year ago. And so we're continuing to invest and work toward the growth that we -- growth opportunity that we see in front of us. Everything is going as planned. Everything that's in our control is going better than planned, I would say. And there's a couple of -- the biggest thing out of our control is those opportunities sliding to the right. But we feel like we've executed well on our plan, and we've delivered, and we're going to continue to do that. And when those opportunities do show up, we're going to knock them down and keep going. Alison Vasquez: Yes. And I would just add to that, Jason, that -- I mean, the beautiful part about this business is it's not singularly threaded. Like this is a multifaceted business. And so the opportunities in the Pacific are exciting, and they afford us some pretty interesting growth catalysts in the future. But today, we're starting on a large project -- starting on a large project in Texas on a large bridge project over water. We have a big port project that's going on in South Carolina. So there are a number of other opportunities that we pursue and that we win and that we are executing that are outside of the Pacific. The Pacific is exciting, but it's not the only story here. Operator: This concludes our question and answer session. I would like to turn the conference back over to Mr. Travis Boone for any closing remarks. Please go ahead. Travis Boone: Thank you all for joining our call today. We're super excited about where we are as a company and looking forward to coming back to you with our year-end results here in a few months. And I also want to thank our team, all of you guys working hard every day to make this business work. Thank you. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome to OppFi's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. [Operator Instructions] I am pleased to introduce your host, Mike Gallentine, Head of Investor Relations. You may begin. Mike Gallentine: Thank you, operator. Good morning, and welcome to OppFi's Third Quarter 2025 Earnings Call. Today, our Executive Chairman and CEO, Todd Schwartz; and CFO, Pam Johnson will present our financial results, followed by a question-and-answer session. You can access the earnings presentation on our website at investors.oppfi.com. During this call, OppFi may discuss certain forward-looking information. The company's filings with the SEC described essential factors that could cause actual results, developments and business decisions to differ materially from forward-looking statements. Please refer to Slide 2 of the earnings presentation and press release for our disclaimer statements covering forward-looking statements and references to information about non-GAAP financial measures which will be discussed throughout today's call. Reconciliations of those measures to GAAP measures can be found in the appendix to our earnings presentation and press release. With that, I'd like to turn the call over to Todd. Todd Schwartz: Thanks, Mike, and good morning, everyone. Thank you for joining us today. OppFi achieved another record quarter of revenue, profitability, originations and ending receivables. In addition, we are happy to report that we have renewed our credit agreement with Castlelake, improving operating leverage, pricing and capacity. Given our continued outperformance in Q3, we are raising earnings guidance for the third time this year. I will discuss growth, credit our Loan Origination Lending Application, LOLA migration and Bitty, our SMB investment on the call. In the quarter, we achieved a 12.5% growth in net originations and a 13.5% increase in revenue year-over-year, with almost 50% of originations coming from new customers. Auto approval rates increased to 79% year-over-year, and customers continue to be approved at higher rate than in prior quarters with no human interaction. We continue to see increased scale in our partnerships and direct response programs. We started testing Connected TV in Q4 and believe that this could contribute to growth in 2026 and beyond. This strong top line growth, combined with prudent expense management, led OppFi to generate a record $41 million of adjusted net income for the quarter, representing 41% year-over-year growth. Regarding credit, Model 6 continues to perform well and better segment customers across risk segments. Throughout the quarter, we saw higher charge-offs in new loan vintages. However, by tightening higher risk segments and applying our risk-based pricing approach, we maintain strong unit economics while sustaining growth. The team leveraged AI tools, customer attributes and repayment data to refit Model 6 into what we believe is the most reliable model to date, Model 6.1. This Model 6.1 refit is designed to identify riskier borrower populations better while incrementally improving volume. The model is also designed to enhance risk pricing across segments accounting for behavioral and seasonal volatility. In conjunction with our lending partners, we plan to roll out Model 6.1 refit in Q4 and fully implemented in Q1 2026. With LOLA, OppFi is building the origination system of the future. This will give us a clean architecture that is designed to take advantage of rapidly developing AI tools in originations, servicing and corporate operations. The product and tech teams have been working hard and have officially begun the testing phase of our migration. We plan to continue testing LOLA throughout the fourth quarter and migrate in Q1 2026. Early indicators give us confidence that LOLA will help continue to improve funnel metrics, increased automated approvals enhance efficiency in servicing and recoveries, better integrate major systems and deliver reduced cycle times and greater throughput for our product, tech and risk teams. Our investment in Bitty continues to perform well. In the third quarter of 2025, Bitty generated $1.4 million in equity income for OppFi. Bitty is a great partner that we have enjoyed working with and learning from in the SMB space. The company shares OppFi's business principles and corporate values and consistently uses technology to enhance operations and the customer experience. Bitty has identified significant additional growth opportunities and continues to capitalize on the ongoing supply-demand imbalance in the small business revenue-based finance space. Overall, OppFi delivered another strong quarter, both financially and operationally, outperforming expectations and allowing us to raise guidance for the third time this year. Looking ahead, we anticipate continued double-digit revenue and adjusted net income growth throughout the remainder of 2025 and into 2026. We believe OppFi is well on its way to executing its vision of becoming the leading tech-enabled digital finance platform that partners with banks to offer essential financial products and services to everyday Americans. With that, I'll turn the call over to Pam. Pamela Johnson: Thanks, Todd, and good morning, everyone. As Todd noted, we achieved another record quarter, generating revenues of $155 million, an impressive 14% increase over third quarter 2024. Model 6 has been a significant contributor to this growth, empowering OppFi to expand its reach and grow its business effectively. It's enhanced predictive power has enabled us to better manage our loan economics through risk-based pricing and allow our bank partners to underwrite larger loan amounts for creditworthy individuals, helping fuel robust growth in originations and receivables balances. As Todd noted, in the third quarter of 2025, we observed an increase in net charge-offs as a percentage of revenue at 35%, up from 34% in third quarter '24. It's important to note that we believe this risk is appropriately priced into these loans. This strategy also contributed to our net revenue growth, reaching a quarterly record of $105 million, a 15% increase over third quarter '24, though the yield decreased slightly to 133% from 134% in third quarter '24. Our scale and focus on cost discipline also played a pivotal role in our strong performance. Continued operational improvements contributed to notably lower total expenses before interest expense, which declined significantly to 30% of revenue in the third quarter, a substantial improvement compared to 33% in the same quarter last year. As we noted previously, earlier this year, we proactively paid down our corporate debt and successfully upsized one of our main credit facilities at more attractive interest rates. These strategic moves helped reduce interest expense to 6% of total revenue, down from 8% in the prior year. Additionally, in early October, we announced the signing of another $150 million credit facility with lower interest rates than the previous one, positioning us to realize even lower interest expenses as a percentage of revenue in the future. As a direct result of increased revenue and strategic reductions in expenses, adjusted net income surged 41% to a quarterly record of $41 million, marking a significant increase from $29 million last year. Concurrently, adjusted earnings per share grew to $0.46 from $0.33 last year. On a GAAP basis, net income increased by 137% to $76 million, reflecting our higher revenues lower expenses and a $32 million noncash gain related to the change in the fair value of our outstanding warrants. Because our Class A common stock price decreased during the quarter, the estimated value of the warrants issued when we went public decreased, driving this noncash income. However, as we have consistently stated, this is a noncash item and does not impact the underlying profitability of the company. Looking at the balance sheet. We continue to maintain a robust financial position, ending the quarter with $75 million in cash, cash equivalents and restricted cash, alongside $321 million in total debt and $277 million in total stockholders' equity. Our total funding capacity stood at a strong $600 million at quarter's end, including $204 million in unused debt capacity. During the third quarter, OppFi strategically repurchased 710,000 shares of Class A common stock for $7.4 million. Additionally, since the third quarter, OppFi has repurchased 317,000 shares of Class A common stock for $3.2 million as management continues to believe the share price does not reflect our underlying cash generation or our return on capital opportunity. Given our strong operating performance, driven by growth in net originations, revenues and adjusted net income, we are pleased to provide the following updated full year guidance. We are once again increasing our guidance. For total revenues, we are raising the bottom of the range to $590 million while leaving the top of the range of $605 million, up from the prior guidance of $578 million to $605 million. Adjusted net income is expected to be $137 million to $142 million up from our prior guidance of $125 million to $130 million. Based on an anticipated diluted weighted average share count of 89 million shares, adjusted earnings per share are expected to be $1.54 to $1.60, up from our prior guidance of $1.39 to $1.44 per share. With that, I would now like to turn the call over to the operator for Q&A. Operator? Operator: [Operator Instructions] We'll take our first question from David Scharf with Citizens Capital Markets. David Scharf: Maybe I'll start off with credit since it's been so topical this reporting season. Just curious, obviously, you spoke to a strong performance. Just curious, are there any early indicators or metrics such as, first, any defaults or the like? I mean anything that gives you a sense that households that you're catering to are becoming a little more stressed than three months ago? Or is it pretty much the loss rates you reported speak for themselves? Todd Schwartz: Yes. David, good question. Thank you. We constantly are surveying -- looking at different data points, not only from the data that we received from customers, bank accounts and the macroeconomic data. I mean the backdrop from a macroeconomic standpoint still remains largely unchanged. We are hearing about different products like auto loan delinquencies and all this, but we really focus on how it affects our customers. In our bank data, we're not seeing anything that would cause alarm. However, we did see some higher early payment stats in the quarter that caused us to tighten slightly. I will remind you, though, that back in '22 without risk-based pricing, not being able to price risk properly in these environments is something that we were not able to do. Also our recovery lines. We feel really good about keeping unit economics strong with pricing and strong recoveries in this environment and feel like we can operate in any environment with Model 6, and it's kind of a dynamic modeling environment. It's not set it, forget it anymore. We're really of the mindset that we're going to meet the customer where they are and we're going to price it properly and have a product for them. So yes, we may incur some higher charge-offs coming through in the fourth. But let's not lose sight of as a percentage of revenue, year-over-year, we expect our charge-offs as a percentage of revenue to go down year-over-year. So that's just kind of how the environment is now. You've got to -- you can't set it forget it, you have to be constantly watching it and constantly updating your pricing per segments and your pricing for risk. David Scharf: Got it. No, that's helpful. You kind of delved into maybe my follow-up, which was maybe to get a little better context for risk-based pricing that Model 6 is going to enable more of. I guess at a high level, should we think about more risk-based pricing as you're currently leading yields on the table? Or is it you're leaving volume on the table that there are maybe consumers that are applying, not accepting the loan? Maybe give us a little context. Todd Schwartz: It's both. I think in times of volatility and economic environment, it allows us to properly price risk so that gives us that lever. But it also allows us to target with potentially lower prices for our lowest risk customers. It allows us to better target them and so we use it for both. We use it for credit and losses. We also are using it for targeting and growth. And it's a switch that you can toggle depending on the environment. And that's kind of why I spoke a little bit before about the dynamic nature of it. It's something that we're reading in real time on a weekly basis and kind of assessing especially in an environment like this where there's a lot of news and a lot going on. We do -- the Fed's meeting soon. We're waiting and seeing on that from a unit economic standpoint, if we do get some relief on interest rate. But right now, we're just in an environment like that where we're just going to continue to watch credit, but we still think we can grow in this environment with strong unit economics. David Scharf: Got it. Great. I apologize. Maybe just one quick follow-up on credit because obviously, you had mentioned auto, it's been sort of dominating the headlines of a lot of company-specific events out there. But at auto subprime delinquencies have gone up. I'm curious, since you're capturing bank data, are you -- do you monitor what percentage of household budgets are being attributed to auto payments since affordability is still sort of plaguing the auto sector for both new and used? Todd Schwartz: Yes. I mean something -- we're very -- ability to repay is very prevalent in our modeling, not specifically necessarily auto but it is factored into the equation of ability to repay. The customers have to have the discretionary income to make the monthly payments. And so it's something that is top of mind in our model. We have not seen in our bank data, significant reductions in income or balances or anything that would cause alarm here and so that's why we've tightened where it made a lot of sense and then also use the model to better target lower risk customers in this environment. But we're watching it just like everybody else right now. I'm not going to not say that credit isn't worse. It is worse than it was last year in the new segments, especially the new, but something that we can operate in now with our current pricing structure and how we operate. Operator: Our next question comes from Mike Grondahl with Northland Securities. Mike Grondahl: On the origination side, could you talk a little bit about direct mail and then some of your thoughts on Connected TV that you mentioned? Todd Schwartz: Yes. Thanks, Mike. Listen, I think direct mail is a highly scalable lever for us that we're just starting. We're just in the early innings of it. It was 4.2% of our originations, that can easily be in the double digits if we wanted. We're going slow and being pretty methodical and strategic. We're making sure we have the creative right and making sure that the modeling is right. It's something that -- it's a powerful funnel -- top of funnel, if you can get a lot of assets consistent it's something that we're prioritizing and focusing on. Mike Grondahl: And then Connected TV? I think you... Todd Schwartz: And the Connected TV. Yes, so we're really early innings of that, but it's something that we think it's controllable, scalable and it's also reaching a lot of our customers in a targeted fashion. So we're excited about it. It also allows us to get our brand out there and are creative. So our marketing team has been working hard on that, and we're going to be testing that throughout the quarter. But we'll have more to report on that in our Q4 earnings. But we think it's promising, and it's something that can help us scale and continue to grow next year. Mike Grondahl: Got it. And then you've been really disciplined on OpEx. I would call OpEx sort of basically flattish to up a tad, how much can you grow originations in the book without having a step function lift in OpEx? Like you've kind of done this now for 2-plus years, if not longer, bolted on more revenue and more loans on your existing platform and then really efficient, the throughput has been great. But how long can you continue to do that? Todd Schwartz: Yes. Good question. We feel really confident in our ability to scale. I mean this is where things get highly incremental at this scale as far as originations and growth go. We don't anticipate -- I mean, LOLA is that. That's why I keep talking kind of about LOLA on these calls and introduced it last quarter. We made significant R&D and software development initiatives in the company over the last year to allow us to continue to scale and then also allow us to essentially, as I said, building the lending origination system in the future, but it really allows us to install and integrate some of these new AI tools that are coming. Some of them are more developed than others, and some of them are more ready to use today versus a year from now. But it was all about having a clean architecture on your tech stack and not have a lot of technical debt built up so that we can take advantage of some of these tools and also to better integrate our corporate systems. So we really don't anticipate having to add much fixed overhead. It's more going to just be variable cost of the growth and think that this can continue and definitely into next year. Mike Grondahl: Got it. And then one last question. I think in your prepared remarks, you said double-digit revenue and adjusted net income growth for the rest of 2025, obviously, implied by your guidance. But I think you also said and into 2026, is there anything you want to say about 2026? Are you sort of striving for double-digit top line? Anything there would be helpful. Todd Schwartz: Yes. I mean listen, it's something that it is credit dependent. I'll caveat that. But I will say that we have the levers, and I'm pretty confident within our wells, we have the levers to grow in double digits and feel confident we can do that. The only thing that would prevent us from doing that is we're not going to chase growth if credit is not there, it's just not something we're going to do. You know us now, we're very disciplined. So we won't chase growth to take on higher losses, but we do have the levers if that's what you're asking for next year for double-digit growth, absolutely. Operator: We'll take our next question from Kyle Joseph with Stephens. Kyle Joseph: Just given everything going on with the portfolio in terms of new customer mix, the risk-based pricing. Just wanted to get your -- kind of your thoughts in terms of yield trends we should expect going forward? Todd Schwartz: Yes. We feel good that our yield's stable. It came down a little bit in Q3. It's due to -- that is typical this time of year, Q3, you're going to see some of your lower yields as you start to see some losses kind of come into the past dues when they drop out of accrual. We do hope that we'll see a nice rebound in Q4, and it's also been stable throughout the year, but we anticipate stability and an elevated yield coming through the book. And that is part of the risk-based pricing, right? We're better pricing risk across the segments. So we feel good about where we are with that. Kyle Joseph: Got it. Helpful. And then moving to the balance sheet and capital. Obviously, you guys have done a lot of work on the balance sheet year-to-date, and it's in a really good place, and then you guys are still generating strong cash flows despite portfolio growth, but just give us a sense for kind of your capital allocation priorities now that you have the balance sheet in a really good position. Todd Schwartz: Yes. Well, Pam, I think Pam talked about it, we've been buying back stock in open windows and with predetermined programs. We'll continue to defend our share price, and we think it's undervalued. It's something that we were -- we feel like we're not trading. Hopefully, the third time is the arm here, Kyle, with us raising guidance again. But listen, it's -- that's top of mind right now is obviously defending our share price and making sure that we're properly valued in the marketplace. We're continually actively looking at M&A opportunities, looking at -- we're using it as a way for growth. The menu of options is open. So we're actively looking at those different scenarios and best and highest use of our cash. Kyle Joseph: Got it. And just one last one for me. Apologies if I missed it, but just in terms of the marketing spend, we saw a return to growth this year. I think you mentioned that was maybe TV in direct mail. But yes, if you can walk us through what you're seeing in terms of customer acquisition costs and how you expect marketing expenses to go going forward and how that -- versus portfolio growth. Obviously, they go hand in hand. Todd Schwartz: Yes. I think I stated back in Q2, you should expect the acquisition cost to kind of creep up here as we go into growth mode here in the second half. And that's -- it's consistent with what's happened. We're probably up $20 to $30 per -- we feel very comfortable there. And I think there's even probably some more room, especially for lower risk segment customers to be able to pay the CPS and feel really strong about the unit economics and the incremental growth it provides. Operator: Our last question comes from Robert Lynch with Stonegate Capital Partners. Robert Lynch: Just have a few here. With net charge-offs as a percentage of revenue saw a slight increase in Q3, is this typical seasonality or mix? And could you get this back up to the 45% in Q4 that we saw last year? Seasonality and early indications for the holiday season coming up. Todd Schwartz: Yes. I mean there is seasonality to the business. And you're going to see your lowest charge-offs as a percentage of revenue kind of in Q2 and Q3 and then it elevates. Year-over-year, it is slightly elevated. We do anticipate, though for annualized -- a reduction as a percentage of revenue overall. We didn't tighten -- we were very conservative in '24, even tightening probably a little too conservative maybe in Q2, which caused really strong revenue as a percentage charge-off numbers. I mean we didn't -- we don't need to be -- we're at a level now where we feel really comfortable that the unit economics are strong. So it's going to flatten out here. And incrementally, every quarter, it could be a little bit less, it could be a little bit more, but we feel really good at these numbers where we're at and think that we can generate really strong returns within this band. Robert Lynch: Okay. Great. Really appreciate the color there. I've got maybe two more here, but you highlighted stronger recoveries from operational changes. Is the second half recovery run rate now above plan? And how confident are you that this level is sustainable into 2026? Todd Schwartz: I mean we've now achieved a strong -- as a percentage of gross charge-offs, a really strong recovery right now for two years. We think it's very sustainable, it's performing at or above plan every quarter. We have a great process team and strategy behind it. So we feel is sustainable. And in the first year when we were achieving those results, it was something that was hard to bake into the unit economics because we weren't sure if the stability of it was going to last, but it has. And we feel really good that we're going to continue to achieve that percentage of recovery on charge-off. And obviously our unit economic model and how we price and how we target on the front end. And so it's been a great story for us. Robert Lynch: Awesome. And I've got just one more kind of unique question here. But on the recent shutdown, what impact did it have on any of the data you see coming in as well as your models with customer behavior, more for them and yourself as well? And how are you monitoring the situation and mitigating any of the effects going forward in real time? Todd Schwartz: Yes. I thought we were prepared for this question because I thought I was going to get it sooner, but no, it's something that we're activating. We have a very, very fair hardship program for customers that have been impacted by the federal government shutdown. We do have some exposure. It's something we're currently watching. It's pretty de minimis at this point on the number of hardships this time of year because of weather events, it is our largest hardship program offering for this quarter in terms of the Q3 and the weather events that happen usually typically in this time of year. But incrementally, there are some more coming from the federal government shut down, nothing that we've caused alarm or causes to really change how we operate at this point or credit -- from a credit perspective, but definitely something we're watching very closely as it unfolds, and we'll continue to. Operator: It appears we have no further questions at this time. This does conclude today's program. Thank you for your participation, and you may disconnect at any time.
Operator: Ladies and gentlemen, welcome to the adidas AG Q3 2025 Conference Call and Live Webcast. I am Maura, the Chorus Call operator. [Operator Instructions] The conference is being recorded. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Sebastian Steffen, SVP IR and Corporate Communications. Please go ahead. Sebastian Steffen: Thanks very much, Maura, and good evening, good afternoon, good morning, everyone, wherever you're joining us today, and welcome to our Q3 2025 results conference call. With me here today is our CEO, Bjorn Gulden; and our CFO, Harm Ohlmeyer. Bjorn and Harm will take you through the highlights of the quarter, our financials, the outlook. And afterwards, we will open up the floor for your questions. As always, I would like to ask you to limit your initial questions to 2 in order to allow as many people as possible to ask their questions. And now before I hand over to Bjorn, we want to get everybody in the right adidas mood with this video. Let's go. [Presentation] Bjorn Gulden: Hello, everybody. I hope you enjoyed the live showings of what the brand has done over the last 3 to 6 months because we are actually very proud of what we have achieved. Also, very proud and happy what happened last night, where 2 of our teams, Germany and Spain, won each of the semifinals in the so-called Nations League. And we'll then need to play the final and it's always cool to have 2 teams wearing the 3 stripes play each other in the final, which happened pretty often, especially on the women's side. Also happy actually about what we did achieve in Q3. I think the momentum that we have seen globally even strengthened. And we feel that our teams in the different markets have been very active and has been a lot of positive feedback also when it gets to the activations we have for the future, for example, the workup that you see out there. What also very, very, what should I say, close to today happened was the Shanghai Fashion Week, where we showed up in China in a way that I think we've never done before. And last weekend with the ComplexCon, where we showcased both the jellyfish coming from our friend, Pharrell. And we had many, many versions of Superstar also with our partners from Hellstar. And I think all of you have followed the discussion about Bad Bunny and the Super Show, it happened to be at the same time where we had a Mercedes call up with him, which also did very well. So a lot of fashionable things happening, which is very, very positive for us. And also before we go into the numbers, important for us. We were again named the top employer for those working in the fashion from the TextilWirtschaft. And again, that's a research with ask the employees and the hearing that your employees are happy is always a great confirmation for us in management. And then the Forbes Research who looks at 400 of the biggest companies in the world when it gets to how it is to work for them when you share a woman, we also came up in the top. And again, a very positive story for us confirming that we are a good company to work for. The numbers, you've probably been through them many times. Last week, we reached EUR 6.63 billion in Q3, which is the highest quarter that we ever had, which, again, then for the adidas brand was a growth of 12% currency-neutral. Again, another very strong quarter when it gets to the margin at 51.8%, which was 50 basis points up. And then an EBIT of EUR 736 million, which then is an EBIT percentage of 11.1%, which, again, we are very, very happy with. If you then take Q3 to the 2 first quarters, you get to the EUR 18.7 billion in sales, 14% up for the adidas brand, a margin close to 52%, and then an operating profit of EUR 1.892 billion which is again about 10%. And so again, when we look back, we are very happy with these results. When you look at the regional growth, the North America grew only 8%, year-to-date 12%. I did say in the press call that if you take accessories out, you will see that both Apparel and Foot were up 14% and 11%, and that reason for the accessories being down is that we have a reset in the accessory business that will hit us this quarter. And it has to do with distribution. It also had to do with deliveries. But I don't think you should read too much into it. I think it was heavily exaggerated in some of the press. This is not something that is very crucial for our business. It is a short-term blip. And again, remember, accessories is 7% of our business, so you shouldn't worry too much about it. Look at Europe, the home market, we were skeptical last year that the growth will slow down because it was 9%, now it's back to 12%. We are 11%, what should I say, for the year, and a very strong development, again, both in our own stores and then especially on the performance side around different markets in Europe. Greater China. Again, you probably see a lot of, I would say, tough numbers from our competitors. We grew again double digit and are very happy with the development being up 12% for the year. And you probably know that the profitability also in China is improving. So we are very, very happy with the development that we currently have in China. Same with Japan and South Korea, up 11%, 14% for the year. Historically, 2 very strong markets for us where we had some issues, but very, very strong development now with new management in both of the markets, and feel we are in a very, very good way with very, very strong like-for-like numbers in our own retail in both those markets. Lat Am, still on fire. We are now a market leader in many of the LatAm markets, including Brazil. And as you can see, '21 and '24, extremely happy with that development. Emerging markets, of course, always a little bit mixed bags because it's a group of countries where you have quite some issues, but the team are our entrepreneurs and 13% and 17% confirms that. And that gives you then the Q3 number of plus 12% and plus 14% for the year, in a world, which I think you agree, is not the easiest to maneuver in. So very happy with where we are after 9 months. Wholesale growing at 10%, shows you the support from our partners. And again, happy with that. Own stores, up 13%, we are comping positive both in concept stores and in factory outlets. And we have added net around 85 stores in the last 12 months, and we will get back to that in a second. E-com, up 15% shows you that the digital side of the business is also working. And some of the pure players are actually doing better than the brick-and-mortar guys and so is also with us because we can showcase news quicker and wider than you can do in brick and mortar. That gives you the split of 63-37 and you see brick-and-mortar and e-comm than 22-15. I think we agree that, that's a globally a very healthy split. I talked about the stores. I think we have said to you now for a couple of quarter that what we are doing is that we're trying to open, I would say, impressive brand stores in bigger cities and in bigger trade communities. And instead of having 1 store buildup, we're trying to explore the possibilities in the different markets, as you can see here. And we are investing a lot in the creativity in the stores and I hope when you travel around the world that you get to see some of them extremely happy with the way we look. And they're also, of course, when we open a big store that looks like this, the numbers are also very impressive. As long as we fill it with the right product, which I think we have done lately. Footwear, again, you were skeptical. I think it was 9% in the last quarter. Now it's back again to double-digit, 11%. We have talked about the wish of growing Apparel at the back end of Footwear. So now we are doing that at plus 16%. And then the accessory issue, which, again, I explained that in the U.S., we have kind of a reset when it gets to both the sourcing because it was very China driven and the distribution and that caused that in this quarter, the numbers were negative, and that had an impact on the global accessory business. The performance accessories, meaning, for example, soccer balls is up. And I think I can promise you that you will see accessories very quickly coming back again. And I think I quoted I said we need to clean up something, but I think people, again, overdramatize that there's nothing that you should be concerned about that Accessory is only up 1%, knowing that, as you see here, Accessory is only 7% of the business. And I think we have said that when you have brand heat and you could focus on it, you should get more growth on Accessories going forward. So I think we have some reserve in our pocket, and you shouldn't look upon this negative. Footwear being 57%, Apparel 36%, again, as long as Footwear is above 50%, I think we are in good shape brand-wise. And then very, very important. Even if we have turned the company around on the lifestyle side and the heat, we have said that we have to celebrate sport. And I think when you see the activities from ultra marathon to marathon to running 100,000, basketball, soccer, cricket, whatever, I don't think we have ever been more visible in sports, and we're also producing a lot of content that is visible all over the world because that is what we want to do. That shows also up in the numbers. Our performance, meaning the Sports business is up 17%. Remember, we have told you that there are 4 categories that we need to win globally; football, running, training and basketball. I think you see in football that coming out of comp numbers from the euro last year, we are very, very strong now with our Footwear taking share, I might be arrested saying we are market leader, but that's my feeling on everything I can read. Very happy with the players and also very happy with the product. And then for those of you who follow soccer closely, the Liverpool launch was fantastic globally, although they haven't played very well lately, losing I think, 5 out of the 6 last games, the sales of Liverpool has been tremendous compared to what they used to sell. And again, I think we all know that Liverpool is a street culture city in the U.K., very relevant for the kids. We are extremely happy with that relationship and the way it was executed. Also very proud of the Ballon d'Or. You know that's where they give the prizes to the best players in the world. They give out 5 prizes. We won them all. We had the best male player with Dembélé. We had the best young player with our friend, Yamal. We had the best female player in Aitana Bonmatí. We had the best young female player in Lopez, and we actually also won the best goalie with Donnarumma also; 5 out of 5. I guess we will have to pay a heavy bonus to our sports marketing people because I don't think that's ever happened before. What shows you, why I'm proud and positive is that we were also able, the day after the Ballon d'Or to honor both Dembélé in Paris with both what should I say, outdoor marketing, as you see here and the store and the same in Barcelona with Bonmati. So again, the teams were then actually gambling on that they will win. They didn't have the insight. And we were able then to activate this overnight. So when people woke up, this was what you would see in those 2 cities. And I think this is the energy that we actually need as adidas then to win. And the same thing, we have launched the World Cup Ball. We used a lot of other celebrities and sports people to do that. I have never seen such a campaign ever done organic and I can also report to you that the sellout of the ball has been fantastic. And you have to remember, we have even started with the jerseys. The jerseys for World Cup will start to go on sale on November 6. So that's when you will start to see some impact of World Cup coming into the numbers, which will be very, very positive. Running, we have told you for the last 2 years that we are building our running portfolio up, changing both the collections and also, of course, going back again to running specialty to build credibility and the business. When you follow the marathons and the half marathons and other races you see we win half of them, very proud of what Sebastian Sawe did in Berlin. The weather was too warm; if not, he would have beaten the world record in sub 2 hours. He didn't because it was 27 degrees, but we will save that for next year. We also won the women's class with Rosemary. And again, I think it's not the weekend, where we don't win a major race somewhere because we have the best runners and the best product, that is also proven by this fact, we did set the world record on 100k. Sibusiso won in 5:59:20 and you can calculate the average pace, it's unbelievable. I think he runs 333 per kilometer. And again, with a shoe especially made for it. And again, this is part of our innovation pipeline to do extreme things that we can then feed into the more commercial line. And our Adizero line, which starts then with the Prime X and then down to the Adios Pro 4 is the best line today for racing shoes and speed shoes. And we are taking market share and we're growing this business very, very heavily. And again, this has been the strategy from the beginning that we start at the top and then we start to scale it into every day running and to comfort running. What you see here is new. This is what will go to market next year starting in February and then scaling up during the year. We have developed something called Hyper Boost, which is a new boost material, 40% percent lighter than the old Boost. Boost was the most successful midsole construction that we had, the most successful foam, but a little bit heavy. That's why we have been working for 3 years now to establish this. These are the sign directions, not necessarily the way the shoes will look, but it gives you some kind of feeling how we're going to attack the comfort training area. And then we will also use the foam as a platform into other areas in the performance side and also into Lifestyle. Don't forget that all the successful Lifestyle running shoes we had in the past, both those from Yeezy, but also NMD, for example, Ultra Boost was Boost shoes and that's why this is so crucial for us going forward. And we are very proud that we now have developed this. Training is a huge category that might be executed different from region to region, but what we are doing is that we're using our top athletes from different sports and then showcasing them in training in our products. We can tell that story everywhere. And what we also have done because training today consists of both running and strength, we have combined then the Adizero line with the Dropset line and then creating shoes that are both runnable and stable for strength, gym work, and that's then the Adizero Dropset, which you will see next year and which has received a lot of orders already from the retailers who love it, and we are very, very positive about that development. Maybe a surprise to you, we are then taking the originals into sport. We have seen, especially on the female side that we connect to that young consumer through our original line with the use of threefold and three stripes. And it was then a natural way then together with some of our retail partners then to develop a functional training line in functional fabrics and functional fit also with the design ethics of original. You see some of the samples here. And needless to say, the demand for this for next year is huge. And it's one way for us to differentiate ourselves in the training area where there's a lot of brands that have established themselves lately. But again, very, very positive feedback from the retailers around the world. Basketball, we all know we're a market leader, but we also know we have to invest in it. We have in the design and development of the product for a while now, had a very special language. And it's great to see that this language is now coming through also in sell-through. All our signature shoes are now doing well and the players that we're using are also extremely popular. And we have used them now not only in the U.S., but also in other markets. They've all been to China during the summer, and we see a lot of positive effect for them being active actually selling not only our performance product, but selling the brand as relevant in the culture. And then we have said it the way adidas did the brand, we want to be visible in all sports and also local sports that are relevant. That is why we are making products for more sports, and we also produce more content for those sports so that we get back again the credibility and authenticity that we used to have, and you see some examples of that here. In that trend is also track and field. For a while, we lost the visibility. We are now back again. And if you watch the World Championship on Tokyo, you saw we had more federation. There were more three stripes on the apparel and a lot more feet with our spikes and special shoes. That will continue because for us, track and field is the core of all sports also in the Olympics, and that's why you will actually see a wider investment for us going forward as more federations are actually able to change into our brand. Then finally, when it gets to sport, we have said to you many times, we need to be more American. We need to be a sports brand also in America. You can only do that by investing in the so-called American sports. That is, of course, starting with colleges. It is baseball, it is American football. It is also basketball. You see some of the people we have signed now over the last couple of months. We have also started to get feedback that we are attacking the clear market leader. That's not even the strategy to be visible and actually have personalities that perform. And I think that is also what we have achieved. The college sport in the U.S. is very, very special, very emotional and everybody who's gone to college is a big fan of their college and especially in American football, that is important. And you know that this college team draw attendances up to 100,000. You see that we are now starting to get a pretty impressive portfolio. And in that, what should I say, strategy of getting more visibility and getting more into the college merchandise business, we have then added both Tennessee and Penn State, which are 2 huge colleges when it gives both to the performance and also to the merchandising value. What we also have done is that we started to combine the American sports. So here, you see on the left side, Anthony Edwards and his basketball look. We have then made a clip. So Travis Hunter debuted in the NFL. He's the Heisman Trophy winner of last year. He is, I think, the only one who plays offense and defense, at least in his rookie season, and he's then playing in a clip that is designed the way Anthony Edwards basketball shoes. So a pretty cool thing, and it shows what we can do going forward in the U.S. Short about Formula 1. You know great success when it gets to the agreement with Mercedes, a lot higher sales than I think both we and the Mercedes thought, a lot of collapse, a lot of interesting stuff happening. And then on the left side, we announced that for next year, we will also do Audi. And again, we see a huge demand from wholesalers already in those 2 setups. And then, again, I'm repeating myself, but we are, of course, trying to take everything we do on the pitch in the stadium then to the street. And I think that's the magic of ours. We are using our athletes and our, what should I say, teams on both sides and are trying then to create the street culture out of not only basketball, but also other sports. We have talked about the need for doing this in football, and it's finally happening. We have never seen so high demand for soccer-related apparel as we do currently. And a lot of non-soccer fans are actually wearing retro jerseys or even the current jerseys or product that is coming out of the soccer world. And I think I've mentioned to it a couple of times that the Oasis collab, for example, are soccer pieces that have been batched up and the demand has been unbelievable for people that has not any connections to football. And then on the footwear side, EVO SL, our $150 Evo Adizero shoe without the carbon plate meant to be a running shoe, but gone widely on the lifestyle side, best-selling running shoes currently and the best named running shoes in many, many markets, a great development for us. So when do they get to lifestyle, you saw performance growing at 17%, Lifestyle now growing at 10%. Again, this was always the strategy that you build the heat through marketing and lifestyle, you sell shoes, then you hope that it will also go into performance and then you start to commercialize apparel that has actually happened. And two, the haters, who are the people who don't like it, Terrace is not over. We have grown Terrace every quarter. So Q3 was actually the highest quarter ever also of the Samba. I think the key to it is, of course, that you're not selling the white black and the black white more and more and more because you're actually putting, what should I say, a limit on it. But when you work on materials and you work on different, what should I say, Collabs and you keep the excitement in it, all Terrace shoes are doing extremely well. And especially in certain markets now, the Spezial is doing great. And as you probably know, Spezial has never been a lifestyle shoe before. So -- it's not over, and it's a huge business, and we will manage this business probably longer than many of you had expected. The Campus was more a freebie that came unplanned with the heat of the brand. We did then put a lot of shoes in the market. It worked perfectly. But we also said we will then start to limit the Campus because we were waiting for the Superstar to come. And let's face it, the Superstar is from a construction point of view and from a target consumer probably closer to the Campus than to anything else. We talked about Low Profile. Yes, it has been growing and growing. It's not as big as some people thought. But I think I can promise you that the same thing is here. You need to invest in SKUs, you need to invest in materials, then it will continue to grow also into the spring of '26. And then we have the Superstar, which we again told you we were delaying. But right now, we are pushing it for fall, especially now in Q4 and then into spring next year with global campaigns, a lot of activations. And again, although the language is global, the content is very local. And then may be new to you, you will start to see the Triple White coming back. There are clearly signs that Apparel is going more preppy and more college and then Triple White will be again coming back. And as you know, the Stan Smith is probably the typical shoe to go to when that is happening. So we have limited the pairs heavily. You won't find Stan Smith discounted anywhere, but we will start during next year then both with Collabs and loading up that shoe because we want to be ready when these things are going commercial. And then the final thing on the lifestyle that we talked a lot about, Lifestyle Running. Yes, we admit that all the brands have had a big trend, both on '90s and 2000 running and that we had many options starting with the retro thing all the way into 3D printed shoes. Many of these shoes are now starting to get volume. None of them are the winners right now, except for EVO SL. But when you look to the left, you see Adistar, where you will see the Jellyfish coming out of Pharrell. You will see takedowns of that hitting the market, and you will also start to see a lot of 2,000 retro running shoes from us with Open Mesh and Metallics, which are already selling very well, and we will start to scale them because we see that the demand is there. And then the final thing where people laugh a little bit is Lifestyle Football. We talked about it in Apparel. You will see soccer-inspired product going also fashion, where we put soccer uppers from the past or also present, and we put them on different constructions. Very different opinion if this is going to be commercial or not. We will have limited pairs in the beginning, and then we will scale it if we see the demand is there. But at least on her, it seems like there is demand there also to scale it. Then on Apparel, we have great success, especially with Her, especially very colorful, the use of 3 stripes, of course, a lot of them are not original. But I think where we have been even better than anybody else instilling innovation in materials. We have denim. We have a lot of knit constructions, and we have a lot of innovation that has not normally been in the sports industry. And this is especially where then people online has a huge success because they can showcase it very quickly, and we've been very quick to the market. Very, very proud of this. Grace Wales Bonner has helped us a lot. I think she had a huge impact on the success of the Samba, to be honest. She has now been made the head creative for Hermes Men, a great honor to her, but I'm also happy to report she will not leave us. She will continue to work with us because we have a fantastic relationship with her, and this will, of course, help us. In general, collabs, a lot of discussions. If there are too many, has it lost this interest? No, it hasn't. If you look at this page, you see some of the ones that we work with. Down left, Hellstar has been great for us in the last couple of months. I mean, Chavvaria has been great for a while. And in general, I think we all have to agree that you need Collabs. You just need to make sure that they fit the market where you're using them. and that you never do too many at the same time. Then at last, accessories. Again, I tried to explain that accessory and performance, great, including soccer balls. All markets actually done well. There is a small clash in the U.S. that we need to fix, and we will fix it. And I'm pretty sure that when we get to next quarter, you will see it fixed already. So don't read anything into it. That was not the intention. So with that background, I hand back to Harm, and then Harm will give you the more details about the numbers. Operator: This is the operator. We are not receiving audio from the speaker line. Harm Ohlmeyer: Can you hear me now? Operator: Yes, sir. Harm Ohlmeyer: Good. all right. Then I'll repeat it again. Thanks, Bjorn, for the update, and I would like to bring some more details to the financials now in the next couple of minutes. Apologies for the short technical issue here. So as always, we start with the net sales. And as Bjorn said already, record net sales from an absolute point of view in Q3 was EUR 6.6 billion. That has been a great achievement. And of course, the most important number there is 12% currency-neutral growth for the adidas brand. Of course, for the people on the call here, you always look at the 8% currency-neutral, which includes Yeezy in the prior year for the reported number, which is 3%. What we believe is relevant as well to show you the next chart, it's a lot of numbers on there, but sometimes we probably forget what percentages mean in absolute numbers. And I want to start on the upper left where we see 17% growth in Q1 for adidas brand and 12% and 12% in Q2 and Q3, so overall 14%. When we look at the absolute numbers in currency-neutral terms, we actually grew EUR 900 million in Q1, EUR 600 million in Q2, and another EUR 700 million in Q3. So we believe it's important summarize that for the first 9 months, what we actually have achieved with the adidas brand. So it's a EUR 2.2 billion in constant currencies in the first 9 months. And then, of course, you got to deduct then the EUR 600 million from Yeezy sales last year. And then you have an FX impact so many currencies, that is a negative EUR 600 million as well leading to only EUR 1 billion nominal growth that you see in the P&L being reported. We believe it's just right to show these numbers in absolute as well to actually showcase again what our brand and sales teams have achieved with great products and good execution on the sales. When it comes to the gross margin, of course, a great story as well is almost 52% or 51.8% in correct terms. It's 50 basis points above prior year. This is again a very, very good achievement. And if I go to the details and decompose it a little bit, a huge, huge credit to our sourcing organization, making sure that we get reasonable prices in strategic relations with our suppliers, still some positives on the freight side, even so some of the transportation lead times are complicated in today's world. The business mix is still positive. And also from a discounting point of view, we did a great job the last couple of years and now it's stabilizing and still very, very good sell-through of our products when it comes to the underlying drivers. Of course, you know that FX has still been negative. It's just directional when you look at the bars here, but we also talked a lot about the tariffs. Of course, they are negative in the U.S. And you see that is a new thing compared to Q2 call that we had some mitigating actions there as well. That led us still to the very, very good gross margins, 51.8%. So very good achievement, and you can imagine where it would have been without the tariffs in the U.S. When I go further down the P&L line, of course, as always, we say, we keep investing into marketing with almost EUR 800 million in Q3 and actually 10% up or 12% of net sales. Great, great campaigns, as Bjorn alluded to earlier, fantastic product launches and relentless opportunities with our partnerships, whether it's on the cultural side or on the performance side. So very, very well usage of our marketing. Also on the operating overheads, you see there's great leverage with minus 8% or 3.5 basis points. And you see for the first time since the third quarter '21 that we are below 30% when it comes to the operating overheads. Okay. Part of the truth, you might remember also that we had a release in our other operating income with the settlement of Yeezy of around EUR 100 million, and we did a donation of around EUR 100 million in the operating overhead line as well in the third quarter last year. But the real number now, forget about last year, is still below 30% on the operating overhead, which actually leads with a great gross margin to now 11.1% operating profit of EUR 736 million. If I decompose that again from a profitability point of view, similar to what I did on the net sales, great achievement in Q1 with almost 10% already in the second quarter, 9.2%, up from 5.9% and then a very, very good achievement in Q3 with a profitability of 11.1%. That is a great achievement again to the teams. And when you look at the first 9 months with 10.1%, we actually where we wanted to be in '26. That's a great achievement in the first 9 months. Of course, we all know given our guidance that will not be sustainable for this year, but that's where we wanted to be for next year we achieved in the first 9 months. Of course, there have been some questions below the line as well, and I want to spend some time on this one to explain that more clearer. When I start with the net financial results, you see the EUR 4 million plus last year. So during that quarter, we had some stabilized currencies, whether it's the Argentinian peso, the Turkish lira or the U.S. dollar was still stronger. So we had some positive effects from an FX point of view, but also from a hyperinflation point of view. And now the comparison to this year looks dramatic with the almost EUR 90 million. But also there is now a devaluation of the Argentinian peso of the Turkish lira. We all know where the U.S. dollar is right now. So these are the effects that we had in Q3. But it's also important that -- to note that this is normalizing in the fourth quarter again. And well, I wouldn't have imagined that I talk about the election in Argentina with Milei, but we had our Argentinian General Manager here yesterday as well to give an update. So these are also important events for us as a company. So that's why we believe that election and the outcome just want to stabilize again in Q4. Similar things on income taxes, was very low last year, but also this year, it's a pretty much normalized rate with some withholding taxes in there, but that will also stabilize in the fourth quarter. So 2 notes on this one. In the first 9 months, if you looked at the numbers that the operating profit was up 48% in the first 9 months, the net income was up 52%, and that is something you should expect as well more leverage in Q4 on the net financial results. It's normalizing. And you can definitely take away today that the tax rate for the full year will be around what you have seen in the first half. So anywhere between 24% to 25%, hopefully closer to the 24%, which would definitely drive the net income faster than the operating profit and respectively, the earnings per share as well. When it comes to the inventories, also that is a topic, 26% currency neutral up. And I would like to move to the next chart very quickly because also that is something that we are not concerned about. I said it on the last call already, we went probably too low in '24 with a lot of discipline because we came with a lot of inventories into Q4 -- into 2024. So this is where we have a low level last year. We actually made the strategic decision to bring products in earlier, especially World Cup related. So we wanted to make sure that anything around World Cup related, whether it's [indiscernible] or federations available to remain and continue to remain a reliable partner for our retailers that when the demand is there and of course, where we need to ship in for the launch date that the product is already here. And you know that the supply chains are volatile nowadays. So we didn't want to take any risk. So we took them early. What's most important for us internally is that this product is current and with either current this season or for future seasons already, which means spring/summer '26. So also there, you will see an update going forward as well in the next quarter where we definitely go in the right direction again. The same is on accounts receivables. That shows the success that we have with our retail partners. It's not just about D2C, so 22% up. That is not 1:1 the growth in the third quarter, but that's where we see that we have great relations with our retailers, and that also gives us confidence for the fourth quarter when it comes to the cash generation. But before I go there, most importantly, the operating working capital, I've been on this call many, many times. We said if we get below 20% of operating working capital over net sales, we are an excellent company; if we are anywhere between 21% to 22%, we are a pretty good company, and we are still in that range, and we will definitely make sure that we stay within that range and over time, get below the 20% again. That all led with the investment into working capital that the cash got reduced from EUR 1.8 billion to EUR 1 billion. I also said on a previous call that we expect to generate a lot of cash flow in the fourth quarter. And rest assured, we still believe there's probably around EUR 800 million to EUR 1 billion of cash flow being generated in the fourth quarter, which is linked to the inventory increase for the World Cup, which will be reduced and also the accounts receivables that we will cash in, in the fourth quarter. So that's what you should rely on here as well. When it comes to cash and cash equivalents, you see the development here, which led to the EUR 1 billion and also important adjusted net borrowings have been reduced from EUR 5 billion in the second quarter to EUR 4.8 billion. And just as a side note, some of you might remember that we're maturing a bond in November and probably stay tuned for that one. We believe we want to refinance that one in due course, which we believe is also a good message to the capital market because once in a while, the last one we had in '22, we also want to test the market and be a bond issuer in the market once in a while. So that's what you should not be surprised in the next couple of weeks that this could happen. Overall, when it comes to the leverage, we are very stable, which is important for our rating agencies as well. So also no surprise there regardless of what our cash position is. So overall, very, very confident when it comes to the P&L, when it comes to the balance sheet. And with that, Bjorn will finish up with the guidance. Bjorn Gulden: Great, Harm. As you see on this slide, you have seen that many times, we are now into the third quarter, if you will say, some out of 4. We did tell you at the beginning of '23 that we think that this should be a 10% EBIT business. We gave you the different components. And it's pretty cool to see that after 9 months in the third year, we basically hit it with the numbers that you see here and are currently showing you that this is a 10% EBIT business model even if we are not doing everything perfect and even if I would say the world is not that easy to maneuver in. What is very, very crucial, I think, in the business model going forward is this, I don't know what other brands or consumer companies are telling you. But to be a global brand with a local mindset, I think, is crucial, if you are consumer-focused and for us and also athlete focused, you need to be close to the consumer. And unfortunately, there is no global average consumer, the way many consultants and agencies are trying to sell you, the consumer in different parts of the world has their own, what should I say, taste and willingness and are also influenced by different things. And that's why it becomes more and more important to be more local, especially between Asia, with China driving it between America and Europe because there are big, big differences, not only in consumer taste and facing of sports and activities, but also now in supply chain, given all the political tension we have. So again, getting the best people in the market and giving them the authority to make decisions. And in many cases, even the authority to make products becomes important. And then, of course, the role of a headquarter then is, of course, to keep the brand together to provide innovation and concepts. And of course, also maybe the most important thing to make sure that we have the right people in the markets and in the right functions and of course, also provide the systems that we need. And when it gets to creating product, I think this slide is also important for you because we are now making products in all these centers. And these centers are then in addition to having a part of the global, what should I say, creation like LA has for basketball and U.S. sports, they also, of course, have the, what should I say, the clear goal of supplying the local consumer with the products that they need, and that goes for all these centers where you see there are now 5 of them in Asia. And again, the speed to market by actually producing in China or in India is, of course, much bigger for those local markets than there are for Europe and America, where you have very little production, and it's not easy to actually find a supply chain who can make footwear for you. So I think you need to be very, very, what should I say, conscious about this development because I think it's the key to be successful. And I think, for example, our success now in China is because of this setup. We have the ambition to be the #1 sports brand and all our, what should I say, leaders in the market should have the ambition of being #1 in their market. We are, of course, aware of that we will not be #1 in all the markets that will be naive. But if you are hired in Adidas to run a market, you should have the ambition and you should talk to us what you need when it gets to investment and infrastructure to be #1, and then we will together see where we can reach it or not. There is one exception, that is the U.S. The market leader there is so far ahead of us because they've done a fantastic job living the culture, and we have not done it over the time. But we have a clear ambition there to double our business. And we do think with the story of our brand, with the history of the brand and the resources we have that we can start to be a sports brand again in the U.S. with all the things I have explained to you and then also extend that into lifestyle and culture. And that is why we also have a management now sitting in both L.A. and in Portland who has all the tools to do that. And the way we do this globally is, of course, to have the best product. I mean our pipeline and products, I think, has improved a lot. We have talented and creative people, and we have a great supply chain. It is, of course, also the way we present ourselves in the stores. We have said that we're using a lot of creativity to actually build stores that are that also connect to the local culture and to the possibility of utilizing what is allowed or not because you see many of these stores would not be allowed to do here in Germany, but the creativity in other markets we need them to utilize. And then very, very important, the activations and the visibility around the world, not only global, but also in the local markets so that you connect with the consumer and you also let the consumer be part of your activation has become much, much, much more important and all the social media and all the platforms and also actually physical events have become tremendously important around the world. And that's where you, of course, need a lot of talented people with a lot of energy, and that's what we have. So back to the end of this, the outlook, you remember our initial guidance for March, double-digit growth for our brand, if you take Yeezy out. If you include everything, high single digit currency neutral and an operating profit between EUR 1.7 billion and EUR 1.8 billion. Where we are now is that we keep, of course, the brand being at double digit. We have narrowed the high single digit to be around 9%. And then we say that our operating profit will be around EUR 2 billion. Yes, we know that we are in a challenging world. I don't need to repeat that. And we also need again to remind ourselves, we have no Yeezy, neither revenues nor profit in these numbers. And then the other considerations that you need to have is that we think that the positive side is that we're better than we expected after 9 months. And the attitude in general from the consumer and from the retailer is actually more positive than we expected. I know somebody reacted to that there were no strong order book in there. But remember, there's only 2 months left of the order book. So that's why we took it out. There is not a lot to talk about when you only have November and December open for the order book. So that's why that's not removed. There's nothing other into that number. And then the negative thing, which, again, we have to address. I mean, I know you don't like us to talk about it. But of course, there is a direct impact on the tariffs. We told you that the gross impact, meaning how much more duty it would be on the products that we thought we would sell was more than EUR 200 million, and we have mitigated for I would say, almost half of that. So now the estimated negative impact on our P&L, meaning what would the profit be higher if we didn't have tariffs would be around EUR 120 million. This is not a scientific number because it's an estimate, right? So you need to be careful when you try to say is it's EUR 117 million or EUR 123 million because we don't know. And then what we don't know, and again, I think maybe we are too honest about this because you read a lot of criticism into it, is of course, that the indirect impact of the tariffs, no one knows. And prices increases, normally consumer buys less, and that is not only in our sector, but in all sector. And that's why we don't know and are flagging it. And I assume that everybody will flag it after a while. I think maybe we flagged it early and got criticized for it, but I do think that's better to be honest about it than actually trying to hide it. And then, yes, sitting in Europe, there are quite some negative FX impacts when you consolidate your numbers, both on your top line and also on your bottom line, and that's just the way it is. And I'm sure that you understand that. The good thing about ending '25 is that we're going into another great sports year. It starts with the Winter Olympics in Italy, which again is not huge commercially, but it's a great event that will be having interest also for the smaller sports and the winter sports. And then we have this fantastic World Cup that will come in the U.S., Mexico and Canada. I would like to say one comment about that, too. We have said that this is a EUR 1 billion business or more. And people say, of course, that's on top of everything. I mean you don't know that. I mean it's obvious that it is -- some of that is additional, but it's never been an event where everything that you sell for an event is on top of everything else. So you have to have that in your mind when you do your math. And then the last slide I will show you is this. When we met the first time at the beginning of '23, we had the situation over there where we did EUR 300 million. We told you that we had the 4 years plan to get to 10%. And I do think I'm allowed to say that we're pretty proud of the development that we have done. Not everything we have done is fantastic, and we are by far not perfect. But I do think you have to admit that we've done a decent job in a very difficult market. And yes, maybe the market will always be difficult. So I will continue to say that. But the need to change things, especially in the development of products and in the supply chain and also the way you go to market and change the attitude has been enormous. And I'm very, very grateful and proud of what our people have done. So with that, I hand over to you again, Seb. Operator: This is the operator. We are not receiving audio from the speaker's line. Sebastian Steffen: We're now ready to take questions. Operator: [Operator Instructions] First question comes from Ed Aubin from Morgan Stanley. Edouard Aubin: So I guess I've got 2 questions on Footwear, Bjorn. So the first one is on Classic and Terrace. So did I understand correctly that you said that Terrace was still growing year-over-year in Q3. And if we look ahead in 2026, if you look at the Classic segment, the slide that you showed us, can Classic expand if Terrace contracts and so how you see that? So that would be question number one. And then question number two, still on Footwear, I am sorry. On the opportunity with kind of Lifestyle Running, one of your distributor a few weeks ago, JD Sports, not to name it, showed a slide showing that for them, at least Lifestyle Running is substantially bigger than Classic. So I was just wondering to what extent how much an opportunity this category? Obviously, you're already making good inroads in Lifestyle Running. but if you can help us kind of size the opportunity, that would be very helpful. Bjorn Gulden: Two good questions, to be honest. Yes, I said and I confirm that the Terrace Group was actually bigger in Q3 this year than it was in Q3 last year. And that even the Samba from a selling point of view is actually bigger than it was a year ago and that we have continuously grown what you call Terrace, these 3 shoes. Again, I think many people are surprised by it and maybe some of our own people too. But the fact of the matter is that with the innovation that we've done on design and materials, we kept it hot. And we have gazillions of different SKUs around the market when it gets to different versions of it. And of course, some market have stagnated and we stopped supplying growth, but other markets are still on a growing trend. And that was also the reason why we were careful with Superstar. And to be honest, also careful with some of the low-profile side because we didn't see the need in, as you correctly say, in the classic range to oversupply too many franchises. We are now transferring the Campus volumes into the Superstar because that's more of the same consumer. And then as I said, when Triple White is coming on, the whole Classic area will get another boost and that is typically then that we will then load on the Stan Smith. I think it's also correct what JD showed you, although it's different from market to market, what they call Lifestyle Running is substantially bigger, especially on the male side than the Classic side. But again, many of the so-called Lifestyle Running shoes might from some of our competitors then not be running. But if you look at it now, we can be very honest. I mean, New Balance and my friends from ASICS have had a big run on shoes from the '90s and from the 2000. And even Hoka and On to be honest, have with their so-called performance shoes also had a run on the Lifestyle side, maybe for an older consumer depending on where you are in the world. So I agree with you, if you cume all that, the category is actually bigger. And that's why it's been so important for us then to put more effort into the Lifestyle Running side, and we have. I mean the EVO SL was meant to be a performance shoe, but it's then gone Lifestyle also. So that's a huge volume for us. The SL 72, which is the 70s running has been great for us. And then some of the other running models have been, I would call it, mixed. What you will see now is that you will, a, see that we are coming out with products around the Jellyfish, meaning the Adistar shoe that Pharrell did with different takedowns. And then we have a series of shoes from also the 2000 with Openmesh and metallics that is already starting to sell. So we will grow in Running Lifestyle in '26, no doubt about it. Will we be market leader in any other segments? I think that's too early to say. And then we have to admit that with the success we had in the Classic, you couldn't expect that we also have the same success in Running, right? There is always a sequential effort here. And then what I'm very, very positive about is, of course, the development of HyperBoost because that form, when we go from performance into lifestyle, you have to remember that all our lifestyle Boost shoes that were new, did well when coming with Boost. And you should not underestimate that comfort and cushioning, extreme cushioning has a lot to say in that segment. So we are very optimistic about that segment, and that's why we put so much effort in actually developing HyperBoost. And yes, it's taken 2.5 years, but that's why it's also a very good product. So I think that's my answer to your 2.5 questions. Operator: The next question comes from Jurgen Kolb from Kepler Cheuvreux. Jurgen Kolb: A quick one, just housekeeping for Harm. You guided for -- you expected EUR 2 billion of roundabout cash at the end of the year. I guess, with the guidance on free cash flow in the fourth quarter, this is still on and you're quite confident to achieve that, just to double check here. And maybe on prices, I think on Reuters, there were some comments on your reaction on the tariffs in the U.S. Maybe, Bjorn, you could double check and again, talk us through what you have done so far in terms of the prices in the U.S. and what we shall expect going into 2026 in order to mitigate the tariff impact. Bjorn Gulden: I can do it first, and Harm can fill in at the back. The mitigation that we have done, which is about EUR 100 million mitigation from where we started with the EUR 200 million plus down to the EUR 120 million. How many components? One is, of course, in the sourcing in the sense that we have worked with suppliers to get better prices of some of these products. It has then been increasing pricing on new products. You have to remember that the price of a product that hasn't hit the market that is not known. So of course, that's where you can increase it without getting a negative reaction that you're increasing. We have tried to keep all carryovers at the lower price points at the same price, so no increase for the consumer, but therefore, better sourcing or more efficient sourcing and then we have increased prices on some of the expensive models because we believe that the consumer and the higher end will be less sensitive to price increases. And then again, then lifted prices on new models that have never been priced before. So that's not going to be visible for anybody else than us. And of course, some of the retailers have been part of the development. That's basically what we've done. Now I have to tell you that the price increases you see in the market and that you can read about the question is, are these prices then going to stay for the consumer or are discounts going to go up? And I think when you look at the U.S. right now, it's pretty heavily discounted. There has been some big brands that have had a lot of inventory. And I think maybe independent of tariffs, there was a lot of discounted products out there and I think that's what the jury on what's going to happen when it gets to sales, meaning the value of the product. And then the margin on the product when it gets to discounting, I think the jury is still out on that because we need to take and counter at the end of the year and then especially at the end of Q1 where most of the products that are then being sold are actually with a higher tariff on the buying price. So I think that's all I can say to you because everything else is just 100 assumptions, right? We actually feel that we told you very early that the gross impact of this in the financial year of '25 will be EUR 200 million plus. We have reduced it to EUR 120 million, so we think we have done a good job. And remember, we were very, very early telling you that we have removed China sourcing almost completely from the U.S. So we're not exposed to this 100% duties that he has done as of November 1. So let's see what the other people say, and then we can compare notes. We feel we've done what we could do. And again, I actually feel pretty good about it. But how the consumer then in the end reacts on everything happening, I think it's too early to say. Harm Ohlmeyer: On your question on the cash on the balance sheet, the EUR 2 billion. I said to the last time, and I confirmed it earlier in the call, will it be exactly EUR 2 billion, depends a little bit on FX and a little bit on the timing. So I wouldn't have sleepless nights if it's EUR 1.9 billion or whatever, but the goal is still to collect on the receivables, and that's what we plan for. So whether it's EUR 1.9 billion or EUR 2 billion, you know, don't get sleepless nights over it, but we want to get close to the EUR 2 billion, that's correct. Operator: The next question comes from the line of Geoff Lowery from Rothschild & Co Redburn. Geoff Lowery: Just one question, please, on China. Could you talk a little bit more about what's powering the performance in terms of product and distribution? Obviously, you've done tremendous cleanup work there over the last couple of years, but the outperformance against the market is looking really very marked at this point. Bjorn Gulden: The strategy in China has been, of course, to compete both against the success of the local brands and, you know, to the Western brands. And we figured pretty quick out that to do that, you need to have more local initiatives and utilize that you have factories in the market so you can go to market quicker and you can actually work with less inventory. So we developed this creation center in Shanghai. We put together a team of Chinese management that also used to work for Adidas in the past and has then worked in other brands to learn how local brands do it and then come back again. And we have, you know, as we speak, between 50% and 60% of the product that we sell, especially on the apparel side, is designed and developed in China. So they are not the same product as you would then design and develop for America or Europe. On footwear, most of the model are franchises that comes out of the global range, but they might be tweaked when it gets to materials. And then there are certain pockets of product that are only for China, also in the lifestyle, even in originals, and especially in performance. We see that the local brands have brought a lot of quality into price points between [ EUR 80 and EUR 100 ], where we were not competitive. And we have then used the creatives and the developers and the factories to develop them competitive products against that. And we have in those, you call them third, fourth, fifth tier cities where the local brands are dominating, we have started opening stores then which focuses on, I call them this value products and have a special offer for them. I think our success when you look at double digit growth and also the margin that we have is because that we have changed that model to be local and that we give the authority to very, very good people. And I also have to say that the energy, I think the LatAm team and the Chinese team are probably the two teams that has, in a market, the highest energy when it gets to actually chasing business, when it gets to where the consumer is. So I would say that's the reason for the success. And I also think it's the only way in the future to get success. I don't think you can sit in neither in the U.S. nor in Europe and just design a collection and tell them to sell it. I don't think that works anymore. Operator: The next question comes from Wendy Liu from JPMorgan. M. Liu: I have two, please. One is on the World Cup. I think, Bjorn, you previously mentioned that it will be a EUR 1 billion opportunity. Would you mind sharing a bit more details about the drivers behind this EUR 1 billion, and how does this compare with previous World Cups? This is number one. Number two, I wanted to go back to the 10% EBIT margin target you had for next year. If I look at this by region, it looks to me like it was really like North America where you probably still have a bit of gap. And then I look at Q3 numbers, 12.4% EBIT margin in North America was actually better than previous couple quarters in last year, despite you have this tariff headwind and you no longer have [ EV ]. So I just wanted to ask what were the drivers and what are your expectations about North America EBIT margin into 2026? Bjorn Gulden: The EUR 1 billion, I think is the number that we have said that we assume that World Cup can bring when we look upon both what we're selling of replicas meaning connected to the teams and cultural relevant I would say products around World Cup. I think the discussion that some analysts have had is this then fully in addition and what I said is that you can never say it's fully in addition because you have to remember that the stores, when you put World Cup product in, you take something else out. So you can never say it's fully, what should I say, in addition. I wasn't at Adidas in the previous World Cup, so I'm not sure, but I would assume that this is 40% or something higher than what we had before, just to give you a ballpark number. And the number is not final. As I said, we launched the ball three weeks ago. It's been tremendously successful, so we might actually take more orders and produce even more than we planned. We are launching the replicas for the home jersey on the 6th of November, so we will see the reaction to that. I will not be surprised when I look at demand around the world that, that will also increase, so the business might even be higher. And we are pretty sure that we will do EUR 1 billion, and I would not be surprised if it is more. When it gets to the 10% EBIT target, I think we've talked about that from a global point of view, and it was the assumptions in '23 that we will keep basically the mix of the business when it gets to D2C and wholesale the same. And with, of course, the development in certain markets that are higher than they are today, You know that the U.S. market, to get really profitable in the U.S., you need scale, and you can clearly see that our profit margin in the U.S. historically has been lower than our major competitors, and that is just because of scale. The improvement that you have seen this year already compared to last year is, of course, that we are doing a better job. The local, what should I say, development, the investment in American sports, the performance in our own stores, have improved the EBIT margin in the U.S. Having said that, there is a huge upside to that if we get more scale. So it's clearly a target for us and also our American management, of course, to grow over proportionally in the U.S. and then put some of that into the leverage when it gets to getting a higher EBIT margin. I think that's my feedback. Operator: The next question comes from Warwick Okines from BNP Paribas Exane. Alexander Richard Okines: I've got one on gross margins, one on costs, please. On gross margins, discounting was a fairly neutral dynamic in Q3. Have you reached the limits of what you can do in full price? And then secondly, on operating costs, I wonder if you could just comment a little bit more about what's happening there. Have you been taking OpEx out of overheads, and if so, have you got any examples of that, or is the cost story more about leverage and the movements in currency? Bjorn Gulden: You know, the gross margin, that has different components because when it gets to the D2C business, we have been very strong on sellout on inline products. The only place where we've been a little bit more promotional has actually been on e-com. And that is because e-com in general has been, you know, I would say aggressive on discount. And we were probably too restrictive on it last year, mainly because we didn't have enough product. And this year, we've been better in supplying product, we have decided to follow certain events more aggressive. But it's not hugely different, though, because the full price sellout has been very strong. The other discount where you don't control, of course, is what are the retailers doing. And depending on how much inventory is in the market from other competitors, and I do assume you are aware of that big competitors have a lot of inventory that the retailers have discounted, And then, of course, that hurts your full price sale because if you are at full price on EUR 100 shoe and the competitor is on 50% on EUR 200 shoe, then, of course, you will sell less. That's just the math. And we hope, of course, that the inventory level in the trade will go down so that the discounting will be slower. But again, that's outside of your control. On lifestyle products and on the new performance product, I would say that our sell-through rate has been very good. But of course, in a very heavy discounted environment, you had sometimes a slower sell-through because of the discount level in general. But that is very different from market-to-market. But sell-through on full price for us has not been the problem, and I think you see that also in our margins, so we're actually very happy with that. When it gets to the cost, I'm looking at you, Harm. Harm Ohlmeyer: Yes, Warwick, good question. There's probably three things I would like to mention. First, I mean, we have been very, very disciplined in the organization around the world because we believe in the past there was a culture of you need to have more people in order to grow the business. And now we put it the other way around. If you do more with one account, whoever the account is, it doesn't mean you need to have more people, right? And even if you, you know, develop the products, you know, I mentioned earlier, the Oasis product is more a batched up, you know, you know, soccer products and you don't need more people in order to do an Oasis range, right? So we put a lot of discipline in, you know, what are the commercial opportunities without asking, you know, for more people. So that has been very disciplined. Secondly, as we said, we have simplified how we run the company overall. We have empowered the markets. It's a new operating model. And we, of course, there were some tasks that we used to be in headquarters that are now being taken over by the markets or there have been duplications, right? And you know that we had a volunteer relief program at the beginning of the year, so that is definitely something that is contributing to that as well. But it's first and foremost simplification of our processes, avoiding duplication. And of course, if you do that, we need fewer people, and that's what you see continuously in the P&L quarter by quarter. Yes, you have a good point. FX helps as well. I mean, that brought the absolute number down in that quarter. But at the end of the day, I want to highlight again, Q3 is a very clean quarter when you look at this here, and that shows you that we can be below, you know, 30% when we have the right top line, right? So that's why I believe regardless of any comparison or path or whatsoever, we show in, you know, with a good top line, we have a clean, you know, cost as well, and that brings us below 30%, and we are not done. Operator: Next question comes from Robert Krankowski from UBS. Robert Krankowski: I've got like two questions. Just first one on the top line, second one on margins. We are almost in 2026 and given your strong confidence around the World Cup, the running category, the lack of easy now in the base, anything that you can see and or any reason why you shouldn't grow double digit in 2026? And then second one on gross margin, like again, we are looking at the gross margin close to 52%, so upper end of your guidance. And next week, we are going to see all the benefits probably of the mix with upper strong growth, as well as some of the transaction effects coming. So how should we think about the gross margin range? Is it more now 52% to 53%, for example, in 2026? Any comment would be really appreciated. Bjorn Gulden: You should be a sales guy, right? I think when you look at '26, we're not guiding it yet. It's the same thing always. We are very conservative when we look into the future because we don't want to disappoint you. We want to bring Q4 behind us. We want to see what's going on in the world. When you look at the industry and you look at what we think we have in the pipeline, I think you're right. But the external factors is; a, how is retail reacting to the uncertainty? How is the consumer reacting? And what other political tensions are getting into the way? Who knows? And the reason why I showed you the slide at the end of the presentation, where we've gone from EUR 300 million EBIT to EUR 2 billion, is, of course, that we think we have; a, taken risk in the sense that we bought enough and marketed enough to actually get there, because growing double-digit three years in a row is, of course, a risk in an environment. And secondly, in the transition to the new business model, you have to remember we changed a lot. So I think it's about, again, how confident are we that we can continue to grow in an environment that they're uncertain? And how can we make sure that we have a base in our organization and the way we work that is aligning to this growth with a new business model? And I think that's the only risk factors. I'm 100% convinced that Adidas is a brand that can stabilize over years a double-digit EBIT. And that the growth to take market shares should be double-digit in most markets, depending, again, what else is happening. And I don't think I can say something else than that because you're going to arrest me, you know, first quarter if something goes wrong, right? When it gets to the margin, is it 52% to 53% again? That, of course, depends on where we are growing then. Are we growing in the e-com side ourselves and in the D2C because, you know, we can do that? Then you're probably right. Are we growing in the markets with high margin like China? Then you're right. The growth for us in the U.S. is, of course, the one with the lowest margin. That's the way it is. So it depends, again, on the mix going forward. But in principle, when we said 50% to 52%, we did not believe that we already would be at 52% now, right? So we have achieved this margin higher or quicker than we thought, and not because of the mix but because of the success in the growth and maybe also because all the brands then didn't have the success that we had. So, again, there's many factors. And, of course, you always want us to be very accurate, but it's very difficult because there's so many variables. We are taking shares, I think, in all markets currently. We have a pipeline of products that we believe in. But of course we do not know these external factors. And of course we don't know what the competitors are doing, especially when it gets to being aggressive on discounts and pricing. So I think that's all I can give you. And I'm looking around if someone wants to add anything. Operator: Next question comes from Aneesha Sherman from Bernstein Societe. Aneesha Sherman: I have two please. The first one's about your running business. It's been growing at strong double digits all year in contrast to the slowdown that we're seeing in some other big running brands. Can you remind us how big your running business is and are you seeing any pressure on order books for 2026 given how competitive this category is becoming? And then related to that, my second question is around marketing. So marketing, you've ramped it slightly through the year. You're still guiding for that 12% level, but we've now seen some big competitors ramping up marketing, trying to gain share. Do you still think 12% is the right level given the increase in competitive intensity, or is there a possibility you might push that up a little bit higher next year? Bjorn Gulden: I don't think Harm will give me more than 12%, to be honest. And I'm not even sure if increasing it will make you more efficient. I mean, marketing is a funny thing because the number itself doesn't necessarily mean that you're better. And I think even in our 12% is not like we will look back and say all the 12% we had were invested the best way. So I think there's room within the 12% to actually do it better. My marketing people will kill me now for saying it, but I think that's the case. So we don't have any plans or needs right now to go above 12%. The beauty would be if we could find ways of actually taking the percentage down, but we also don't have any plans about that because we have said that investment level, when it gets to having the assets, you know, we invest about half of the money in actually having relationship with federations, with teams, with athletes and celebrities and the rest to activate them. And so far, I think that that's been a decent number. If that is changing, I mean, you say people are ramping up, and we don't really see that because, yes, there are some brands who are ramping up, but there's also someone who's slowing down. So when it goes to the competitiveness by actually signing things, I feel it's pretty stable. The best athletes and the hottest celebrities are always getting more expensive. But when you look at the width of it, I don't really see any big differences. The running business, your question is, again, an interesting one. And to quantify exactly how big running is depends on what shoes do you put in there. But I would say it's around EUR 2.5 billion, which, again, when you put that into the context, you will see it is a pretty big running brand. But again, we have created that mostly on the higher end of the pyramid and on the speed thing. And if you look at competitors that have been very successful, they have been much more in the everyday running and especially in the comfort running. And I think we learned from that, and that's also why this hyperboosting is so important for us because we really, really believe that there are Adidas consumers that love a brand who didn't have the products available that they would like to buy from us. And all research that we have done shows that. And we believe that the sector of comfort running, because heavy cushioning, instep comfort, and all those things are also things that people are looking for in their non-performance, what should I say, shoes, meaning in the lifestyle and comfort area. So this hyperboosting is for us very important. We might be a little bit late to the game in your eyes, but we didn't have it ready yet, and that's why we waited. And again, since we were growing anyway and running on the high-end side, we also didn't see the necessity of it. And the third thing is you have to remember we went out of running specialty, meaning that we didn't have any, what should I say, activities and relationships with running specialty because previous management thought we could go D2C on it. To build that back again, a; to hire people to be in the running communities and also to get the specialty to buy into you again, is, of course, something that takes time. And in many, many markets, we were totally out, and the share we have in running specialty in many markets are still very low. And as we're building that with more innovative products and more visibility, of course, we see huge potential in the running category. So that is the category I think that has the biggest potential in performance side to grow in. Operator: The next question comes from Piral Dadhania from RBC. Piral Dadhania: My first question is on the top line, and my second question is on share buyback potential. So sorry to have to come back to this, but could you just help us understand perhaps for the first half of 2026 whether the wholesale order books, which make up like 60% of your revenue base, is showing double-digit revenue growth? I think when you took over, Bjorn, you talked about 10% revenue growth through cycle. So is there anything, aside from obviously the external macro, which is very uncertain, but I think that's true for not just your company but your competitors, is there anything beyond that within your control that would lend itself to a different outcome for '26? And then the second question is just on the buyback potential. I think it's fair to say that the Adidas share price and equity valuation doesn't appear to be fully reflecting all the strong execution and the performance that you're delivering, including relative to peers. I think, Harm, that the initial targets when you guys all took over was to reduce the leverage to 1x net debt to EBITDA to build up a gross cash balance to close to EUR 2 billion, which it looks like you'll achieve either by the end of this year or into the first part of next year. So do we think that a good use of growing free cash flow, especially as the working capital position starts to wind down, as you suggested in your prepared remarks, may be useful in sending a positive signal to the equity markets and to start buying back your stock at a discounted valuation? Bjorn Gulden: I mean, the simple answer to your first question is no. There's no reason why we shouldn't only internal-wise get to the double-digit growth. I think that's fair. And buyback is not my area of speciality, so I give it over to Harm. Harm Ohlmeyer: Piral, thanks for acknowledging that the capital market didn't get our story in full. And that's probably true. So we actually, we look at that when you look at the share price, right? But, first and foremost, we say we want to invest into the operational business. What we have done, you have seen that in the operating working capital. Secondly, you want to be a solid dividend payer, which is always on the 30% to 50% of the net income from continued operations. And then of course, you know, I have a good, good analogy. And what I said, I was one to have EUR 2 billion of cash on the balance sheet. We either, you know, achieve the year end or with some rounding, you know, getting there in Q1. Yes, there are always some cycles from a working capital point of view. But you're absolutely right. So, but that's definitely something we will look into next year when it comes to share buyback, not this year, unless we believe we want to be opportunistic here or there, and then we want to do something short-term, right? But right now, let's get to the EUR 2 billion first and then look at that for next year. That's probably the most logical answer. But we always, you know, look at that opportunistic as well. Operator: Next question comes from Thierry Cota from Bank of America. Thierry Cota: Actually, two questions on Q4 and H2 '25. You've said your implied guidance leads to 6% to 7% organic growth rate in the fourth quarter. So what do you think would be the factors of such a slowdown versus Q3, especially when the Yeezy headwind drops to about 1%. And the second question would be on the EBIT. The EBIT guidance, the new one for '25, implies about EUR 100 million EBIT in the fourth quarter. So what do you think would be the drivers of such a decline versus Q4 '24? So you're on your decline when you remove the one-offs that you saw last year. And I would like to ask, would that be linked to the DNA, which it seems was pretty low in Q3? So is there a catch-up that we could expect in the fourth quarter and impacting negatively the EBIT? Bjorn Gulden: Well, I think as always, Q4 is this quarter where people react to different things, and we are always careful guiding for Q4. It's always the same because we are dependent on that retailers take their order book. We are dependent on what happens when it gets to discounting on the digital side. That's why I think historically you always see me guide very, very conservatively on Q4. I think that's the only reason. And, you know, there might be in the way that we are trying to improve ourselves that we will also have some one-offs that we will do in Q4. So I think it's just a conservative outlook and the need not to say anything that we actually disappoint you because that's always in the way we talk. And then I think there was a question to you, Harm, wasn't there? Harm Ohlmeyer: Yes, there's nothing specific on the depreciation that you called out, and that is not the reason for the Q4, but I want to echo what Bjorn said. I mean, when you get ready for '26, we have achieved a lot in the first nine months, and there's nothing specific we look at last year as well, or even going back in history, what our Q4 was. There's some seasonality in this one, but there's nothing specific we want to call out. So as Bjorn said, I want to make sure that we achieve what we say and then get ready for the World Cup here. Thierry Cota: Sorry, just a follow-up. The DNA again was particularly in Q3. Was there any particular reason for that? And should we expect a rebound in fourth quarter? Harm Ohlmeyer: I'm not aware of any specific reason, quite honestly. Let me come back to you then, Thierry, but I could not say there was any specific in Q3 or anything special for Q4 relative to Q3, but -- and if you look into this one, I'm not have anything specific. Operator: The next question comes from the line of Andreas Riemann from ODDO BHF. Andreas Riemann: Two topics here. One is tariffs. In the past, you stated that the market for takedown versions of tariffs would be larger than the market for original versions of Samba or Gazelle. So today, you didn't mention that. So how relevant are those takedown versions at this stage? And then what markets is the penetration of the takedown versions already quite high? This will be the first topic. And the second one on the cash flow, Harm, you mentioned the EUR 800 million or EUR 1 billion to be generated in Q4, that operating cash flow, right? That's from my side. Bjorn Gulden: Yes. I think I quoted that because normally, when you have higher end price points, the market for the takedowns is bigger, I have to tell that the sell-through of the higher end, meaning the originals, has been so high. So still, the higher end is actually bigger than the takedowns. Having said that, if you look at the family channel, of course, they have followed all these trends. So you will find takedowns of all the [ Terrex ] shoes in the market. But it is true that in this case, and it might have to do that, you know, the original classics and [ Terrex ] are, you know, between EUR 100 and EUR 120. So it's not expensive, expensive, that the higher end of the market has actually been bigger than the takedowns. That might change as we are converting more of the takedowns also into the same materials as we do upstairs. But to be honest with you, because we've been so successful upstairs, we haven't pushed the takedowns as much as I thought that we had to. So this is more of a, what should I say, coincidence in the sense that it has worked so well in the distribution upstairs, also in our D2C, that the need for doing takedowns hasn't been there. So I think this is a very unique situation, to be honest. Harm Ohlmeyer: Yes. And to the second question, we indeed talked about operating cash flow, you're right. Sebastian Steffen: Maura, we have time for 2 more questions. Operator: Next question comes from Anne-Laure Bismuth from HSBC . Anne-Laure Jamain: Yes. My first question is regarding the FX. So can you tell us or help us to quantify what would be the tailwind from FX on margin in 2026? My second question is related to tariff. Actually, regarding the tariffs in Vietnam, a final trade agreement is expected soon. So is there any industry expectation on Vietnam tariff changes for the sportswear industry? And maybe your last one regarding the performance in the U.S. So you talk about the reset in accessories. So is it a one-off impact? So does that mean that all things being equal, you can return to a double-digit growth rate in Q4 -- thank you very much -- in the U.S.? Bjorn Gulden: Well, the tariff for the U.S. hasn't changed. They came out and said they keep it at 20% and then negotiate in categories that might be exempt. But there's nothing new on that. So all products currently is at 20%. And we are not assuming any reduction because that would be dangerous. But, of course, we hope with Vietnam and other markets that shoes and apparel would be exempt. But that's not the case. And I think that came out actually yesterday for many markets, if I'm right. And then when it gets to the US, the accessory business that is not performance-oriented has been, I would say, first of all, a lot China sourcing. So, of course, that had to change. And secondly, it's been in the distribution that you're trying to upgrade. So, It's not a one-off in the sense that there is something you do from today to tomorrow, but I think there's good, good chances that that will come up again to double-digit increases. There's nothing drama in this, to be honest, and maybe we didn't explain it well, but it did hit us in Q3 for those reasons, and then there are plans actually to improve that very quickly. There is also no inventory sitting anywhere to clean up. I think people under or overestimated the impact of this. So I think accessories being global is 7% of our business, and we have said all the time that it should grow quicker over time. It's kind of the last thing in the sequence of footwear apparel that accessories come. And we grew it 1% now, and I do think that in the future when we get to '26, we should see double-digit growth there. I think that's my only answer to it. And don't read too much into this because it is not a big, big thing, to be honest. Harm? Harm Ohlmeyer: Yes, When it comes to the FX for '26, I understand you all want to have a concrete percentage or number for your spreadsheets, but I can just promise you there will be tailwind, given where we're hedged. But there's more than just the U.S. dollar. There are other currencies as well, whether it's the Japanese yen. I talked about Argentinian peso, Mexican peso, the other currencies as well. We have sizable markets, meanwhile, not just in Latin America, but around the world. But also, assume it will be tailwind when it comes to Euro, U.S. dollar. We also are fully hedged already for spring-summer '26, but there are also some open hedges. We normally hedge only 80% of our exposure, so it also depends on where the spot rate is, and we always run a simulated hedge rate if you would close it today, but of course we are waiting. It will be more tailwind if the dollar goes to $1.25, then we probably struggle on the translation again. But overall, we are going very positively from an FX point of view into '26. That's all I can say. Operator: Today's last question comes from the line of Anna Andreeva from Piper Sandler. Anna Andreeva: Happy to have made it. A follow up on North America. Great to hear about the double digit strength in footwear and apparel during the quarter. Can you talk about how lifestyle is performing versus performance in the U.S.? Is Terrace still growing in the U.S.? And what are you seeing with sell-through in Run Specialty and other wholesale partners? And then separately on gross margin, improved very nicely sequentially in the region, despite the tariffs. Maybe talk about what drove that and sustainability of that as we get into the fourth quarter. Bjorn Gulden: I think it's fair to say that the growth in the U.S. has been more lifestyle-driven than performance. I do think it's fair to say that for us to be a real sports plan in the U.S. we need to continue to invest, to get better distribution of a market share in the sports trade is very low. And you're asking about the Running Specialty. We were almost out of it. So we expect actually over the next 18 months to see a pretty high growth when it gets to Running Specialty because you're coming from a low base. And we are a hundred percent sure that the investments that we're currently doing in American sports, connecting to both college and professional sport will help us to get much better distribution with the [indiscernible] of this world and the academies and also in the specialties. So I think it's fair to say that it's obviously been lifestyle-driven so far. Anna Andreeva: Terrific. And on gross margin as a follow-up. Bjorn Gulden: Yes. As I said, I do think that the gross margin in the U.S. is, of course, dependent on that you get good distribution and that you avoid discounting. I do think also that the margin in general in the U.S. has to do with scale. There is an upside on margin in the U.S., no doubt about it. You have seen improvement, and that has, of course, to do that we have had better sell-through, and we got more of the right product into the wholesale business and we have run especially our factory outlet much better than we used to do, but that has clear an upside. So we see optimistic. Okay. If you take the tariffs out, which, of course, is then the negative side of it. But everything being equal, we should be able to build gross margin and actually our operating margin in the U.S. over time because we have not run that market optimal, to be honest with you. Sebastian Steffen: Thanks very much, Anna. Thanks very much, Maura. And of course, thanks very much to Bjorn and Harm. And thanks very much to all of you for participating in our call today. . Before concluding today's call, I would like to highlight that we will be welcoming a group of investors here at the World of Sports next week. We talked quite a bit about our excitement about our product pipeline, be it Hyperboost, be it our new Original sports line, be it the Superstar, but also the material updates within tariff. So if you're interested in experiencing that, then please let us know, and we'll be happy to host you next week as well. If you have any more questions to ask, then please feel free to reach out to Adrian, Philip, myself or any other member of the IR team. And with that, thanks very much again for your participation. We wish you a good and golden autumn season and look forward to chatting with you soon. Bye-bye.
Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Airbus' Nine-Months 2025 Earnings Release Conference Call. I am Sharon, the operator for this conference. [Operator Instructions] The conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to your host, Guillaume Faury, Thomas Toepfer and Helene Le Gorgeu. Please go ahead. Helene Le Gorgeu: Thank you, Sharon, and good evening, ladies and gentlemen. This is the Airbus' Nine-Months 2025 Earnings Release Conference Call. Guillaume Faury, our CEO; and Thomas Toepfer, our CFO, will be presenting our results and answering your questions. This call is planned to last around an hour. This includes Q&A, which we will conduct after the presentation. This call is also webcast. It can be accessed via our home page by clicking on the dedicated banner. Playback of this call will be accessible on our website, but there is no dedicated phone replay service. The supporting information package was published on our website earlier today. It includes the slides, which we will now take you through as well as the financial statements. Throughout this call, we will be making forward-looking statements. I invite you to refer to our safe harbor statement that appears in the presentation slides, which applies to this call as well. Please read it carefully. And now over to you, Guillaume. Guillaume Faury: Thank you, Helene, and hello, ladies and gentlemen. Thank you for joining us today for our nine-month 2025 results call. We are here in Amsterdam with Thomas to run you through our results. Our operating environment remains complex and dynamic. Navigating strong demand combined with the specific supply chain tensions, and that have not changed, still requires continuous operational discipline and agility, in particular, in the environment of changing trade policies. We welcome the U.S.-EU trade agreement, which restores a stable and tariff-free environment for trade in aircraft and parts since the start of September. This is a crucial step that allows our global industry to move forward with the predictability it needs to invest and innovate. Yet the still unstable geopolitical situation remains an area of continuous vigilance. In that context, we are rolling out our plan to reach the A320 family production target of rate 75 per month by establishing 10 A321 capable final assembly lines across four global sites. The recent addition of a second line in the United States and the second line in China marks a critical milestone in our global industrial growth strategy, but also enhances our overall business resilience. We are scaling up our operations and expanding capacity as we move forward with the commercial aircraft ramp-up. We're also committed to contributing to European defense and remain focused on delivering more competitive and innovative products and services with our two divisions, and we see a growing momentum. When it comes to European strategic autonomy, we have made significant progress towards the consolidation of our space activities together with Leonardo and Thales aiming at establishing a leading European company, and I will come to this in a minute. In Q3, we delivered 201 commercial aircraft. And as the engine situation is showing signs of recovery, the number of gliders is now at 32 as of the end of September. This brings our year-to-date deliveries to 507 aircraft as compared to 497 last year. Deliveries continue to be back-end loaded as we navigate the engine situation. We have a strong year-end rally ahead of us, and our teams are in the sprint. Our EBIT adjusted stood at EUR 4.1 billion as of nine months 2025. This reflects the commercial aircraft deliveries and the solid performance at both Airbus Defense and Space and Airbus Helicopters. Our free cash flow before customer financing was minus EUR 0.9 billion. It notably reflects the inventory buildup that supports the Q4 deliveries and the ramp-up. On that basis, we maintain our 2025 guidance, which now includes the impact of currently applicable tariffs, and we'll come back to this later. Moving to space. We've made a major strategic step forward. We are very pleased with the recent announcement of signing a memorandum of understanding an MOU with Leonardo and Thales to form a new European space player in 2027. If you recall last year, I was clear we needed to focus on fixing our foundations and restore profitability. The turnaround plan is in full motion, and we are pleased with the first results. In parallel, we've been working on strategic options to create scale and increase competitiveness facing global players. The new company aims to unite and enhance capabilities in space by combining the three respective activities in satellite and space systems manufacturing and space services. The MOU is a collective industry commitment to strengthen the European space sector. The next steps include launching the social consultation process with our social partners, preparing to carve out the space businesses and addressing regulatory needs. We have a busy journey ahead, and we are fully committed to this major and exciting project. Let's now look at our commercial environment, starting with commercial aircraft. Passenger traffic continued its growth momentum, while air cargo demand remained resilient. During the nine months '25, we booked 610 gross orders, including 116 in Q3. On the A220, we booked 40 gross orders. And looking at the A320 family, we booked 371 gross orders. This brings our backlog to 7,105, out of which around 75% are for the A321. And the 7,105 is just for the A320 family, of course. Moving to the wide-bodies. On the A330, we booked 90 gross orders, confirming the high demand for this versatile product. Finally, on the A350, we booked 109 gross orders, underpinning the continued commercial momentum of what has become the reference in the market. Net orders amounted to 514 aircraft, including 96 cancellations, which were largely anticipated and already embedded in our backlog valuation as of December 2024. Our backlog, total backlog in units stood at 8,665 aircraft at the end of September. Looking at Helicopters. In the nine months '25, we booked 306 net orders compared to 308 in the nine months '24, so very similar, and this is well spread across the portfolio. We continue to see positive momentum, in particular on the military market, and we remain focused on securing new business opportunities in both our home countries and export markets. A new Airbus final assembly line will be established in India to build H125 helicopters in collaboration with Tata Advanced Systems, aiming at capturing the full potential of the civil, parapublic and military markets in South Asia. Let me conclude by highlighting that we have streamlined our small and medium tactical uncrewed aerial systems, UAS, the drones offering into a single comprehensive portfolio managed by the Airbus Helicopters division. This aims at delivering a focused market approach for defense and security customers and provides customers with cutting-edge capabilities for surveillance, intelligence and operational flexibility. Finally, in Defense and Space, order intake stands at EUR 6.8 billion for the nine months. On Air Power, this notably reflects an order from the Royal Thai Air Force for a next-generation Airbus A330 MRTT+. This advanced aircraft is an evolution of the combat proven A330 MRTT, introducing innovations from the A330neo as well as upgraded military capabilities. So, in particular, the new engine of the NEO that is now on the MRTT+. While on Air Power, let me highlight the recent contract with Germany for the acquisition of 20 Eurofighter aircraft to be produced at our final assembly line in Manching and to be delivered to the German Air Force starting from 2031. The order intake will be recorded once all contractual conditions are met. So the order intake is not yet recorded in the Q3. The momentum for the Eurofighter is also strong on the export market outside of the home countries of the Eurofighter, and that was also demonstrated by this week's commitment from Turkey, Turkey to acquire 20 units. The Eurodrone program is making progress as we successfully completed the CDR, the so-called critical design review earlier this month. This officially concludes the design phase and paves the way to prototype production and ground tests ahead of first flight. On FCAS, we remain convinced that Europe needs to have its Future Combat Air System in order to meet its security challenges and further develop its critical skills and know-how in this field. Given the level of effort and investment required, we are convinced -- I am convinced of the benefits of a collaborative approach, and we intend to play a leading role in making it happen in a way or the other. Overall, on what concerns the defense part of our Airbus Defense and Space and Helicopters businesses, we are observing a growing momentum, and we expect it will continue in the foreseeable future. And now Thomas will take you through our financials. Thomas? Thomas Toepfer: Thank you very much, Guillaume, and hello, ladies and gentlemen. I'm now on Page 7 of the presentation. And as Guillaume said, I will take you through our financial performance. So, as you can see on the chart, our nine months 2025 revenues increased to EUR 47.4 billion, which is up 7% year-on-year, and it mainly reflects the higher contribution from our divisions with stronger services volumes across our businesses and a higher level of deliveries, partially offset by the U.S. dollar depreciation. And as you can see on the right-hand side, our R&D expenses stood at EUR 2.1 billion for the first nine months of the year, lower compared to the nine months of 2024, and we continue to benefit from the prioritization of our activities, and we now expect that the R&D expenses will be slightly lower in 2025 than in 2024 when we talk about the full year. Now let's look at EBIT adjusted on Page 8. As you can see, our nine months 2025 EBIT adjusted increased to EUR 4.1 billion from EUR 2.8 billion in the nine months of 2024. And of course, let me remind you that in the nine months of last year, we recorded EUR 989 million of charges in our space business, which obviously did not repeat themselves. As of the nine months of this year, the higher commercial aircraft deliveries embed a less favorable mix, which is offset by a more favorable hedge rate and lower R&D expenses. And it also reflects a stronger performance in both divisions. So, let me just clarify the impact of the currently applicable tariffs at this point. We expect this to represent anything between EUR 100 million and EUR 200 million for the full year, of which, however, the vast majority will be recorded in Q4. And as you can see on the right-hand side of the page, the level of EBIT adjustments totaled a net negative EUR 0.8 billion, and I'll just walk you through the items. It has in a negative EUR 577 million impact from the dollar working capital mismatch and the balance sheet revaluation, mainly reflecting the mechanical impact coming from the difference between transaction date and delivery date, of which negative EUR 186 million occurred in Q3. Secondly, it has negative EUR 105 million related to the Airbus Defense and Space restructuring, which we recorded already in Q1, and it has negative EUR 88 million related to the stabilization of certain Spirit AeroSystems work packages, of which EUR 31 million recorded in Q3. And finally, negative EUR 11 million other, including compliance costs and also M&A. So this takes our nine months 2025 EBIT reported to positive EUR 3.4 billion, and the financial result was positive EUR 374 million, and it mainly reflects the revaluation of certain equity investments and the revaluation of financial instruments, partially offset by the evolution of the U.S. dollar. The tax rate on the core business continues to be at around 27%. However, the effective tax rate is 32.4%, including the tax effect on the revaluation of certain equity investments as well as a net deferred tax asset impairment. And we still expect the French surtax to result in an impact of around EUR 300 million in 2025, both for P&L and cash. And in the nine months of this year, we recorded the part that is related to the year 2024 as well as the part corresponding to the first nine months of this year. And so the resulting net income is EUR 2.6 billion with earnings per share reported of EUR 3.34, as you can see on the chart, and the nine months 2025 EPS adjusted stood at EUR 3.97 based on an average of 790 million shares. Now with this, let's turn the page to Page 9 and look at our U.S. dollar exposure coverage. Consistent with what we said during our business update, we began to implement a limited number of 0 cost collars, exactly EUR 2.1 billion in the quarter into our hedge portfolio. And the EUR 2.1 billion is dollars, not euros, obviously. Now this strategy aims at addressing the longer-term horizon with an acceptable level of volatility and to potentially capture the favorable evolution of the U.S. dollar, while at the same time being protected against a material weakening of the dollar. And let me just be clear, we do not aim at replacing our forward, but rather to complement our coverage with a limited amount of colors. And as indicated, the collars will, at this stage, remain at around a single-digit percentage of the overall coverage. Now with the integration of colors, the blended rate now includes the least favorable rate of our colors. And so hence, it provides you with a protected or conservative view. And with all that being said, as you can see on the page, in the nine months of 2025, USD 14.8 billion of forwards matured with the associated EBIT impact and euro conversions realized at a blended rate of $1.18 versus $1.21 in the nine months of 2024. And we also implemented USD 12.7 billion of new coverage at a blended rate of $1.18. And as a result, our total U.S. dollar coverage portfolio in U.S. dollar stands at $80.7 billion, with an average blended rate of $1.21 as compared to $82.8 billion at $1.21 at the end of 2024. So now let's look at our free cash flow on Page 10. Our free cash flow before customer financing was negative EUR 0.9 billion in the first nine months of the year. And as you can see on the chart, this outflow was mainly driven by the change in working capital, and it notably reflects the planned inventory buildup to support our ramp-up across our businesses, and it also includes a favorable phasing effect of cash receipts and payments. On the A400M, the aircraft slightly weighted negatively on our free cash flow in the nine months of 2025 as the deliveries of the aircraft are back-end loaded However, we continue to expect it to be broadly neutral from a free cash flow perspective in the full year 2025. As you can also see on the chart, the nine-month CapEx number was negative EUR 2.3 billion, and we continue to expect it to increase in 2025 to support our industrial ramp-up so that the free cash flow was negative EUR 0.8 billion, including customer financing of a positive EUR 0.1 billion. What we can say is that the aircraft financing environment remains strong and competitive, and we expect sufficient liquidity to finance our 2025 deliveries. So with that, our net cash position stood at EUR 7 billion as at the end of September, also reflecting the dividend payment as well as the weakening dollar environment, but I should stress that our liquidity remains very strong at around EUR 30 billion. And in September, as you might have noticed, Moody's upgraded our credit rating to A1 with a stable outlook, and we think this is underlining our consistent strong credit management and the strength of our balance sheet. And with that, I would like to hand it back to Guillaume. Guillaume Faury: Thank you, Thomas. Very clear. So now let's start with commercial aircraft. In the nine months 2025, we delivered 507 aircraft to 79 customers. Looking at the situation by aircraft family. On narrowbodies, we delivered 62 A220s and 392 A320s. And out of the 392 A320 family aircraft, 250 were A321s, representing 64% of the deliveries for the A320 family. We are very pleased that Air New Guinea has taken delivery of its first A220, becoming the 25th global operator of the aircraft, which is now flying with carriers on five continents. The A320 family reached a major milestone, becoming the most delivered aligner in history. There's a bit of pride here, as you can feel. And we continue to ramp up towards a rate of 75 A320 family aircraft per month in 2027. That's no change compared to previous assumptions. On the A220, the current balance between supply and demand has led to an adjustment of the ramp-up trajectory and the ramp-up ahead of us. We are now targeting to reach rate 12 in 2026, allowing time for the integration of the Spirit AeroSystems work packages, mostly the wings and the progressive introduction of engine durability improvements for our customers. This means more work to reach breakeven, and our team are actually on it. In the nine months, we delivered 53 widebodies, of which 20 A330s and 33 A350s. On the A330, we're currently stabilizing at a monthly production rate of four. As previously introduced, we are now targeting to reach rate five in 2029 to meet the customer demand for the A330. On the A350, there's no change. We continue to target the rate 12 in 2028. When it comes to the A350 freighter, I'm pleased to say that we started the assembly of the first flight test aircraft in Toulouse with the first flight planned next year. In a nutshell, we continue to produce in line with the plan. The challenges for the year have not changed, notably with cabin and for the A320, the persisting tensions on engines, resulting in 32 gliders at the end of September. The engine situation is showing signs of recovery, and we continue to work closely with the engine manufacturers to deliver on our 2025 commitments. Now let's look at the financials for our commercial aircraft business. Revenues increased 3% year-on-year, mainly reflecting the higher number of deliveries and growth in services. EBIT adjusted was at EUR 3.3 billion in the nine months, driven by favorable hedges rates and slightly lower R&D expenses, while the increase of deliveries embeds an unfavorable mix. Looking at helicopters. In the nine months, we delivered 218 helicopters, 28 more than at nine months of 2024. Revenues increased around 16% to EUR 5.7 billion, reflecting a solid performance from programs and Services growth. EBIT adjusted increased to EUR 495 million, reflecting growth in services as well as higher deliveries, as I mentioned earlier. And let's complete our review with Defense and Space. Revenues increased 17% year-on-year to EUR 8.9 billion, driven by higher volumes across all business lines. EBIT adjusted stood at EUR 420 million, supported by higher volumes and improved profitability, in line with the divisional midterm trajectory. On the A400M program, we engaged in positive and forward-looking discussions with the launch nations and OCCAR. This was notably marked by the agreement reached in June with OCCAR to advance seven deliveries for France and Spain and to further increase the visibility we have on the production for the program. In light of uncertainties regarding the level of aircraft orders, Airbus continues to assess the potential impact on the program's manufacturing activities. Risks on the qualification of technical capabilities and associated costs remain stable. And now on to our guidance, which, as you have seen, is maintained. On the basis of its 2025 guidance, the company assumes no additional disruptions to global trade or to the world economy, air traffic, the supply chain, the company's internal operations and its ability to deliver products and services. The guidance now includes the impact of currently applicable tariffs. The guidance also includes the impact of the integration of the certain Spirit AeroSystems work packages based on preliminary estimates and an assumed closing in the fourth quarter of 2025. On that basis, the company targets to achieve in 2025 around 820 commercial aircraft deliveries, an EBIT adjusted of around 700 -- sorry, of around EUR 7 billion. We're not yet there. And the free cash flow before customer financing of around EUR 4.5 billion. Just to clarify my statement on EBIT, it's -- we target an EBIT adjusted of around EUR 7 billion. The anticipated impact of the integration of certain Spirit AeroSystems work packages on the company's guidance remains broadly in line with previous estimates. But maybe, Thomas, you want to be more precise on some of those elements? Thomas Toepfer: Yes. Let me just add a couple of precisions and details to what you said, Guillaume. So, first of all, on tariffs, as I said earlier, we expect this to represent anything between EUR 100 million and EUR 200 million for the full year, but the vast majority of the total amount will be recorded in Q4. And secondly, on Spirit AeroSystems, when we say broadly in line, what do we mean is that the closing date is now expected before the end of the year, and all parties are putting all necessary efforts into the closing process, and this is on track for the operational readiness for day one. But of course, it is later than what we had anticipated at the beginning of this year when we put out the guidance. Now this shift of the closing into Q4 comes with a partial relief to free cash flow because we didn't own the business, and therefore, we did not record any negative operational result in our free cash flow. On the other hand, you have also seen in our financial statements that we, of course, provided credit lines to Spirit, which are recorded below the free cash flow line. So in total, this remains broadly neutral in terms of the net cash position for the company. But everything else being equal, you could take this slight free cash flow positive adjustment in the range of a low triple-digit number into your models, if you want. But obviously, the order of magnitude is not such that it led us to change the guidance. And with that, back to Guillaume. Guillaume Faury: Thank you, Thomas, for those precisions. And I'll conclude with our key priorities, and they have not changed. We are and we remain fully committed to executing the next steps of our commercial aircraft production ramp-up together with our suppliers. Our focus is twofold: addressing the remaining specific supply chain tensions, in particular, on narrow-body engines where durability remains a headwind as well as cabin while also preparing the integration of the key Spirit AeroSystems work packages. As we focus on our production goals, we're also maturing the critical technologies that will define the successor of the A320 family in line with our ambition to pioneer the next generation of commercial aircraft. When it comes to Airbus Defense and Space, we are progressing on our transformation and contributing to establishing a European space leader. On European defense, the industry is clearly in motion. We are embracing this challenge by leveraging the combined expertise of our Defense and Space and Helicopters divisions to drive scale and cooperation in Europe. And now let's turn to your questions in the Q&A. Helene Le Gorgeu: Thank you, Guillaume. Thank you, Thomas. We will now start our Q&A session. Please introduce yourself and your company when asking a question. Please limit yourself to two questions at a time, and this include sub questions. Also, as usual, please remember to speak clearly and slowly in order to have all participants, particularly ourselves, to understand your question. So, Sharon, please go ahead and explain the procedure for the participants. Operator: Thank you, Helene. We will now begin the question-and-answer session. [Operator Instructions] We will now go to our first question. And our first question today comes from the line of Benjamin Heelan from Bank of America. Guillaume Faury: Ben, we don't hear you. Benjamin Heelan: Can you hear me now? Guillaume Faury: Yes. Benjamin Heelan: Yes. Sorry about that. First question was on the margin. Margin, I think, in Q3 looks pretty positive. Could you just talk through some of the drivers? It looks to me though as a very positive mix in commercial, but any comments there would be helpful. Thomas Toepfer: Well, Ben, I think we're repeating ourselves a little bit when we say that the margin of a single quarter should not be overestimated or over interpreted, I would say. So the margin in commercial indeed was, let's say, positive. That does not necessarily come from the mix. The mix was actually not specifically helping us in Q3, but it was more driven by, let's say, cost discipline in terms of SG&A, R&D, where the LEAP program that we have started is now really showing its full effect. So we're pretty pleased with, I would say, the efficiency that the company has shown over the course of the year and specifically in Q3. So the things that we have done are not, let's say, of short-term nature, but we expect them that we can actually keep them in our trajectory. And secondly, I would say, in Defense and Space, all divisions are showing a good performance. There's two drivers for it. One, that our improvement program for space is actually showing good effects, and we're very pleased with the results that we see, not only in terms of measures that they take, but first outcome, which is rather better than what we had expected. And secondly, as Guillaume pointed out, a good momentum in defense in general, where we see not only good order intake, but also, let's say, good margins for the first nine months of the year. So, I would not specifically point to the mix, but rather some self-help measures and operational discipline that are helping. Benjamin Heelan: Okay. And then a follow-on. I know you won't give us a delivery number for 2026 today. But are there any building blocks that you can provide to point us broadly in the direction of where we should be headed for next year from a delivery perspective in commercial? Guillaume Faury: I would say not more today than what you know already in terms of ramp-up trajectory for the A320, the 330 and the 350. There's change, as you have seen on what we target for next year on the A220, where we target to reach rate 12 instead of rate 14. So nothing new on that horizon except this slight modification on the 220, and we'll be targeting rate five for the A330 a bit later. So that's basically a lot of stability in the ramp-up trajectory compared to what we had shared earlier in the year. Operator: Your next question comes from the line of David Perry from JPMorgan. David Perry: So, two quick ones from me. Just on this tariff impact, Thomas, if it all falls in Q4, do we annualize that impact going forward? And then on Space, can you just clarify exactly what you're putting in? Unless I'm mistaken, I think you're putting a little bit more than just the manufacturing business, but maybe I've misunderstood on that. And maybe any other comments you want to make in terms of like is this going to have a meaningful impact on the ADS margin going forward, this transaction? Are you making any equalization payments or receiving any? Thomas Toepfer: So, on the two questions, the tariff impact, let me repeat what I said. So the total full year impact will be between EUR 100 million and EUR 200 million. Why is the majority of that occurring in Q4? Because the material that we have shipped or that is necessary has already been shipped into the United States, but we hold it as work in progress so that we will only record the impact of the tariffs once the material is actually built into the aircraft and the aircraft is sold. So therefore, to your question, you should not annualize the Q4 effect. It's a specific, let's say, impact of this year where a lot of the pre-September 1 effects are currently captured in our WIP and will then only materialize when the aircraft is delivered. That is the mechanic behind it. And on your second question, if I understood correctly, you're referring to BROMO. So what are we bringing into that cooperation? Two businesses essentially, our Space Services business, which is currently mainly in CI and our Space Systems business, which is also a subdivision of Defense and Space. And obviously, what has nothing to do with it is the launcher business, which is completely separate. But we're bringing in both Services and Space Systems. David Perry: Okay. And does the transaction have a big impact on the sort of future margin of ADS? Thomas Toepfer: Well, I mean, we do expect that there will be mid-triple-digit synergies five years after the closing of the transaction. So I would say in the medium term, it should be clearly accretive to the margin, and we will then hold a 35% stake in something which is more efficient and more profitable than what we have today. But let's be honest, in the very short term, I would not put in a big impact in the model that you probably have. Operator: Your next question comes from the line of Ross Law from Morgan Stanley. Ross Law: So the first one on your full year delivery guidance. So given that the engine suppliers have essentially said that they're getting you the engines that you need, what are the main challenges or bottlenecks outstanding from here into year-end? And then looking ahead to 2026, obviously, engines seemingly becoming less of an issue compared to '24 and '25, supply chain overall performing better. Is there any reason why you won't be able to deliver a double-digit increase in deliveries in '26, which is the growth rate you previously referred to? Guillaume Faury: Maybe I'll take the questions. When it comes to 2025 and the full year around 820 aircraft, the main challenge is the volume of aircraft that remains to be delivered in the fourth quarter. And what we will have to deliver in the last month is indeed quite unprecedented. We are not yet at the point where we will have all what we need to secure all deliveries. We are still expecting engines in the weeks to come that will support some 2025 deliveries. But the main challenge is indeed volume, backloading of the year and making sure that there's no mishap or no challenge ahead of us that would postpone aircraft and cross the line of the end of '25. So a lot of work the supply chain and the engine situation looks like we're going to make it. But again, still a lot on our plate. About the engine tensions, they will persist. There is indeed a bigger backdrop of airlines needing more engines for their in-service aircraft on the Pratt & Whitney side, but as well on the CFM side. And the engine makers need to continue to ramp up the production of parts and engines to serve both the manufacturers, the aircraft manufacturers and their airline and lessor customers. So we are not out of the woods when it comes to tension on engine availability. We think we have -- we will have what we need for the trajectory we have sketched out for 2026. But again, we are not at the point of guiding for 2026. But I confirm and I maintain what I said earlier, we are consistent with the ramp-up trajectory that we have given previously this year and next year, namely the reaching the rate 75 on the A320 in 2027, the rate 12 on the A350 in 2028 and the rate on the A330 in 2029 as far as I remember. On change A220, slightly lower rate for next year. We are in the steep ramp-up on the 220, and we now target to reach the rate 12 for next year, which is still a very steep ramp-up. But we believe this is the best balance between the different constraints we have next year and a lot of work actually on the A220 to get there by next year, including the integration of the wings and other work packages that will come from the integration of Spirit. Operator: Your next question comes from the line of Chloe Lemarie from Jefferies. Chloe Lemarie: The first one would be on the maintained guide. It looks fairly conservative for Q4 given the expected delivery growth. So I understand tariffs are a headwind, but any other moving parts you'd like to share to help us understand the building blocks for the Q4 year-on-year? And the second one, I think, Guillaume, you commented on the press call about gliders being half of what they were. Could you just clarify whether this is at end Q3 or more recently? And maybe compare and contrast the situation between the LEAP and GTF-powered aircraft, please? Thomas Toepfer: So maybe I'll start with the guidance and the remain to do. So starting from the EUR 4.1 billion as of the nine months. Let's start by saying last year, we did EUR 2.6 billion in Q4 of last year. I would say there's clearly a positive effect from the volume. You can attach roughly EUR 0.5 billion to it if all the deliveries materialize. But yes, then I would say there's at least two headwinds. One is the tariffs. And secondly, R&D, we're expecting that R&D will be slightly lower than last year, but that still could mean that in Q4, R&D would be higher than last year. So that is a headwind that you should have on your list. On the other hand, yes, I do believe that the two divisions, Helicopters and ADS could be performing positively, and that would be then a positive. So if you take those together, that would bring me then to the around seven. It all hinges on the deliveries. And as Guillaume said, it's a very, very steep ramp-up. The teams are on it. And if we make the deliveries, obviously, then I think the financial numbers should clearly be in sync with that. Guillaume Faury: Thank you, Thomas. When it comes to the question on gliders, we stood at 60 gliders by end of Q2, and we stood at 32 gliders by end of Q3, so by end of September, roughly a month ago. The situation obviously is dynamic as we are targeting to be with zero gliders by the end of the year. And as I said earlier, we still need to receive engines in the weeks to come to be fully sure that we will have what we need. But engine manufacturers have confirmed that they will deliver what we need to reach that objective of zero glider and reaching our guidance. And when it comes to the situation LEAP versus GTF, actually, it's both. And as we speak, it's shared between the engine manufacturers, and I can't be precise enough, but it's not far from balanced between the two, not far from 50-50 between LEAP and GTF. But again, it's a dynamic situation almost by the day as we deliver a lot of aircraft those weeks. So I can't be more precise than this at this very moment. Operator: We will now take the next question. And the question comes from the line of Sam Burgess from Goldman Sachs. Samuel Burgess: A couple from me. Thomas, can we just circle back on R&D. From memory, your initial expectation was R&D would be a bit above 2024 levels. I might have missed it, but what specifically is driving this trimming of R&D versus your initial expectations? And is that kind of sustainable going forward? Or do we get some catch-up in FY '26? And the second question, I know you don't want to dwell too much on individual quarters. But in your press release, you do explicitly mention a less favorable mix on deliveries year-to-date. Do you expect that mix to become more favorable in Q4? Thomas Toepfer: So, on R&D, we are roughly EUR 200 million below the 2024 numbers for the first nine months of the year, if I'm not mistaken. that is mainly a function of our lead improvement program where we're focusing on the things that really matter, but have the courage to also terminate some projects where we think they're simply not yielding the results that we feel they should. And that means less external consultants, that means less spending on all kinds of things. So it's not trimming R&D, as you said it, with a lawnmower approach, but it's really very specific and focused with a program where we think let's focus on the things that matter most to the company. That was pretty successful in our view. And so therefore, while admittedly, we said at the beginning of the year that we would expect R&D to slightly increase, we're now of the view that with the successes that we have, which we think are sustainable, we should be slightly below previous year for the full year, but that still means that in Q4, as I said in my previous answer, there might be a slight increase in R&D. Now going forward, what is unchanged is that we do expect R&D to increase in line with revenue. So as a percentage of revenue, I think you should keep it constant in your model, but of course, starting from a somewhat lower base in 2025. And then on the mix, it's simply a function that we have delivered more A220s, and you know that they have a lower margin than the rest. So it's just a function of all the ramp-ups and the numbers that we have given you. Operator: Your next question today comes from the line of Ian Douglas-Pennant from UBS. Ian Douglas-Pennant: The first is another on the supply chain. Aside from engines and the acquisition of Spirit being delayed, are there any other pain points that you'd like to call out in the supply chain that are causing the changes to the schedules that you've talked about today or elsewhere? Secondly, we've seen a number of A320neos being retired this year. I wonder, do you have any comments on why that might be happening? How sustainable you think whether they are edge cases or how we should interpret some very young aircraft being retired? Guillaume Faury: On the supply chain, of course, the main area of attention and concern are engines, as we mentioned earlier. The rest of the supply chain is actually doing much better than in 2024 and previous years. I mean, significantly better. The number of missing parts and the depth of delays is significantly better than it was before. We continue to have issues and delays on cabin equipment, interiors, seats, and that's probably more of a midterm issue than a short-term one, given the fact that this part of the industry has been since COVID or since the recovery after COVID, sort of overwhelmed by the combination of demand for new aircraft and retrofits and extension of the life of products. When it comes to your question on the retirement of A320neo, I'm a bit surprised. That's not what I have in mind. Maybe there's a confusion with aircraft being on the ground because of missing engines, in particular, on the Pratt side, but that's not something that is consistent with what I have in mind. It's not retirement of aircraft as much as I know. But we look at your question. Operator: We will now go to the next question. And the next question comes from the line of Douglas Harned from Bernstein. Douglas Harned: The first question is, if you could update us on the A350. It looks like deliveries may be a little bit better in October, but this has been very slow. And maybe you could update us on progress with Spirit with interiors related to the A350 and getting those rates up. And then second question is, we've heard some cautious comments from CFM on getting out to 75 a month, particularly most recently from Safran. Where do you stand now in working with the engine providers on ensuring that you can get to that 75 a month at some point, hopefully by the end of 2027. Guillaume Faury: So, on the A350, we continue to believe we will be consistent with what we have indicated so far, meaning that the ramp-up has been sort of -- the start of the ramp-up on the A350 have been sort of delayed by a year given the challenges and the difficulties we had with the Section 15 of Spirit. So we don't expect an increase compared to 2024 in 2025, but there is indeed a phasing and a quite significant level of backloading in deliveries in 2025. The ramp-up then comes later, and we think we'll catch up in the sense of maintaining reaching the rate 12 by 2028. We are mostly challenged by difficulties and delays on interiors, on laboratories, on seats. That's mainly what we're suffering from on the A350. And it's not different compared to previous quarters and even compared to 2024, unfortunately. When it comes to the ramp-up of the A320, actually, CFM is in line with us has confirmed regularly that they are in line with us on the need for rate 75 on the ramp-up trajectory. So I'm slightly surprised with the remark because the level of alignment with CFM is very strong. They had significant issues this year that has led to a lot of gliders and delays in delivering their engines, but they're catching up. And again, I'm comfortable that they will be back to where they have to be by end of this year to then deliver on the ramp-up trajectory to support us in '26, '27 until we reach the rate 75. I'm not suggesting they don't have their challenges. So I don't know what was the nature of the comment precisely. They have their challenges, obviously, but we are moving hand-in-hand when it comes to ramping up the A320 with the CFM engine, at least that's my current perception, and that's consistent with the last weeks and months meetings and interactions with CFM. Operator: Your next question comes from the line of Ken Herbert from RBC. Kenneth Herbert: I wanted to pivot and ask about the A220, if I could. The lower guidance for deliveries still seems relatively ambitious considering sort of where you are today on that program. Can you talk more about challenges with that ramp and what gives you incremental confidence still at the 12 a month in '26? And then as a second part, there continues to be speculation about maybe a third variant of that program. How do you view the investments in that and the potential return on that program considering what seems to be a more challenging ramp and some incremental comments about some demand pressure. Guillaume Faury: Yes. Thank you for the question. So, indeed, we are in a steep ramp-up for the A220. The team has a lot on the plate, and now they have on top to integrate the wings and other work packages of the A220. So that's indeed a lot of work to get to where we want to be. So we think the rate 12 for next year is the good balance between the different challenges and the demand and supply situation and the quantity of work to be delivered. Indeed, it's still a significant ramp-up, but what we learned from this year is that a rate 12 for next year reaching 12 next year actually is something we believe is well in the cards. So, basically, that's all about the quantity of work, all what needs to be achieved, the ramp-up in both Mirabel and Mobile. We have two files, the number of variants with different configurations that we have to deliver and industrial optimization to be able to accelerate the pace of production to that level. When it comes to the third variant, which is also nicknamed the dash 500, the first two variants being the dash 100 and the dash 300. That's something we believe the program will need and benefit from. We have demand from airlines and from the airline customers for these variants that on paper looks really as a very competitive product. We have said that the dash 500 is not a question of if, but it's a question of when. And we're still with the same type of statement. But again, we are giving priority to the short-term work and the short-term challenges that we have to perform the ramp-up to move forward to breakeven with the program to digest the Spirit work package that will be now under our responsibility. So that's a bit the way we're looking at the year and the years ahead of us. Operator: We will now take our final question for today. And the final question comes from the line of Olivier Brochet from Rothschild & Co Redburn. Olivier Brochet: The first one is very simple on tariffs. You mentioned a number. Should we think of the impact on cash to be similar for '25 and '26, please? And second, on Space, on accounting and the deconsolidation that you might be doing. Should we think of a deconsolidation, sorry, for that? And will it lead to some separation costs, please? Guillaume Faury: So, the second question is too difficult and the first one as well. So, I hand over to Thomas. Thomas Toepfer: So, the first one, obviously, is easy for me. The answer is yes. I mean, roughly the EBIT and the cash impact is the same. So you can put that into your model. On the space consolidation, so obviously, what we have to do is go from an MOU to signing and then from signing to closing. Closing means in order to be ready for that, we have to carve out the business. And currently, the business is spread over many legal entities and countries. So to your question, yes, we do have the task as Airbus to create an operationally and legally stand-alone separate business until 2027, which can be then put into the new legal entity. That will come with not insignificant, let's say, separation costs. And we said, however, in the statement on BROMO that they would be in line with industry standards. So I think you can plug in a normal number into your models, but it's not insignificant given the size of it. For 2025, that will not have an impact on our financial results. Helene Le Gorgeu: Thank you, Guillaume. Thank you, Thomas. This now closes our conference call for today. If you have any further questions, please send an e-mail to Olivier, Victoria or myself, and we will get back to you as soon as possible. Guillaume Faury: And Helene, I'd like to announce to the audience that you will actually move to new challenges still in the financial director of Airbus under the leadership of Thomas in the commercial aircraft team. And you will have Jean-Christophe Henoux as a successor. Jean-Christophe is joining from the strategic team and will take over on the 1st of December. So very soon, we will have JC, nicknamed JC with us. And with this, Helene, I would like to thank you very warmly for the pleasure working with you for the quality and the precision of all you've been doing with us for your constant voice on the call and for your very good availability with all our investors and analysts and all the financial community. So I wish you -- we wish you with Thomas, all the best moving forward to your new job, and I'm sure there will be opportunities for you to answer questions on what it is and what you will be doing next. So, again, thank you, Helene, and welcome, JC. And bye-bye, everyone. Thank you. Operator: Thank you. Ladies and gentlemen, the conference has now concluded, and you may disconnect your telephone. Thank you for joining, and have a pleasant evening. Goodbye.