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Operator: Good day and thank you for standing by. Welcome to the Nautilus Biotechnology Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Ji-Yon Yi, Investor Relations. Please go ahead. Ji-Yon Yi: Thank you. Earlier today, Nautilus released financial results for the quarter ended September 30, 2025. If you haven't received this news release or if you'd like to be added to the company's distribution list, please send an e-mail to investorrelations@nautilus.bio. Joining me today from Nautilus are Sujal Patel, Co-Founder and CEO; Parag Malik, Co-Founder and Chief Scientist; Ken Suzuki, Chief Marketing Officer; and Anna Mowry, Chief Financial Officer. Before we begin, I'd like to remind you that management will make statements during this call that are forward-looking within the meaning of the federal securities laws. These statements involve material risks and uncertainties that could cause actual results or events to materially differ from those anticipated. Additional information regarding these risks and uncertainties appears in the section entitled Forward-Looking Statements in the press release Nautilus issued today. Except as required by law, Nautilus disclaims any intention or obligation to update or revise any financial or product pipeline projections or other forward-looking statements whether because of new information, future events or otherwise. This conference call contains time-sensitive information and is accurate only as of the live broadcast on October 28, 2025. With that, I'll turn the call over to Sujal. Sujal Patel: Thanks, Ji-Yon, and thank you all for joining us. Q3 was another important quarter for Nautilus. We made meaningful progress across our scientific platform and operational priorities as we continue our disciplined path toward commercialization. Last quarter, we published a preprint showcasing our iterative mapping method and demonstrating the power of our platform to measure proteoforms, distinct forms of proteins with unprecedented resolution. That manuscript was accompanied by an announcement of Tau focused collaborations with investigators from the Neuro Stem Cell Institute and with Joel Blanchard's lab at Mount Sinai Medical Center. These collaborators were central to generating the intriguing biological data shared in that manuscript. In addition to these partnerships, I'd like to call attention to 2 other exciting partners. The first is the Allen Institute for Brain Science. As highlighted in our July 30 press release, that collaboration aims to examine how Tau proteoforms vary across brain regions as a function of disease severity. Ultimately, such projects may enable the use of proteoform biomarkers to predict the course of Alzheimer's disease. We're excited to have already begun generating the first data sets from their samples. One other key collaborator is the Buck Institute for Research on Aging. As a world leader in aging research, they have deep experience in Alzheimer's disease research and are excited to examine how Tau proteoforms contribute to disease progression and therapeutic efficacy. I'm particularly thrilled to share that Dr. Birgit Schilling, one of our collaborators at the Buck Institute, will be presenting her results at the Human Proteome Organization's World HUPO Conference in November marking the first public presentation of externally generated Tau data measured on the Nautilus platform. In addition to being an acclaimed aging researcher, she is also an eminent proteomics KOL and recently served as President of U.S. HUPO. Our session with Birgit at World HUPO will highlight both key technical aspects of the Tau assay such as reproducibility and also intriguing biological findings that were only possible using the Nautilus platform. I'd like to call attention to the fact that the results in our manuscript and the results that Birgit will be sharing are based on real-world biological samples, not only model samples composed of recombinant proteins or peptide. We believe our presentation at HUPO will not only validate the technical readiness of our assay, but will also underscore the potential for our platform to drive meaningful biological insight, something we consistently hear is a top priority for researchers in this space. We view the results from our early partnerships as clearly demonstrating our platform's unique ability to measure proteoforms at an unprecedented level of precision and resolution. This is especially important for targets like Tau where the combination of isoforms and post-translational modifications have a profound impact on disease progression. We expect that the Nautilus platform's unique ability to quantify complex mixtures of proteoforms at the single molecule level will prove an important tool for driving biological insight. Collaborations with institutions like the Buck and the Allen institutes are emblematic of the caliber of researchers and institutions that are now engaging with Nautilus. This quarter, our pipeline of potential collaborators has expanded significantly including academic centers, nonprofit institutes and biopharma companies. These researchers are eager to explore how Nautilus can bring new clarity to neurodegenerative disease biology and also eager to explore proteoform-based precision biomarkers for Alzheimer's disease and related tauopathies. These researchers also understand that studying Tau requires resolution beyond what traditional platforms can offer and recognize that our approach is uniquely suited to identify the modified forms of Tau that may drive disease progression. We're also seeing increased interest from additional partners eager to expand into new disease areas and novel proteoform targets reflecting both the maturity of our platform and the unique insights it enables. The conversations we're having are with premier researchers and institutions at the forefront of translating molecular insights into impactful diagnostic and therapeutic advances. The growing engagement we're seeing reinforces our belief that Nautilus is becoming a key enabling technology for the next generation of biological discovery. We anticipate that several of these discussions will lead to active engagements when we launch our early access program in the first half of 2026. Initially, customers will gain streamlined access to our Tau proteoform assay. Select partners will be able to submit samples, receive data and provide feedback, similar to our current engagement with the Allen Institute. These early engagements will primarily focus on generating high-quality data and validating our platform. We expect only limited revenue in the near term. However, this validation is essential for building momentum and opening broader commercial opportunities, including the expansion of our assay for other proteoforms of interest. Over time, we'll expand our early access to offer support for both targeted proteoform assays and for broadscale proteomic studies. Our aim is to make each early engagement an opportunity to build credibility, momentum and operational readiness ahead of our commercial launch. On the technology front, we made steady progress in Q3 transitioning to our new broadscale assay configuration to better align with our growing probe library and improve platform performance. Early results have been promising and we expect this configuration to enable our broad-scale commercial launch in late 2026. Briefly, assay configuration change efforts were focused on better aligning assay design with the characteristics of our expanding probe library, improving probe yield and overall platform performance. One of the most significant areas of change was in the flow cell and associated assay reagents. Together, these changes were designed to reduce technical risk and enable higher performance as we scale toward a more comprehensive view of the proteome. A key milestone of our broadscale assay configuration change was achieved in Q3 demonstrating that affinity reagent probes previously incompatible with our old assay configuration are compatible with the new configuration. In Q4 of this year and Q1 of 2026, we plan to test the whole probe library with this new configuration to better understand performance and finalize the steps needed for broadscale's launch. We're confident that broadscale will drive long-term scalability and value for Nautilus. Lastly, we continue to be highly intentional in how we invest our resources. In Q3, we reduced expenses quarter-over-quarter, reflecting a more focused operating model aligned with our top priorities. This operational discipline is an important part of how we're extending our runway even as we move closer to commercialization. Taken together, the progress we've made in Q3 moves us closer to realizing the promise of single molecule proteomics, a future where researchers can decode biology with a level of precision and resolution that is simply not possible today. We're proud of the scientific and technical advances made this quarter and grateful to our team and collaborators who continue to push the boundaries of what's possible. As always, I want to thank our scientific and engineering teams for their continued dedication. The work they're doing is not only technically challenging, it's foundational to the future of proteomics. With that, I'll hand the call over to Ken, our Chief Marketing Officer, to share key insights from our recent voice of the customer and market research work. Ken? Kentaro Suzuki: Thanks, Sujal, and good morning, everyone. Over the past several months, our teams have been focused on sharpening our marketing strategy by developing a deep understanding of our customers, their challenges with existing technologies, goals for next generation solutions and how the Nautilus platform can uniquely address their needs. In the third quarter, we completed an extensive market study involving more than 250 decision-makers across North America and Europe spanning academic institutions, pharma, biopharma and leading proteomics organizations. These participants represent our core target segments and are highly familiar with both mass spectrometry and affinity-based technologies. Through a combination of detailed qualitative [ in-reviews ] and deep quantitative analysis, we built a rigorous and data-rich view of our market opportunity. Three clear themes emerged. First, customers viewed the Nautilus platform as uniquely differentiated from current mass spectrometry and affinity-based technologies. They highlighted our iterative mapping approach as delivering an unmatched combination of protein coverage, reproducibility and sensitivity. In particular, customers were most drawn to our ability to achieve both broad proteome coverage and deep single molecule proteoform level resolution, a capability that only iterative mapping can deliver. Our competitive differentiation is stronger than ever. As a former General Manager of mass spectrometry at Agilent, I found it especially validating when 1 customer commented that the Nautilus platform "has the potential to replace a major portion of mass spectrometry and proteomics". Second, our research confirmed that customers both expect and are willing to pay a premium for our solution. The ability of iterative mapping to provide broad scale and proteoform level insights drove particularly strong enthusiasm and willingness to invest in our solution. Combined with the platform's reproducibility, sensitivity and simple AI-ready output; customers valued our instrument on par with high-end mass spectrometry systems, a strong endorsement in an already premium segment. Finally, we heard a clear and consistent message of eagerness to engage with Nautilus. Many customers described current technologies as limiting, constrained in performance, lacking cross-platform agreement and often complex to use. They are actively seeking a new class of measurement technology to complement or replace their existing tool sets. After decades of experience introducing new products, I'm encouraged by the strength of this product market fit and by our customers' enthusiasm to begin evaluating the Nautilus platform. We are channeling this confidence as we plan for our early access program beginning with the Tau proteoform assay in the first half of 2026. I look forward to continue sharing our progress as we transition towards our commercial phase. Next, I'll hand over the call to Anna to walk through our financials. Anna? Anna Mowry: Thanks, Ken. For the third quarter of 2025, total operating expenses were $15.5 million, down from $19.1 million in the same quarter of 2024. This 19% year-over-year decrease reflects our continued focus on expense management, operating efficiency and lower development costs overall. Our stock-based compensation expense also declined meaningfully year-over-year. Research and development expenses for the third quarter of 2025 were $9.6 million, down from $12.3 million a year ago. This year-over-year reduction was driven by lower development cost as well as improved operating efficiency in personnel, laboratory and services spend. General and administrative expenses were $5.9 million, down from $6.8 million in Q3 2024 driven largely by reduced stock compensation expense. Net loss for the quarter was $13.6 million compared to $16.4 million in the prior year period. We ended the quarter with $168.5 million in cash, cash equivalents and investments. Cash burn in Q3 was $11.0 million reflecting the benefit of lower operating expenses. We continue to project a cash runway extending through 2027 providing ample time to advance platform development and early-stage commercial activities. Looking ahead, we anticipate that total operating expenses for the full year 2025 will come in below what we saw over the past 2 years. With that being said, we expect Q3 will be a low point in our spending and future quarters will increase as product and market development activities ramp up. As for our Tau early access program, the first customer engagements are likely to be with academic KOLs that need access to the platform and initial data sets in order to support their grant applications. We believe these first internally funded services engagements will lead to revenue engagements over time, but more importantly, publications, additional grant applications and potentially instrument orders. We are excited by the shift towards commercially oriented activities, but we don't expect meaningful services revenue from these engagements in 2026. Back to you, Sujal. Sujal Patel: Thanks, Anna. As you've heard throughout today's call, Q3 was a quarter of continued execution and meaningful progress for Nautilus. We advanced our Tau proteoform assay, built momentum with prospective collaborators and are on track to launch our early access program in the first half of 2026 beginning with Tau. We're preparing to showcase externally generated Tau data at World HUPO in November, a milestone that reflects years of investment in scientific and technical innovation. As demonstrated by our excitement and ability to expand our collaborative work, Nautilus' doors are open today for partners who are interested in funding the development of new proteoform assays and shaping the future of proteomics. We also made steady progress towards the new broadscale assay configuration that will support our commercial launch. In addition, our disciplined operations and spending have us ending the quarter with a strong balance sheet and clear line of sight to our strategic goals. As we close, I want to step back and emphasize something fundamental. Our platform is as disruptive today as it was when we first set out to build it and now we have even more external validation to back that up. Iterative mapping represents a completely new class of measurement, different from anything else in the market, delivering proteome and proteoform insights that existing technologies simply cannot match. Our extensive market research and voice of the customer work encompassing more than 250 interviews with representative customer groups makes it clear that the market recognizes our differentiation. Customers consistently affirm that what we're building will reshape the landscape. This strong validation gives us tremendous confidence in both our technology and the commercial opportunity ahead. I'm incredibly proud of what the team has accomplished; the science we're advancing, the platform we're building and the opportunities ahead. Our foundation is strong and our mission has never been more focused. Thank you again for joining us today. With that, we'll open the call for questions. Operator? Operator: [Operator Instructions] Our first question comes from Dan Brennan with TD Cowen. William Ruby: This is William Ruby on for Dan Brennan. Just a couple of questions. First, just wondering how we should think about the level of OpEx investment you'll need to make heading into the launch next year. And I know you touched on it a good amount on the call, but if you could just go into a little bit more detail on the funnel that you're building out of early access coming into next year. Anna Mowry: William, this is Anna. I can speak to the first one. From an OpEx standpoint, we're, as I said in the prepared remarks, expecting that from our low point here in Q3 we are anticipating that spend will increase as we get closer to commercialization. As you might expect, I don't have an outlook yet for 2026, but you can extrapolate from our guidance that we have cash through 2027 and I would anticipate some steady step-up between now and the end of 2027. Sujal Patel: And William, this is Sujal. Let me take the second half of your question, which is the funnel. So let me first sort of describe just in a little more detail how we would expect next year to unfold. And so what we talked about on the script was that we intend to launch our early access program in the first half initially with Tau and our proteoform panel with Tau and then in the second half, we'll expand that early access to include our broadscale proteomic capabilities. And that sort of setup will lead to a launch of each of those things after that early access period, that official launch. And we continue to state that by the end of 2026, we expect a launch of our broadscale capabilities. And that early access and then launch model is a model that we'll use for subsequent proteoforms and subsequent versions of broadscale and so forth as we move beyond into future years. So in terms of the pipeline build, pipeline build is occurring for both of those different products and use cases, proteoform starting with Tau and with broadscale. With Tau, obviously the pipeline build in earnest really just began as we released that preprint last quarter meaning Q2 of 2025 and started to talk to partners about the capabilities of our product. And as we mentioned in the prepared remarks, we intend to at the beginning or the first half of 2026 launch early access in a [ funnel ] manner for those Tau capabilities. And so with that coming, we're in the process of sort of finalizing our product verification and validation. We're in the process of talking to and building the top of the funnel for those Tau capabilities. And we're starting to think through the first commercial hires, which we would expect the first -- we have business development and scientific affairs types of headcount today, but we would expect that in the first quarter we would make our first official hire on the direct sales side as well to build capacity for the Tau services initially and then broadscale as we move on to the second half of the year. Operator: Thank you. This concludes today's question-and-answer session and today's conference call. Thank you for participating. You may now disconnect.
Operator: Greetings, and welcome to the Incyte Third Quarter 2025 Earnings Conference Call webcast [Operator Instructions]. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Alexis Smith, Vice President and Head of Investor Relations. Please go ahead, Alexis. Alexis Smith: Thank you. Good morning, and welcome to Incyte's Third Quarter 2025 Earnings Conference Call. Before we begin, I encourage everyone to go to the Investors section of our website to find the press release, related financial tables and slides that follow today's discussion. On today's call, I'm joined by Bill, Pablo and Tom, who will deliver our prepared remarks. Steven, Dave, Matteo and Mohamed will also be available for Q&A. I would like to point out that we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to certain risks and uncertainties, and our actual results may differ materially. I encourage you to consult the risk factors discussed in our SEC filings for additional detail. I will now hand the call over to Bill. William Meury: Thank you, Alexis, and good morning, everyone. On our last call, I told you I'd be taking a fresh look at the company with a focus on getting the core business right, our R&D priorities right and our cost base right. This, of course, is a continuous process and one that is well underway and on track. In terms of the core business, my assessment has reinforced my confidence in the growth potential of our key products. As we announced today, we had a strong quarter with total revenues of $1.37 billion and product sales of $1.15 billion. This represents a 20% and 19% increase, respectively, versus prior year. The fundamentals around Jakafi, Opzelura and our hem/onc business, Niktimvo and Monjuvi namely remains strong. Our job right now is to keep it that way and to identify effective ways to optimize the promotional strategies and investment for these products to drive future growth. Jakafi Q3 sales reached $791 million, a 7% increase with strong demand growth of 10% year-over-year. Growth was broad-based across all 3 indications. In MF, Jakafi utilization continues to increase, and we are maintaining market share leadership despite competition. Growth in GvHD remains strong, supported by our portfolio strategy with Niktimvo, which is helping identify patients across multiple lines of therapy, and PV is our largest growth driver, fueled by compelling MAGIC PV data showing impressive thrombosis-free survival. Based on this momentum, we're raising our full year guidance for Jakafi to a new range of $3.05 billion to $3.075 billion. Opzelura growth was exceptional in the third quarter and continues to be a significant contributor to revenue with $188 million in sales, a 35% increase versus prior year. Of this, $144 million in net sales came from the U.S., which represented a 21% increase versus prior year. The increase was based on strong prescription demand across both indications and more favorable formulary placement at the 3 top PBMs. In July, we reorganized the Opzelura sales force into 2 dedicated sales teams, one for AD and one for vitiligo to ensure execution and sustained growth. The market for branded non-steroidal topical continues to expand at a 20% rate as more patients migrate off and away from topical corticosteroids. Given the efficacy of Opzelura in terms of rapid itch relief and skin clearance, our broad prescriber base and formulary coverage, we're well positioned to take advantage of this market dynamic. Internationally, sales for Opzelura and vitiligo totaled $44 million, representing a 117% increase from last year. France, Spain, Italy and Canada account for over 80% of our sales and growth, and we plan to file an application for ruxolitinib cream in moderate AD in the EU by year-end with a potential approval in the second half of 2026. Now in its third quarter post launch, Niktimvo continues to outperform expectations across all launch metrics. Sales in the third quarter totaled $46 million, an increase of 27% versus the second quarter. 90% of BMT centers have adopted Niktimvo with all centers placing repeat orders year-to-date. Importantly, 80% of patients who started treatment in the first quarter of launch are still on therapy today. And we've captured 13% of the third line plus GVHD opportunity in just the first 9 months on the market. In line with expectations, Niktimvo is primarily being used in the fourth line with increasing preference and utilization in the third line. Feedback from BMT centers has been positive with real-world efficacy and safety being equally as impressive as the clinical data. Finally, we're actively studying Niktimvo in combination with ruxolitinib and steroids in earlier line settings. Our combination study with Jakafi is designed to enable a steroid-free regimen in GvHD, which could shift the standard of care. And our combination study with steroids in the frontline setting has the potential to deliver benchmark efficacy and steroid tapering. This franchise strategy has the potential to significantly increase our addressable market and strengthen our leadership position in GvHD. Our broader hematology and oncology portfolio also performed well this quarter. Sales from Monjuvi in follicular lymphoma and Zynyz and SCAC, both launched this year, saw strong growth and contributed to our raised guidance. These products will be incremental contributors to our portfolio and collectively can deliver meaningful sales growth over the next several years. We have 3 important new product launches next year, ruxolitinib XR, Opzelura AD in Europe and povorcitinib in HS. I've completed a thorough review of the launch plans and believe these products have the potential to contribute significantly to Incyte's future growth. Strategically, ruxolitinib XR upon approval offers the same therapeutic benefits of Jakafi and a more convenient once-daily dosing regimen. The stability data are on track to be submitted to the FDA before end of the year with an anticipated launch in mid-2026. As it relates to Opzelura AD, as mentioned, we plan to submit our application in the EU with an anticipated launch next year. Assuming approval, Opzelura has the potential to contribute meaningfully to future sales in the EU4 and Canada and to overall growth given its clinical and economic value proposition. With the moderate AD indication in Europe, we could potentially increase our international topical business by 2 to 3x over the next several years. And finally, povorcitinib could be the first oral option for patients with HS, which is perhaps the most challenging disease in dermatology. It's a multi-cytokine disease involving many pathways, making treatment more complex and results more variable. A treatment option like povorcitinib, which has shown rapid pain relief and skin clearance scores of over 50% will be very marketable. We believe there's a substantial opportunity in HS, which is the first step for povo. Our ongoing developments in PN and vitiligo will come into focus next year, and if positive, further strengthen the position of povo and our derm portfolio. Together with Opzelura, we could provide a topical to oral offering for patients across HS, vitiligo and PN. Launch activities for each product remain on schedule, including preparations for the sales force, payer engagements and medical education initiatives. We'll share more details in early 2026. Turning to R&D. Our ongoing pipeline review is providing us with absolute clarity about which high-value programs are core to future growth and have the greatest potential to create value and outsized returns. We want to configure a balanced pipeline that is not consumed by either safe, low-value projects or moonshots. We've set clear go/no-go criteria for moving key projects forward. We will invest and take calculated risks in key programs rather than thinly spreading investments across many programs. In other words, fewer, smarter investments versus diffuse spending. We'll fund what matters and importantly, watch out for false positives and negatives. As it relates to our developing pipeline, the first call on capital is hem/onc. This is the central identity of the company and an area where we have differentiated knowledge and capabilities and an asymmetrical advantage. This includes targeted therapies for MPNs, including mCALR, 617, our mCALR bispecific and discovery programs. We have a window of opportunity here to trigger an innovation-based shift in MPNs from nonspecific symptomatic therapies like Jakafi and HU to targeted mutation-specific therapies like 989. Next steps for 989 and 617 will be shared later this year and next year. In terms of our solid tumor program, the cornerstone of our cancer strategy is novel biological pathways, high incidence cancers with substantial medical need that miss the IO revolution and immunotherapies and targeted therapies that can be used frontline in combination with standard of care regimens. As you know, we have 3 programs in early development, KRAS G12D for pancreatic cancer, TGF-beta x PD-1 bispecific for MSS CRC and CDK2 for ovarian cancer. Over the next several months, we will collect more data on these programs in terms of response rates, duration of response and safety, particularly in combination with standard of care. We'll move forward without delay, providing our data, continue to be objectively competitive, and we can be early to market and defend our position long term. Now in terms of our operating expenses and overall cost structure, we're conducting a review of the entire business, which focuses on prioritization and data-driven trade-off decisions. Our objective is to manage costs but not underfund critical initiatives and compromise growth prospects. We'll strike the right balance between financial discipline and long-term strategic investments, which can be achieved by controlling costs in low-value areas to free up capital either for reinvestment in high-value opportunities or to improve margins. Our framework for the 2026 budget and beyond will be based on the following: first, define and ring-fence our strategic growth drivers. This means the new product launches that I touched on as well as key R&D projects, which we have earmarked as nonnegotiable, fully funded programs. Once we predict the growth drivers, we're looking to control costs in areas that add less or minimal strategic value. From there, the savings we've identified and achieved will either be reallocated or banked. This will be a continuous process, not a one-and-done exercise. It's a mindset. As our business evolves, so will our resource allocation. Finally, business development. BD works when you have strong strategic leadership, high throughput and a framework for rapidly triaging opportunities and making decisions, which requires a skilled search and evaluation team and a deep network. To be successful, we need to operate inside the loop in our focus areas. Accordingly, Dave Gardner joined Incyte as Chief Strategy Officer in September, and one of his priorities is to build out this capability. He will play a central role in developing our long-term growth strategy and ensuring external business development opportunities and internal portfolio decisions are strategically sound and financially compelling. We will share more details about our strategic review early next year. Now I'd like to turn the call over to Pablo. Pablo Cagnoni: Thank you, Bill, and good morning, everyone. As shown on Slide 14, our pipeline is strategically focused with numerous high-impact programs currently in development. Over the past few months, we have conducted a thorough pipeline review to ensure we're concentrating our efforts and resources on the projects that are essential to the future growth of the company. As Bill mentioned, this process was guided by a clear set of go/no-go criteria, enabling us to make strategic decisions about which programs to advance. As a result, we have decided to pause or stop several preclinical and early clinical stage programs, including INCA34460, our anti-CD122 program, INCB-57643, our BET inhibitor program and the development of povorcitinib in chronic spontaneous urticaria. By continuing to streamline our pipeline, we will be able to accelerate and prioritize the programs with the greatest potential impact to patients and to drive future growth. Now I'd like to focus on key updates from the quarter, highlighting recent advancements with povorcitinib and our solid tumor franchise. I will also discuss what's expected for the remainder of 2025 from our mutant-CALR antibody program. For povorcitinib, last month, we presented longer-term data in hidradenitis suppurativa at the European Academy of Dermatology and Venereology Congress, which further reinforced the differentiated profile of povorcitinib. The 24-week data demonstrated deep and sustained improvements across key clinical endpoints, including HiSCR 50, 75, 90 and 100, resolution of draining tunnels and effective reduction in flares. Povorcitinib also showed a rapid and robust reduction in skin pain with 62% to 70% of patients reporting mild or no pain by week 24. Physicians experience in the management of HS emphasize that their primary focus when they treat patients with HS is on 2 elements: help patients feel better by addressing the pain related to HS and to effectively control flares. The data presented show that povorcitinib provides rapid and sustained pain relief and reduces the frequency of flares. These positive Phase III results demonstrate the potential of povorcitinib to address the significant medical needs of the more than 300,000 people living with moderate to severe HS, offering a novel, effective and convenient oral treatment option for this underserved patient population. Moving to Slide 16 and the near-term opportunities for povorcitinib. As you know, HS is the most advanced program, and we're on track with our regulatory submissions by the end of the year in the EU and early 2026 in the U.S. with potential approvals and launches in late 2026, early 2027. In addition to HS, we're studying povorcitinib in 3 other indications, underscoring its potential to become a major growth driver for the company. Povorcitinib has been evaluated in Phase III programs in vitiligo and prurigo nodularis as well as a Phase II proof-of-concept study in asthma. We anticipate pivotal data readouts for vitiligo and PN in 2026 with the goal of potential initial regulatory approvals in 2027, 2028. Next, I would like to highlight 2 recent updates from our solid tumor portfolio, beginning with our TGF-beta x PD-1 bispecific antibody program. This month, at the European Society of Medical Oncology Annual Meeting, we presented initial Phase I data for INCA33890, which I'll refer to moving forward 890, our first-in-class TGF-beta receptor 2 x PD-1 bispecific antibody in patients with solid tumors. This is an Incyte discovered compound and one that is truly differentiated from other TGF-beta and PD-1 approaches. The Phase I trial evaluated 890 in solid tumors with a focus on microsatellite stable or MSS colorectal cancer patients. 890 demonstrated durable single-agent antitumor activity and a manageable safety profile in heavily pretreated MSS colorectal cancer patients, a population with limited treatment options and where anti-PD-1, PD-L1 antibodies have historically produced response rates from 0% to 2%. In patients with MSS colorectal, 890 achieved an overall response rate of 15% and most notably, responses were observed in patients with and without liver metastases. The majority of treatment-related adverse events were low grade with no dose-limiting toxicities reported. We have also completed dose escalation of 890 in combinations of 4 cohorts, FOLFOX plus bevacizumab, FOLFIRI plus bevacizumab, bevacizumab and cetuximab. No evidence of additive toxicity has been observed in any of the combination cohorts and dose expansion is ongoing. The initial results provide a strong rationale for advancing 890 into a registrational program. We're planning to start a pivotal Phase III trial evaluating 890 in combination with standard of care chemotherapy and bevacizumab in first-line MSS colorectal cancer patients in 2026. Turning to our KRASG12D program on Slide 18. We recently presented encouraging clinical data from the Phase I trial of INCB161734 or as I'll refer to moving forward 734 in heavily pretreated patients with advanced or metastatic solid tumors harboring the KRAS G12D mutation, including pancreatic ductal adenocarcinoma, among others. Results demonstrated a manageable safety profile with no dose-limiting toxicities observed and predominantly Grade 1 treatment-related adverse events. Importantly, in pancreatic adenocarcinoma patients, 734 showed promising antitumor activity with an objective response rate of 34%, disease control rate of 86% at the dose of 1,200 milligrams. These results are particularly notable given that only 8 of the patients were treated in the second-line setting. To summarize, both our TGF-beta x PD-1 and our KRASG12D programs represent significant opportunities to address large patient populations with high medical need, specifically MSS colorectal cancer and pancreatic ductal adenocarcinoma. As Bill noted, our strategy in both cancers will be to win in frontline in combination with standard of care. For 890, we have demonstrated durable single-agent activity in heavily pretreated MSS colorectal cancer patients, including those with liver metastases and a favorable safety profile and combinability with first-line standard of care regimens. As previously mentioned, we're planning to initiate a Phase III study in first-line MSS colorectal in 2026. Similarly, 734 has shown promising antitumor activity and manageable safety profile in advanced solid tumors with particularly encouraging results in PDAC. We'll share more updates on this program next year. Now to Slide 20. 2025 has been a pivotal year for Incyte, highlighted by multiple new product launches, pivotal trial readouts, Phase III study initiations and proof-of-concept results. These accomplishments reflect the solid progress we've made so far towards the milestones we established at the beginning of the year. As we look at the remainder of the year, we plan to share data for the first time on 989, our mutant CALR antibody in patients with myelofibrosis. We are evaluating 989 in a broad population of patients with MF. There are 3 actively enrolling cohorts. First, intermediate to high-risk patients who are intolerant, ineligible or resistant to a JAK inhibitor. This cohort is evaluating 989 as a monotherapy. Second, intermediate to high-risk patients who are on ruxolitinib, but experienced a suboptimal spleen response after at least 12 weeks of treatment. In this cohort, we are evaluating adding 989 to ruxolitinib. And finally, we're enrolling patients with intermediate to high-risk treatment-naive MF in a cohort evaluating 989 compared to a combination of 989 and ruxolitinib. This will allow us to see how 989 performs as a monotherapy and in combination with ruxolitinib in treatment-naive patients. Our update later this year will include early data from the first 2 cohorts. For the monotherapy cohort, we plan to share data from roughly 50 patients, approximately 2/3 of them will have more than 24 weeks of follow-up. Additionally, data will be presented for the combination cohort and at least 15 suboptimal responders to ruxolitinib. More than half of these patients will have a minimum of 24 weeks of follow-up. Importantly, the update will include response data used in traditional endpoints, SVR25, SVR35, TSS50 and anemia and molecular endpoints like effects on the VAF in whole blood, CD34 positive mutant CALR cells in peripheral blood mononuclear cells and mutant CALR-positive megakaryocytes in the bone marrow. Additionally, we'll provide an update on 989 treated patients with essential thrombocythemia as a follow-up to the encouraging results presented earlier this year. As you'll recall from EHA presentation, 989 demonstrated a rapid and sustained normalization of platelet counts and was well tolerated with only 1 patient discontinuing due to an adverse event. We look forward to sharing updates on the remaining 2025 milestones and to provide further visibility into our 2026 catalysts as we continue to advance our pipeline. With that, I'll turn it over to Tom for a financial update on the quarter. Thomas Tray: Thanks, Pablo. As Bill mentioned earlier, our total revenues and product revenues were $1.37 billion and $1.15 billion, respectively, increasing 20% and 19% from the prior year. Our total GAAP R&D expenses were $507 million in the third quarter. Excluding onetime expenses in the prior year, R&D expenses increased 7% year-over-year, driven by continued investment in our late-stage development assets. Moving to SG&A. Total GAAP SG&A expenses were $329 million in the third quarter, increasing 6% year-over-year, primarily driven by international marketing activities to support product launches. Ongoing operating expenses in the third quarter increased 8% year-over-year compared to an 18% increase in ongoing revenues during the same period, leading to a continued increase in operating leverage and margins. Based on the growth of our product portfolio, we raised 2025 full year net product revenue guidance to $4.23 billion to $4.32 billion. We maintain our prior OpEx guidance of $3.25 billion to $3.31 billion, which reflects combined R&D and SG&A GAAP expenses. I'll now turn the call over to Bill. William Meury: Thanks, Tom. That concludes our prepared remarks. Please open the line for Q&A. Operator: [Operator Instructions] Our first question today is coming from Tazeen Ahmad from Bank of America. Tazeen Ahmad: I wanted to focus on the upcoming mCALR data. You've given us a good preview of how many patients worth of data to expect. I think most people are going to be focused on the monotherapy arm. How important is that going to be for people to believe that you have convinced efficacy as a stand-alone because there could potentially be the view that it could be synergistic when added to Jakafi. So can you maybe level set for us what level of efficacy you're going to think is going to be convincing enough to move it forward even if it's in combination with Jakafi? William Meury: Thanks, Tazeen. I'll turn it over to Pablo. Pablo Cagnoni: Thank you for the question. So I think it's important to remember a couple of things about our mutant CALR antibody program. The first is this is the very first targeted therapy for patients with MPNs, and we're talking about MF, but broadly speaking, for myeloproliferative neoplasms, both MF and ET in this case, this is the first truly targeted therapy as opposed to nonspecific therapies in the past, including ruxolitinib that were mostly symptomatic improvements with very little effect on disease modification. Now you're asking specifically about the update at ASH. I think it's very important for us to demonstrate that there is single-agent activity with 989. That's why the update will include a large number of patients, as I mentioned, 50 patients with somewhat significant follow-up to really prove convincingly that 989 has single-agent activity. The focus will be not just on clinical endpoints, which we believe are critical, spleen reduction, symptom improvement, anemia, but also a set of translational endpoints, which we think are really important to confirm our view that this new medication has potential disease-modifying effects. So in terms of benchmarks around efficacy in previously treated patients with JAK inhibitors, I think the best benchmark we have recently is momelotinib. As you know, momelotinib has an SVR35 of between 7% and 22% in different studies with the TSS50 improvements in the 25% to 26%. Those are some reasonable benchmarks in the second-line setting to look at. But it's very important for us to confirm the single-agent activity of 989 in MF patients, Tazeen. William Meury: Tazeen, thanks for the question. Operator: Next question today is coming from Andrew Berens from Leerink Partners. Andrew Berens: Congratulations on the execution during the quarter. I was wondering if you could give some more color on the decision to terminate the povo program in CSU following your announcement in April that this Phase II is successful. Are we going to see the data at a medical meeting as you previously guided? William Meury: Yes, Andy, I'll start off and then turn it over to Pablo. As it relates to povo for CSU, it came down for us to priorities. We have to and we are prioritizing projects with better returns profile. It was a good Phase II program, but we have better Phase III programs. And the factors that went into the decision included differentiation, competitive intensity, timing to market and market potential, among other factors. And Pablo, do you want to just comment on the release of the data? Pablo Cagnoni: Certainly, we are -- we haven't decided with investigators whether to release the data, but we'll almost certainly do that at some future conference, Andy. The one other point I would add to Bill's point is that in addition to those factors, the regulatory bar in CSU, we discussed with FDA and the requirements for potential pivotal program in CSU were pretty onerous, and we decided we had other priorities to focus on. Andrew Berens: Okay. And then if I could, just a question on the PD-1 TGF-beta. I was at ESMO. I thought it was really encouraging and you guys are advancing into Phase III. Are we going to see combination data before you make that decision to advance? Is there like -- I think there's like a run-in looks like on the clinicaltrials.gov? Pablo Cagnoni: So the decision to advance the TGF-beta receptivity by PD-1 program in combination with chemotherapy in first-line colorectal is made. We're moving forward in that direction. In parallel with that, we're generating data with the combination, and we will release that data at some point next year, Andy. But those 2 things are happening in parallel. We think speed is of the essence here in executing this Phase III trial. So we're advancing this rapidly, and we'll generate the data and release it at some point. Operator: Next question today is coming from Stephen Willey from Stifel. Stephen Willey: Just 2 quick ones for me. So on 989, I was just wondering if you could give a little bit of color around what we should expect to see within the abstract publication next week just relative to the presentation itself. And then just a quick one on Niktimvo. Curious how you're thinking about Sanofi's failed frontline trial with Rezurock steroids in terms of read-through to the ongoing Phase III trial with Niktimvo and just whether you think that might say anything about the biology of the disease being different in a newly diagnosed patient. William Meury: Yes. Thanks for the question, Steve. I'm going to turn the second question about Niktimvo over to Steven Stein, and then Pab will grab the first question. Steven Stein: Yes, Steve, thanks for the question. In terms of first-line graft versus host disease in combination with steroids, there's really a little bit of controversy around how you measure the primary endpoint and event-free survival. And there's some nuances there on what you call events. So we think our definition is robust and is powered to adequately show the difference we need to beat steroids. And as Bill said in his prepared remarks, to also show something doctors very much desire, steroid withdrawal as rapidly as possible to avert side effects. But you're right in the sense that it shows the difficulty in this arena of beating steroids, which are active, but we really think it's around the definition of the endpoint, and we -- our endpoint is robust and meets the need for our program, and we're confident about it. William Meury: Thanks, Steven. The only other thing I would add, Steve, here is we, fortunately, with Niktimvo have 2 shots on goal. We have the combination study with steroids and with Jakafi. Obviously, these are calculated risks. You get a combination study with Jakafi that's positive and you're going to 2x the addressable population and then you have a steroid-free regimen. Obviously, we want both these programs to work. 1 of 2 work, it could change the trajectory of Niktimvo fairly significantly. Pablo, do you want to address the first question? Pablo Cagnoni: Certainly. With 989, I think it's important to focus on the presentation we'll have before the end of the year. That's a later data cut. It's going to have more patients. It's going to have longer follow-up. So I realize that the abstracts will be released, but I would ask you to wait for the update we'll provide before the end of the year and focus on that because it's more substantial and particularly follow-up is substantially longer. Operator: Next question today is coming from Jay Olson from Oppenheimer. Jay Olson: Congrats on the quarter. Can you describe the rationale behind terminating the BET inhibitor program? Was that mostly related to your strategic focus on targeted therapies like mCALR in myelofibrosis? And as a follow-up to that question, since the BET inhibitor was on track to begin registrational studies, how soon can you move mCALR into registrational studies? William Meury: Jay, thanks for the questions. I'll take the first part and then turn it over to Pablo. As it relates to the BET inhibitor, the risk-benefit calculus, as you know, for BET inhibitors right now is complex, differentiating class-wide risks from molecule-specific ones is challenging. And so in general, we're prioritizing programs with a higher PTRS and a clearer path to market. And that was fundamentally why we stopped the BET inhibitor program, and then I'll let Pablo comment further. Pablo Cagnoni: So I don't have anything to add in terms of the reasons for terminating that program. In terms of the CALR antibody program, Jay, the goal is to start one or more pivotal trials in 2026. As we mentioned during our EHA update in ET, ET will likely be the first pivotal trial to start, and that should start at some point in the first half of the year. In parallel with that, we are having regulatory interactions and continue to review the data in order to decide the right trials and the timing for implementing Phase III trials for patients with myelofibrosis that most likely start at some point in the second half of 2026. I think that one thing that I would like to emphasize is the termination of the BET program in no way reduces our ambition in MPNs. As I mentioned earlier this year, our goal by the end of the decade is to have a solution for every single patient with a myeloproliferative neoplasm. We're building a pipeline of targeted therapies to address that need, and we intend to continue to advance those programs. Operator: Next question today is coming from James Shin from Deutsche Bank. James Shin: First one is for Pablo. Pablo, appreciate 989 is a targeted therapy for MPNs. But can you say whether or not we should expect SVR, TSS and anemia burden, at least on the kinetics front to look similar to rux? And a follow-up for Bill, Jakafi's COMFORT-I and II set a high bar for frontline myelofibrosis. So from a timing, financial and regulatory perspective, can you share Incyte's progress on gaining certainty for 989's frontline MF development path? And will that development path align with Jakafi's LOE? William Meury: Yes. All right. Pablo, you can take the first part of the question. Pablo Cagnoni: So thank you for the question. It is very important for us, to address your question directly, it's very important for us to demonstrate that 989 has an effect on clinical endpoints in myelofibrosis. That's why the presentation will include SVR25, SVR35, TSS50 effect and effects in anemia. We realize those are -- a combination of those are the approval endpoints in MF and showing efficacy in those endpoints is critical for this program. So those will be part of the update we provide before the end of the year. Let me pass it back to Bill. William Meury: Yes. And as it relates to both 989 in ET and MF and how we think about the business post 2029, filling a revenue gap is not what 989 does. What 989 does is build a long-duration revenue and cash flow stream well into the next decade. So we don't see the end of the road. And here's how I think about second line, first line. And Pablo commented on this. There are targeted treatments available in many other cancers. That is not true in MPNs. And so for hematologist, there is intrinsic appeal to the first targeted therapy. And when you take a look at ET, hydroxyurea is a standard of care. It's the most widely used cytoreductive agent in ET, but it achieves only a partial response, not a complete response in most patients. And there's 3 consequences to that. The first one is residual symptoms, not as significant as it is in MF, but residual symptoms. The second consequence is residual thrombotic risk. And the third consequence is residual transformational risk. 989 solves the problems that HU created. And even in a second-line single-agent study or with those data, I expect that 989 will reshape the use of hydroxyurea where patients transition off of therapy rapidly because 989 is targeting disease-causing cells. It's better tolerated. For example, HU has got 7 warnings and precautions, and it's easier to dose. The market for ET is about $5 billion, ET/mCALR patients. Roughly half of them are resistant or intolerant to therapy. And so I think there's a clear glide path to growth in ET with the first study. And then as it relates to MF, it's, of course, a completely different type of MPN. The risk of transformation to leukemia is real. It's more aggressive. It's more symptomatic. As effective as Jakafi is, as you know, the SVR35 is between 30% and 40%, right? Symptoms are in the mid-50s. Everybody on Jakafi progresses. And so even in the second-line setting, there is going to be, just like in ET, a move to either add 989, we'll have to, of course, produce that data or use 989 after Jakafi. And I think that the opportunity in both MF and ET is fairly significant. And what we're looking to is build the business well into the next decade. If we start the studies in the middle of '26, give or take, we should be getting out sometime in that '29, '30 period. Thanks for the question. Operator: Next question today is coming from Salveen Richter from Goldman Sachs. Salveen Richter: You've highlighted VAF as an important part of the mCALR story in terms of the MPN story in terms of the drug being a functional cure. And just remind us what you want to see on VAF reduction and level set us on how well understood the ultimate correlation is between VAF and clinical outcomes. And just a second question here, Bill, on your -- you've highlighted your focus on managing operating expenses and streamlining the company. How are you thinking about the evolution of the company's target margin profile over the next few years and also through the Jakafi LOE? William Meury: Great. I'll turn the first question, Salveen, about molecular response over to Pablo, and then I'll address your question about OpEx after that. Pablo Cagnoni: Thank you for the question, Salveen. So we have 3 -- and it's important to remember, we have 3 molecular endpoints that we're going to report data on before the end of the year. One is VAF in whole blood. The other one is CD34 positive mutant CALR cells in peripheral blood mononuclear cells. And the third is malignant megakaryocytes or mutant CALR megakaryocytes in the bone marrow. And the reason why emphasizing those 3 is because VAF is a -- it's in a way, a lagging indicator of what's happening in the bone marrow, which is what truly matters. The disease originates in the bone marrow and reducing malignant megakaryocytes in the bone marrow, which is something we showed for ET at EHA this year is the critical disease-modifying effect. That then will translate into reduction of CD34 positive mutant CALR positive cells in peripheral blood. And that, in turn, over time will be reflected in a reduction in VAF. So I think I would emphasize that it's important to look at all 3 components of the translational endpoints, and we'll talk about all 3 before the end of the year. In terms of correlations, look, we know that how VAF is a bad thing, and we've shown some data in ET that patients with lower VAF -- with slightly higher VAF reductions over time have better hematologic responses in ET. That data are important. We still believe that more likely than not, initial approvals for 989 will be based fundamentally on clinical endpoints, traditional clinical endpoints, a combination of the endpoints that we know, which are spleen, symptoms and anemia. And that's the way we're building the pivotal trials for next year. I'll pass it back to Bill. William Meury: Yes. Thanks, Pablo. And as it relates to OpEx, Salveen, it's a good question. I spent a lot of time thinking about it. And as you implied in your question, we have to take a multiyear view of the budget. And I'm not necessarily hard coding for OpEx as a percentage or R&D as a percentage of sales, but I do expect that the quantum of at least spending growth or the percentage is going to come down. And I expect it to come down because of an increase in sales and leverage. Here's what I will say, every R&D dollar and every SG&A dollar has to serve a business strategy. And budgeting is about distinguishing the high-value projects, as you know, from the low-value projects or another way to put it is good cost from bad costs. What we're really solving for, though, is creating the steepest growth curve possible post '29 and a long-duration revenue and cash flow stream. We will streamline costs where possible, but not underfund critical initiatives and compromise growth. And that is -- those are the principles as I think about OpEx. And I do expect our margins to improve over time in part due to increasing sales and good cost control. Thanks for the question. Operator: Next question today is coming from Peter Lawson from Barclays. Peter Lawson: On Niktimvo, kind of how sustainable is the trajectory on that growth? It's really impressive this quarter. And I wonder if you could also talk around the profitability of that franchise. William Meury: Peter, could you just repeat the question? It was a little hard to hear. Peter Lawson: Yes. Sorry. On Niktimvo, if you could talk through the sustainability of the trajectory. It was really impressive this quarter. And if you could talk through the profitability as well. William Meury: Yes. I'll start off and if Mohamed, who runs that business has any additional comments, he can contribute too. You're right, it's off to a very, very good start. We're annualizing almost at $200 million a year. I think the important point about the launch right now is you have virtually every BMT center in the United States using and purchasing Niktimvo, which I think is very, very encouraging. All the feedback we've got from transplanters is very, very positive. As you know, we're in the third, fourth quarter of a launch and launches early on can be unpredictable from quarter-to-quarter. All I can tell you is I think the growth trajectory of this is solid right now. If you look at the Rezurock curve, when it launched, we're virtually right on top of it. That product -- they had a tough quarter, but it's roughly a $500 million business. So I think the prospects for growth next year are solid. We'll, of course, share guidance in early 2026. But I don't see any red flags right now other than launches can be a little bit unpredictable and uncertain. But I like the way it looks. The next comment I would make as it relates to profitability, one of the nice things about this product is it's a specialty product. And we're not covering 10,000, 20,000, 30,000 physicians or several thousand hospitals. We have a very targeted audience of BMT centers across the United States. And so when you look at the margin profile of a product like this, it's very healthy. That's what I can tell you about profitability. I wish more of them were as profitable as Niktimvo. Mohamed, do you have anything you want to add? Mohamed Issa: Yes. Thanks, Bill. Maybe just to complement and give you some color on the sustainability of the growth. As Bill mentioned, a really broad penetration with 90% of transplant centers picking up Niktimvo, but we're seeing all of them have repeat orders year-to-date, which speaks not only to the trial utilization, but the repeat utilization within these accounts and the feedback continues to be positive. Another point on the sustainability of the trajectory is in line with our expectations, most of the utilization today is happening in the fourth line, but we're seeing a lot more preference and increasing preference in the third-line setting, which gives us a lot of headroom left to go. And maybe one last point on the sustainability. Our goal that we communicated on the last call was to have about 1,000 active patients on therapy by the end of the year. Through the first 9 months, we have about 800 or so patients, well on our way to that 1,000 patient goal by the end of the year, and that continues to be promising as well. And then from a contribution margin, maybe just the last note is this contribution margin for the Niktimvo P&L is one of the higher in our portfolios, and we expect it to continue to be such given the level of focus that we have on the product and the level of focus from a commercial execution. William Meury: Great. Thanks, Mohamed. Thanks for the question, Peter. Operator: Next question is coming from Evan Seigerman from BMO Capital Markets. Evan Seigerman: Great to see a lot of you at ESMO. So I think we'd all agree that mCALR is a very critical juncture for Incyte, but I want to take it out of the picture for a second. So can you walk me through how the current pipeline needs to mature to drive growth to the Jakafi LOE? And then what type of business development, you're not going to be specific, but would you have to do to help also supplement that growth? Essentially, I want to understand what Incyte looks like with and without mCALR by the end of the decade. William Meury: Thanks for the question, Evan. Yes, and it was nice to see you at ESMO, too. Here's how I would look at the pipeline. We're focused on 7 drivers, 7 projects that I think have the potential to create very meaningful value. And not all of them have to work. Not all of them will work. We're not going to be perfect. But we have povorcitinib, which is a 3-indication product. We can build a JAK-anchored franchise in dermatology, where we have differentiated knowledge and capabilities and a very solid data set. The second project is 989, and I can't take it out of the picture, Evan, okay? That's an important project. We have 617F, which is still in early stage, a little bit more opaque. But as we derisk that asset, that could be as big or bigger than 989 in MPNs because it's covering a mutation that's much more frequent. In fact, it could be 2x the size of a 989. Then we have 3 solid tumor programs, which we derisked at ESMO. We still have more data to collect. We have G12D pancreatic cancer, TGF x PD-1 for CRC and CDK2 for ovarian cancer. What I would say here is that we're systematically and deliberately and at least up until ESMO, quietly building a high-impact oncology portfolio. There is a lot of substrate there. I don't expect all these necessarily to work, all right? But if 1 or 2 of those hit, they could be very, very meaningful. As we talked about at the start of the call, novel compounds against novel biological targets in cancers that have missed the IO revolution where there's significant medical need, and we're positioning all 3 compounds frontline in combination with standard of care chemo. And then the seventh project that I focus on is Niktimvo. And as Mohamed talked about, we're off to a good start. And there was a question about sustainability. We have 2 combination trials in place. If one of those combination trials hit, we're 1 for 2, we move this into the second line. If it's the combination trial with Jakafi, we have a nonsteroid regimen and you could 2x the value of that business. And so when you think about the flow across all of our 3 verticals, I&I, hematology and oncology, there's some real substrate there, and we don't need to be perfect. We just need 2 or 3 of these out of the 7 to hit, and we'll build a business that's bigger than the one that we have post 2029. Thanks for the question. Operator: Next question today is coming from Derek Archila from Wells Fargo. Derek Archila: Just curious for 989's pivotal trials in MF and ET expected next year, will these be with IV or with the on-body pump from enFuse? And then just a quick follow-up. In terms of a potential XR launch and kind of the commentary around the launch plans in the prepared remarks, I guess, how do you plan to position with payers? And I guess what's your base case in terms of the amount of shares you can convert from Jakafi pre generics? William Meury: Yes. Good question. I'll make a few comments about Enable and XR and then ask Pablo and Mohamed. First, we're really pleased to strike a partnership with Enable. They specialize in high-volume subcutaneous administration with products with a range of 5 ml to 25 ml. We also like the device because it's at-home, self-administered, comfort, the efficiency of their manufacturing operation. And I think it's a high-quality company. They're expanding their manufacturing site, which is an FDA-approved manufacturing site. And they have commercial devices, I think, in roughly 25 countries and about 8,000 units. And so this is a high-quality company. Pablo can talk more about the program. As it relates to XR, -- let's just -- Pablo, why don't you speak and then we'll go to XR. Pablo Cagnoni: So in terms of the plan to incorporating enFuse into the pivotal trials in MPNs, ET is pretty far along. We showed an update at EHA a few months ago on the data. The data has continued to mature. We have already initiated regulatory interactions around that. So we're probably going to be ready to start pivotal trial in ET before we're ready to deploy the enFuse device. For MF, the goal is to as quickly as possible, make the enFuse device available and ready to go so we can start those studies with the subcu administration. However, I can't be firm at this point. We need a little bit more time to really figure out the timing for the implementation of this, but that would be our goal for MF. William Meury: Mohamed, do you want to talk about XR? Mohamed Issa: Yes. If I can put that in frame for us real quick, Derek. Jakafi XR, as you know, represents a great addition to the portfolio, expected to launch in the middle part of 2026. HCPs and patients now are going to have a convenient once-daily formulation of a brand that they know and trust. We expect about 15% to 30% conversion from the IR by 2028. And with a slower erosion curve than IR, XR can be a solid incremental contributor to top line sales through 2030 and beyond. And as you mentioned, look, our launch strategy is focused on securing quick formulary access, accelerating HCP adoption and patient preference to maximize that uptick in the short term for that long-term value. And if I can just point to our ability to launch Niktimvo, FL in Monjuvi and Zynyz and SCAC, I'm just proud of our team's ability to execute on these launches, and I think XR won't be any different. Operator: Next question today is coming from Ash Verma from UBS. Ashwani Verma: So yes, a lot of focus on 989. Maybe just like looking at the Slide 20, a few different settings that you're exploring in ET and MF, but just wanted to confirm at this point, are you able to pursue first-line or naive patients in registrational studies? And then secondly, on the formulation, like where are you able to get the volume down to like how many ml? And is this something that can be a home subcu injection and not just an on-body formulation? William Meury: Thanks, Ash. Pablo, do you want to take that? Pablo Cagnoni: Thank you for the question. So I think the first part was about first-line MF. And the answer is we fully intend to develop 989 for first-line patients with myelofibrosis. That's why we're running the combination with ruxolitinib in treatment-naive patients. That work is ongoing. We're not going to disclose results on that before the end of this year, but I'm confident that we will find a path there. We have very clear preclinical data showing synergy between 989 and ruxolitinib in the right models of MF. So I'm confident that we will find a path there. In terms of the subcu, our goal is to have a device that patients can use at home for self-administration of 989 subcutaneously. That's the goal. That's why we put in place a collaboration with Enable, and we think we're going to find a path to that in 2026. Operator: Next question today is coming from Reni Benjamin from Citizens. Reni Benjamin: Congratulations on a great quarter. I guess just a follow-up with rux XR. There was a strategy way back when about combining it with a pipeline product to help kind of fight this LOE. Are you looking at any potential combinations to move this forward with either the pipeline or in-licensing a product and staving off this erosion curve for rux? And as a follow-up, you're starting this registrational program with TGF-beta. I'm kind of curious as you think about how large the study is, the delta that you need to show to have a positive study, how you come to the calculus given the kind of limited data that you have so far? William Meury: Ren, thanks for the question. I'll take the first one and turn the second one over to Pablo. Right now, our focus for XR is launching it for the Jakafi indications. We're not working on any combinations in development, and we don't plan to right now. I know that there was a history there, but we're just focused on the once a day and preserving some portion of that revenue stream and getting a more convenient dosing regimen out. As it relates to your second question, I'll turn it over to actually Steven Stein. Steven Stein: Ren, thanks for the question. So it's first-line microsatellite stable colorectal cancer. The combination we'll be advancing there, as we alluded to at ESMO is with FOLFOX and bev. That's used across the board, independent of RAS mutant versus wild type, independent of left or right side of tumor. The enabling safety work has already progressed well and will continue. There's benchmarks available both for progression-free survival as well as overall survival. The primary endpoint, as we alluded to at ASH, will be PFS because OS takes a little longer to get there. And the size we'll put up when we launch the study. But you can estimate it's probably north of 500, and we'll be well powered to show the PFS advantage we want. Operator: Your next question today is coming from Jessica Fye from JPMorgan. Jessica Fye: I had a couple more on 989. So I guess for Pablo, recognizing that we won't have frontline data for 989 by year-end, can you talk about what elements of these data in post-Jakafi patients and Jakafi suboptimal responders could make us come away confident that 989 could be successful in the front line? And I guess, specifically for that combo data set, I know it's smaller, but what are you going to be looking for as proof points that 989 is offering clear clinical benefit on top of Jakafi in the absence of a control arm? I guess is there like a certain magnitude of change from baseline on those key measures that you think would exclude any natural variability in the endpoints over time had the patients just remained on their Jakafi monotherapy? And I have a follow-up. Pablo Cagnoni: Thanks, Jess. So I think that the elements -- look, like with any early development program, early-stage development program, I think looking at the totality of the emerging evidence is important. So the first part here is obviously looking at the safety profile. We showed that in ET early this year. We'll show it in MF before the end of this year. And because of exclusively targeted nature of 989, we think that the safety profile, the really excellent product that we've shown so far is a key element for the future development. So the second part is obviously efficacy. The 2 components, as I mentioned earlier, are obviously the classic clinical endpoints. We need to see as monotherapy in patients that are resistant intolerant or ineligible for Jakafi, we need to see clear evidence of impact on clinical endpoints, spleen reduction, improvement in symptoms and anemia improvements in addition to translational endpoints. Now when you look at the add-on cohort that we're going to show some data, I think it's important to remember that those are the hardest patients to treat. Those are patients that did not respond to Jakafi in an ideal way despite a minimum of 12 weeks of treatment and being 8 weeks on a stable dose. So any improvement on classic endpoints in those patients, we think, is highly meaningful. When you look at what's available in second-line MF, the benchmarks are pretty low, as I mentioned earlier, between 9% and 20% for SVR35, for example. So in our view, when you combine the monotherapy data in second line, together with the ability to combine 989 with Jakafi, together with the safety profile, I think it's very easy to put a story together that increases our confidence in our ability to move 989 to the frontline setting as quickly as possible. Obviously, at some point in 2026, we'll provide an update on the treatment-naive patients, as I mentioned earlier, and that sort of will be the definitive element of that story. Jessica Fye: You mentioned looking at SVR25 in addition to SVR35. How do you incorporate SVR25 data into your decision-making? Pablo Cagnoni: We really don't -- to be honest with you, we report both 25 and 35 as it has been done in other trials in the past. Some of these patients have relatively short follow-up. We have patients enrolled at a range of doses. As you know, these are dose escalation trials. So we think it's important to have directional data where the spleen shrinkage is going. But the key element here is SVR35, make no mistake about that. We report 25 as well, but SVR35 is what we really care about. Operator: Our final question today is coming from Kripa Devarakonda from Truist Securities. Srikripa Devarakonda: Another one on 989. So when it comes to a rux combo, is there a rationale to develop both in suboptimal responders as well as in rux naive patients? Or do you see it as a better strategy to focus on one versus the other for the longer term? And secondly, what's the FDA guidance for the endpoints? Now I know you said you need to show both SVR35 and TSS50, but would they be co-primary endpoints? And do you have to hit on both? Pablo Cagnoni: So let me take the second part of the question first. Look, we'll have discussions with FDA on the appropriate regulatory endpoints for what is a novel treatment paradigm for patients with MF, which we think 989 represents. We think it's going to be based on clinical endpoints predominantly, what those specific clinical endpoints will be, we'll discuss it with FDA. We think there's an argument to be made about modifying some of what has been done previously in terms of co-primaries for SVR35 and TSS50. The impact on anemia, for example, we think could be very important and very interesting for FDA to contemplate. In terms of VAF pivotal trials we will do in MF, those decisions are in the process of being made, and we'll update you over time probably in early 2026. But we intend to develop 99 to try to address the needs of all patients with MF that are mutant CALR positive. That includes patients that are naive or patients that were treated with Jakafi initially and did not respond or were intolerant. And in those 2 contexts, monotherapy and in combination with ruxolitinib potentially can have a role. We'll give you more details over time as we disclose the data. Operator: Thank you. We reached the end of our question-and-answer session, and that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, everyone, and welcome to today's Nomura Holdings Second Quarter Operating Results for Fiscal Year Ending March 2026 Conference Call. Please be reminded that today's conference call is being recorded at the request of the hosting company. Should you have any objections, you may disconnect at this point in time. [Operator Instructions] Please note that this telephone conference contains certain forward-looking statements and other projected results, which involve known and unknown risks, delays, uncertainties and other factors not under the company's control, which may cause actual results, performance or achievements of the company to be materially different from the results, performance or other expectations implied by these projections. Such factors include economic and market conditions, political events and investor sentiments, liquidity of secondary markets, level and volatility of interest rates, currency exchange rates, security valuations, competitive conditions and size, number and timing of transactions. With that, we'd like to begin the conference. Mr. Hiroyuki Moriuchi, Chief Financial Officer. Please go ahead. Hiroyuki Moriuchi: Thank you very much. This is Moriuchi, CFO. I will now give you an overview of our financial results for the second quarter of the fiscal year ending March 2026. Please turn to Page 2. Group-wide net revenue came in at JPY 515.5 billion, down 2% from last quarter. Income before income taxes fell 15% to JPY 136.6 billion, while net income was JPY 92.1 billion, down 12%. Excluding gains from the sale of real estate recorded in the previous quarter, net revenue was up 10% and net income was up 40%, reflecting steady growth. Earnings per share for the quarter were JPY 30.49 and return on equity was 10.6%, reaching the quantitative target for 2030 of 8% to 10% or more for the sixth consecutive quarter. In addition, income before income taxes in the 3 international regions rose 63% to JPY 44.9 billion, marking the ninth consecutive quarter of profitability. For all 4 divisions in total, income before income taxes rose 25% to JPY 132.6 billion. In Wealth Management, the balance of recurring revenue assets and recurring revenue saw a net inflow for the 14th consecutive quarter, reaching an all-time high. And in Investment Management, assets under management also reached an all-time high on a 10th consecutive quarter of net inflows. Revenues and profits rose in both divisions. In Wholesale, the overall trend of growth in both revenue and profits strengthened further with net revenue in Equities reaching a record high in Global Markets and momentum remains strong in Investment Banking, too. The Banking division established in April also performed well. Before we go into details for each business, let us first take a look at the performance in the first half of the fiscal year. Please turn to Page 3. As shown on the bottom left, income before income taxes rose 26% year-on-year to JPY 296.9 billion. Net income rose 18% to JPY 196.6 billion, and earnings per share came in at JPY 64.53. Return on equity rose to 11.3% as medium- to long-term initiatives steadily bore fruit. In addition, group revenue rose by 11% and profits benefited from cost controls and operating leverage with a cost coverage ratio of 71%. Please see the bottom right for a breakdown of income before income taxes. Income before income taxes at the 4 main divisions rose 11% to JPY 238.4 billion. Growth in recurring business revenue in Wealth Management and Investment Management helped to stabilize overall performance and Wholesale continued its self-sustained growth based on the principle of self-funding, enabling income before income taxes to rise substantially, thereby driving overall performance. Banking got off to a good start and has made progress with preparations for the introduction of a deposit sweep service next fiscal year. In view of this performance, for the period ended September 2025, we expect to pay a dividend of JPY 27 per share. This works out at a dividend payout ratio of 40.3%. Please turn to Page 4. This time, we have added this slide to our presentation. We calculate stable revenues as the sum of recurring revenue at Wealth Management, business revenue at Investment Management and revenue at Banking. Steady growth in recurring assets in both Wealth Management and Investment Management, shown on the left, has resulted in strong growth in stable revenues, as shown in the graph on the right. And Banking has been steadily increasing its recurring business, including loans outstanding and trust balance, thereby expanding its foundation for growth. Now we will look at the second quarter results for each division. Please turn to Page 7. All percentages discussed from now on are based on a quarter-on-quarter comparison. Wealth Management net revenue increased 10% to JPY 116.5 billion, and income before income taxes grew 17% to JPY 45.5 billion. Income before income taxes was the highest in about 10 years since the quarter ended June 2015. Recurring revenue and the balance of recurring revenue assets both reached record highs as recurring revenue assets saw a net inflow for the 14th consecutive quarter. As major equity markets rose to fresh highs during the quarter, client activity increased and flow revenue registered strong growth. Meanwhile, the pretax profit margin reached a high level of 39%, buoyed by ongoing cost controls. The recurring revenue cost coverage ratio for the last 4 quarters came to 70%, leading additional stability to the division's performance. Please turn to Page 8, where you can see an update on total sales by product. Total sales declined around JPY 300 billion to JPY 6.4 trillion, but this was owing to a tender offer in excess of JPY 1 trillion during the previous quarter. As for recurring revenue assets, sales of investment trusts and discretionary investments grew steadily, supported by continued strong demand for long-term investment diversification. Regarding insurance, sales have continued at a high level, reflecting the relatively high U.S. interest rate environment. Next, let's take a look at the KPIs on Page 9. On the top left, you can see that recurring revenue assets saw a net inflow of JPY 289.5 billion. As major markets reached new highs, net inflows remained at a high level despite increased selling pressure from portfolio adjustments as our efforts to expand the recurring business proved successful, taking us to the next stage. Meanwhile, as shown on the top right, recurring revenue assets totaled JPY 26.2 trillion at the end of September and recurring revenue exceeded JPY 50 billion for the first time in our quarterly results, owing to a contribution from investment fees, which are collected on a half-yearly basis in the second quarter. As shown on the bottom right, the number of workplace services rose steadily to exceed 4 million. Next, let's take a look at Investment Management. Please turn to Page 10. Net revenue came to JPY 60.8 billion, up 20%. Income before income taxes amounted to JPY 30.7 billion, up 43%. Stable business revenue has been growing steadily. In addition to favorable market factors, 10 straight quarters of net inflows resulted in assets under management topping JPY 100 trillion and asset management fees reaching a new high. Investment gain loss came to JPY 16.8 billion, rising sharply by 69%. This reflects not only a large increase in investment gain loss related to American Century Investments, but also profits recorded at private equity investment firm, Nomura Capital Partners on the sale of shares held in Orion Breweries, which publicly listed. Let's now turn to Page 11 and examine our asset management business, which is the key source of business revenue for the division. The graph on the upper left shows that assets under management reached JPY 101.2 trillion at the end of September. As shown on the bottom left, net inflows amounted to JPY 498 billion. Net inflows to the investment trust business totaled around JPY 525 billion and net outflows from the investment advisory and international businesses were around JPY 26 billion. Net inflows in the investment trust business were achieved despite share price increases on the major markets, triggering profit-taking sales, pushing up funds kept in reserve in MRFs. But even excluding MRFs, funds flowed into Japan equity ETFs, private assets and balanced funds. The investment advisory and international businesses saw net outflows owing to reshuffling of investments by Japanese investors and outflows from Asian equities, which outweighed inflows to U.S. high-yield bonds and UCITS investment funds. As shown in the graph at the bottom right, alternative assets under management rose to a new high of JPY 2.9 trillion. This performance is the result of solid net inflows and not solely owing to market factors. Next, Wholesale Division. Please go to Page 12. Net revenue came to JPY 279.2 billion, up 7% as shown at the bottom left of the slide. Global Markets net revenue was up 6% and Investment Banking net revenue was up 15%. Meanwhile, stringent cost management resulted in division expenses only rising 3%. As a result, cost-income ratio improved to 81% and income before income taxes rose 27% to JPY 53.1 billion. Please turn to Page 13 for an update on each business line. Net revenue in Global Markets business rose 6% to JPY 235.7 billion. Fixed income revenue was JPY 121.9 billion, in line with the previous quarter. Let's look at the product breakdown. In macro products, rates revenues were down quarter-on-quarter in EMEA. FX/EM revenues in AEJ were also down. In spread products, credit revenue growth in Japan and AEJ was attained by capturing client flows and securitized products revenue growth was supported in the Americas by the prevailing direction of the interest rate environment. As a result, higher revenue from spread products offset lower revenues from macro products. Equities revenue rose 16% to a new high of JPY 113.8 billion. In equity products, revenues grew on higher client activity in Japan and AEJ, supporting a strong performance in the derivative business and the Americas business remained favorable. Execution services sustained strong revenue from the previous quarter. Please turn to Page 14. Investment Banking net revenue rose 15% to JPY 43.5 billion. Corporate action in Japan remained consistently strong and the international business also contributed to revenue growth. By product, in advisory, momentum remained strong in Japan with multiple transactions involving financial sponsors and moves to take companies private. And international business also made a contribution with M&A deals related to renewable energy and digital infrastructure, primarily in EMEA. Advisory continued to rank top in the Japan-related M&A league table for January through September and ranked 15th in the global M&A league table, demonstrating its global presence. In financing and solutions, revenue rose in DCM on continued solid performance in Japan and multiple international transactions, primarily in EMEA as well as ALF deals, particularly in the Americas. Now let's look at Banking. Please turn to Page 15. In Banking, net revenue came to JPY 12.9 billion, flat from the previous quarter. Income before income taxes fell 12% to JPY 3.2 billion. KPIs such as loans outstanding and investment trust balance remained at a high level and revenue from lending business and trust agent business held firm. Meanwhile, higher costs pushed down profit as an upgrade to the core banking system completed at Nomura Trust and Banking in May 2025 resulted in the associated depreciation being fully booked this quarter. Preparations for the deposit sweep service scheduled for introduction in FY 2026, '27 are progressing as planned. Now I will explain noninterest expenses. Please turn to Page 16. Group-wide expenses came to JPY 378.8 billion, a 4% increase from the previous quarter. Compensation and benefits totaled JPY 195.1 billion, rising 5%, reflecting an increase in performance-linked bonus provisions. Commissions and floor brokerage fees came to JPY 47.2 billion, up 5%. The increase was driven by a heavier volume of transactions. Other expenses came to JPY 52.8 billion, which includes JPY 3.1 billion related to acquisition and integration of the U.S. asset management business of Macquarie Group as well as the expense of paying compensation for losses arising from fraudulent trades in clients' accounts due to phishing scams. I will comment in more detail on how the phishing scams affected our profits this past quarter at the end of today's presentation. Lastly, we take a look at the financial position, Page 17. In the table on the bottom left, you can see that Tier 1 capital at the end of September came to approximately JPY 3.6 trillion, up roughly JPY 170 billion since the end of June, while risk-weighted assets came to JPY 23.5 trillion, up roughly JPY 660 billion. The common equity Tier 1 ratio at the end of September accordingly came to 12.9%. This is within our target range of 11% to 14%. Our common equity Tier 1 ratio finished the quarter down from the 13.2% marked at the end of June, but this decrease reflected the accumulation of positions commensurate with revenue opportunities as well as the increase in the value of risk-weighted assets due to market factors. As we explained 3 months ago, the calculation method for regulatory capital ratios will change once the acquisition of Macquarie Group's U.S. asset management business has been completed, and we currently expect this to depress the CET1 ratio by about 0.7 percentage points. This concludes our overview of second quarter results. We would like to provide more detail on the issue of fraudulent trading in client assets resulting from phishing scams. In response to instances of fraudulent trading, we have raised the security level in stages and the number and scale of damages have come down greatly from April peak. At this point, we have been in direct contact with nearly all clients that have been affected by the attacks, and we are working through the process of paying a compensation to them. There are times during the second quarter when the related damages increased again, but at present, the situation has settled down, owing to various steps undertaken to address the issue. In the second quarter, the negative impact on the profit came to JPY 4.8 billion. Although the number of damages fell sharply, fluctuation in share prices led to high costs in some cases to restore our clients' assets to their original condition. In this regard, we are working to avoid market volatility risk to the greatest extent possible. On October 18, we introduced a passkey authentication system that is recognized as an effective means of thwarting phishing attempts, and we are strengthening measures to eliminate such damages. Looking ahead, we expect that the impact of phishing scams will be much smaller than it has been up through the second quarter, judging from the current state of damages. Our swift action to implement high-quality security countermeasures does more than just limit the damages suffered by our clients. It enhances the security and convenience of the financial services we provide. Our plan is to be proactive in assembling effective account security measures in our role as an industry leader and thereby reinforce our brand as the most trusted partner for our clients. I would like to close with some final remarks. During the quarter just finished, stock indices in Japan and other major economies rose steeply amid lessened uncertainty over the trajectory of U.S. interest rates and widespread interest in AI-related stocks and other high stocks -- high-tech stocks. Those conditions helped us record another quarter of strong earnings as we expanded our stable source of revenue and successfully monetized robust client flows. EPS in the second quarter came to JPY 30.49 and ROE came to 10.6%. For 6 quarters in a row, we have attained a quantitative target for 2030 announced last year of consistently achieving ROE of 8% to 10% or more. In addition, ROE for the first half of the fiscal year was 11.3%. As mentioned at the beginning of this presentation, we have seen solid growth in our key sources of stable revenue, including revenue -- recurring revenue in Wealth Management, business revenue in Investment Management and net revenue in Banking. This has added further to the stability of our company-wide performance. Wholesale as well as steadily achieving independently sustainable growth under the self-funding approach. Revenues and profits in the division have both been increasing in the continuation of last year's trend and overseas business, which has long presented a challenge, has gained ground in making a steady profit contribution. Let me briefly touch on the situation in October. In Wealth Management, net revenue thus far in October is well above the levels observed in the second quarter. We have seen continuous medium- to long-term growth in investment trust and discretionary investment and other such products and services premised on the idea of long-term diversified investment, and this trend has continued in October. The flow from savings to investment has become well established, and we have tangible sense that the client base for investment in marketable securities have broadened steadily. We intend to continue playing our part to transform Japan into an asset management powerhouse by building relationship of trust with our clients and providing them with asset management services tailored to their needs. In Wholesale GM business, equity products have continued performing well. In Investment Banking, we expect the current high frequency of corporate actions to continue. In October thus far, the net revenue in Wholesale continues to be solid. Going forward, we aim to raise our profit baseline by taking on risks appropriate to market conditions, and we ask for your continued support. Operator: [Operator Instructions] The first question, Bank of America Securities, Tsujino-san. Natsumu Tsujino: This is Tsujino. Two questions. First is regarding the personnel expenses. And as explained, in Q1, you had the U.K. and according to the accounting rules, every year, the expenses tends to be high. So you started at a low level. And this time, compared to Q1, the yen has weakened slightly, so the costs are a bit higher. But even so, if you look at it on a Q-on-Q basis, the personnel or compensation and benefits has increased too much, I think. Considering the wholesale revenue and even compared to that, I think comp and benefits has increased too much is my impression. So could you add more color on that, please, is my first point. My other point is, and this was the case in the past, too, but the CET1 ratio is within target range. And after Macquarie acquisition, it will go down a little bit. And it was 12.5% or so, which -- and you said you were not exactly fully comfortable with that. So now the market is strong and the position tends to increase. So for this year, regarding the buybacks this year, is there going to be any change compared to the past? So could you -- maybe you can't disclose that, but any color on that, too, please? Hiroyuki Moriuchi: Tsujino-san, this is Moriuchi. Regarding your first question about comp and benefits, yes, the points you raised are all correct. And yes, let me add some color to that. Within the compensation and benefits, there's the bonus increase linked to our earnings. That is a big factor. And on top of that, there was some retirement bonus increase in Wholesale, for example. And that does tend to happen as part of our business. And in this quarter, the retirement payments was a little larger than usual. So that's my answer to your first question. And for the second question, regarding the CET1 ratio target, 12.9% is going to go down to 12.8%, but how we think about the buybacks this year? Well, as for buybacks and for shareholder return in general, we have committed to the market of 40% dividend or above and total payout ratio of 50% or above. And we plan to stick to that as we consider shareholder return. And we had the Macquarie closing and the CET1 ratio is going to decline further from here. And within Wholesale at the moment, we are seeing some high-quality deals and opportunities, and those are increasing. So from an investment perspective and financial discipline perspective and shareholder return, we will keep those 3 factors in mind, and it's quite hard to balance those 3. But we will make sure to stick to our commitments. Thank you. I hope that answers your question. Operator: The next person asking the question is SMBC Nikko Securities, Mr. Muraki. Masao Muraki: I'm Muraki from SMBC Nikko. I have 2 questions. First question is about markets department revenue. Now in macro, revenue seems weak and credit and equity derivatives -- sorry, securitized products and equity derivatives seem strong. But the way revenue is generated in Page 17, the credit risk RWA increase has followed -- or is continuing? And where are you taking the risk and what kind of revenue is being generated? And recently, you said there are quality deals, but what kind of risk taking is expected in the third quarter? So could you explain? That's my first question, market revenue and risk taking. And my second question is as follows. The First Brands failure, so such incident from such instance, did you have some impact or any lesson that you have taken? And regarding private credit, oftentimes, there are many inquiries we receive about private credit. But looking at your balance sheet, trading book loan is JPY 1.9 trillion. And other than that, excluding Nomura Trust and Banking, loan is about JPY 1.2 trillion. In Americas, securitized -- securitization department or private credit-related business, what is the size of the business in this overall number? Could you give me some sense? Hiroyuki Moriuchi: Thank you very much for your questions. For your first question regarding credit risk, where we are taking and how we are taking credit risks. In the first quarter and second quarter, as you say, SPPC and equity derivatives were very strong. Also, usually in credit trading business, our credit trading business contributed to revenue solidly. And what is the outlook for the third quarter, as you said, related to SPPC. There are interesting deals in the pipeline. On the other hand, your -- it's related to your second question, but in our credit business, including First Brands, whether we see abnormality in credit market, we receive such questions often. Regarding SPPC, internally, we have been having various discussions and high profitability deals lined up. On the other hand, in our balance sheet, concentration risk on SPPC is something we have to be mindful of. So more than ever before, we have to be selective in deciding which deal to do. So in our total portfolio, SPPC portion is not going to be grown rapidly from where it is now. Regarding your second question about First Brands related impact as well as lessons we have learned and also the scale or magnitude. Firstly, regarding this specific case or impact on our business or P&L was very small from this specific case. To a certain extent, we had some exposure, but it's negligible in size. Also, this name in question did not cause direct cost. And is there a broader implication related to this? As you say, regarding firm-wide stress testing, periodically and nonperiodically, we conduct a stress test to see the changing pattern of tail risk. Indeed, looking at our existing portfolio, whether the risk has grown bigger a lot or not, the risk is not growing rapidly because in SPPC business, private credit business portion in size is very small. So the SPPC business has mortgage structured lending and infrastructure business. So those represent a big portion. So regarding private credit, private credit-related business is right now in the sense of the balance sheet of our P&L, the impact from that is not big, even though I cannot give you a specific number. That's all. Masao Muraki: If possible, I am deviating from the earnings result, but I'd like to ask you about your perspective. So related to First Brands -- so risks related to First Brands, which you mentioned, what kind of risks are you paying attention to? For example, simply, but is it simple credit risk or nonbank intermediary-related risks or double collaterals were involved in some companies' transactions, but is there a risk of fraudulent transactions that you may be involved in? So specifically, what kind of risks are you being attentive to? Hiroyuki Moriuchi: It's not that because this incident happened, but regarding individual cases, credit, we need to perform due diligence closely to look at the creditworthiness of each case. And regarding the fraudulent case or scam, by -- all we can do is to conduct a thorough due diligence to screen for the fraudulent trading. Regarding the nonbank intermediaries, unlike commercial banks, we are a firm that's focused on the trading. So what we take is inventory as a counterparty. So how should I put it? Nonbank credit risks themselves are not taken greatly by us. The risk which I mentioned is in the sense that regarding individual transactions, we pay close attention to credit. And for example, for the specific individual cases, when we receive sizable deal to conduct, we are not a major firm. Our balance sheet size is limited. So to what extent do we allocate balance sheet to one transaction. So what is the level of concentration risk. So those are the items or matters that we closely evaluate as we make a decision, and that's what we will have to keep doing. Operator: The next question is from Mr. Watanabe of Daiwa Securities. Kazuki Watanabe: This is Watanabe from Daiwa Securities. Two questions, please. First is regarding the October revenue environment. And in wholesale equity and IB is strong, which I understand. But for FIG, what are the trends you see in FIG? And compared to Q2, if you look at the Wholesale division revenue, is it above or higher or lower, please? Number two is the tax burden, Page 5. If we look at it year-on-year, the pretax income is increasing, but the net profit is down. And international pretax income size is larger, but the tax rate is going up. Why is that, please? Two questions. Hiroyuki Moriuchi: Watanabe-san, this is Moriuchi. Regarding your first question, the fixed income trends. First, for Japan, fixed income is quite strong. In the first half, for the ultra-long-term domain, it was quite difficult, including position taking. But even in that domain, we are seeing a normalization. And the market is very active and the revenues are catching up in accordance with that is my impression for fixed income in Japan. As for international, I think we're seeing a similar trend, similar to first half. And from here on, depending on the rate environment going forward, there could be upside. And as part of the overall portfolio, when fixed income improves, that starts -- that tends to normalize the other businesses. But as we bundle the overall business, we are seeing an increase in stable revenues and that level is gradually improving is my impression. That's my first answer. Your second question regarding the tax burden or the tax cost going up slightly. Sorry, it's hard to go into the details. There's a lot of technical issues here. So what I can say now, well, I won't go into the technical details. Kazuki Watanabe: Just to check on the first point, in October, Wholesale division revenue compared to Q2, is it above? Is it higher? Hiroyuki Moriuchi: Well, overall, it is strong, but I would say it's about the same level. It's still only been 3 or 4 weeks. So we'll see where things go. It's still a bit early to say. But just for the first 3 weeks, I would say it's about the same level. Operator: The next question comes from JPMorgan Securities, Sato-san. Koki Sato: I am Sato from JPMorgan Securities. I have 2 questions. First question, sorry for dwelling on this, but Wholesale, Equities or especially equity product business. So the revenue has reached the record high level. But firstly, in the short term, in the first quarter, Americas derivative did well, if I recall. But this time, looking at the material, Japan, AEJ had a significant increase in revenue. Anyways, derivative seems to be the strong area. But if it is fine with you over the several quarters in each region, what has been the trend of movement of each business line over the last several quarters? And such trend, is it sustainable over the next several quarters in the future? Can you give me some sense? My second question is about risk asset. The target range is set at 11% to 14%. And in this situation, now after the closing of Macquarie acquisition, it will come to around 12%, but the CET1 ratio, CET, if it's JPY 3 trillion, if core equity, then if it's 11%, then it's going to be JPY 27 trillion. Then for the time being, is that going to be the allowable ceiling of risks you can take? Can I have that sense? So I'd like to ask you to elaborate on the capacity of risk taking. Hiroyuki Moriuchi: Sato-san, thank you for your questions. Firstly, your first question, equities, what was the equities performance in each region? And what is the extent of sustainability moving forward? This time for the U.S., I might not have -- the material might not have mentioned it. But in the first quarter, the Americas has been the driver of revenue and the strength continues in Americas, though that's not specifically mentioned. On the other hand, for Asia and Japan, compared to the first quarter on a Q-on-Q basis. Now second quarter results came in stronger. Overall, equities in AEJ, Japan and U.S.A. the performance was very strong. And to what extent for how long can we retain this strength? If equities continues to be this strong, then sometime down the road, there will be a point of normalization. That's what we are discussing internally. But as you are aware, not only in Japan, but in U.S.A. and Asia, we have geographical diversification. And within equities, we have various products and the last several years, we have worked to diversify and broaden the product range within equities. So in that sense, we are more tolerant or resistant against downside risk. In any case, equities have become stronger. So moving forward, we expect certain normalization, but in such situation, resource could be -- resource -- fixed income resource, which we had intentionally reduced could go up for macro and other fixed income. So I encourage you to take a look at the entirety of the portfolio. And regarding your second question, target range from 11% to 14%. After Macquarie closing, the ratio is around 12%. So what is the future capacity of risk taking, that's what you asked about. So it is a good point you made. But firstly, regarding Wholesale, so stringently, they are sticking to the self-funding concept as they grow their business. So self-sustaining growth is being driven. So in the third and fourth quarters, if Wholesale continues to perform strongly, then based upon the revenue and profit generated by Wholesale and based upon the capital accumulated -- to be accumulated, RWA headroom or capacity will be increased. On the other hand, for areas other than Wholesale, we have the question of whether we find a need for capital in the near-term future. But if there are opportunities for M&A or inorganic growth, then in a step change manner, resource may be grown. But in any case, it's going to be immediately after Macquarie transaction. So when it comes to finance, we would like to stay on the safe side, and we would like to be conservative to a certain extent, and we want to take a look at the balance. I hope I answered your question. Operator: The next question is from Morgan Stanley MUFG Securities, Nagasaka-san. Mia Nagasaka: This is Nagasaka. Two questions. On Slide 14, Investment Banking. In the second half and next year, how do you think about the pipeline towards the future? In Q2, Japan was strong. International also recovered. And according to your explanation, corporate actions will remain strong. So what about advisory, finance solutions? Could you add some comments by product, please, is my first point. My second question is regarding the ROE. In Q2, 10.6% ROE on a full year basis, and there were some one-off items, but even so, 10.6%. So what is the base ROE which you can achieve? I think -- I guess the base ROE has gone up quite a bit. And your target 2030 target of 8% to 10% plus, what is the -- and I guess your expected profit level to achieve that is going up. So are you going to reconsider the target profit level at this stage? Any thoughts on the upside, downside, as CFO, please? Hiroyuki Moriuchi: Thank you for your questions. This is Moriuchi. Regarding your first question about the pipeline by product. First of all, for advisory, in Japan, there are some cross-border opportunities and large opportunities and quite a lot of opportunities are building up in the pipeline. And for international, it depends on the region, but we have announced many deals. And also in the second half, there are some deals which we haven't announced, which is building up as well. And for advisory, the pipeline is building up quite nicely. Meanwhile for ECM, the fee pool is normalizing and shrinking somewhat. And there are some normalizations of the cross-shareholdings opportunities. But even for the reduction of cross-shareholdings, that seems to be picking up slightly. And in the second half, usually, it's the second half that corporate actions tend to be concentrated versus first half in this product. So we'll make sure to pitch and win these opportunities. And for DCM, the business remains strong. And for the second half, as rates are expected to go up, but we are expecting a certain level of deal flow. Advisory, very strong. DCM is -- we expect a similar level to continue. For ECM, compared to a typical year, it's a bit weak, but we expect some recovery would be the summary. Your second question regarding ROE. And in Q1, Q2, and based on the results, we are already booking more than 10% ROE. So are we not going to raise the level is your question. And yes, as you pointed out, if we look at the current earnings, our base earnings power is gradually improving. This is a result of portfolio reforms as well as the operational reforms at each business division, and those are leading to results. So in terms of ROE, we get a lot of inquiries about whether we are going to reconsider and revise it. And we are discussing a little bit internally, but the point here is that which part of the cycle we are in right now, that's something we need to be mindful of. And regardless of the economic cycle, we want the products in Wholesale to offset each other so that we can maintain the overall revenue level. That's the kind of portfolio we are aiming for. But if we are going to enter a slowdown, is something we need to consider. And even in that case, we want to maintain at least the 8%, which is the lower end of the range of 8% to 10%. And we are currently building up the earnings capability, and that's what we should be focusing on at the moment. I hope that answers your question. Operator: [Operator Instructions] As there is no more question, we'd like to conclude question-and-answer session. Now we'd like to make closing address by Nomura Holdings. Hiroyuki Moriuchi: Thank you. This is Moriuchi again. Thank you very much for attending the call despite your tight schedule. So we were able to show you the good results. And we still have third quarter and the fourth quarter remaining, so we will stay focused so that we can deliver results so that we can do so, the management members will keep making efforts. Thank you very much for your continued support. Thank you. Operator: Thank you for taking your time, and that concludes today's conference call. You may now disconnect your lines. [Statements in English on this transcript were spoken by an interpreter present on the live call.]
Operator: Good morning, and thank you for standing by. Welcome to the Dorman Products Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I'd now like to turn the conference over to Alex Whitelam, Vice President of Investor Relations. Thank you, sir. Please go ahead. Alexander Whitelam: Thank you. Good morning, everyone. Welcome to Dorman's Third Quarter 2025 Earnings Conference Call. I'm joined by Kevin Olsen, Dorman's Chief Executive Officer; and David Hession, Dorman's Chief Financial Officer. Kevin will provide a quick overview, along with an update on each of our business segments and their respective markets. Then David will review the consolidated results and our guidance before turning it back over to Kevin for closing remarks. After that, we'll open the call for questions. By now, everyone should have access to our earnings release and earnings call presentation, which are available on the Investor Relations portion of our website at dormanproducts.com. Before we begin, I'd like to remind everyone that our prepared remarks, earnings release and investor presentation include forward-looking statements within the meaning of federal securities laws. We advise listeners to review the risk factors and cautionary statements in our most recent 10-Q, 10-K and earnings release for important material assumptions, expectations and factors that may cause actual results to differ materially from those anticipated and described in such forward-looking statements. We'll also reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are contained in the schedules attached to our earnings release and in the appendix to this earnings call presentation, both of which can be found in the Investor Relations section of Dorman's website. Finally, during the Q&A portion of today's call, we ask that participants limit themselves to 1 question with 1 follow-up and to rejoin the queue if they have additional questions. And with that, I'll turn the call over to Kevin. Kevin Olsen: Thanks, Alex. Good morning, and thank you for joining our third quarter 2025 earnings call. As Alex mentioned, I'll start with a high-level review of the results along with an update on our segments and market observations for each before turning it over to David. Let me start on Slide 3. First, I'd like to thank our contributors for all their hard work and dedication this year, which allowed us to execute exceptionally well and deliver for our customers. In the third quarter, we drove strong top and bottom line growth. Consolidated net sales were $544 million for Q3, up 7.9% year-over-year. This growth was primarily driven by tariff-related pricing actions that took effect in the quarter, which we covered in detail during our last earnings call. Additionally, we saw solid POS growth in the quarter which was up mid-single digits year-over-year. As we expected and discussed previously, we delivered strong margin growth in the quarter. This was largely driven by the timing dynamics of pricing and costs associated with tariffs. As a reminder, while the majority of our price increase went into effect in the third quarter, the inventory that we purchased in Q2 comes with higher tariff-related costs that will begin to impact our income statement in the fourth quarter of this year. As a result, we expect a lower gross margin in Q4 compared to Q3. Adjusted operating margin for Q3 2025 was 20.5%, a 340 basis point increase over last year's third quarter. Adjusted diluted EPS grew 34% year-over-year to $2.62 which, again, was driven by our growth, margin expansion and the timing dynamics of pricing and costs related to tariffs. Finally, operating cash flow was $12 million, and free cash flow was $2 million in the quarter. While this is a slight improvement over Q2, our cash flow continues to be impacted by higher tariff costs. David will discuss this in more detail shortly. So while there were some timing subtleties within the quarter, we're pleased with our performance and expect to continue delivering strong year-over-year growth for our shareholders. Next, I'll provide our results for each of our business segments. I'll also dive into our market observations and share some highlights for each. Starting on Slide 4, our Light Duty business had another strong quarter with net sales increasing 9% year-over-year in Q3. The growth was primarily driven by tariff-related pricing actions that took effect in the third quarter. POS more closely aligned with our net sales up mid-single digits year-over-year. And similar to last quarter, we're not seeing any significant oversupply in the inventory data we have from our largest customers. On the margin front, Light Duty delivered a 470 basis point gain in operating margin, driven primarily by tariff-related pricing as well as the impact of our supplier diversification initiatives. Looking across the Light Duty market, macro trends continue to remain positive. The vehicle miles traveled increasing year-over-year. However, uncertainty in the market related to tariffs and trade dynamics continues to persist. We're closely monitoring the environment and continue to work with our suppliers and customers as part of our overall tariff mitigation strategy. And while it appears that inflationary pricing has started to reach our end users, we remain confident in our ability to drive long-term growth as nondiscretionary repair parts have historically performed well through various economic cycles. We also thought it would be helpful to provide some business insights and highlight new products and updates across our segments. In the Light Duty business, we recently launched an electronic power steering rack for specific Ram truck models from 2013 to 2024. This is a first aftermarket part and the only available option in the independent aftermarket that is manufactured new. This product is a great example of our capabilities within complex electronics given the functionality and integration of various systems throughout the vehicle. The EPS rack is an OE fixed component with significant upgrades compared to the original manufacturers part and designed to ensure a long, reliable service life. Electronics within have been redesigned with added service protection and an improved layout to reduce heat and electrical interference. Additionally, protective coatings have been applied to resist contamination from water, salt dust and other harmful contaminants. It has also been designed for simple, seamless installation with no dealer programming needed. This product is a culmination of extensive complex cross-functional work with our engineering teams. So I'd like to congratulate everyone involved. Next, let me turn to Slide 5 for updates on our Heavy Duty business. Net sales grew 6% year-over-year in the third quarter. While market conditions continue to pressure the segment, the team executed on the pricing front and drove volume through new business wins. The benefit of higher net sales growth in the quarter was offset by lower manufacturing productivity, impacting margins, which were flat year-over-year. Longer term, we remain focused on driving a mid-teens operating margin profile for the Heavy Duty segment. Digging more into the broader trucking and freight market, it remains difficult to predict an inflection point. While we're pleased with the recent net sales growth over the last 2 quarters, we continue to see mixed signals across our customer channels, but we're hopeful that the worst is behind us, we'll see a turn in the coming quarters. Despite the headwinds, we continue to execute key initiatives to best position the business for the eventual rebound of the trucking and freight market. As an example, we just launched our redesigned website with an improved e-commerce platform that helps customers identify the right parts for the right applications and get our products to the right locations on time. We expect a new site, which has been designed with the next generation of heavy-duty repair professionals in mind will enable us to scale and be even more competitive with the help of its user-friendly interface and modernize look and feel. On Slide 6, I'll provide an overview of the Specialty Vehicle segment. Top line growth was relatively flat year-over-year with continued market pressures in the quarter, including weak consumer sentiment from tariffs and interest rates remaining at higher levels. Operating margin was impacted by lower manufacturing productivity in the quarter as we proactively reduced production in our Chinese manufacturing facility in Q1 following a ramp-up of production in Q4 of 2024 to get ahead of tariffs. Long term, we are targeting a high-teens margin profile for the business. We remain focused on our innovative strategy and continuing to develop new products for both the current park and next-generation vehicles. Despite the challenging consumer sentiment during the quarter, UTV and ATV ridership remains strong, which is a continuation of the positive trends we've seen in prior quarters. We expect that as the economy continues to stabilize and interest rates further decline, riders will increase their spending on their vehicles. OEs have also commented that machine inventory is starting to normalize, which should bring stability to the end market. Speaking of new products, I wanted to highlight the 4-inch long travel kit that we introduced for Polaris XD 1500 models. This bundle widens the vehicle's wheelbase by a total of 8 inches, providing more stability and control on rough terrain. The kit is designed for more of a utility application, allowing operators to improve the rides that fit the work they do on a daily basis. This is a great example of a solution design for those utilizing their vehicles for work, not just play. We continue to expand our portfolio of nondiscretionary utility-focused products to broaden our reach with new users. With that, I'll turn it over to David to cover our results in more detail. David? David Hession: Thanks, Kevin. Let me start with our consolidated results for the third quarter on Slide 7. Net sales in the third quarter were $544 million, up 7.9% year-over-year. As Kevin outlined, our net sales growth was driven primarily by tariff-related pricing initiatives. Positive macro trends in our Light Duty business and the success of our innovation strategy across all 3 segments remain foundational to the strong momentum of the overall business. Adjusted gross margin for the quarter was 44.4%, a 390 basis point increase compared to last year's third quarter. As Kevin mentioned, this margin expansion was driven by the timing dynamics of when price and costs related to tariffs are recognized in our income statement. Additionally, our supplier diversification efforts contributed to margin improvement in the quarter. We remain on track to reach our goal of reducing our overall supply from China to 30% to 40% as we exit 2025. Adjusted SG&A expense as a percentage of net sales was 23.9%, up 50 basis points compared to the same period last year. Adjusted operating income was $111 million for the third quarter, up 30% compared to last year's third quarter. Adjusted operating margin expanded 340 basis points to 20.5%, primarily from the improvement in gross margin I just discussed. Finally, adjusted diluted EPS in the third quarter was $2.62, a 34% increase year-over-year. In addition to the increase in operating income, lower interest expense positively impacted our adjusted diluted EPS growth, offsetting a higher comparable effective tax rate, given favorable discrete items in last year's third quarter. Turning to our cash flow on Slide 8. For the third quarter, our cash flow was impacted by the higher cost inventory, affected by tariffs. This led to operating cash flow of $12 million and free cash flow of $2 million in the quarter, which was a decline from last year, but a modest improvement from last quarter. We expect that free cash flow will rebound in the coming quarters. With tariff and trade uncertainty impacting parts of our business, we maintained our pause on share repurchases through the quarter. As always, we'll continue to monitor market conditions, along with the cash needs of the business and opportunistically repurchase shares to return capital to our shareholders as part of our broader capital allocation strategy, which remains unchanged. We also believe we remain well positioned to fund our strategic growth initiatives, given our strong liquidity position, which I'll cover on the next slide. Slide 9 reiterates what we've been saying for a number of quarters now. Our asset-light nature and long track record of generating strong levels of cash flow have enabled the liquidity position and balance sheet capacity that allow us to manage higher cost inventory while still investing in strategic growth opportunities. As you can see, at the end of the quarter, net debt was $401 million and our net leverage ratio was 0.92x adjusted EBITDA. Additionally, our total liquidity was $654 million at the end of September, up from $642 million at the end of 2024. Again, we expect the strength of our balance sheet will stand as a competitive advantage and a key driver of our success going forward. Finally, let me discuss our guidance for 2025 on Slide 10. With our strong performance through the first 9 months, we have reaffirmed our net sales and EPS guidance ranges for the year. Our guidance for 2025 is based on the tariffs that are currently enacted. Should any material changes to tariffs or trade disruptions significantly impact our business or alter our expectations, we may look to update our guidance prior to year-end. Starting with top line. We expect net sales growth to be in the range of 7% to 9% over 2024. And for adjusted diluted EPS, we expect a range of $8.60 to $8.90 or an increase of 21% to 25% compared to last year. Finally, for modeling purposes and additional clarity on the final quarter of the year, we expect that Q4 will see a reduced gross margin percentage compared to this quarter as tariffs begin to impact our cost of goods sold. Also, we expect the full year tax rate will land at approximately 23.5%. With that, I'll now turn it back over to Kevin to conclude. Kevin? Kevin Olsen: Thanks, David. Just to finish up, I'd like to commend the team on delivering strong top and bottom line performance in the quarter and year-to-date. Our results reflect the hard work and dedication of our contributors all around the globe who are managing exceptionally well in the dynamic economic environment. Our business is well positioned to deliver strong performance in 2025 and we're pleased with the opportunities ahead. With that, I would now like to open the call up for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Scott Stember of ROTH Capital. Scott Stember: Last week, one of your bigger customers commented that they were starting to see some elasticity issues, notably on the DIY side. Are you seeing any change in behavior, whether it's DIY or DIFM related to elasticity? Or is it too soon to say at this point? Kevin Olsen: Scott, it's Kevin. Good question. Look, I'm not going to comment on what our customers say. But I will tell you how we're looking at it, really solid quarter, growth up 9% in Light Duty, 8% overall. POS was solid in the quarter. New continues to be a strong driver of growth. Macros continue to look solid in terms of the sweet spot of the vehicle, miles, age of the vehicle. But keep in mind that our portfolio differs quite a bit from a lot of our customers and a lot of our other folks in the supplier community, we have a heavy nondiscretionary majority of our parts. So either your car is not going to run or it's not going to run safely. So we have some benchmarks as well. We went through the 2018 and '19 time frame where we had some inflation. We went through the time period of 2023 and -- 2022, '23 when we had that inflationary period, and we raised prices and what we generally see over time is our portfolio is generally inelastic and performs pretty well because of the nondiscretionary nature of it. Scott Stember: Got it. And then last question before I jump back into the queue on margins. Typically, when price increases go through to cover tariffs, usually there's some optical distortion on the margin line. But it seems that you guys at least recently have been comfortable that you could keep margins relatively flat because of some of the self-help stuff that you have going on. Is that narrative still in play? And just trying to get a sense of where we should look at margins as we go forward in the next couple of quarters. Kevin Olsen: Yes. Look, really strong quarter for margins. We've reached 20% operating margin. But as David said in his prepared remarks, we do expect some compression as we move into the fourth quarter with the dynamic of the tariffs coming through COGS, cost of goods sold. But there are a lot of activities that we've also talked about that we anticipate reading through, whether that be cost initiatives, whether that be productivity improvements in our DCs and throughout the business, frankly. And longer term, we continue to see this business as a high-teens operating margin business. Operator: Your next question comes from the line of Jeff Lick of Stephens Inc. Jeffrey Lick: Congrats on a nice quarter. Kevin, I was wondering if you could just maybe address the trajectory of Light Duty, up 9.3%, with price increases relative to the 10.1% and 13.8% it was up the previous 2 quarters. Just any additional color, clarity on what was driving that? That would be great. Kevin Olsen: Look, it was -- Jeff, we view it as a very solid quarter in Light Duty, 9% sales growth. POS was very solid in the quarter. New products continue to drive exceptional growth there. We don't see that stopping. As I mentioned before, the macroeconomic environment still looks very good there in terms of the sweet spot of the 7- to 14-year-old vehicle continues to rise. Miles driven continue to increase. I think the age of the vehicle now is around 12.8 years old. So when we step back and we look at it, given the nondiscretionary nature of our portfolio there, we feel really good about driving future growth. David Hession: And Jeff, to add a little color. I'm sorry, to add a little color there. The Q3 was 9.3% was real consistent with the second quarter, and it's pretty consistent with the first quarter as well because if you look at the first quarter, it had a very easy comp. So pretty consistent growth through the year on Light Duty business. Jeffrey Lick: Just a quick follow-up on the kind of the dynamics of price increases. I was just curious as let's just say you guys decide, hey, you're going to take a 4% price increase, which obviously goes to your customer, who then, in turn, will pass that along in 1 way, shape or form to the end user. How does that dynamic play out? Is it typically that your customer is going to take your price increase and just pass that on percent -- at the same percentage? Or what's the dynamic there? Kevin Olsen: Yes. I mean, look, I really can't comment on how our customers are going to react to potential price increase from us or any other -- any other supplier. All I can tell you, Jeff, is kind of how we handle it. It's a multifaceted approach, right? I mean -- and it's really in line with historical practices that I talked about earlier. We've been through this before in '18, '19 and '22, '23. First, we have a very defined strategy to diversify our supply chain, which we've made a lot of progress on over the years. We're a much different company than we were from that respect from 6, 7 years ago. We negotiate with our suppliers, right? I mean, obviously, these are our supply partners around the globe. And so we obviously look to get the best price value combination we can from our supply base. And then as I mentioned earlier, we continue to look at productivity initiatives across the company. And when that's all said and done, we'll work with our customers to strategically implement price increases. But beyond that, Jeff, I really can't comment on what our customers are going to do from that standpoint. Operator: Your next question comes from the line of Tristan Thomas-Martin of BMO Capital Markets. Tristan Thomas-Martin: First Brands has been all over the news. How should we think about kind of like product overlap or any other overlap? And then what could it be potentially in terms of the opportunity for you guys? Kevin Olsen: Yes. Thanks for the question, Tristan. It's a good one. I'll start out by saying that we don't view ourselves as a comparison to First Brands. And then I'll also point out from the Dorman perspective, we have a very healthy balance sheet and liquidity. And I think we're carrying less than 1x leverage at this point. We don't engage in any off-balance sheet financing. We only participate in the customer-sponsored factoring programs with our largest customers, and frankly, we've been doing that for decades. We do have publicly secured debt, but we haven't speculatively financed our receivables or frankly, any other working capital assets. And to kind of address your question straight on. I mean, we do have some categories that overlap with First Brands, but not in a material way. It's really around the edges. And of course, we stand ready to help our customers that if they need help from this situation as we always do. Tristan Thomas-Martin: Okay. And then just one on specialty vehicles. I was just wondering you introduced the new long travel suspension for the XD1500. Do you see any change in aftermarket attachment rate on newer vehicles, such as the XD 1500, that OEMs are focused a little bit more on factory accessories versus maybe some older more mature vehicles that don't have the same OEM kind of accessory split? Kevin Olsen: Yes. I mean, clearly, when you have less contented models, that's a good thing for us. And frankly, with price points being what they are, and they've increased so much over the years, we view that as a good dynamic going forward because I think we'll start to see a lot more entry price point models in the future. So I'd tell you that the specialty vehicle market continues. Look, we're very -- we love the business. Rider enthusiasm continues to remain high. We do surveys of dealers and riders consistently. But the discretionary side of that business has definitely felt more impact, which is roughly half the business. And that's why we continue to double down on nondiscretionary repair parts in that business, which we've really expanded that portfolio since the acquisition a few years ago. Operator: Your next question comes from the line of Bret Jordan of Jefferies. Bret Jordan: I think you said that your POS was up mid-single digits. Is that units or is that POS dollars out the door of the customer? I guess if we can sort of look at the Q3, how much of the growth was price versus pieces? Kevin Olsen: Yes, Bret, that's dollars. And we've always quoted POS in dollar terms. Hope you can appreciate that we don't and have never disclosed unit growth for competitive reasons. It could really put us in a situation with some customers that they could triangulate price increases. So we don't disclose that. I'll only say that POS growth in the quarter was very solid, particularly as we look at it compared to Q2. And look, as I said before, the nondiscretionary nature of our portfolio bodes well in a period of increasing inflation. We've seen it before. It's not our first time going through a period like this. Bret Jordan: Yes. So I guess when you think about your customers have sort of thrown out same-SKU inflation between 2.5% -- at least 3% and then 4%, where do you sort of [Technical Difficulty] that low mid-single digit, is the right number? Kevin Olsen: You broke up a little bit there, Bret. I will -- I think I got the gist of your question though. I mean -- at the end of the day, I can't comment on what my -- our customers that are publicly out there have very different product offerings than we do in terms of DIY, and we tend to -- the majority of our portfolio is, as you know, hard parts, much more DIFM, professional content. So it's not a real good compare trying to compare some of our customers to our portfolio. Bret Jordan: Okay. And then a question on supply chain. I think you're saying you expect to be 30% to 40% China by year-end. What's the supply chain map going to look like? I mean a few years ago, you were 70% China. Are there other countries that are concentrated, I think, sort of how diverse [Technical Difficulty] too? Kevin Olsen: Look, right now, yes, I mean, we've said previously that right now, we're about 30% to 40% China depending on the mix, roughly 30% in the U.S. and the balance is rest of the world. I think we're -- as we move forward, you'll probably see a little bit less than that indexing towards China. But to be honest, I think we feel pretty good about the nature of the footprint now. Even with regard to all these very fluid situation around tariffs, we're very diversified. And frankly, we have a very robust supply chain, much more robust than we did 6, 7 years ago. So I think we can handle anything that's thrown at us on the trade front, given where we are and frankly, if we need to pivot, we have the experience to do that. We have the know-how and the tools and the experience to do that. Bret Jordan: It seems like some of your margin benefit has been sort of shifting the supply chain. Is the rest of the world cheaper than your prior average? Or is it -- where are you picking up this margin from sort of revamping the supply chain? Kevin Olsen: Well, I mean there's certainly been some of that as we've -- over the years, Bret, I mean, it seems like we've been in a constant flux since 2018, '19. But listen, we're never going to move to a region where we become uncompetitive. I mean, so that's always a part of the calculus in terms of the cost, but there's a lot of other things that factor in there, too, in terms of the quality, the value that the supplier offers, the lead times. So there's a lot that goes into that equation. But at the end of the day, the moves we made we feel comfortable that we can remain competitive in this environment. Operator: Your next question comes from the line of David Lantz of Wells Fargo. David Lantz: I guess considering strong Light Duty sales and a sequential improvement in Heavy Duty and Specialty Vehicle trends, curious if you could just talk about your share position across those segments in Q3. Kevin Olsen: Yes. Sure. I mean, listen, in Light Duty, we continue to believe we're taking share. If you look at the overall market growth statistics that we look at over the years, anywhere between 3% and 4% historically. We've consistently outperformed that. And that's really driven by our new product efforts, particularly new to the aftermarket, where that part only exists in the OE channel the day before we launch it. And that's been a huge driver of growth. I'd say in Heavy Duty, we did see some nice growth in the quarter. So some positive signs. Some of that growth was driven by tariff pricing, but we also had some key customer wins. That -- we have a very small share in a large TAM and heavy duty. So we feel we have a lot of runway to go in that space. And in specialty, again, when you look at our overall share position, it's pretty small in a fairly large market. So we like the runway. It's why we like the space. And I would tell you that just in terms of share performance, we believe we're outperforming the overall market, although we're not happy with flat sales growth, we believe that the rest of the market has been down. So we do believe we're taking share. We think it's a combination of the initiatives that we've undertaken, whether that be expanding our nondiscretionary repair portfolio or geographic expansion. We've seen a lot of success in that regard. David Lantz: Got it. That's helpful. And then the balance sheet is really healthy. So curious if you could talk about your appetite for M&A and what the pipeline looks like today? Kevin Olsen: Yes. Great question. Look, we have different acquisition strategies across the different segments. I think if you look at -- and I'll just remind you what those are. In Light Duty, we're always looking for potential technology acquisition as the vehicles continue to technologically advance. We want to make sure we stay ahead of that curve as we have in years past. And geographic expansion remains a priority for that segment. If you look at Specialty Vehicle, a lot -- highly fragmented market. As you know, we have a fairly small share of that market. So we view that as right for brand and product portfolio acquisition plays. And in Heavy Duty, we're still a small player in a very large market. There are a lot of channel -- channel plays where today we have opportunity that acquisition will really help us penetrate some of those channels in a much greater way. I would tell you that the funnel looks very strong. We consistently work the funnel, but I will tell you that targets -- the amount of actionable targets has been a bit slowed. I think it's slowed by the tariff situation. I think a lot of potential sellers are probably waiting to see how the tariffs impact their business, whether that be for pricing or margins or demand, what have you. I think once that shakes out, I think there'll be a lot more activity on the other side of that. David Hession: Yes. And just a little comment on the balance sheet. The leverage right now in the quarter was 0.92x. So strong balance sheet. We view that we've got the dry powder to not only absorb the higher cost of inventory but also execute against the M&A program, which Kevin outlined. Operator: Your next question comes from the line of Justin Ages of CJS Securities. Justin Ages: I wanted to follow up on the comment about First Brands. So I think we're aware about the customer-sponsored factory. Have you seen any or had any conversations about terms that you guys -- the terms that might be changing as a result of that? Or completely unrelated and then the terms are pretty clear set? David Hession: Yes. Just the terms are pretty clear, and we don't see any indication that there's going to be any change in the terms. Justin Ages: Okay. That's helpful. And then on the Light Duty, can you give us some color on the amount of time, like the lead time for the power steering product that you outlined. Just want to get a sense of from idea to get to market how long that took? Kevin Olsen: Well, that's a loaded question, but it's also a great question. For that particular product, I mean, we have been in the market with an electronic power steering rack for a different making model, starting about 18 to 24 months ago. But if I look at total development time on a part like that, it's substantial. Certainly a lot longer than a purely mechanical part, as you can imagine. There's a safety component to that part, there's an electronic -- complex electronics component to that part. So it's a much longer cycle time on that part. And obviously, as a result, has a much higher selling price than a pure mechanical part. Operator: Your next question comes from the line of Gary Prestopino with Barrington Research. Gary Prestopino: Could you guys give us some idea on specialty, what the mix is of nondiscretionary versus discretionary and at this point and how that has shifted since the acquisition? Kevin Olsen: Gary, sure, absolutely. It's roughly about 50-50 right now, and it was materially less than that when we acquired the business. So it's moved up quite a bit. And I think we're very well positioned for when that market does recover. The pure accessory side and then the brake fix or nondiscretionary repair to drive oversized growth compared to market when we do start seeing the recovery and the geographic expansion, which I talked about before, too, we've seen some great progress there as well. Gary Prestopino: Yes, that's what I wanted to hit on, too. I mean the geographic expansion, as I recall, you said you were west of the Mississippi, you were pretty light with dealerships. Can you maybe help us out as to how that is going in terms of picking up new dealerships without getting too specific, I mean, overall growth in dealership would be helpful. Kevin Olsen: Yes, that's a great question, Gary. We have been very focused on that. And we've added -- I'll just -- I'll put it this way. We've added a significant amount of new dealer relationships out West. Now our focus is on driving more share of wallet within those dealerships. So first step, getting in the dealers, getting relationship established and now we're driving share of wallet gains there. Operator: Your last question comes from the line of Scott Stember of ROTH Capital. Scott Stember: Just a quick follow-up on tariffs. Has there been any meaningful change to your exposure from a geographic standpoint, whether it's India, China or any other country, since the last time you guys gave an update? Kevin Olsen: Boy, Scott, that's a great question. I'm not -- I think the answer is yes. from last quarter. Certainly, we've seen some changes. But there's a lot of headline news around tariffs that actually haven't made their way into law or implementation. So it's hard for me to -- it's changed so much. It's been so fluid, Scott. It's hard for me to pinpoint an exact date. But look, I'll just summarize it this way. Where we sit right now, we feel well positioned to handle the current tariff environment or any other potential changes that might come down the pipe, particularly as we look at how we compare competitive set. We feel like we have a footprint that is as competitive as anyone else out there in the aftermarket. And so I think we can handle any changes that come our way. And I'll characterize it as manageable at this point. Scott Stember: Got it. That's great. Operator: There are no further questions at this time. Ladies and gentlemen, this concludes today's earnings call. We thank you for participating. You may now disconnect.
Operator: Good morning, and welcome to the Brown & Brown, Inc. Third Quarter Earnings Call. Today's call is being recorded. Please note that certain information discussed during this call, including information contained in the slide presentation posted in connection with this call and including answers given in response to your questions may relate to future results and events or otherwise be forward-looking in nature. Such statements reflect our current views with respect to future events, including those relating to the company's anticipated financial results for the third quarter and are intended to fall within the safe harbor provisions of the securities laws. Actual results or events in the future are subject to a number of risks and uncertainties and may differ materially from those currently anticipated or desired or referenced in any forward-looking statements made as a result of a number of factors. Such factors include the company's determination as it finalizes its financial results for the third quarter that its financial results differ from the current preliminary unaudited numbers set forth in the press release issued yesterday, other factors that the company may not have currently identified or quantified and those risks and uncertainties identified from time to time in the company's reports filed with the Securities and Exchange Commission. Additional discussion of these and other factors affecting the company's businesses and prospects as well as additional information regarding forward-looking statements is contained in the slide presentation posted in connection with this call and in the company's filings with the Securities and Exchange Commission. We disclaim any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In addition, there are certain non-GAAP financial measures used in this conference call. A reconciliation of any non-GAAP financial measures to the most comparable GAAP financial measure can be found in the company's earnings press release or in the investor presentation for this call on the company's website at www.bbrown.com by clicking on Investor Relations and then Calendar of Events. With that said, I will now turn the call over to Powell Brown, President and Chief Executive Officer. You may begin. J. Powell Brown: Thanks, Deedee. Good morning, everyone, and welcome to our third quarter earnings call. We'd like to first welcome our 5,000-plus new teammates from a session that joined us on August 1. We're excited to be working together to grow our company as these talented teammates bring new capabilities for our customers. I also wanted to talk about leadership changes we announced last Monday. Based on the evolving global breadth of our Retail segment and the importance of continuing our forward momentum, I've appointed Steve Hearn as the new retail President on a go-forward basis. I've known Steve for over 20 years and have admired his leadership style. He brings more than 35 years of deep industry experience, acquisition, integration and a proven record of driving growth and innovation, both in the U.S. and internationally. With his leadership, we will further enhance our world-class solutions and value to our customers, carrier partners, shareholders and teammates. Regarding my brother, Barrett, I have a ton of respect for him as a leader and also I love him dearly. He's taking a personal leave of absence. I ask that everyone respects his privacy. When he's ready to return to the company, I look forward to welcoming him back. Last week, our Board of Directors raised our dividend by 10%, which represents an increase for the 32nd year in a row. In addition, our Board expanded our authorization to repurchase shares up to $1.5 billion. As we've done in the past, we will purchase shares when we believe the company is undervalued and to help manage dilution associated with our equity plans. Our goal is to help drive earnings per share growth and meaningful shareholder value. Now let's transition to the results. I'll provide some high-level comments regarding our performance along with updates on the insurance market and the M&A landscape. Then Andy will discuss our financial performance in more detail. Lastly, I'll wrap up with some closing thoughts before we open it up for Q&A. I'm on Slide #4. As you know, we focus on growth, both overall and organic, margins, earnings per share and cash flow as key metrics that should drive shareholder value creation. For the third quarter, we delivered revenues of $1.6 billion, growing 35.4% in total and 3.5% organically as compared to the same period in the prior year. Our adjusted EBITDAC margin improved by 170 basis points to 36.6%. And our adjusted earnings per share grew over 15% to $1.05. On the M&A front, we completed 7 acquisitions with estimated annual revenues of $1.7 billion, with the largest being Accession. I'm on Slide 5. From an economic standpoint, growth remained relatively stable with the second quarter. We view this as positive since we continue to see businesses growing as consumers are still spending. From a hiring and capital investment perspective, it remained relatively modest for most companies. Depending on the industry, some companies are looking to hire while others are relatively flat. This concept applies to capital investments as well. Generally, concerns over the impact from tariffs sees to have dissipated for many industries, while business leaders continue to have a cautious bias. From a commercial insurance pricing standpoint, rates for most lines were similar to the second quarter. We continue to see CAT property and casualty as the outliers on both ends of the spectrum. Pricing for employee benefits was similar to prior quarters with medical costs up 6% to 8% and pharmacy costs generally up over 10%. We do not see any signs that this trend will slow over the coming quarters, almost all companies are challenged to balance rising health care costs and the impact of their employees and their P&Ls. Management of high-cost claimants, specialty pharmacy and population health continue to be key areas of our focus, which are driving more demand for our health care consulting businesses. Rates in the admitted P&C markets were substantially similar to last quarter and were flat to up 5% versus the prior year. Workers' compensation rates remained similar to prior quarters in most states and were flat to down 3%. For non-CAT property, overall rates were down 5% to up 5% depending on the loss experience. For casualty, we're seeing rate increases of 5% to 10% for primary layers and excess layers increasing even more. We believe this trend will continue over the coming quarters. For Professional Liability, rates remained similar to Q2 and were down 5% to up 5%. Shifting to the E&S property market. Rate changes for the third quarter were similar to the second quarter and were generally down 15% to 30%. Keep in mind that we placed the largest amount of CAT property in the second quarter and the least amount in the third quarter of each year. From a customer perspective, they're managing their total insurance spend, both commercial as well as employee benefits. As rates move up and down for certain lines, this will influence customers' buying behavior and corresponding premiums paid. I'm on Slide 6. Let's transition to the performance of our 2 segments for the quarter. Retail delivered organic growth of 2.7%, which was impacted by approximately 1% due to the adjustments related to certain employee benefits incentives. Isolating this impact, the organic growth was generally in line with our expectations as a result of good net new business performance. As a reminder, beginning this quarter, our previously reported Programs and Wholesale segments were combined into one segment, which is now referred to as Specialty Distribution. The go-to-market brand is Arrowhead Intermediaries, which is comprised of 3 distinct divisions: Programs, Wholesale and Specialty. This segment also includes the 180 division of Accession. We believe that on a combined basis, Arrowhead Intermediaries is the largest global operator of over 100 MGA, MGUs and places approximately $20 billion of written premium. For the quarter, the Specialty Distribution team delivered good organic revenue growth of 4.6%. Organically, wholesale grew high single digits, driven by strong brokerage performance. Programs grew low to mid-single digits, driven by good net new business while being partially offset by our wind and quake programs due to the continued downward rate pressure for commercial CAT properties. Now I'll turn it over to Andy to get into more details of our financial results. R. Watts: Great. Thank you, Powell. Good morning, everybody. Before we get into the details, we want to talk about the impact on our earnings related to the acquisition of Accession and our related debt and equity issuances. As previously discussed, transaction and integration costs related to our acquisition of Accession are excluded from our calculation of adjusted EBITDAC and adjusted earnings per share. For this quarter, acquisition and integration costs were approximately $50 million. Additionally, beginning this quarter, we have a [ legal ] line on the income statement called mark-to-market of escrow liability related to the acquisition of Accession. This account is also excluded from our calculation of adjusted EBITDAC and adjusted EPS. For the third quarter, we recorded approximately $8 million of a noncash charge related to the change in the fair value of our common stock held in escrow. As our stock price changes over the coming quarters, we will have additional noncash movements. For the stub period of August and September, Accession's total revenue was approximately $285 million. The margins were in line with our expectations and were slightly below the full year margin discussed during our announcement call. Due to the seasonality of revenue and profit for certain businesses, the margin will fluctuate by quarter. In addition, we recorded approximately $29 million of incremental investment income for the quarter as a result of the proceeds of our follow-on common stock offering and senior notes issued in June. Now transitioning to our consolidated results. As a reminder, when we refer to EBITDAC, EBITDAC margin, income before income taxes or diluted net income per share, we are referring to those measures on an adjusted basis. The reconciliations of our GAAP to non-GAAP financial measures can be found either in the appendix of this presentation or in the press release we issued yesterday. Now let's get into more detail regarding our financial performance for the quarter. On a consolidated basis, we delivered total revenues of $1.606 billion, growing 35.4% as compared to the third quarter of 2024. Contingent commissions grew by an impressive $46 million in total with $12 million coming from Accession. Income before income taxes increased by 34% and EBITDAC grew by 41.8%. Our EBITDAC margin was 36.6%, expanding by 170 basis points over the third quarter of the prior year, driven by good underlying margin expansion together with increased contingents and investment income. For the quarter, our margin expansion was partially offset by the seasonality of revenue and profit associated with the acquisitions of Accession and Quintes. Our effective tax rate for the quarter was 24.7%, substantially flat versus the prior year. Diluted net income per share increased 15.4% to $1.05. Our weighted average shares outstanding increased by approximately 48 million to 332 million, primarily due to the shares issued to Accession's equity holders. Lastly, our dividends paid per share increased by 15.4% as compared to the third quarter of [ 2024. ] Overall, we are very pleased with our performance for the quarter as well as our year-to-date results. We're on Slide #8. The Retail segment grew total revenues by 37.8% with organic growth of 2.7%. The difference between total revenues and organic revenue were driven substantially by acquisition activity over the past year. As it relates to the fourth quarter, we anticipate our organic growth will be similar to the third quarter. This is due to the previously mentioned employee benefits incentive adjustments and the relative impact of multiyear policies written in 2024 in the fourth quarter. At this point, we do not see the same potential revenue associated with multiyear policies in the fourth quarter of this year. Our EBITDAC margin increased by 150 basis points to 28%, driven by the management of our expense base, along with the positive impact of Accession. This was partially offset by revenue seasonality for Quintes, which we acquired in the fourth quarter of 2022. We're on Slide #9. Specialty Distribution grew total revenues by 30%, driven by the acquisition of Accession, contingent commissions and organic revenue growth. Our organic growth was 4.6%, which was a strong performance considering the very tough comparison to the prior year. Our EBITDAC margin decreased by 110 basis points to 43.9% due to the impact of Accession, having a lower overall margin as compared to our existing Specialty Distribution segment. This impact more than offsets the increase driven by higher contingent commissions, organic growth and managing our expenses. Regarding the Q4 organic revenue growth outlook, recall that we reported approximately $28 million of nonrecurring flood claims processing revenue in the fourth quarter of last year. Presuming there are no hurricanes through the end of this year as well as the continued rate pressure on CAT property and we are expecting slower growth in our lender-placed business, we anticipate the organic growth rate for our Specialty Distribution segment could decline in the range of mid-single digits. Taking this organic growth into consideration, it will also impact the margin for the fourth quarter this year. As it relates to the fourth quarter outlook for contingents, we anticipate them to be in the range of $30 million to $40 million, depending on the outcome of storm season. This excludes any contingents that may be recognized by Accession. We had a few other comments. First, from a cash perspective in the first 9 months of 2025, we generated $1 billion of cash flow from operations. This was an increase of over $190 million or 24% growth for the first 9 months of 2025 versus the same period in 2024. From a cash flow conversion perspective, our discipline remains strong, and the ratio of cash flows from operations to total revenues was approximately 23.5% or 100 basis points higher than the prior year. For the full year, we estimate our ratio of cash flow from operations to total revenues will be in the range of 23% to 25%. While we wrap up, we want to provide guidance on a few items. As it relates to Accession, we anticipate Q4 revenues to be in the range of $430 million to $450 million and the adjusted EBITDAC margin to be slightly below the full year margin discussed in our announcement call due to the seasonality of revenue and profit for certain businesses. Regarding amortization expense, we anticipate this to be in the range of $110 million to $115 million for the fourth quarter. Interest expense, we anticipate it to be in the range of $95 million to $100 million and investment in other income to be in the range of $20 million to $25 million for the fourth quarter. As it relates to our full year outlook for adjusted EBITDAC margin, you may remember during our earnings call in January of this year that we anticipated our margins to be flat compared to 2024. Based on our strong year-to-date performance and incorporating the slightly lower margins due to the seasonality of Accession, [ we are ] increasing our full year margin expectations to be modestly. With that, let me turn it back over to Powell for closing comments. J. Powell Brown: Thanks, Andy, and good report. As we enter the fourth quarter, we believe economic growth will be relatively similar to the last couple of quarters. The uncertainty regarding tariffs appears to be lessening as time passes. Interest rates are starting to decrease, and our customer base is continuing to grow and invest. This does not apply to all customers. With our broad diversification across geographies, industries, lines of coverage and customer segments, we will always have certain customer segments doing well and others working hard just to deliver growth. This diversification puts stability in our overall customer base and consequently in our key financial metrics. Overall, we feel the economies in which we operate are generally stable. From a pricing standpoint, we expect admitted rates to be fairly similar to what we experienced in the third quarter. As of now, we're not seeing any major disruptors that will cause admitted rates to materially change. We believe casualty and auto rates will continue to increase, which are the largest segments of the market and the admitted property, and that admitted property will continue to be very competitively priced. For the E&S space, we anticipate casualty lines will continue to be challenging to place. This includes both rate and available limits. Unless there is meaningful [ tort ] reform across the country, we expect upward -- continued upward pressure on rates on casualty lines. Presuming we don't have a meaningful late season storm or storms, the capital deployment -- and capital deployment remains active, pricing for CAT property will more than likely look similar to what we experienced in the third quarter. Then once we clear hurricane season, we could see certain markets or carriers get very aggressive at the end of the year utilizing the remaining capacity. This would not surprise us. On the M&A front, our pipeline looks good domestically and internationally. We continue to look to buy businesses that fit culturally and make sense financially. From an Accession integration standpoint, things are progressing well. We're focused on our customers and the solutions we can deliver for them. As we mentioned before, the strategic rationale for this acquisition is to bring together organizations to add new capabilities and enhance existing resources. Our balance sheet remains strong, and we have outstanding cash flow conversion to help fuel our growth. There will be periods when M&A is higher or lower weighting on our total growth. In the past 10 years, our growth has been well balanced between organic and inorganic. We'll remain disciplined in our capital deployment strategy so we can continue to drive long-term shareholder value. Our company is in a great place, and we feel good about the economic outlook. As I mentioned earlier, the third quarter was strong as we look at our key financial metrics, understanding the actual organic growth of retail was lower due to the change in employee benefits incentives for the quarter. Our teams are collaborating well, and we're working hard to leverage our capabilities for our customers and win more new business. We're looking forward to delivering a solid fourth quarter that will be the capstone and a really good year for Brown & Brown. With that, we'll turn it back over to Deedee and open the lines for Q&A. Operator: [Operator Instructions] Our first question comes from the line of Mike Zaremski from BMO. Michael Zaremski: My first question is on the relationship of organic growth to EBITDAC margins, not in any given quarter, but maybe over time, there's some correlation to time frames when organic growth is well above historical, there's more margin improvement and vice versa. So I guess I'm trying to get at -- I know you're not going to provide a guidance for '26. But to the extent we're painting a picture of lower organic growth, especially versus recent years or maybe towards the low end of your historical range, too, in the future, should we be thinking about kind of that margin correlation? Or are there just -- there's a lot of moving pieces with the acquisition and just other structural things going on in the company? Or is there something different about the relationship today than in the past? R. Watts: Mike, it's Andy. I think one of the things that is helpful when you look at, at least our numbers and you think about our company, the organic is just a component of our -- how we drive our margins, how we drive our cash flows. Important that you take into consideration contingent commissions inside [ of there ] if you think about just this quarter, right, and you look at the amount of contingents that we grew. So we were approximately $46 million of contingent this quarter, $12 million of that came from Accession. Our organic growth was $40 million. So the contingents are a material portion of the value that we [ do ] in the organization. So we wouldn't want you to do a direct correlation between organic and margins, it won't actually work that way, at least for our business, okay, so that just kind of think about that as you work through calculations. But we still continue to think about our business in that 30% to 35% range, and it will move around back and forth over time. But we feel really, really good with the business, as we mentioned, on just how we're growing this year on an underlying basis and how Accession is performing. Michael Zaremski: Okay. That's helpful. For my follow-up, curious, I believe you have some businesses. I know this is maybe just hopefully short term, but that are impacted by the government shutdown. Should we be -- are you -- should we be factoring in any implications of that in the -- probably your Specialty segment for 4Q? R. Watts: Yes. Mike, we've got a few businesses that are impacted, and it's both in specialty as well as in retail. So we've got a couple of businesses that are in the Medicare [ social ] security set aside. And those get impacted based upon the government. Generally, that revenue kind of gets caught up over time. It just kind of gets backlogged in there. So yes, there could be some impacts in the fourth quarter or even into Q1 despite how [ long it gone ] resolved up there in Washington. And then the other piece is in our flood business. So again, the way that works is we are able to actually do renewals. We just can't -- and nobody -- it's not just Brown & Brown, it's anybody is part of the [ right room ] program, is you can't write new policies right now. But what you can do is once the government opens back up, then you do retro policies in there. So we're in good shape. We kind of -- we're able to [ frontline ] all the renewals for the fourth quarter. Operator: Our next question comes from the line of Alex Scott from Barclays. Unknown Analyst: This is Justin on for Alex. The first question I wanted to ask was on Retail organic. I was wondering if you can provide a little bit more color as to the 1% impact that you had called out in your prepared remarks? R. Watts: Sure. Justin. So the comment we made inside of there is we had an adjustment for incentive commissions in employee benefits. The way those work is, again, we're accruing throughout the year. And then ultimately, we have to do adjustments at the end of the calculations again, and we'll always have positive and negatives. When you look at 2024 for that time period, it was actually a positive adjustment. And then for this year, it was actually a negative adjustment. And normally, how those calculations work is depending upon kind of where you get in an applicable year, the targets are moved in the next year. So we overperformed in '24, and we just didn't get all the way to the targets, the increased targets in 2025. So you have kind of year-over-year and up and down is what causes the spread in there, and that's about 1% of the impact. That will continue. And the other thing I'd just mention is, and we highlighted in our commentary, that will have some impact in the fourth quarter because we are still improving at a higher rate in Q4 of last year. Unknown Analyst: Got it. And I guess just on -- got it. Appreciate it. And just on a related note, I suppose as you guys are kind of gearing up for planning and budgeting for the upcoming year, I just wanted to kind of bring us back to a comment you had mentioned earlier in terms of how -- I think a few quarters ago, you mentioned you see sort of this business as sort of like in the low single digits, like on a longer term through the cycle. I was just wondering whether or not sort of the results in the recent quarters are sort of indicative of whether that mean reversion is starting to kind of happen at the present moment or how you see sort of the trend for sort of the organic as you guys are sort of thinking about planning for next year? J. Powell Brown: So Justin, for the last 16 years, we've been saying that the Retail business is a low to mid-single-digit organic growth business in a steady state economy. And so we're staying [ by that, ] we're consistent. So 16 years running. And the answer is, as you know, we don't give organic guidance for '26, but you have gotten a sense of how the business is running right now with a couple things that are headwinds or actually -- I'm not going to say they're one-off adjustments, but we are not skirting the issue. I mean the state -- the organic growth for Retail is 2.7%. I mean you can look inside of it and say, this could adjust it by 1 basis point, but we're not skirting the issue that was 2.7%. So I think -- I hope that answers your question. So thank you. Operator: Our next question comes from the line of Meyer Shields from Keefe, Bruyette, & Woods. Dean Criscitiello: This is Dean on for Meyer. My first question is a follow-up to just on the Retail segment's incentive commission. I know you mentioned there's some headwinds in Q2. I'm just wondering if that will continue in 2026? Or are we expecting moderating from there? R. Watts: Yes. At least as everything that we can see right now, we think this is more isolated into the fourth quarter and doesn't carry over into 2026. Facts can always change, positive or negative, but at least what we can see right now appears to be isolated to the fourth quarter. Dean Criscitiello: Got it. My second question is on the admitted E&S. Last quarter, you mentioned seeing signs of business going from E&S back to the admitted market. Just curious what are you seeing this quarter? And what do you expect going forward? J. Powell Brown: The short answer is there are admitted markets that are talking about it more and thinking about it as growth for admitted carriers becomes more challenging. And so I think that there will be a lot of talk about it, but I don't think that the movement from -- non-admitted to admitted will offset the increase in the size of the E&S market, if that makes sense. So yes, I think there will be some movement back across. But the E&S market is continuing to grow at a pace that I think that it will not offset that. So thank you. Operator: Our next question comes from the line of Mark Hughes from Truist. Mark Hughes: Yes. Powell, you had suggested that with a clean CAT season, you might see extra capital being put to work, the carriers could be more aggressive at year-end. What do you think that means for rates if you do see that scenario? J. Powell Brown: Well -- and again, Mark, let me say that I am not a reinsurance expert. So let's preface my statement by that. I think that reinsurance rates are going to be under pressure 5% to 15% down and then that's going to translate into admitted primary business in a similar or higher fashion or E&S, maybe I should say. And so I think we could see an environment where it's similar to this year, next year and what we're currently seeing. I do want to highlight something that we have seen before, and we haven't seen it yet that I'm aware of, but you get into the last part of Q4 and you get into December and you get a couple of markets that basically decide to get really aggressive because they still have unutilized capacity. And so I think we could see more rate pressure at the end of Q4 than we currently see. That's not across the board. It's in select. And I'm not aware of any markets teeing up the Blue Light especially yet, but I'm just telling you that is a possibility. And as it relates to next year, again, you have -- I do not believe this is going to have an impact on the United States pricing, but you also have the events that are occurring in Jamaica, and that's going to be on the news and the resulting damage and hopefully, not a lot of loss of life, but it could be. And so you're going to have things that are out there and yet the capital markets as it relates to deploying capital in the United States are not thinking about that here, they're thinking about that there. So that's my impression. R. Watts: And Mark, in our commentary, remember when we said it wouldn't surprise us if it happened at the end of the year. Remember our commentary at the end of the second quarter, and we said what happened in June, right, before storm season. So you can get really unusual pricing, right, at the end of a quarter or whatever. So that's why we said it wouldn't surprise us. Mark Hughes: Understood. And Powell, anything on the construction front, particularly Florida construction? You gave us some good commentary about the overall business environment. How about the construction market? J. Powell Brown: Well, it's interesting. Construction costs continue to go up, but there's a lot of building going on in Florida. As a countermeasure, I would tell you that in real estate, houses are not selling as quickly. And so you see houses sitting on the market much longer today. And if you -- and this is not a Florida-specific thing, but there are some indications as such. You hear a lot about the impact of cost of living, meaning, one, rents, so in apartments and condos; two, food; and three, the cost of insurance. So you hear a lot of that as it relates to people that maybe own second homes here that are in the more modest size homes that are thinking about the cost to operate and cost to live. And so the overall expense -- it's becoming more expensive. It's still relatively affordable. Don't get me wrong. But it's becoming more expensive in Florida for all the reasons I've just said. Operator: Our next question comes from the line of Bob Jian Huang from Morgan Stanley. Unknown Analyst: This is [ Sid ] on for Bob. I wanted to ask about property renewal rates in the third quarter and kind of how you guys are thinking about that in the fourth quarter, if it should be at a similar level or potentially worsening? J. Powell Brown: As we said, Sid, it's similar going into it with the potential as we get into, let's say, December, where there might be some outliers where you get a couple of markets or a market that becomes a little more aggressive. So I would say similar to what we saw with the caveat that in December, there might be some people that are getting a little aggressive and we haven't seen that yet. A little more aggressive. Unknown Analyst: Got it. And then are you seeing a similar trend in the admitted and E&S property markets? Or is there like any kind of divergence going on? J. Powell Brown: Well, the rate pressure, obviously, is much higher on E&S property. But I would tell you, there is continued interest in the admitted market for good property, and I believe that will increase. Operator: Our next question comes from the line of Matthew Heimermann from Citi. Matthew Heimermann: It's actually me. Just a couple of questions. One, just on Wright Flood. You had rolled out or started to roll out private flood product on that platform. I'm just curious how the initial uptake is going on that. And I'm assuming it's not at a development stage in terms of geographic coverage and the like that it could make up for any demand that is not -- that can't be fulfilled through the [indiscernible] your own right now, but just any color there would be great. Sorry for talking over you. J. Powell Brown: Yes. So glad you are who you say you are, Matthew, that's good. I have a couple of things. Number one, yes, we have historically written private flood in our business. And as you know, we've just announced to close effective [ 11/1 Polten ], which is a private flood business, which will be -- which we're very pleased about them joining us and very additive. And so private flood, we believe, can be a very -- is a very good product. I want to caution you by saying that private flood is not the answer for all flood policies, please note. So maybe different than some might say, you -- not every policy in every flood zone can be written in private flood or maybe shouldn't be written in private flood depending on who's underwriting it. And so we do think that there's an opportunity for us. And as Andy alluded to, we believe in our flood business through most of the fourth quarter, we feel pretty good about the renewal streams. And obviously, it depends on when the party in power will make the decisions, some sort of compromises with all parties in Washington to figure out how to get the thing back open. And so we believe that the pressure there will continue to go up, and we like to think, hope it's not a good business strategy, but that they'll come to some sort of conclusion in the near to intermediate term. R. Watts: Matt, I want to clarify one thing that you had mentioned at the beginning of your question. You said that we write private flood on our Wright Flood platform. We do not write on the Wright Flood platform. That is for -- that is part of the NFIP program. Our private flood business that we had before is written under the separate carriers in there. So separate technology, everything else. Matthew Heimermann: Yes. I was aware you had 2 platforms, but I thought I saw a press release that Wright was rolling out, and maybe it's just a distribution thing, not an actual insurance paper thing private, but maybe I could be mistaken, you would know better than I. R. Watts: Yes, that's just around for claims management and everything else. But the actual technology and everything else in the paper, et cetera, is not on Wright Flood. Matthew Heimermann: Yes. I appreciate the clarification. One follow-up on employee benefits is there's -- I feel like there's a number of cross currents affecting the business. And so I'd just be curious on your perspective, right? On one hand, it feels like you've got the dynamics of cost push, which drive a rate need. But on the flip side, you've got what feels like a labor market that's growing less quickly than it had been. You also have just that cost push naturally results in companies wanting to manage costs to some extent. So I'm curious from a subject premium standpoint or what have you, what -- how those dynamics all intersect. J. Powell Brown: All right. So Matt, a couple of things just to reiterate. Remember that smaller group, so let's call it under 100 lives, just roughly, it might be under 50. In many states, you are paid a per head per month compensation. So if you don't add heads, you don't make any more commission dollars. So if people are holding the line on their employment, regardless of increase in cost of health insurance, that's the first thing. The second thing is as people are -- those groups that are not in that area, but even across the board, and Andy has talked about this and I have, too, in the past, people are very focused on trying to contain the spend. And so what that means is they actually are modifying the plans that they offer. So let me give you an example. An example might be a -- let's just say you have a regional manufacturing company, and they have several hundred lives anywhere in the United States. And historically, meaning the last year or 2, they have paid for GLP-1s. So weight loss drugs. I'm not talking about the deal with diabetes. I'm talking about actually for the cause of weight drop. And that has spiked their spend in that particular area. And they make the determination in order to keep the program in a similar structure, they have to basically either place limitations on that or eliminate that for the sole use of weight loss. That would be an example of somebody making a change because of the projected spend because that in and of itself in a self-insured program can drive the cost through the roof. So it very much depends, but I think the important thing is people are trying to maintain quality coverage for their employees. That said, they can only bear a certain amount of increase. And so we are constantly and consistently talking with our customers and prospects about creative ways to deliver value to their employees, but to help manage their cost. And it's not a 1-year plan. If somebody thinks about health care in 1 year, that's transactional. If you're thinking about it multiyear, that's a strategic thought about managing cost over a long period of time, that's different. And I would tell you, it's very important and something that we obviously try to convey to our customers. R. Watts: Matt, these trends -- yes, as these trends here that we started talking about on the back end of ACA that we believe that were going to happen for an extended period of time, and there's even new things that have occurred. That's why we've made significant investments in our employee benefits business. We can handle customers if they have 5 employees, if they have 50,000 plus anywhere in that range, we have those capabilities. And so we do believe that it's a good market backdrop. Yes, there can be some cross wins here and there on things. But we think we're in a really, really good place to help customers of any size, how they manage their health care pharmacy and also their workforce. Operator: Our next question comes from the line of Elyse Greenspan from Wells Fargo. Elyse Greenspan: My first question is on the risk [ exception ] deal. I just wanted to confirm since the deal is closed, just relative to just the revenue and synergies and just accretion that you guys had outlined that it's all in line with prior expectations. And then I think the plan was to start to see the synergies come online, I think, starting next year. Is that all still the base case expectations? R. Watts: Yes. Elyse, Andy here. Yes, I think everything right now is still in line with what we had communicated back at the time of the announcements. The revenues are right in line. The margins are in line with our expectations, again, knowing there's some seasonality in the business generally has a higher margin in the first half of the year versus second half, not unlike our legacy Brown & Brown business that's there. Teams are working through all the integration plans right now and getting all of those in place. As we communicated on the call, we're going to recognize and realize the synergies over a 3-year period. So our goal is to be done by the end of '28. We still feel like we're on track for all of that process and all the hard work that's got to get done in there, but all the teams are leaning in and working through. Elyse Greenspan: And then just a clarification. On the retail guide for the fourth quarter, you said that, that would be stable with the Q3. Is that stable with the reported 2.7% or the adjusted 3.7% adjusting for the incentive comp impact? R. Watts: No. On the as reported, just -- so as reported, will probably be pretty similar or at least in the same ballpark in Q4 also, knowing that we've got the headwinds on carryover effect of accruing at a higher rate for the incentives and EV that still impacts part of Q4 and then the multiyear policies that were written last year. As of right now, we don't see that same volume of activity in the fourth quarter. And again, things could always change that's out there. Operator: Our next question comes from the line of Gregory Peters from Raymond James. Mitchell Rubin: This is Mitch on behalf of Greg. I wanted to ask about your investments in technology during the quarter. And I was hoping you could touch on the areas of focus and the run rate directionally in '26. R. Watts: Mitch, this must be the morning for everybody else stepping in than the original. So I think we've talked about technology for a number of years, and this started all the way back in 2016 when we made our large investment in infrastructure, and we've kind of got all behind us. And we said our next 2 horizons we're looking at how do we leverage our data analytics and improve the overall experience for our customers and our teammates. We're on that journey right now. We feel really good about the amount of capital that we're investing in, in that area. It's probably a journey, not sure that we ever "arrive" at a destination because you're always evolving in there. We've got a lot of really good things going on across the organization in Specialty Distribution and Retail at the enterprise level, everything from how we ingest data, how we analyze it, underwriting capabilities. We're focused on administrative tasks. So making some really good progress. But probably like most companies, it's still early days of really getting all of the benefits. But we feel good. We've got an innovation council that's set up across the organization, making sure that we're sharing best practices in each of the areas. So we'll continue to work on it, but we're seeing some early benefits from it. Mitchell Rubin: Great. That's helpful. And for my follow-up, I just wanted to ask on your outlook for your debt leverage target range going forward after the close of the Accession deal. R. Watts: Sure. Yes. Our -- as we've stated publicly, our gross debt leverage to EBITDA is 0 to 3x. And on a net basis, it is 0 to 2.5. We have every intention of being right back down in those ranges in about 12 to 18 months with scheduled paydowns that we're committed to. If you look at our 10-year average, we're right at about 2.2, 2.3 on a gross leverage ratio. The organization delevers about 1/4 to half a turn each year just naturally. And then with some incremental payments that we're anticipating, that will pull that down even quicker. Again, we're not overly levered right now anyway, but that's kind of the trajectory of what we're looking at, and that's consistent with what we've done over multiple cycles. Operator: Our next question comes from the line of Brian Meredith from UBS. Unknown Analyst: This is actually Leandro on behalf of Brian. So on the Retail businesses, did new businesses in Retail return to normalized levels after issues in the second quarter? Or is there still room to rebound? R. Watts: Hey, Andrew, you were kind of hard for us to hear. Would you mind repeating that one more time, please? Unknown Analyst: Sorry, sure. Did new businesses in Retail return to normalized levels already after the issues in the second quarter? Or is there still room to rebound? R. Watts: When you -- I guess -- so when you say rebound, I guess, what do you -- what's your expectation when you say rebound? Are you thinking -- I'm trying to acclimate. Are you thinking rebounding back up to Retail business is growing 6%, 7%, 8% organically? Or how are you thinking about it? Unknown Analyst: Accelerating from the second Q levels, I would say. R. Watts: In the second quarter or third quarter? Unknown Analyst: If in the 4Q, we can see an acceleration of new businesses from the bottom of the second quarter, I would say. R. Watts: Yes, I don't think we called out any issues regarding new business in the third quarter. We know we had some of that in the second quarter, but didn't see any issues there in the third quarter. What we highlighted for the fourth quarter is just based upon what we can see today in inventory regard multiyear policies and the volume that we wrote in Q4 of last year. We don't see the same volume in Q4 of this year. But again, that can kind of just move around by quarters. But underlying activity on everything else, we feel good with. Operator: Our next question comes from the line of Rob Cox from Goldman Sachs. Robert Cox: This is indeed Rob. So I just wanted to ask and make sure I understand on the Retail segment. So there's 2 comments in the presentation on the margin that, one was leveraging the expense base; and two, quarterly profitability associated with recent acquisitions. Was there a benefit in the quarter from the seasonality of the Accession acquisition? R. Watts: Rob, yes, there was. So we had a benefit from Accession and a headwind from Quintes, which again, we've kind of talked about Quintes for a few quarters just to help everybody out with that. So you kind of got 3 pieces to it. So a positive on Accession, a negative on Quintes and then a positive on just underlying management of the business. Robert Cox: Okay. Perfect. And then I just wanted to follow up on the international businesses and particularly the U.K. How is the performance there relative to the U.S.? And can you share any color on the market factors? J. Powell Brown: Yes. What I would tell you is the performance is not too dissimilar to the United States. Remember, the GDP over there is growing more slowly. That's number one. And they have actually rate decreased pressure as well. So at present, and I'm just talking about England, but since you asked about it, remember, the liability rates are not nearly as high because the [ plaintiffs ] bar has not gotten as active yet. They're starting. But the answer is they have some continued rate pressure there as well. So you have a slower economy and you have a slower -- and you have rate decreases as well. That's how I would describe it. Operator: Our next question comes from the line of Mark Hughes from Truist. Mark Hughes: Just wanted to make sure I understood the Specialty Distribution outlook for 4Q. I think you said looking for a decline in the mid-single digits, you got $28 million in nonrecurring, which looks like it's about 5 points. And I think you also mentioned lender-placed and then wind and quake programs under a little bit of pressure. Anything else we should think about for the Specialty Distribution? Does that kind of summarize what you've described? R. Watts: Brian -- Mark, no, I think that is -- that's fine. Those are probably the 3 big pieces, Mark, that we also talk about. There's some other moving parts, but those are the main things. Operator: Our next question comes from the line of Mike Zaremski from BMO. Michael Zaremski: I'm going to try to ask a lender-placed question to the extent you're able to add some color. I think over the years, it's been a fantastic business. It appears it's grown much faster -- your business much faster than the marketplace. And just given it's highlighted as being a tough comp in the near term, 4Q, is there just -- is there a trend we should just keep in the back of our heads as we think past 4Q about the lender-placed business just slowing or somehow maybe giving back some market share? J. Powell Brown: So Mike, you're right in saying it's a great business. And we have had a lot of very nice organic growth in the last couple of years. And so what we're saying carefully is we're still growing, but it's just not growing as quickly. And part of that is just because we have had a lot of good growth. And number two, we have competition on our customers. And so your sense of it is correct. R. Watts: And then Mike, keep in mind with that business that -- and again, it's not that we're seeing the actual lender-placed ratio go up. That's not driving the growth, which again kind of is at least an indicator of the health of overall economy and everything. That business, we won a lot of accounts over the years. The sales cycle there is pretty long though. So you could be 12 to 36 months on a sales cycle. And then when the accounts come on, as we've talked about in the past is you will get a bunch of revenue all at once and it kind of works itself out, okay? J. Powell Brown: We'll take one more question, Deedee. Operator: Our next question comes from the line of Josh Shanker from Bank of America. Joshua Shanker: Obviously, no one likes to see their share price going down. You have a $1.5 billion buyback authorization, and there's a decision to whether to put capital to work and buying back your own stock or to [indiscernible] obviously. And there's an arbitrage there. By authorizing the buyback, are you saying that you think that the value of Brown & Brown shares right now is more attractive than doing the tuck-ins? It seems like it should be one or the other, doing both may not be the best use of capital. How should we think about that? J. Powell Brown: The answer to the question is this, we constantly and consistently evaluate the intrinsic value of our stock, and we look at what we believe is the best value overall long term for all parties involved. So we will continue to evaluate that. And if we see or feel that there's an appropriate point at which we think we should buy shares, then we'll consider that. But the Board has given us the ability to invest as we see fit, and that's -- we feel good about that. Joshua Shanker: Is there a math that works that makes both buybacks and M&A equally attractive simultaneously? Or is there -- one is preferred over the other, depending on valuation? J. Powell Brown: Well, let me put it this way. I'm not trying to be evasive, Josh. But if we told you that, then that's where we would be releasing our secret. And so the answer is we will continue to evaluate both. And if we think both work at the time, we will do that or if one is better than the other, we will do that. But please, let's make sure that we don't lose sight of the fact that when we buy businesses, it's about cultural fit and making sense financially. And so having said that, we understand the math between share repurchases and businesses that are ongoing revenue streams with earnings. So we look at all of that. R. Watts: Yes, Josh, as we talked about, we have a very, very rigorous and disciplined approach on how we allocate capital. So we don't share all the details when we do it, but it's -- we get into a lot of detail when we look at all of the deployment options. J. Powell Brown: We like to have options. Operator: At this time, I would now like to turn the conference back over to Powell Brown for closing remarks. J. Powell Brown: Thanks, Deedee, and thanks for joining us today. A couple of final comments. I think that we had a really good quarter, albeit we had Retail in terms of with the modification that we outlined, where top line numbers, our contingents were good. Our margins were great. Our cash flow conversion was very good. And most importantly, in all of that, we -- the integration is going really well. And so I can't stress enough the importance of the cultural fit with the teammates that have joined. We are excited with 23,000-plus teammates now globally and the capabilities and the resources that we can bring to our customers. Hope you all have a wonderful day, and we look forward to talking to you after the next quarter. Good day, and good luck. Goodbye. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome, ladies and gentlemen, to the analyst and investor webinar on the 3Q results for HSBC Holdings plc. For your information, this call is being recorded. I will now hand over to Pam Kaur, Group CFO. Manveen Kaur: Welcome, everyone. Thank you for joining. We are making positive progress towards creating a simple, more agile growing HSBC. The intent and discipline with which we are executing our strategy is reflected in the momentum this quarter and our target upgrades. Most notably, our annualized RoTE of 17.6% year-to-date excluding notable items. Throughout this presentation, I'll focus on year-over-year comparisons. This will exclude notable items and be on a constant currency basis. The equivalent comparisons on a reported basis can be found on Slides 16 and 22. Let's turn straight to the highlights. We reported a strong quarter. Total revenues grew $500 million to $17.9 billion. Wealth had another good quarter, with 29% growth in fee and other income. Our customer deposit balances stand at $1.7 trillion. If we include held-for-sale balances, these grew by $86 billion. We are also investing for growth. On 9th October, we announced our intention to privatize Hang Seng Bank. We see this as a compelling opportunity. Let me set out clearly our reasoning. First, it meets all four of our criteria for acquisitions. Second, we see good growth in Hong Kong in the years ahead. It's a business, in a whole market we know very well. Third, we see an opportunity to create greater alignment for better operational leverage and efficiencies. Fourth, we are acquiring a business with structurally high pre-impairment margins. And while we are not calling the credit cycle, we believe it is a cycle. Fifth, we are removing a $3 billion capital inefficiency. This is a transaction which we initiated as a growth investment. It is also a statement of our confidence in the outlook for Hong Kong. We are in an offer period, so we are unable to give more details on synergies at this stage. What I will say is that consolidating the noncontrolling interest from the profit and loss increases our profit attributable to ordinary shareholders. We have also said that we see the potential for additional revenue through expanded capital market products to Hang Seng commercial clients and Wealth products to its affluent clients. And we can simplify and streamline decision-making processes, improve operational risk management and better align operations, which we expect will result in efficiencies. We are confident the integration will not distract us from organic growth and it's more value generative than a share buyback. Turning now to upgrades. We are delivering against the targets we set out to you. We are now upgrading two items: our 2025 banking NII to $43 billion or better, our 2025 RoTE, excluding notable items to be mid-teens or better. We remain disciplined with our shareholders' capital, investing it where we see growth, exiting businesses with the intention to redeploy the costs where we don't. We are progressing at pace with the exit of nonstrategic activities. This quarter, we have announced the exits of HSBC Malta and Retail Banking in Sri Lanka. This brings our total announced exits to 11 so far this year. Last week, we announced that we are conducting a strategic review of our Egyptian retail banking business. The review will not include our wholesale banking activities in Egypt, which remains an important market and one we believe has strong potential for growth. Finally, we are on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Let's now turn to the firm-wide financial results. First, the income statement. Annualized RoTE was 16.4% in the third quarter or 17.6% year-to-date, both excluding notable items. Revenue grew 3% year-on-year to $17.9 billion in the quarter. This was driven by a return to growth in banking NII and strong fee and other income. Profit before tax was $9.1 billion. Looking at our capital and distributions. Our CET1 capital ratio is 14.5%, and we continue to target a dividend payout ratio for 2025 of 50% of earnings per ordinary share, excluding material notable items and related impacts. Let's now turn to our business segment performance. We grew total revenue by 3%, and each of our four businesses returned greater than mid-teens annualized RoTE. Moving now to banking NII. $11 billion this quarter is a return to growth driven by deposit volumes. We are raising our full year guidance to $43 billion or better. I know you will have questions on the outlook. So I'll note here the multiple drivers of banking NII. HIBOR, which has recovered; deposit growth, which continues; interest rates, where the Fed is still cutting. We have grown our structural hedge to $585 billion and its rolling on to higher yields. I'll also just mention that the chart on the left is on a constant currency basis, while our full year guidance is as reported. There is a reconciliation in the footnote. Turning now to wholesale transaction banking. We are pleased with our strong ongoing customer engagement. This year has really validated the strength of our franchise in a range of economic and tariff situations. Both payments and trade grew again in the third quarter. In trade, I would note the first half was particularly strong as we supported customers to navigate a fast-changing trade landscape. In security services, fee and other income grew 15%. This was due to higher asset balances given improved valuations and new customer mandates in Asia and the Middle East. In FX, performance reflects lower currency volatility and a strong prior year comparison. Looking through this, performance of $1.3 billion was strong. Turning now to Wealth. We delivered 29% fee and other income growth to $2.7 billion. This shows our strategy is working. Net new invested assets were $29 billion, with more than half coming from Asia at $15 billion. This takes total invested assets to $1.5 trillion. Wealth was driven by all four income lines. Our insurance CSM balance is up by $2.5 billion year-to-date. This is driven by strong new business. I would note that we review our insurance assumptions in the third quarter, favorable experience and strong market performance slightly flatter at these figures. Private Banking grew 8%; and Asset Management, 6%, respectively. Investment distribution also performed very well, up 39%, reflecting strength in our customer franchise in Hong Kong. And Wealth is not just a Hong Kong story. It runs across our Asian franchise with double-digit fee and other income growth in Singapore, Mainland China and other markets. We are providing you with a little extra color this quarter on our Hong Kong flows on the next slide. We are pleased to have added 318,000 new-to-bank customers this quarter. This brings us to more than 900,000 year-to-date. What this slide shows, over a slightly longer period is that nonresident customers have been a significant driver of customer activity and balances. These new-to-bank customers have contributed up to 1/3 of flows across deposits, investments and insurance. We see new nonresident customers as a significant and long dated opportunity for the bank. Now let's turn to credit. ECL of $1 billion is flat year-over-year and down modestly on the second quarter. We retain our full ECL guidance of around 40 basis points. Our ECL charge this quarter includes $0.2 billion Hong Kong commercial real estate. On Slide 19, you will see we have updated the Hong Kong commercial real estate slide we showed you at the half year. Other charges include $150 million from a Middle East-based customer, $0.3 billion in the U.K., $0.2 billion in Mexico and a $0.1 billion release due to improved economic assumptions. Now let's turn to costs. We remain on track to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Year-to-date, we have taken actions to realize $1 billion of annualized simplification savings with no meaningful impact on revenues. We continue to expect $0.4 billion simplification savings to be realized in the full year 2025 P&L. It's worth noting that there is some slight seasonality to costs in the fourth quarter, which also includes the U.K. bank levy. This quarter, we have $1.4 billion of legal provisions on historical matters, which don't impact our ongoing business. They consist of $1.1 billion, as you will have seen in yesterday's announcement relating to made-of litigation, which is a material notable item and, therefore, does not impact any dividend, and $0.3 billion related to historical trading activities in Europe, which is a notable item. I would also just draw your attention to Appendix Slides 16 and 17, where we detail recent and potential future notable items. This leads us to our exit of nonstrategic activities, which we will discuss on the next slide. We are progressing at pace. With our exit of nonstrategic activities, this slide sets out that progress. The red boxes show the exits announced in each quarter, the gray, those in prior quarters. Given the phasing of the sale processes, only Grupo Galicia is currently complete with others to follow. In the third quarter, we have announced Malta and Retail Banking in Sri Lanka. Last week, we announced that we are conducting a strategic review of our Egyptian retail banking business. As I said earlier, the review will not include our wholesale banking activities in Egypt, which remains an important market. As a reminder, costs released from the exits of a nonstrategic activities will be invested in our priority growth areas at accretive returns. Now let's turn to customer deposits and loans. Including held-for-sale balances, we've had another strong quarter with $86 billion of growth in deposits in the last 12 months. By business, there is some volatility this quarter. Silver bond subscriptions in Hong Kong moved deposits from Hong Kong business to CIB for a few days over quarter end, benefiting CIB balances. CIB also benefited with -- from some large client deposits, which may be short dated. Overall, we see good momentum in our customer deposit franchise. In the U.K., lending was the standout. We saw continued growth in mortgages and our commercial lending book. Infrastructure being a key area of focus. In our U.K. business, the book has grown 5% year-over-year, which includes a drag from the repayment of COVID loans. We see low levels of household and corporate debt in the U.K., which we expect to provide a platform for the continued growth of our franchise. In Hong Kong, we saw customer repayments and corporate deleveraging notably in the commercial real estate space. Credit demand remains muted. Now turning to capital. Our CET1 is 14.5%, reflecting strong organic capital generation during the quarter. We said with the announcement of the Hang Seng offer that we do not expect buybacks for the next 3 quarters. That is, of course, dependent on underlying capital generation with strong profitability and currently modest loan growth via highly capital generative. Finally, let's turn to targets and guidance. In summary, the intent with which we are executing our strategy is reflected in the growth and momentum in our performance this quarter. It again shows discipline, performance and delivery. Discipline in the way we are applying strong cost control. We are on target to achieve our target of around 3% cost growth in 2025 compared to 2024 on a target basis. Our simplification saves are ahead of our previous expectation. We have announced 11 exits so far this year. We will continue to progress at pace and invest costs released from exits into priority growth areas. Performance in our earnings. Each of our four businesses is making mid-teens RoTE or better, excluding notable items. Delivery, our third quarter results show that we are creating a simple, more agile growing HSBC. Revenues grew and excluding notable items, our year-to-date 17.6% RoTE demonstrates that we are delivering against the targets we set out to you. That is why we expect 2025 RoTE, excluding notable items to be mid-teens or better. With that, I'm happy to take your questions. Operator: [Operator Instructions] Our first question today comes from Aman Rakkar at Barclays. Aman Rakkar: I wanted to ask about banking NII rather predictably, please. So just at face value, your guide does imply a decent step off in interest income in Q4. But I don't think that you really mean that. I just wanted to kind of check in around what your expectations are for net interest income in kind of Q4. I guess I'm particularly mindful of the tailwind from average HIBOR in the quarter alongside things like the structural hedge and hopefully, balance sheet momentum. My best guess is that Q4 NII is actually up Q-on-Q. But any color you can give us there in terms of what you mean and what the drivers are, would be very helpful. And then the second question is around deposits. And I'm interested in your take on the sustainability of the kind of current 5% underlying deposit growth that you're benefiting from at a system level. Obviously, Hong Kong year-to-date has been a key driver of that. And how sustainable do you think this level of pace is? And what confidence does it give you around things like net interest income growth next year? Manveen Kaur: Thank you, Aman. So firstly, on banking NII. I want to say that we are not walking back the Q4 as a starter. As the maths would show, we are saying that the banking NII would be no less than $10.6 billion. So absolutely, that's why it is $43 billion or better. And you are quite right from a balance sheet momentum, we see that continuing from the third quarter onwards, albeit there can be a few seasonality fluctuations. HIBOR is a tailwind, structural hedge is a tailwind, but we should be mindful that the U.S. dollar rate curve will be a headwind. So that's where we are on banking NII. In terms of deposits, and as you know, we are not giving a guidance on banking NII for 2026. But our deposit franchise is very strong across all markets, all currencies, all business areas. So it's not just dependent on Hong Kong dollars. But of course, we are very pleased with our preeminent position and strength in Hong Kong, which is a key driving force for the deposit growth. So very positive on deposit growth from here on as we've had before. Operator: Our next question today comes from Guy Stebbings at BNP Paribas. Guy Stebbings: The first one was back on bank NII then one on insurance. So obviously, quite a big move in the banking in our guidance. Outside of HIBOR, is it really the deposit strength that's the delta in terms of the guidance here? I mean you also referenced yield curve steepening. So I'm just wondering if you would encouraged to think about anything above and beyond the structural hedge roll when you think about yield curve steepening when it comes to NII? And then on insurance, really strong quarter, but there's quite a lot going on there, I think, so 46% growth. But you mentioned model changes, experience variance. And then if you can help quantify that, I think there might have been $150 million or so type model changes. I mean if that's the case, we're still talking about a sort of 20% clean run rate. So if you'd encourage you sort of think along those sorts of lines in the CSF now at $50 billion, it looks like a very sort of useful underpin from here? And if I can sort of briefly flip on that. There was $1.1 billion of CSM build year-to-date from economic factors. I'm just interested how much of that is sort of purely lumpy items? Some of your peers show the normalized unwind or expected return of in-force, which can be sort of quite material and a consistent tailwind to the CSM built above and beyond the new business systems. So I'm just wondering whether we should treat that $1.1 billion boosters very much one-off or an element of that is repeatable, if you like? Manveen Kaur: Okay. Great. Thank you, Guy. So firstly, in coming -- so with your question on banking NII. So it's -- our deposits strength, as I've called out, but our structural hedge is also important tailwind for us on banking NII and the stabilization of HIBOR, which impacted banking NII almost equivalently on the negative side in Q2 and Q3, is not expected for Q4 and has not shown that at all in Q4 so far. The insurance growth, you're again right, it's -- the one-offs are circa $150 million, as you've called out in terms of the change in assumptions, which is a normalized annual process that we go through. So we are very pleased with a very strong CSM and balance build, which gives the underpin in terms of the growth in this business. In terms of any one-offs or lumpy items, nothing material to note, but I'll ask our IR team to follow-up with you. You can see some of the walk on the CSM balances on Slide 21. Operator: Our next question today comes from Katherine Lei at JPMorgan. Katherine Lei: I also have a follow-up on NII and then I would like to ask about Hong Kong CRE. On the NII line, I noticed that in Hong Kong, the composite deposit rate actually comes significantly in 3Q. I think this is because that this move -- migration from time deposit to demand deposits and also that banks generally lower the time deposit rates. So into 3Q -- into the 4Q because of the rebound in -- because of the rebound in HIBOR, do we expect some of the reversal of that decline in composite deposit cost? Will that lead to some sort of risk to the banking NII? This is number one question. And then have we seen any like further migrations or what's the trends of deposits in CASA deposits? And then the next question will be in Hong Kong CRE. We noticed that the Stage III loan ratio increased from 16% to 20%, but however, if we look at the impairment charges on Hong Kong CRE, this quarter is actually lower than that of last quarter. So I would like to have some color from management say, for example, what is the latest trend in terms of the asset quality? And what is our thought behind that while the Stage III loan ratio continued to increase, but then we slow down the pace in making provision against Hong Kong CRE risk. Manveen Kaur: Thank you, Katherine. So in terms of HIBOR, it continues to be a tailwind from a deposit perspective, we see the trends from sort of prior quarters, continuing to Q4, so nothing much to call out there. Specifically, yes, there has been some small rise in time deposits, but that is all factored in terms of our banking NII guidance. And I'm speaking both from what we saw at the end of the September as well as the ongoing trend. The banking NII, as I've said earlier, in addition to HIBOR, the structural hedge also continues to be a tailwind for us. And that is the reason why we have obviously upgraded our banking NII guidance. And you know we are very conservative in HSBC. It takes a lot for us to upgrade the guidance and also to add the word or better. So take from that what you will. In terms of Hong Kong commercial real estate, I would like to take a little bit of time to share with you our reflections in the Hong Kong commercial real estate. So firstly, in terms of residential properties, the trend has stabilized and is getting stronger. The resi property index has grown 2% year-to-date. September transaction volumes were up 79% year-on-year and the valuations as well as rentals have held well. We have also seen some supportive developments in the retail sector. Hong Kong retail sales have grown since May and are up 4% year-on-year in August. It is also underpinned by increase in year-to-date tourist arrivals of 12% year-on-year. Now if I look at the office sector, of course, the office sector continues to be challenging and under pressure, and we expect that to continue through most of next year as well. However, there has been a slight uptick for take-up for grade A office space. So this is in the best locations with the best specs and that is an improvement, which we see quarter-on-quarter. As you know, our portfolio is well collateralized. This quarter, of course, there was some slippage, which is expected as part of our review in as things move through from some good to satisfactory, substandard to impaired, but there were names which you are aware of, no big surprises. And hence, the ECL pickup was relatively modest. Operator: Our next question today comes from Ben Toms at RBC. Benjamin Toms: In relation to the $1.1 billion provision in relation to Madoff litigation. [indiscernible] the ongoing cases with a cumulative total contingent liability of, I think, greater than $5 billion. Can you just provide that the case that was decided last week does not set any legal precedent for the other 4 cases? Especially the 3 cases that are in the Luxembourg courts where there's a more material exposure? And can you confirm that the litigation charge does not change your aspiration to resume the buyback at half 1 '26? And then secondly, on Slide 10, which is a really nice slide, you made 11 disposals year-to-date. It can be quite difficult sometimes to track the transactions coming out of the P&L. Is it possible to give us some idea of the annualized cumulative PBT lost as a result of these sales? Although the transactions may be RoTE positive together, it just be good to get a sense of the PBT headwind going into next year? Manveen Kaur: Okay. Thank you, Ben. So firstly, on the Madoff litigation provision charge, you can expect that we did a thorough exercise with advice from internal, external counsel as well as colleagues in the accounting function to determine what would be our best judgment on this case. In terms of the other cases, of course, we look at read across and those gets factored in. But each case has very distinct factual considerations. So there's nothing more to add on that other than what we've already called out as disclosures in the midyear. So please don't read more into that. As you know, on this case, we won on the cash side of the element of the case, but it was the securities element that we are providing against. In terms of our share buyback and announcements at the time of Hang Seng privatization offer. As you can imagine, this case has been pending for a while. We had looked at all kinds of downside scenarios. So when we came with our view of suspension of share buyback for the Hang Seng offer for up to 3 quarters, we still stand behind that number, that was all included. As you know well, we will go through a rigorous process every quarter. We continue to be highly capital generative as you've seen with also the upgrades on our guidance. And once we look at that, we see where the organic growth opportunities are. Obviously, in organic, that's where the Hang Seng privatization offer comes in and then the residual after obviously, looking at the 50% dividend payout, which is a key element of our capital distribution, then we look at share buybacks. So I don't expect any headwinds in that, the up to 3 quarters still holds. In terms of the 11 disposals, I note to your point, these are all relatively, as you can see, small disposals. What is very important is each time disposal happens and it's completed like we had the Grupo Galicia, but also as we did with the closure of the investment bank, we immediately reinvest, and the kind of areas we've invested and we've actually seen the benefits come through is we have invested in the U.K. And as you see, we have seen some loan growth in the U.K. We have invested in Wealth, both in the U.K. and Asia and the Middle East. And of course, the numbers speak for themselves. But also we take very specific opportunities where we see either growth in volumes or new customer mandates as we saw in security, services so that we can be in a prime position to take those opportunities. So that's an ongoing piece of work. We don't stop at the end of each quarter or regularly to see what we need to reinvest as soon as we have the money available, we reinvest. Operator: We will take our next question today from Joe Dickerson at Jefferies. Joseph Dickerson: I just -- it's just more of a conceptual question really in terms of the return profile of the bank. I guess why isn't this -- why isn't HSBC post-Hang Seng integration more of a high-teens bank than a mid-teens bank? I mean, clearly, the exit rate for this year on banking NII is going to be much higher, I think, than what most analysts would have thought, particularly given that the HIBOR move, you only had about 6 weeks of that embedded in Q3. So you get a full quarter of that in Q4. And effectively, you feed that through to next year. And yes, you can have lower rates, but ultimately, you probably have a structurally higher banking NII given the deposit mix. And then if you look at your invested assets, in Wealth, you clearly have a strong business there that continues to grow and the marginal ROE is much higher and throwing Hang Seng, you're 70, 80 bps just from the minority deduction. I guess why don't we get to a number that's in the high-teens here as opposed to mid-teens? Manveen Kaur: Thank you, Joe. It's a really good question. As you can imagine, we in the bank obviously reflect on this very closely as well. And you'd see that we have upgraded obviously, our guidance for this year. But let me just remind you, when we came up with our target of mid-teens RoTE for the medium term, '25, '26, '27. That's a target. There's nothing that says that you will stop working once you achieve the target. You continue to work to both achieve to target as well as to improve on the target. In terms of the target itself, we are not making any change. We will, of course, reflect on it as we go through our year-end results and go into next year and give greater details on our forward-looking guidance. But just remember, a target is something that you have to achieve or better. Target is not where you stop. Operator: Our next question today comes from Kendra Yan at CICC. Jiahui Yan: My question -- my first question is regarding to the Wealth management revenue. We've observed a very strong -- very rapid growth rate in the third quarter. Could you elaborate on the key drivers behind this performance and its sustainability? And my second question concerns is about the credit risk. In recent weeks, we've seen some risk involving the U.S. market, like the small and medium-sized banks in the U.S., they have some risk. And also the JPMorgan, they cautious the market about the credit risk during its earnings call. Although HSBC's primary client base is not in this segment, but still I'd like to ask whether HSBC has any exposure or concern in loans to nonbank financial institutions or say, those private credit corporate sector? Manveen Kaur: Thank you, Kendra. Two really good questions. So firstly, in terms of Wealth, we are very comfortable with our medium-term guidance of a double-digit growth in fees, though obviously, quarter-on-quarter, it can vary. So what has been really strong this year has been investment distribution notably in Hong Kong and strong equity volumes. As I said earlier, our insurance business has continued to grow, and that momentum is helped both in terms of existing client base, but also the new clients we are onboarding in Hong Kong, in particular. Obviously, strong equity markets have been favorable, and that becomes a lever for Wealth in terms of both the sentiment and the activity we see. But overall, not changing our guidance, but very optimistic for Wealth in future, as seen from Q3 results. And of course, be mindful there are some seasonal fluctuations, Q4 can be a little less in Q1 more, but we'll see how it progresses. So far, all on a very good trajectory. From a credit risk perspective, and as you can appreciate, I've been a Chief Risk Officer for 5 years. So indulge me, I'll share my thoughts on that with you. Private credit as a sector, of course, is going to have stronger players and weaker players. What is very key is how you do the due diligence and what are the kind of underwriting standards you apply in this new area. You are quite right. This is primarily U.S.-driven, 80% a U.S.-driven business, and our footprint in U.S. is relatively small. All I can tell you is that our direct exposure in the private credit space is single billion dollars. We apply the same strong credit underwriting principles there. So I'm very comfortable in that space. What I do want to call out is, you're right, it is always the second and the third order risk that you should be very mindful of, which are not your direct exposures, but exposures you may have through weaker counterparties. We have always taken a very conservative view in terms of our exposures to smaller banks, regional banks in the U.S. and elsewhere. We've been doing that right through the COVID period, through Russia, Ukraine, through inflation, high interest rates, so on as well as exposure to smaller hedge funds. Having said that, we closely monitor this space because you can never get too comfortable in the space, and good risk management really means looking forward to see what else can impact the overall ecosystem, which then can cause indirectly concerns to all participants. Operator: Our next question today comes from Kian Abouhossein at JPMorgan. Kian Abouhossein: Just to come back on the NDFI exposure because you mentioned private credit just now a single digit. NDFI would be similar. Clearly, you get your U.S. legal entity exposures, whether the branches, which is below $10 billion. So should we see that as overall group exposure roughly for total NDFI, can you confirm that? And then secondly, on tariff scenarios, you gave an impact scenario or sensitivity scenario of low single digit on group revenues before Clearly, things have changed, but also that was on a very specific part of your business. So I'm just trying to understand how you're thinking about impact scenario going forward in the current situation and expectation of a trade deal? And secondly, also what the impact has been so far? Manveen Kaur: So let me come through the NBF exposures. As you can appreciate, NBF is a very broad industry. My comment on our disciplined and conservative approach to weaker NBFIs holds. So from an exposure perspective, both in terms of quantum that I've called out and beyond, I am very comfortable in terms of our approach to date as well as going forward. For the tariff exposure and the impact, as you've seen, the trade segment has continued to perform well. We have the advantage that as much as there is an impact on U.S. dollar-related corridors. There are other corridors, which are growing, which we have a strong presence in, whether it's India, U.K., Middle East, Asia, Intra Asia. So that's been quite good for us. So overall, guidance that we've given on the direct impact of tariffs has not changed. And of course, we look at that as part of our downside risk scenarios even for the ECLs. From an overall view on the macro environment with all the trade deals being done, I'll just give one reflection that our probabilities that we give to our upside, downside in base case scenarios have now normalized, and that's resulted in some modest releases of ECLs because we think the situation is improving compared to where they were more weighted towards the downside scenarios in the previous quarters. Operator: [Operator Instructions] We will take our next question today from Amit Goel at Mediobanca. Amit Goel: So two questions for me. The first, just on the U.K. business. It looked like there's a bit more investment and there was also a little bit of a tick up in the impairment rate versus prior quarters. So just wanted to check what kind of investments you're making there for what kind of opportunity? And then on the impairment, what's driving that? And then the second one is just a follow-up on the Madoff litigation. I'm just kind of curious what is really the range of outcomes? I know obviously, it says that it could be materially different to the provision. There are a lot of kind of numbers in the release. So just curious how you see that range? And I was also kind of curious why a provision wasn't taken in December '24 when you had the original ruling that went against? Manveen Kaur: Okay. Thank you, Amit. So first on the U.K. business, we have continued to invest for Wealth, both in terms of hiring of RMs to grow our premier customer numbers and to sell more Wealth product for the customers who we already have very strong deposit base with. We are also investing as we've opened a new Wealth center in the U.K. in this space. And then business banking has been important for us for investing in, in terms of customer service, customer journeys, and that's primarily a liability-driven business. Having said that, we are very pleased that our corporate lending book in the U.K. has shown sustainable growth in the sectors that we have lent into, so more into the new economy sectors, into infrastructure, into social housing, into innovation and so on. So that has been really positive for us. From an impairment perspective, just to give you a context, a $300 million charge in a quarter for the U.K. is not abnormal. In prior quarters where we had to release the charge can fluctuate between $200 million to $300 million. In terms of the specifics, there were a few single name defaults, but they are all of very small amounts, so nothing notable. And no specific concentration in any sector. So I feel quite comfortable in that space. From a made-of perspective, just to be clear, we had an appeal as of December, and the outcome of the appeal was only known to us on Friday, the 24th of October, and therefore, we gave our RNS and announcement on the provision yesterday. So the provision we have given is our best judgment of likely outcomes. It's not a midpoint. It's not a broad range as people may think, but it's just our best judgment based upon advice from both internal and external legal counsel. Operator: Our next question comes from Kunpeng Ma at China Securities. Unknown Analyst: It's [ Chen Li ] from China Securities. And I also have the questions about the Wealth management because of the further interest rate cut. So will the nonresident new customers in Hong Kong will slow down or keep stable? And also, how would the migration of retail deposits into wealth management products impact our wealth management revenue? Manveen Kaur: Thank you. So on Wealth management, the growth of wealth management that we've seen comes both from new customers, but primarily from our existing customer base in Hong Kong. We do not believe that at a normalized HIBOR rate, which we've had seen for quite a long period of time despite the fluctuations we've had earlier this year that, that should have an impact on both the appetite of our customers for Wealth management products, their desire to diversify and our matched product offering, which is in a prime position to meet their needs. So I don't think there is anything more to call. Obviously, a positive stock market is good optimism factor and encourages customers to invest even more. But the baseline growth that we are seeing quarter-on-quarter is very much expected to continue. Operator: Our next question today comes from Alastair Warr at Autonomous. Alastair Warr: I just wanted to quickly return to the Hong Kong CRE question. You saw as you touched on yourself some downward migration. You said before, you've been focused particularly on the higher LTV problem loans. And those have gone up quite a bit again, third quarter versus the half year. So could you just give us a little bit more about what's going on in collateral there in the background, why the ECL would be able to come down by quite a bit in terms of, say, individual clients posting more collateral, what the values have been doing in the quarter? Manveen Kaur: So thank you for the question, Alastair. So in terms of the Hong Kong CRE, you're right, if you look at the LTV, 70% plus the number, which has grown. But in the same note, we've taken more provisions. So net of the provisions quarter-on-quarter, that number has pretty much stayed steady around the $900 million. Now in terms of valuations, of course, we look at valuations across the board. And particularly for these, we look at them on a quarterly basis as well as if there are any transactions or events that cause us to pause and look at the valuations, again, we are looking at that. The real distinction between perhaps what you saw in the middle of the year and now is that there is no individual surprise name or situation. And overall, in Hong Kong CRE, retail has got better, residential, as we know, has stabilized. And on the office space, which is challenging, we are not so far seeing improvements, which are coming from the momentum even slight as it may be in terms of A-type properties going into the rest of the office space. So hence, I think that challenge will continue. Operator: Our last question today will be from Andrew Coombs at Citi. Andrew Coombs: A couple of questions, please. Firstly, just to follow up on divestments. You've now announced Sri Lanka, you've talked about Egypt retail being up for review. I see there's no mention of Australia or Indonesia in the slides this time, whereas there was in Q2. Can you just provide us with an update there? Particularly Australia because that is a potentially more sizable divestment. And then the second question, just on the new disclosure on Slide 7 where you provided the resident versus nonresident split of the additional customer in Hong Kong. Perhaps you could just give us an idea of what the split is of the stock as well as the flow. How that changes with Hang Seng Bank if you were to combine the two, not just look at the Red brand and how the revenue margins compare between resident versus nonresident? Manveen Kaur: Thank you, Andrew. So firstly, your questions on the divestments that we had called out in terms of strategic reviews. There is no further news. They are continuing through that strategic review process. So that's why we haven't called out anything specific here. It's work in progress, no turning back as such. So the slide that we have said on the resident and nonresident, the reason for that slide is really twofold. Firstly, to explain to you that why this growth and the reasoning of how it's grown up since the borders opened up in '23 and see that trajectory, and that shows how the trajectory is continuing. However, it does show that fundamentally, the customers who are coming in to begin with are coming with small balances, and it's a deposit-led growth story. There is also an uptake on insurance, which is a preferred product. So we called that out. The other Wealth products, it takes time to convert. Overall, if you look at the premier customer base between the start and the end, it stays pretty much stable, 15% to 16%. So that's how I would look at it. And new customers coming in, in terms of a trajectory has continued pretty consistently at least through this year at 100,000 plus every quarter. It's a little higher than what it was in '24, which was a little hard to begin with from where it was in '23. So you can see that as a continuum. In terms of Hang Seng, they don't do a third quarter filing. So I don't want to say anything about that. There's no news to share. They are a listed company in their own right. But obviously, as we have talked about the opportunities for revenue growth and operating leverage as part of our offer that does call out that from a revenue perspective, particularly on Wealth products, we will have greater opportunities to leverage the Wealth products in the Red brand, for the Green brand customers, both existing and new, which continue. Operator: Thank you, Pam, and thank you all for your questions today and for joining our webinar on the 3Q results for HSBC Holdings plc. You may now disconnect your lines.
Jann-Boje Meinecke: Good morning, and welcome to our Q3 results presentation. My name is Jann-Boje, and I'm heading Investor Relations at Vend. And as usual, our CEO, Christian; and our CFO, PC, are here also with me to present the performance and highlights for the quarter. Following the presentation, we will also have a Q&A session by Microsoft Teams where analysts can connect. Let me then show you the disclaimer slide before I hand over to Christian. Christian, please go ahead. Christian Halvorsen: Thank you, Jann-Boje, and good morning, everyone. Very happy to be here to present our Q3 results. This was a quarter that really showed our progress towards becoming a pure-play marketplace company. We advanced monetization across our verticals. We executed with discipline when it came to cost, and we also took further steps to simplify our company. And financially, group revenues ended at NOK 1,595 million, and this represents a 1% year-on-year decline. Underneath the surface, however, the revenue development was positive for our verticals, driven by a solid ARPA growth. So this overall decline is then a result of several factors, reduction in the other HQ segment, the strategic decision to discontinue certain revenue streams in Recommerce and Jobs as well as a continued soft advertising area. Group EBITDA increased by 24% to NOK 640 million, and this was driven by reduced operating expenses across the group. And this is a reflection of lower personnel costs, also somewhat reduced marketing and lower costs related to the phaseout of TSA agreements with Schibsted Media. As I mentioned, we also continue to simplify the company. This is really to sharpen our execution. And during the quarter, we signed an agreement to sell Lendo, and we also started the sales process for delivery, together with also continued focus on exiting our venture portfolio. In parallel with all this, we are finalizing the removal of the dual share class. And also consistent with the capital allocation policy, the Board yesterday approved a new share buyback program that will start later this quarter. And here at the beginning, I also want to say that I'm very happy that we have appointed Yale Varty as our new Chief Commercial Officer for Vend. To me, this is an important step in strengthening our commercial leadership for the future for this company. So let's then move to the verticals, and let's begin with Mobility. And today, I'd like to -- before we go into the actual results, to spend a little bit time on the latest developments when it comes to dealer product packages and pricing. And one year ago, we announced new dealer packages in Norway, and these went live at the beginning of the year. And I would say that they have been a great success. Right now, around 70% of the volume from dealers is on the Pluss or Premium tiers of these packages. And that is also the reason why we are reporting now a 20% ARPA uplift in Q3. So to me, this model is really a proof that a more structured and a more transparent approach to the market creates value both for dealers and for us. It creates a better customer satisfaction and it improves performance at the same time. So we are now taking the next step. That means scaling this to Sweden, and we will launch dealer packages there in February of next year. And these packages will be very similar to the ones we had in Norway. And that means that they will also include features that really strengthen the value that we deliver to car dealers. And that, for example, includes things like integrated car valuation, buyer safety elements and also better dealer branding. Then there will be additional things that will come throughout the year. For example, Insight products will come later. And I also want to mention that with the Blocket launch on our Aurora platform that will happen a little bit later this quarter, dealers will also benefit from things like improved search, better filtering and also integration and traffic to their digital stores. So I would say, overall, this really marks another step in our path to harmonizing our offering across the Nordics. Now in addition to these changes that we're doing in Sweden, we're also harmonizing and changing the business model in Denmark, where we are moving to a pay per ad model. And we will obviously also continue to optimize the dealer packages that we have in Norway. So then let's move to the quarterly results. And here, we can see that the average revenue per ad or ARPA, which is our most important KPI, continues to grow well across all markets and all segments. And as we also saw in Q2, Sweden really leads the uplift here, and this is driven by both strong professional ARPA, and I would say, exceptional ARPA development in the private segment, and this is driven by upsell by value-based pricing and also new packages. Then in Norway, we also see a solid ARPA growth, and this is driven then by the package launches that I just mentioned that we came in the market with at the beginning of the year. And for Denmark, professional ARPA developed in line with the adjustments that we did at the year-end and also additional changes that we made in August of this year. Here, private ARPA was boosted by the introduction of listing fees for cars below DKK 50,000. However, these changes were reverted in mid-September to reboost listing volumes and to strengthen network effects by having more inventory. So if we then look at volumes. And here, we already announced the July and August numbers in our pre-silent newsletter that came on September 18. So most of this should already be known to you. But in Norway, we show a volume decline in Q3. This is mainly a result of a drop in subcategories. That means things like boat, caravans, motorcycles and so on. In these categories, we see a macroeconomic effect in this quarter. Cars, however, remained flat and even saw growth in the private area. For Sweden, Pro volume dropped, and this is due to the change in business model that we have mentioned before in sub-verticals in categories like heavy machinery. Cars remained flat in Sweden and private volume declined across categories. And in Denmark, I would say the overall market continues to perform very well. That means fast sell times. And unfortunately, for us, that means a decline in average daily listings for our Pro segment. And the drop that we see here in the private segment, that is something that we did expect. We have said it before, and this was driven by the introduction of the listing fees that I mentioned before. These are -- as I said, they have now been reverted and we see since the reversal growth week after week in this area. Moving then to the financials. And revenues in Mobility increased 8% overall in Q3. We had a couple of effects that had a negative effect, and that was the closing of Tori [ Autot ] with approximately NOK 8 million and the split from media with an additional NOK 5 million. If you take these factors into account, the underlying growth was 12%. On the back of the ARPA growth, classifieds revenues grew by 13%, while the transactional revenues grew by 18%. Advertising, however, was down 14% year-on-year. Then OpEx, excluding COGS, remained flat in Q3, and this is despite the continuous investments that we are making both in the transactional service as well as in core product and platform. And all in all, EBITDA increased by 16% compared to Q3 of last year, and this results in a margin of 57%. And if we were to exclude the transactional models, the margin was 64%, and this is up from 62% last year. Moving then to Real Estate. And let me also take a moment here to address some of the recent updates and announcement that we have made to product packages and pricing in Norway. I think these changes are quite important because they are strategic steps that we are making in aligning, let's say, the value that we deliver with the price that we charge to the market. And going into 2026, we are enhancing our large package. The purpose is to offer even greater value to the agents, but also to home sellers and to buyers. And one of the most important improvements is better agent promotion. This is something that we have designed to improve visibility and to really drive new sales mandates to agents on the large package. And just to give you an example of this, the launch of our home valuation tool that we call [indiscernible]. This is a feature that is exclusive to large agents. And it's a feature that, on one hand, helps home sellers get the valuation of their home. But on the other hand, also is a source for quality leads for agents. And it's only 2 months since we launched this service. And in that period, 40,000 homes have assessed their value using this tool, and we receive a lot of positive feedback from this tool. Now we're also narrowing the price gap between large and medium package from approximately 40% on average to now around 22% on average. And this is to more correctly reflect, let's say, the performance difference between the 2 package tiers. So overall, I would say that by offering more structure and by strengthening the platform tools, we really see that we benefit both agents, but also home buyers and sellers. And we see this as continued positive traction in the market where traffic continue to trend in a positive direction for real estate in Norway. Let's then move to the ARPA KPIs. And in Norway, Real Estate ARPA grew by 17%. The main driver here was residential for sale, where the ARPA growth was 18% year-on-year, and this is very much in line with what we have communicated previously. In Finland, we saw 19% year-over-year ARPA increase, and this is stronger than what we saw in the first half, driven partly by price increases, but also by changes in the product mix between for sale and for rent. We've also done better when it comes to upsell. Looking at the volume. And here in Norway, we had an exceptionally strong first half year. And now in Q3, we saw a decline of 3% as we've expected. We pointed out this in our Q2 presentation that we expected a volume decline in the second half of the year because of the very strong start and when we see at the -- let's say, the historical full year trends. In Finland, residential for sale volumes declined by 8% year-on-year and total volumes declined by 10%. And this also reflects the ongoing transition of rental listings from the, let's say, traditional classifieds model to the transactional business model that we have with Qasa. So for Real Estate, classifieds revenues grew by 9% year-over-year. And this was, of course, then driven by the aforementioned ARPA growth in residential for sale in Norway. But our transactional models, Qasa and HomeQ, they have also developed very well in Sweden. I can also add that our launch in Norway is also showing very promising signs. And overall, this segment of the transactional business models, here, we saw revenue growth of 29% in the third quarter. OpEx, excluding COGS, increased 5% year-on-year in this quarter, and this was driven by the marketing efforts that we're doing in Finland. And overall, this results then in an EBITDA margin of 48% for the quarter. And again, here, if we adjust for the transactional business and only look at the more traditional classifieds business, the margin was around 53%. Then to Jobs. And here, we continue to deliver exceptional ARPA growth of 17%. This is driven by our segmented price model, also changes that we have made to discounts as well as improved performance in our distribution products. Volumes, however, continue to decline. This reflects the macroeconomic environment in Norway. And if we look at, let's say, the year-to-date trends and compare it with the numbers from statistics Norway, we see that they mirror each other and that this confirms that we are tracking with, let's say, the overall national averages on volume development. So Jobs delivered then 1% underlying revenue growth in Norway. Classifieds grew by 2%, driven by the ARPA growth, but of course, then counteracted by the volume decline that was around 13%. For Jobs, OpEx, excluding COGS, decreased by 25%, and this was primarily driven by the exits in Sweden and Finland as well as some reductions in FTEs in Norway. And EBITDA grew 11% year-on-year, and this resulted in an EBITDA margin for Jobs of 55%. And finally, Recommerce. Here, transacted gross merchandise value or GMV continued to grow across all our markets, while our take rates remained solid. And this underpins our belief in the strong demand and the scalability of the Recommerce transactional model. Overall, Recommerce revenues declined 2%. This is driven by softness in advertising as well as the phaseout of low-margin and noncore revenue streams, while we still have a strong transactional growth with a revenue increase of 20% year-on-year. And transactional gross margin improved significantly in the quarter, and this was driven by lower cost of goods sold. OpEx, excluding COGS, decreased 2% year-on-year, and this was driven by FTE reductions from the platform consolidation, among other things. And these cost reductions were slightly counteracted by increased marketing efforts in this quarter. So overall, EBITDA improved to NOK 44 million and -- minus NOK 44 million, and this was a 6 percentage points margin improvement for Recommerce. And with that, I'll hand it over to PC to go a little bit deeper into our financials. Thank you. Per Morland: Thank you, Christian, and good morning, everyone. Let me take you through the highlights of the financials for Q3. In total, revenues ended 1% below Q3 last year, primarily driven by the decline in other HQ, offset by continued improvement and underlying growth in Mobility, Real Estate and Jobs. Total EBITDA ended at NOK 640 million, up 24% from last year, driven by positive developments across all our verticals, but also other HQ. Christian has already covered the development in the verticals, but let me give you some color on the other HQ segment. The year-on-year decrease in other HQ was, as earlier quarters, mainly affected by a change in our allocation model and the revenue decline following the split from Schibsted Media. Revenues from Schibsted Media are declining a bit faster than expected due to earlier termination of certain TSA services. Other HQ had an EBITDA of minus NOK 8 million in the quarter compared to minus NOK 31 million in Q3 last year. So far, we've been able to reduce our cost faster than the reduction in the TSA revenues. Now let's move over to cost development in the quarter. This slide shows the development of OpEx, excluding COGS. The overall cost development and workforce reductions are progressing well. Earlier termination of certain TSA revenues, as I mentioned, has enabled an additional NOK 25 million in reduction in external costs. In total, OpEx, excluding COGS, declined by 14% in the quarter. Personnel costs were down 13% year-on-year, driven by significant FTE reduction, mainly from the downsizing process that we executed last year, but also from the process of exiting the Jobs business in Sweden and in Finland as well as ongoing FTE management throughout the year. Our total workforce continued to trend slightly downwards. And at the end of Q3, we are a little bit below 1,700 FTEs in the company. Total marketing costs were down 7% year-on-year, driven by the job exits in Sweden and in Finland, partly offset by higher marketing costs in Real Estate and in Recommerce. Other costs decreased 18%, driven by general cost reduction across, but also a positive effect from the termination of the TSA revenues -- or TSA services with Schibsted Media. So overall, this resulted in a 7 percentage point improvement in OpEx, excluding COGS over revenue from 58% in Q3 last year to 51% in Q3 this year. Let me move to the income statement. Our operating profit for the quarter increased to NOK 440 million, up from NOK 263 million last year. This is mainly due to the improved EBITDA, but also somewhat lower depreciation and amortization costs and also lower net other expenses. The fair value of our 14% ownership stake in Adevinta has decreased from NOK 20 billion in Q2 to NOK 18.9 billion now at the end of Q3. The decrease is due to a multiple contraction in the industry, partly offset by improved performance for Adevinta. And then based on the updated valuation, a loss of NOK 1.1 billion was recognized as a financial expense in Q3. Our valuation methodology is kept unchanged. In totality, net loss for the group ended at around NOK 650 million minus. Let's move to cash flow. Cash flow from operating activities for the continuing operations ended at NOK 442 million, driven by the strong EBITDA. Cash outflow from investment activities in Q3 ended at minus NOK 21 million, and this includes a CapEx of NOK 108 million, offset by proceeds from sales processes within the venture portfolio and also some additional proceeds from the Prisjakt transaction. And then finally, cash flow from financing activities ended at minus NOK 18 million, mainly due to lease payments in the quarter. On the financial position, net debt amounted to NOK 25 million at the end of Q3. There were no refinancing activities in the quarter. Due to the still strong cash balance, Vend has deposited a total of NOK 1.6 billion in short-term liquidity funds to achieve a slightly higher return than bank deposits. The Scope Ratings of BBB+ with a positive stable outlook confirms Vend as a solid investment-grade company. Then let me end my presentation with a reminder of the financial framework and some comments on the outlook. I want to again reiterate our strategy, our medium-term targets and also the capital allocation principles that we laid out at the Capital Markets Day in November last year. Our strategy execution is going well, and we are on track to deliver on our medium-term targets. Regarding portfolio simplification, we are on track, and we have, during the first 9 months of 2025, made multiple divestments. In addition to selling Prisjakt and Lendo, we have also divested several of our venture portfolio investments. The exit processes for our skilled trade marketplaces is progressing as planned. And also during the quarter, we have initiated a process to sell delivery. The collapse of the AMB share structure is currently ongoing and will be completed during November, well ahead of the end of year deadline. And once the share collapse is completed, we will, as announced last night, launch another NOK 2 billion share buyback program. A couple of messages related to outlook before we move to the Q&A. As we enter the final quarter of 2025, we expect continued solid ARPA momentum across all our verticals. Volume trends, though, remain difficult to predict. Our simplification agenda will continue to affect the results also in Q4, reflecting the final effects of the phaseout and the deconsolidation of revenue streams in Recommerce, but also the exit of our Jobs position in Finland and in Sweden. And following the separation from Schibsted Media, advertising revenue continued to be under pressure at least compared to the last year. Our cost agenda remains firmly on track. The cost base is expected to stay below last year's level, although we expect the rate of the decline to moderate a bit in Q4, as we start to analyze some of the big savings that we did last year. Looking beyond 2025, we have already launched and are in the midst of launching go-to-market activities in all our verticals aligned with our product and pricing strategy. These actions are expected to drive revenue growth across our verticals in line with our medium-term targets. Structural initiatives, including common platform consolidation, divestments and support function realignment will continue to deliver efficiencies over time. Revenues in other HQ will continue to be under significant pressure also going into 2026. And then this is driven by completing the TSA with Schibsted Media by the end of 2025, combined with effects from progressing on the other exit processes that I mentioned. Based on the current knowledge that we have, we expect a temporary EBITDA headwind of up to NOK 100 million in 2026 compared to 2025. And we expect to be able to mitigate this fully in 2027. Overall, we remain confident in our ability to deliver on the medium-term targets. And with that, I hand over to you, Jann-Boje, and go into the Q&A. Jann-Boje Meinecke: Thank you, PC. So looking at Microsoft Teams, a lot of questions already. I think first in line is Will from BNP Paribas. William Packer: Three for me, please. So as I'm sure you're aware, GenAI has become a more prominent investor concern for the classifieds in recent months, which has dragged some share prices, a whole host of concerns, be it weakening network effects as traffic leaks to GenAI search or disruption by Agentic AI. I wanted to hone in on a couple of specific areas. So firstly, do you think you can sufficiently invest in your tech stack and consumer offering in the context of these rapidly emerging developments within the envelope of the cost cutting and margin expansion as you outlined in your CMD? I think consensus has 1,000 basis points of margin expansion to 2027. Can you sufficiently invest in offerings such as prompt-based search or hiring new staff with GenAI expertise? Secondly, Zillow has integrated their inventory on to ChatGPT. The U.S. market is a special one with MLSs, high competitive intensity, buying agents. So the market context is obviously very different. But would you consider a similar move? And then finally, on a slightly different note, press reports from the FT suggest that Mobile.de is considering an IPO next year. In the event that it goes ahead, would you consider fully or partially monetizing your stake? Or would you prefer to hold for the long term? Christian Halvorsen: All right. I can answer the AI questions, and you can take the last question. So first of all, I would say that we remain very positive when it comes to the opportunities from AI. We think it plays to our strengths and that this provides significant opportunity both for productivity gains and for delivering better services to users and customers. Of course, there are some risks, as you point out, but I really think that we are in a great position to deliver on that. And it's really about combining world-class AI with this deep vertical knowledge. When it comes to investments, I would say that, yes, AI will require some investments. But at the same time, we also know that AI will have productivity gains and free up capacity. So I think within that, we believe that there is room to make the sufficient investments in AI within the financial guidance that we have given. Then to your question about Zillow, I think it's too early to comment on, let's say, the impact of an initiative like that. When you look at the -- it's very nascent. But when you look at that product today, it doesn't really provide any, let's say, new or very different user benefit. But of course, we're following this. We are testing and experimenting. But for right now, we don't have any plans to launch a similar app, but that may change as things evolve. Per Morland: And then on your third question related to Adevinta, we don't comment on rumors or speculations in the market related to Adevinta. But what I can say is -- just repeat what we have said before is, first of all, we're very happy with being a 14% owner of Adevinta, and we believe this is a good, let's say, case for our shareholders going forward, both operationally and also structurally. And also just reiterate our capital allocation principles in the case that there are any proceeds coming in. As you have seen before, we will follow those guidelines that we have communicated and stick to, and there's no change in that. Jann-Boje Meinecke: Thanks for the question, Will. Then we can move on to the next one, who is Yulia from UBS. Yulia Kazakovtseva: This is Yulia from UBS. I have 3, if I may. The first one is about go-to-market initiatives. Could you please share a little bit more details about what these initiatives are? And is there any particular angle with regards to verticals or maybe geographies? The second question would be about EBITDA loss in other HQ in Q3. That number was meaningfully smaller in Q3 as compared to 1Q and 2Q. Should we think about the Q3 number as a good proxy for Q4 number? And then also, as we think about 2026, should we -- how should we think about that? Should we take Q3 number, then add on top this NOK 100 million headwind and divide by 4, which would imply about NOK 33 million loss per quarter? And then finally, you spoke about scaling dealer packages in Sweden in February. You mentioned that about 70% in Norway of volumes is going through Pluss and Premium already. Do you think the -- like what's -- first of all, what's the Premium penetration? And then do you think this mix between Pluss and Premium is already where you wanted it to be? Or do you expect any further changes? Christian Halvorsen: All right. I'll answer the first and the last, and you can take the middle question, PC. So first question was around go-to-market. And when we talk about go-to-market, it's really all the work that goes into bringing new products, prices and so on to our customers. And that is a process that takes up quite a lot of time and capacity throughout the full year, everything from building products that we really know deliver value to the customers, packaging those in a good way and working with our sales force to train them in how to talk about the value we deliver to customers and so on and how to answer questions and concerns from the customers. So this is something that we have professionalized substantially over recent years and that we're quite happy with how it works recently. And it's particularly important in Jobs, Real Estate and Mobility. Then when it comes to packages in Norway and the distribution among different tiers, I don't think we will comment more on, let's say, the details of how it's divided between Pluss and Premium. But I can say that when it comes to Norway, it is, of course, still an area that we will continue to optimize and work on both when it comes to the pricing and kind of the distribution of products for customers. Per Morland: And then your question on the losses in other HQ. So let me take a step back. So this is where we see the effects, both positive and negative related to the massive sort of transformation we are going through. When we met at the Capital Market Day last year, we had a sort of a last 12 months deficit of NOK 316 million. And at that point, we said that we need to be prepared that this could be NOK 100 million to NOK 200 million worse before it's coming down. If we then look at where we are as of now, over the last 12 months, similar number, we are a bit lower than NOK 300 million in deficit last 4 quarters. And then what we are saying is we've been able to reduce cost faster than the revenue has declined so far. That's not necessarily going to continue going forward. So there's 2 effects that you see going into '26. Both is that you get the sort of -- a bit sort of front-loading the EBITDA effect in '25 and also we're not able to fully address all the effects at the same time as the revenue fall off going into next year. So I'm not going to give you sort of a concrete, let's say, outlook either for Q4 or '26, but I think then you have some parameters to work for. Jann-Boje Meinecke: Thanks, Yulia. Then we can move over to Fredrik from Handelsbanken. Fredrik, can you hear us? Fredrik Lithell: Yes. Christian, when you describe the various verticals, you talk a lot about the effects on ARPA and sort of the volume declines. Are you sure that all the volume declines are just from the backdrop of weak macro? Is it so that you are too aggressive in certain instances when it comes to price increases, for example, as you described in Denmark on the private side. So are there any other areas where you are evaluating any other sort of moves when it comes to pricing going forward would be interesting to hear. Christian Halvorsen: Yes. Great question. Of course, we follow the development between price and volume very closely. And as you mentioned, we saw that the volume decline in Denmark on the private side was too high. So we kind of reverted that initiative. I would say, if you look at this topic more broadly, we are quite confident that the volume declines that we see are driven by macro or other market dynamics, but not that we are losing market share. I mean it could be -- let's say, for example, in Mobility, we see that sub-verticals are doing quite poorly in Norway. That's clearly driven by macro. In Sweden for sub-verticals, it's driven by the business model change that we're doing. and so on and so forth. So we remain confident in the approach that we have made to pricing and packaging in -- yes, broadly, I would say. Fredrik Lithell: Okay. And I have a follow-up, if I may, on Recommerce. It's still loss-making. You sound optimistic about sort of the model you have and the progress going forward. Do you have a plan B? I mean, what's your thinking in terms of how long would you let it be sort of the loss-making in the way it is would be interesting. Christian Halvorsen: We remain confident in the progress and in the potential of Recommerce. So that's what we are aiming for, and we don't have a plan B as such. Jann-Boje Meinecke: Thanks, Fredrik. Then I think we go back to Oslo. So Markus from SEB is next in line. Markus Heiberg: So first one is just to go back on the TSAs. And maybe you can break down into 2026 and in the revenues and cost is up to NOK 100 million, how much is cost and how much is revenues? And then secondly, on the TSAs, it seems in Q3 that HQ costs are coming down due to external expenses rather than headcount. So maybe also you can elaborate when and how you expect to reduce the headcount on HQ and maybe also how that will trickle down to the allocated HQ expenses into the vertical. So maybe you can elaborate a bit more there. And then the second one I have is on the car volumes. New car sales have picked up in the Nordics, and it seems like dealer inventories are improving into Q4. How do you see the Mobility volumes now into 2026? Per Morland: Shall I start... Christian Halvorsen: Yes. Per Morland: The first 2 ones. Yes, on TSAs, maybe give a bit more color on the TSA revenue related to Schibsted Media. Again, bring us back to the Capital Markets Day last year at that point and also entering this year, we said that we had around NOK 300 million in annual TSA revenues. That -- in the first half, that was only slightly going down. And then as I mentioned earlier today, we have seen an acceleration of those revenues going down. And we expect for the year to end around NOK 200 million for 2025. For 2026, that will be 0. So that shows the development on the revenue side. And then the cost side, I'm not going to give you a specific number, but that's included in the perspectives that we then share with you on the development on HQ/Other, both for this year and next year. I think maybe I wasn't totally clear when I talked about Q3. So when I talked about reduction in external spend, that was the additional cost reduction, which is linked to the faster ramp down of the CSA services. And those have specific external components, license costs, cloud-related costs. And that's why they were able to drop down at the same pace as the revenue fall down. In HQ/Other, we have a significant FTE reduction in the already numbers for this year, and we will continue to reduce that also going into next year. So you see a reduction across all cost items in the support functions. Christian Halvorsen: Yes. So when it comes to volumes, I first want to say and reiterate what we have said, it remains hard to predict volume development also going forward. So we will not give you any hard statements as such. But also repeat what we said about the Mobility volumes that it is actually better if you look at cars than it is if you look at the sub-verticals. So that's a general trend. Also, you mentioned some, let's say, more positive signs externally. There is good new car sales in our markets, and that usually translates also to good used car sales. There are also some changes in regulations, for example, that they're changing the VAT for electric vehicles in Norway, where that is being reduced going into '26 and also in '27, and that is likely to increase new car sales for electric vehicles in Norway even further. So let's see what this ends up with. It's hard to predict, but there are at least some promising signs. Jann-Boje Meinecke: Thanks, Markus. Then next up is Petter from ABG. Petter Nystrøm: So 2 questions for me. One is on cost. At the Capital Markets Day, you set a medium-term target of OpEx target of 40% of sales by '27. How should we think about the phasing into '26 and '27 on that? Will this happen gradually? Or should we expect a more significant step down primarily in 2027? The second question is on Mobility in Sweden and the new package structure. I totally understand that this won't go live before February. But have you received any feedback so far on the structure? Per Morland: Yes. On OpEx, excluding COGS over revenue, so as I said earlier, we are on the last 12 months, a year ago, at 65% and communicated a clear target to go towards 40% level. And as you have seen already this year, we are taking steps towards that. We still have some way to go. And that will be a combination of continuing the underlying revenue growth in the verticals that, of course, will help us out, at the same time, manage our cost development. So I think you will see those 2 effects continue to improve on that relative measure towards 2027. And there's not like at one point, suddenly, there's going to be a massive drop. So I'm not going to give you any more color on that specifically for 2026. Christian Halvorsen: Yes. On the car packages for Pro's in Sweden, first, I want to just say that the first step is to launch Blocket on the Aurora platform, and that will happen a little bit later in this quarter. And it's on that new platform that we will launch these new packages in February. So we have actually been out in the market discussing with the largest dealers, both kind of the new platform and how that looks as well as the packages. And I would say that the feedback so far is positive and promising, I would say. Jann-Boje Meinecke: Thanks, Petter. Next one up is Silvia from Deutsche Bank. Silvia Cuneo: Just one question left from my side on the 2026 outlook. I know it's still early, but given the message you provided in the release and earlier in the call that you expect to drive revenue growth across the verticals in line with the medium-term targets for 2026, that implies an improvement sequentially. And I just wanted to ask about your expectations within that for volumes since you said it's hard to predict. How can you be confident to increase revenue towards the medium-term targets without clear visibility on the volumes at this stage? So what are you expecting? And perhaps also related to that, what are your expectations on the macro impacts on advertising now that those phasing effects will be pretty much in the base from the removal of the Schibsted Media assets? Per Morland: Yes, I'll try to give some color on that. So yes, you're right, we have confirmed that our pricing and packaging monetization measures that we have already or are in the midst of introducing help us to deliver on revenue growth in line with our medium-term targets set by each vertical. In general, given that volumes is hard to predict, we assume a quite flattish development of volumes across our verticals. And then it becomes -- if that's significantly different, then we will have to look at that -- what is possible to do. On advertising, if you look at the development this year, it's very much driven by the separation from Schibsted Media. It's not really market driven, and we see no sort of big changes in that. So our base assumption is also that advertising will be okay from a macro perspective and the stabilization and potential sort of improvement over time is coming more from our action of developing advertising products relevant for our customers. Jann-Boje Meinecke: Thanks, Silvia. I can't see any more hands up currently. I'm also checking my Inbox if anyone written a question there, but it seems like we covered it for today. So thank you for tuning in, and I'm sure we stay in touch.
Operator: Good day, and thank you for standing by. Welcome to the FTAI Aviation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Alan Andreini, Head of Investor Relations. Please go ahead. Alan Andreini: Thank you, Marvin. I would like to welcome you all to the FTAI Aviation third quarter 2025 earnings call. Joining me here today are Joe Adams, our Chief Executive Officer; Angela Nam, our Chief Financial Officer; and David Moreno, our Chief Operating Officer. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen-only mode and is being webcast. In addition, we will be discussing some non-GAAP financial measures during the call today, including EBITDA. The reconciliation of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Joe, I would like to point out that certain statements made today will be forward-looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non-GAAP financial measures and forward-looking statements and to review the risk factors contained in our quarterly report filed with the SEC. Now I would like to turn the call over to Joe. Joseph Adams: Thank you, Alan. Angela will provide a detailed overview of the numbers. But first, I'd like to highlight a few key updates. #1, we passed a significant milestone this month with the successful close on the final round of equity commitments for SCI, which is strategic capital initiative #1. We've had tremendous interest from institutional investors in the partnership throughout the year. And given this high level of demand, we have upsized the total equity capital of the 2025 partnership to $2 billion. FTAI will co-invest up to approximately $380 million including the $152 million we have invested year-to-date for a 19% minority equity interest compared to our original expectation of 20%. With the $500 million increase in equity capital, our new target is now to deploy over $6 billion in capital through the 2025 partnership, up from our previous target of $4 billion and double the original goal of $3 billion we announced in December of last year when we launched SCI. This expanded partnership corresponds to a larger total portfolio size of approximately 375 aircraft with full deployment of capital now anticipated by mid-2026. Today, we now have over 190 aircraft either closed or under LOI commitment and continue to have confidence and visibility from the SCI investments team on sourcing the remaining aircraft through a combination of lessor counterparties and direct sale-leaseback transactions with airlines. The successful $6 billion launch of this partnership creates significant value and positions FTAI for sustained long-term earnings growth. The MRA agreement, which provides fixed price exchanges for all engines in the SCI portfolio establishes a multiyear contractual pipeline of demand for rebuilt engines within our Aerospace Products segment. Additionally, our role as servicer and 19% minority equity investment is expected to generate attractive returns within our Aviation Leasing segment. For our equity partners, SCI represents a compelling opportunity of enhanced returns relative to the traditional leasing business model. Through the MRE or Maintenance Repair Exchange agreement, LPs benefit from higher, more predictable cash flows combined with lower residual risk across a highly diversified lessee pool. For our airline counterparties, engine exchanges also provide clear meaningful value by eliminating the financial and operational risk and burden of managing engine shop visits. With this significant value proposition to all parties, FTAI, our equity LP partners and airlines, we see strong opportunities -- opportunity to launch additional SCI partnerships each year going forward. Turning now to Q3 results. Aerospace Products delivered another strong performance, generating $180 million in adjusted EBITDA at a 35% margin, up approximately 77% year-over-year. This positive momentum underscores the strong and accelerating global demand for prebuilt engines and modules in the CFM56 and V2500 aftermarket. We continue to see adoption of our aerospace products expanding across both new and existing customers, supplemented by our MRE agreement with the SCI. Airline operators and asset owners increasingly recognize FTAI as the most flexible, cost-efficient alternative to traditional shop visits, which are more expensive, more complex and more time-consuming than a simple and cost-effective exchange with FTAI. A recent example of this is Finnair, with whom we announced a multiyear perpetual power program. Through our scale, asset ownership and extensive in-house maintenance capabilities, FTAI's engine exchanges help Finnair manage their maintenance costs, improve reliability and ultimately deliver a better service to their passengers. The trend toward longer-term partnerships like Finnair is increasing, and we expect to announce additional new airline perpetual power programs in the future. Overall, we're confident our differentiated business model and competitive advantage places FTAI to be the long-term leader in engine aftermarket maintenance for these engine types. We're well positioned to achieve our goal of reaching 25% market share in the years ahead. Moving over to production. We refurbished 207 CFM56 modules this quarter between our 3 facilities in Montreal, Miami and Rome, an increase of 13% versus the last quarter, and we remain on track for our goal of producing 750 modules in 2025. In Montreal, our recently established training academy has also already enrolled over 100 trainees who are graduating significantly faster than traditional methods, thanks to our technology-driven approach using virtual reality and AI technology protocols. Combined with our emphasis on specialization and operational efficiencies, these initiatives are delivering measurable improvements in throughput and productivity. We remain confident in the trajectory of substantial production growth ahead as we scale the Montreal facility to capacity. In Rome, our operations continue to develop at an impressive pace. We have successfully integrated FTAI's MRE operations with the facility and technicians from Rome have conducted extensive training seminars at our Montreal Training Academy to improve skill development and optimize production efficiency. We're also actively investing in upgrading Rome's infrastructure and component repair capability, enabling heavier and more complex module repairs, which will position us to ramp production next year to double our 2025 target. We're also pleased to announce agreement to acquire ATOPS for approximately $15 million, an MRO with extensive CFM56 engine operations, strengthening our presence in Miami. This acquisition will transform our Miami MRE operations by complementing our nearby module and test cell facilities, adding expansion space and adding experienced technical staff to support increased production next year once the integration into our operation is complete. Additionally, the purchase includes an ATOPS facility in Portugal, which will serve as a logistics and field service hub in coordination with our European operations in Rome. We've also made good progress in expanding our component repair capabilities through the launch of a 50-50 joint venture called Prime Engine Accessories with Bauer, Inc. out of Bristol, Connecticut. The Bauer team brings tremendous experience and expertise in accessory test equipment. And together, we're building an industry-leading MRE repair facility for accessory parts. Once operational, which we expect by the end of this year, this facility is expected to deliver up to $75,000 in average savings per shop visit. Our initial $10 million working capital investment will enable us to redirect FTAI volumes to this facility rather than to outside vendors, driving meaningful cost efficiencies and time savings. This investment like Pacific Aero, which we did last quarter, further differentiates our offering and aids us in both expanding productivity and expanding margins. With a substantial activity in enhancing our facilities and the broader MRE ecosystem, we are now targeting growth in production next year to 1,000 CFM56 modules, an increase of 33% compared to this year's production. We also continue to expect Aerospace Products margins to grow to 40% plus next year as we optimize our parts procurement and repair strategies, including the approval of PMA Part #3, which we continue to expect approval of in the very near term. Next, let's talk about adjusted free cash flow. In the third quarter, we generated $268 million, which includes $88 million from the sale of the final 8 aircraft from the 45 aircraft seed portfolio, which were sold to SCI 1. Year-to-date, we have now generated $638 million in positive free cash flow, positioning us on track to our revised goal of $750 million for all of 2025 prior to our expanded contribution to SCI 1. As FTAI pivots to an asset-light model focused on aerospace products and strategic capital, we continue to expect substantial growth in free cash flow in the years ahead. Our primary use for available cash is to pursue investments in high-impact growth initiatives, and we're seeing today a significant number of these opportunities and possibilities. FTAI's targeted disciplined approach is to identify opportunities complementary to our MRE operations in areas where we can accelerate production, expand margins and further differentiate our product offerings to customers worldwide. We do expect surplus cash balance above these investment opportunities, and therefore, we are announcing an increase to the dividend this quarter from $0.30 per quarter to $0.35 per share. The dividend of $0.35 per share will be paid on November 19 based on a shareholder record date of November 10. This marks our 42nd dividend as a public company and our 57th consecutive dividend since inception. Additionally, we will also continue to evaluate future opportunities for capital redistribution to shareholders. And finally, we remain confident in our full year 2025 estimates of $1.25 billion to $1.3 billion business segment EBITDA for all of 2025, comprised of Aerospace Products EBITDA ranging from $650 million to $700 million and Aviation Leasing EBITDA of $600 million. Looking ahead to 2026, for Aerospace Products, we're estimating $1 billion in EBITDA for next year, which represents significant further growth versus the $650 million to $700 million this year and approximately $380 million, which we generated just recently in 2024. For Aviation Leasing, we're estimating $525 million in EBITDA in 2026, which is in line with our expected results for 2025, excluding insurance recoveries and gains on sale. Within the Leasing segment, we estimate the growth in servicing fees and our 19% minority equity investment will offset the decline in on-balance sheet leasing revenues from the seed portfolio sold to the SCI as we continue to pivot to an asset-light growth model. Overall, we now anticipate total business segment EBITDA in 2026 of $1.525 billion, up from our original estimate of $1.4 billion. Based on these projections, we expect to generate $1 billion in adjusted free cash flow next year, representing a 33% increase over the $750 million we are targeting in 2025 prior to our expanded contribution to SEI 1. With that, I'll hand it over to Angela to talk through the numbers in more detail. Eun Nam: Thank you, Joe. The key metric for us is adjusted EBITDA. We maintained our strong momentum this quarter with adjusted EBITDA of $297.4 million in Q3 2025, which is up 28% compared to $232 million in Q3 of 2024 and in line with Q2 2025 results after excluding the onetime benefits from insurance recoveries and seed portfolio gains on sale we recorded last quarter. During the third quarter, the $297.4 million EBITDA number was comprised of $180.4 million from our Aerospace Products segment, $134.4 million from our Leasing segment and a negative $17.4 million from Corporate and Other, including intersegment eliminations. As we have predicted, Aerospace EBITDA is now exceeding leasing's EBITDA. Aerospace Products had yet another great quarter with $180.4 million of EBITDA and an overall EBITDA margin of 35%, which is up 9% compared to $164.9 million in Q2 of 2025 and up 77% compared to $101.8 million in Q3 2024. We continue to see accelerated growth in adoption and usage of our aerospace products and remain focused on ramping up production in each of our facilities in Montreal, Miami and Rome as well as expanding component repair operations at our recent acquisition in California and our new joint venture launched in Connecticut. Turning now to leasing. Leasing continued to deliver strong results, posting approximately $134 million of adjusted EBITDA. For gains on sale, we continue the year with $126.8 million of asset sales proceeds, generating a 7% margin gain of $8.3 million as we closed on the final 8 aircraft of the seed portfolio to SCI 1 and divested several noncore assets, including several Pratt & Whitney 4000 and CF680 engines. Overall, the total 45 aircraft seed portfolio contributed an aggregate gains on sale of $50.1 million to 2025 leasing EBITDA at a margin of 10%. The pure leasing component of the $134 million of EBITDA came in at $122 million for Q3 versus $152 million in Q2 of 2025. But included in the $152 million last quarter was a $24 million settlement related to Russian assets written off in 2022 as well as leasing revenue generated from seed portfolio, which we have now sold to the SCI. With that, let me turn the call back over to Alan. Alan Andreini: Thank you, Angela. Marvin, you may now open the call to Q&A. Operator: [Operator Instructions] Our first question comes from the line of Sheila Kahyaoglu of Jefferies. Sheila Kahyaoglu: Congratulations on upsizing of SCI. It looks like great traction from the investor base and sourcing these aircraft, and I think you have now 375 aircraft target or the size of United Airlines CFM fleet. So can you maybe walk us through the financial implications of the upsizing, both from a segment EBITDA and free cash flow perspective? Alan Andreini: Sure. So I mean, the way I think about it is we're increasing the number of aircraft that we'll have in SCI by that amount of going up 33%, 250 up to 375. And we'll probably do it a little bit faster than we had expected given the pace of investing activity. So our plan has always been to do -- continue to do additional SCIs every year. So I think it really is -- the main impact is just accelerating the growth under SCI. And we originally said we expected the SCI business for FTAI to represent about 20% of the Aerospace products volume. And probably with this acceleration of the SCI fundraising, that number might go up to 25%. So 20% to 25% going forward. And the important thing is that, that business is 100% of all the engines in those partnerships are dedicated, committed to FTAI Aviation for the duration of the ownership period, which we expect will be 5 to 6 years. So it's locked in volume. We know everything you need to know about the engines we have access to. We can plan our production very efficiently. We can have engines prepositioned -- it's just a great -- there's just so many benefits that come out of us having -- being the manager of these capital pools. It also makes us look a lot bigger to the airline customers. So when you go into a visit an airline and you own a significant chunk of their fleet as a lessor, the ability to get business from them on other engine products that we offer is higher, is bigger. So it has cross-selling opportunities that also will benefit FTAI. But I think the main thing is just faster -- what we're pushing for overall as a company is really just faster market share gains in the MRE business and aerospace products. Sheila Kahyaoglu: Got it. And then maybe, if I could ask one on the ATOPS acquisition, if you could give any color on how that came about, how it adds 150 modules worth of capacity? And similar to Pacific Dynamic, if you could give color on EBITDA contribution as we think about the savings from that? David Moreno: This is David and I'll take that Sheila. So on our M&A strategy, you're really seeing 2 themes play out, right? We're doing investments to either increase margin or expand our capacity well ahead of our production needs. So ATOPS specifically is the latter, where we're increasing production well ahead of our production needs. ATOPS, as Joe mentioned earlier in the opening remarks, has 2 facilities. The main facility is in Medley, Florida, which is very close to our test cell today. So it immediately creates synergy between our test cell and the facility. It also includes 60 employees, and we have the ability to process 150 modules out of that location. So effectively, that raises our overall production at the company from 1,800 modules to 1,950. Additionally, the second facility is located in Lisbon, Portugal. That has a small team that we expect to grow. Our goal out of that facility is to run our field service, and those are the employees that actually deliver the module exchanges to customers, specifically out of Europe. And we expect to grow that facility because we see a lot of local talent that we could recruit from. So the ATOPS transaction is mostly focused on increasing capacity. We also did announce the Bauer transaction. That represents the first theme, which is we're looking to increase margin and looking to continue to vertically integrate. So that is a 50-50 joint venture, which we call Prime Engine accessories based in Bristol. It is for the engine accessories. So that includes fuel pumps, HMUs, actuator and valves. Those are the components that regulate air, fuel and oil between the engine and the aircraft. It was a repair that we were lacking that now we're able to in-source. And we're very happy to partner up with Bauer, which is a leading manufacturer of a lot of this -- the test and bench equipment. As Joe mentioned, for that investment specifically, we're expecting to capture around $75,000 of savings per shop visit. And we're expecting to do about 350 engines per year, when that starts ramping in 2026. Operator: [Operator Instructions] And our next question comes from the line of Kristine Liwag of Morgan Stanley. Kristine Liwag: I just want to follow up on SCI. I mean you guys are significant buyers of aircraft engine assets now in a time where that there still seems to be a shortage of assets out there. Can you talk about the availability of assets that you're able to buy, pricing, expected returns? I mean, ultimately, what were your conversations with investors like? What do they like about SCI? And where are areas of potential concern? Joseph Adams: Sure. I'll start on that. If you think about the market, there are 2 different sellers of these narrow-body current tech aircraft. 1 is lessors, and they own roughly half of the world's fleet. So if you think about 14,000 aircraft, that are 737NGs and A320ceo family aircraft, about 7,000 are owned by lessors. And as lessors begin to take delivery of new aircraft into their portfolios, they need to sell off older aged equipment. One of the big drivers of that is just to maintain ratings. Those rating agencies and debt investors and lenders look to that metric of average age of your portfolio as one that they track very carefully. So during COVID, I think a lot of lessors were able to hold on to assets longer. They extended the average life of their portfolio, maybe, for example, from 12 years to 14 years. But now people are saying, you got to sell the older stuff. So that portion of the market represents north of probably 1,000 aircraft a year that are sold by lessors. So we're buying from that group. And we have a very significant competitive advantage in that we can do engine exchanges. So we're an advantaged buyer, and we're one of the larger pools of capital that are focused really solely on NGs and ceos. The second source of deals is airlines. And a lot of airlines had deferred as much of the engine maintenance as possible during COVID. They've kicked the can down the road pretty far. But there are a lot of shop visits coming up in the near future and airlines are looking to do sale leasebacks, which allow them to avoid both raise capital today and avoid a shop visit. So that investment in that shop visit can be a significant amount of their capital for an airline, and they're looking at alternatives for how to do that, and we present the perfect alternative, which is an engine exchange. There's no downtime, no shop visit and they're back in service and they totally avoid the capital investment in that engine shop visit. So it's a perfect product. Industry sort of have all cited that airlines in the maintenance world, there's an increasingly heavy orientation on heavier shop visits. The core restoration is the most expensive part. There's more of that, that's going to be needed in the next few years, and that plays perfectly into our strengths because that's what we do in our facilities as we rebuild those. So that's the supply side. In terms of the investors, when we look at this compared to a traditional approach, what we show the investors that we solve problems. MRE, Maintain Repair and Exchange is a better way of doing engine maintenance. And we solve problems and save people money. And so when you solve problems and you save money, that means higher returns for investors and less risk. And it's actually a very simple explanation, people get it immediately. And who in the credit world doesn't want higher returns with lower risk. So we're finding a high receptivity to that. It's relatively -- it's predictable cash flows, relatively short duration, and it's an asset-backed structure that's uncorrelated to public markets. So it really fits in nicely into today's investment world and we have a terrific group of investors, all of whom will -- as I say, if we deliver the returns that we show people, then we'll be able to raise a lot more capital. Kristine Liwag: That's super helpful color, Joe. And maybe a follow-up question, it could be for Angela. When we look at your 19% equity portion of SCI, I mean, with the upsized amount, this is a pretty sizable leasing income. How do we think about that portion? Is that going to be reflected in the adjusted EBITDA in the leasing segment? Will this be reported in the other line? I mean, ultimately, what's the treatment of SCI in your financials? Eun Nam: Yes. On that 19% specifically, as you mentioned, yes, so it will show up in our equity pickup line. So you'll see that as the equity income line pick up for the 19% that we own from SCI's leasing returns. But in addition to that, as Joe mentioned, as we are the servicer, we'll also pick up servicing revenue, which is currently in other revenue in the Leasing segment. So that will grow with the asset base also growing. And then we'll also see in our aerospace products business, the engine exchanges that are coming through for all the engines that are coming up for exchanges with the SCI at the fixed price that we've already committed to. Joseph Adams: We will include that in adjusted EBITDA. 19% will be included in adjusted EBITDA in Leasing. Kristine Liwag: Good. Super helpful. And look, sorry, there's just so many things going on. So if I could ask a third question here. Look, I want to take a step back on the module facility. I mean, I think sometimes we kind of gloss over the success you've had in the past few years, but ultimately, you're targeting 750 modules by year-end, and you've already gotten 9% of the market share for CFM56 and V2500. I mean 5 years ago, you guys were at 0. And so this has been a fairly astronomical growth and penetration, especially for what was a financing company to really enter into the wrench-turning MRO business. I wanted to ask you, can you share with us some of the secret sauce and how you were able to execute, I mean, fairly seamlessly with this kind of volume that we've never really seen others be able to accomplish? Joseph Adams: Thank you. But I would say 2 things that we did. I would -- looking back that were important one was focus, which most people in the business tend to get into this diversification mode, where every -- they're trying to do, [indiscernible] is aircraft or a fleet of -- or different engine types and diversify often to people they equate to less risk. But we consciously decided that with these engines that this was the best opportunity in the industry and that we should do nothing else. And so I would attribute a large part was that decision to say, let's get out of the other engine types. So let's just focus on CFM56 and then ultimately V2500. So that was big. And then the second is really people. You have to attract great people and retain them. And we have a terrific team of people across the entire organization. And everybody -- it is always ultimately about that. And to do that, people have to -- you have to sell the vision and people have to buy into it. And I think people have. When you go out to meet with customers, that's kind of the biggest reinforcement is when people on the buy side are saying, I really -- I'm not that good at doing shop visits. I've had bad experiences. I want to do anything to not have to do a shop visit. So when you show up and you say, I can solve your problem. That really invigorates people because they feel like they're doing something worthwhile. Operator: Our next question comes from the line of Josh Sullivan of JonesTrading. Joshua Sullivan: Congratulations on the quarter. Just on -- a follow-up on ATOPS. $15 million in equity for $150 million -- sorry, 150 modules, fantastic trade. How do we understand the calculus in module capacity potential here? Just looking at maybe like the FTAI USA as an example. What are the gating factors to finding these relatively small investments for such a big yield on module capacity increase? Is there a lot of runway to do these relatively small investments or do we need a larger investment eventually to drive significant module capacity growth? Joseph Adams: No, I think it's there's a surprising number of what I refer to them as almost like empty buildings that once upon a time, somebody was in the business and they left their tooling and there's a building and somebody is trying to figure out what to do with it. And that's where we have a unique ability to walk in and say, well, we can deliver engines immediately. And so these opportunities do exist and as you mentioned, the math on them because there is no real vibrant business operating inside of these buildings today, we can acquire them at very low prices and fill them up. And the gating factor is the people. It's the mechanics. That's why we've been talking about the training facility in Montreal is a big initiative because we found we could hire people, but you couldn't make them productive as fast as we wanted. And sometimes you have -- people don't actually ever become productive. So you have to focus on how do you increase your yield and shorten that time to get people into a mode of being a contributor. So that's where a lot of our energy has gone. I think there are more facilities out there that we can find. There don't seem to be a shortage of that. There are people offering us deals all the time now. So it's really going to be trying to find those ones that are the easiest for us to plug-in and have the biggest available pool of mechanics in the nearby area. Joshua Sullivan: Got it. And then I guess similarly, just on the JV of Power, $75,000 cost saving per visit. Is the capability more about improving turnaround times for your customers or margin in-sourcing at FTAI? And I guess, were customers pushing you to add this capability, which might lead to additional new MRE customers. Or is it just a good asset to have in source to drive margin? Joseph Adams: There were a multiple choice question I would choose E, all of the above. I mean it's really phenomenal. These -- the engine is so complicated in some ways and so simple in other ways, but these accessories are very complicated and the know-how that people with Bauer have is phenomenal. I mean they make all the test equipment that everyone uses. And so we are partnering with them, and we've already had interactions with our engineers and their engineers and there's a sharing of experiences and we think they'll make us better, and we hope we can contribute and make them a little better. But it's really just widening, expanding circle with people that have specialized knowledge and intellectual property in areas that are incredibly expensive to fix the engine is full of them. It's every time you look at something else that is also a very high cost and very specialized knowledge. So it's -- we feel like we found a phenomenal partner that works -- the math works well for both of us. And we think it's going to continue just to -- as you said, it makes our margins better. It makes our people smarter. It shortens the turnaround time. And if you send an accessories out now to a third party, you're beholding upon that third party to get it back to you so you can keep producing. In this way, we have more control over our -- the whole process. Operator: Our next question comes from the line of Giuliano Bologna of Compass Point. Giuliano Anderes-Bologna: Congratulations on the continued great execution on all fronts here. As the first question, you mentioned several conferences and on some calls that we should think about FTAI as being in the spread business. Can you expand on that? And as it relates -- and especially as it relates to both weak and strong markets? Joseph Adams: Yes. So when you -- increasingly, we think about our business as being really in 2 different areas. 1 is the manufacturing business, where we buy, run out engines, rebuild them and sell them. And the other is the asset management business, which we raised capital and buy airplanes and that gets committed volume to FTAI aviation. So if you think about the 2 businesses that the first business is buying an engine at a price in the market and then rebuilding it and you're adding basically hours and cycles to that engine and then you're selling it for whatever people will pay for hours and cycles on a rebuild basis. And so that's the spread. It's the buy and then the build and we can control the cost of the build and then the sell. And so we're basically, like in the manufacturing business, I say, isn't that what Apple does, when they make an iPhone. They buy parts and people. They put them together and they sell it. So that's our core business. And in a soft market, you're going to buy cheaper on the runout side, and you'll maybe sell a little bit cheaper, but usually not for long. And so I think of the market is very strong. The price of rebuild engine is driven primarily by the OEM list prices on those parts because that's your alternative. And as long as people are flying aircraft, they're going to need to replace hours and cycles on those engines. And so that's what drives it. If we were to hit a period where there's excess availability of engines, and that's happened in the past and other engine types, not this one in recent history. Well, if you go back to COVID. But what happens is I would look at that as a 3- to 6-month window to accelerate market share gains for us because it always rebounds. So if there's an opportunity to pick up some inventory at a lower price or build our capacity then when it rebounds, you'll be in a better position at the end of that. And we've really done that consistently of our entire careers. Giuliano Anderes-Bologna: That's very helpful. And I appreciate that. Maybe the next question for Angela. I see the new slide on Slide 39 of the supplement data details the way that the cash flow statement would change and the reporting would change using industrial accounting versus lease accounting. Is the right way to think about it that effectively all of the gains on sale or economics that were flowing through cash spread by investing activities would effectively move into operating cash flow when you change the industrial accounting because of a more streamlined methodology there? Eun Nam: Yes. No, that's the right way to think about it. So as you mentioned, we did include the pro forma cash flow statement on Slide 39 of our supplement. And what you will see is that for 9 months ended 9/30, we would essentially be moving about $722 million in cash proceeds from our sales assets from investing to operating activities. And we've outlined the line items that was specifically changed, but you've hit on them where it would include the gain of assets and the proceeds from asset sales. And starting in third quarter, we have classified all of our inventory purchases going through operating. So you will see a transition of that aligning with our GAAP cash flow statement going forward. Operator: Our next question comes from the line of Hillary Cacanando of Deutsche Bank. Hillary Cacanando: Could you unpack the guidance for 2026? What's the upside driven by new customers, repeat customers, new contacts from Finnair or the acquisition of ATOPS and the launch of JV, et cetera. I'm assuming it's a combination of all of those, but if there's anything that stands out, if you take this kind of a detail. Joseph Adams: Well, I think if you break it into 2 parts, it's volume and margin. And so on the volume side, the MRE product, as we mentioned, continues to grow. Our production is expected to grow 33% next year. And it's a mix of new customers and existing customers. And I would also highlight that there's bigger volumes coming from existing customers. So where we've gotten the foot in the door, and we've enabled people to try the product and say, this is really how it works. It works terrifically and the experience that then we are seeing customers come back with larger orders for their engines going forward. So that's a great -- that's exactly what we have hoped would happen with those initial orders. So we're seeing continued adding new customers. We highlighted Finnair last quarter and we're seeing existing customers get bigger. On the margin side, we've indicated next year, we expect to see 40% margins, and it's really driven off of the parts acquisitions strategy that we've been implementing and repairs. And so we've highlighted that PMA is one of those contributors where we expect imminently to have approval of the third part. And then we've also had acquisitions of used serviceable material that we've been implementing. And then on the repair side, we've highlighted we have capability in Montreal, which we've been adding, but we also specifically added Pacific Aerodynamic and now Bauer. Hillary Cacanando: Great. That's really helpful. And then just on Finnair, how should we think about the margin impact or EBITDA contribution from that contract? I mean are they market rate? Or how should we think about that? David Moreno: Hi, Hillary, this is David. Yes, they're in line with a large program that we have with customers. I would say they're largely in line. But just to give you a little more flavor on the Finnair program, we're covering their entire fleet. So 36 engines and we're prepositioning engines ahead of shop visits. We effectively provide them a serviceable engine and then take the unserviceable engine back. So it provides cost savings for the airline. It lowers maintenance costs and then provides more importantly, flexibility for the airline. So we're -- as Joe mentioned earlier, we're focused with airlines on winning large programs that cover their entire maintenance, and this is an example of one that we won, and we expect others to happen soon after. Operator: Our next question comes from the line of Brian Mckenna of Citizens. Brian Mckenna: Just one more here on SCI. Have you disclosed what FTAI will be earning in terms of management and performance fees for managing the SCI vehicles. I asked this because Leasing assets have declined 30% year-to-date. And that's really just from 1 SCI vehicle that's not even fully deployed yet. So with a couple more vehicles, most or all of these assets will likely move into third-party asset management vehicles that you're managing. Maybe I spend too much time covering alternative asset managers and private credit more broadly, but it would seem like Leasing ultimately turns into an asset management business over time. And if that's the case, you have 2 high multiple earnings streams not 1. So any thoughts here would be appreciated? Joseph Adams: Yes, Brian, we think alike. I mean, it's very much what we've been -- how we've been repositioning the business. I would say that first of all, the fees are market-based. And so the asset management fee that FTAI earns is on total assets. So that would be on the $6 million. And 1% or higher is typically market for that type of structure. And then the incentive compensation will be low double digits for provided that the returns exceed a hurdle. But it's meaningful. Those numbers, as we've mentioned, we always try to have an aspiration, and we initially said, why not manage $20 billion in this way in some point. So we started out we were at $3 billion and now we're at $6 billion. So we may -- it may not be that crazy that we get there. And it is a much better way to own assets in a private capital structure, a partnership like this than in a public company. So increasingly, as I said, we look at that we have 2 businesses. 1 is a factory that makes engines and the other is an asset manager that manages the money that owns the aircraft that has the engine on it. Brian Mckenna: Got it. That's super helpful. And then maybe just a related follow-up. So it's pretty minor, but FTAI's ownership in the first vehicle, SCI vehicle came down to 19% from 20%. I mean if demand remains elevated, and it feels like it's pretty robust here, just given the upsized commitments, et cetera, I mean, is there an opportunity for your ownership or essentially the GP stake to decline to something lower than that? And then essentially, it creates an even more capital-light model. Like I'm just trying to take through that a little bit more moving forward. Joseph Adams: Yes, it's possible. I mean, we wanted to make the first -- I mean, as you can imagine, one of the concerns that investors always have is are you aligned? Do you have the same interest that I have as the manager? And obviously, that equity commitment is -- goes a long way to answering that question. But over time, if you demonstrate a track record and you show people repeatedly good numbers, everything is negotiable. Operator: And our next question comes from the line of Andre Madrid of BTIG. Edward Morgan: This is Ned Morgan on for Andre this morning. I just wanted to ask, how should we think about the pace of long-term partnerships to materialize in terms of scale, will future deals be more in line with the major U.S. carrier deal or the Finnair deal? I guess -- and also if you're able to comment on the margin impact of these partnerships, what that could look like? Joseph Adams: Well, the pace of investing, as I said, we started the first partnership really at the beginning of this year, and we have under LOI or closed about $3.5 billion, and it's next week is November, I guess. So we're -- our original thought was we could invest $4 billion in the first year. And I expect that, that will go up as we get -- we have more of a backlog than we had when we launched the first partnership. So I think the pace of investment, I'm pretty optimistic. This is a $300 billion market that we should be able to deploy that type of capital regularly. And the margins, the SCI is treated like any other third-party customer from a pricing point of view. The only difference is it's contracted. So it is 100% committed. So the margins and the profitability from SCI business for FTAI are very similar to the other third-party customers. And as I indicated next year, we expect an improvement in margins to 40% and we are seeing an increase in larger orders from existing customers. So that trend we expect to continue to get more engines from third-party customers per customer as they experience the benefits of the product. Operator: Our next question comes from the line of Brandon Oglenski of Barclays. Brandon Oglenski: Joe, I guess, can we come back to the $1 billion cash flow outlook for next year? That's pretty impressive just given where this business has been. How much should M&A factor into your outlook for capital deployment looking forward? I think you got asked the question a little bit previously, but do you see like long-term needs for build-out of incremental capacity here? Joseph Adams: Well, I would turn it around a little bit differently. We expect to continue to expand our capacity, but we're doing so in a way that's not -- it doesn't cost a lot of money. So if you look at the other -- the deals we've done in Rome or in Miami, we're adding a meaningful amount of capacity, but the total investment is like $20 million or $30 million. So that I have to apologize that it's not bigger, but it's not -- we're not trying to invest more capital. We're trying to get more capacity at the best price. So we will continue to do that. On the M&A repair side, equally, we've -- the deals we've done are fairly -- are extremely accretive and then not a lot of dollars invested to get in the business. And when we look at a part or repair activity, we try to evaluate all the different ways we could get into that. We look at the companies that could be for sale. We look at building it organically in Montreal or Rome. We look at partnering with other people. And we've done all of the above, we just try to find the best way in and the way that has the most accretive effect on our business. So we're sort of very flexible, but thus far, the opportunities we found have been extremely attractive from a return perspective and not require a lot of capital. Brandon Oglenski: Okay. I appreciate that, Joe. And Angela, can you walk us through what you think is like the right sustainable level of maintenance CapEx and maybe reinvestment in the Leasing business as we look forward? Eun Nam: Yes. As mentioned, as you can see, our maintenance CapEx this year is targeted to about $125 million. And going forward, we expect that it will maintain similar levels. And the replacement CapEx, we don't expect that to increase as well. As we've mentioned, most of all of our SCI work that we'll do with the engines are structured as exchanges, where we will give a serviceable engine and get an unserviceable engine back. So the replacement CapEx, we don't expect to be expensive going forward either. Operator: Our next question comes from the line of Ken Herbert of RBC CM. Kenneth Herbert: Joe, maybe to start, can you just provide an update on where you are on the V2500 program? I know you'd initially committed to or procured access to, I think, 100 full performance restoration shop visits? How is that going? And where are you on that pipeline? Joseph Adams: Yes. We're about halfway through. And what are we -- 2 years into it now, 2 years in of a 5-year deal and we're about halfway in terms of the volume. And it's going quite well. I mean that engine is -- it's a more expensive engine to do a performance restoration on, as we all know and by design, but the demand is incredible because of the continuing saga of the GTF grounding. So there's been a huge life extension. We have a lot of operators that are very eager to avoid the shop visit, and that's exactly what we delivered to them. So we expect that it will continue and at some point in the next couple of years, we'll talk about an extension or other alternatives, but we're going to stay in that engine. Kenneth Herbert: Okay. That's helpful. And I know the percentage of work that has flown through or the revenues within Aerospace products dedicated to the SCI has bounced around, and I can appreciate timing is a piece of that. But as you think out a couple of years and SCI subsequent versions continue to attract capital how much of the Aerospace Products segment or revenue do you think eventually is SCI related? And how do you view sort of a natural cap on that? Joseph Adams: Well, the way you have a natural cap is to continue to grow third-party business because the SCI business will grow, but we're also expanding the third-party business at really a very similar clip. So I expect it to be roughly 20% to 25% of FTAI Aviation's business for the foreseeable future. And the answer is we grow both of them. Operator: This concludes the question-and-answer session. I'll now turn it back to Alan Andreini for closing remarks. Alan Andreini: Thank you, Marvin, and thank you all for participating in today's conference call. We look forward to updating you after Q4. Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
Operator: Welcome to Xylem's Third Quarter 2025 Results Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Mr. Keith Buettner, Vice President of Investor Relations and FP&A. Please go ahead, sir. Keith Buettner: Thank you, operator. Good morning, everyone, and welcome to Xylem's Third Quarter 2025 Earnings Call. With me today are Chief Executive Officer, Matthew Pine; and Chief Financial Officer, Bill Grogan. They will provide their perspective on Xylem's third quarter results and discuss the fourth quarter and full year 2025 outlook. Following our prepared remarks, we will address questions related to the information covered on the call. I'll ask that you please keep to 1 question and a follow-up and then return to the queue. As a reminder, this call and our webcast are accompanied by a slide presentation available in the Investors section of our website. A replay of today's call will be available until midnight, November 11, and will be available for playback via the Investors section of our website under the heading, Investor Events. Please turn to Slide 2. We will make some forward-looking statements on today's call, including references to future events or developments that we anticipate will or may occur in the future. These statements are subject to future risks and uncertainties, such as those factors described in Xylem's most recent annual report on Form 10-K and in subsequent reports filed with the SEC. Please note the company undertakes no obligation to update any forward-looking statements publicly to reflect subsequent events or circumstances, and actual events or results could differ materially from those anticipated. Please turn to Slide 3. We have provided you with a summary of key performance metrics, including both GAAP and non-GAAP metrics. For the purposes of today's call, all references will be on an organic and/or adjusted basis, unless otherwise indicated, and non-GAAP financials have been reconciled for you and are included in the Appendix section of the presentation. Now please turn to Slide 4, and I will turn the call over to our CEO, Matthew Pine. Matthew Pine: Thank you, Keith. Good morning, everyone, and thank you for joining us. I'm pleased to share that the team delivered another great quarter, continue our momentum with disciplined execution, driving strong results across the business. Revenue grew in all segments and most end markets with double-digit growth in Measurement and Control Solutions and Water Solutions and Services. We also achieved record quarterly EBITDA margin north of 23%, expanding 200 basis points year-over-year and delivering 23% EPS growth. It's a great performance by the team, supported by healthy demand. . While orders were down slightly against tough comps, we saw a notable growth in Measurement and Control Solutions with strong performance across smart metering, underscoring the differentiation of our core portfolio. We continue to see strong demand for our mission-critical solutions across all segments. These results reflect the impact of our commercial and operational momentum as well as the benefits of our ongoing simplification efforts. Our 80/20 implementations continue to drive margin improvement and focus our resources on the highest value opportunities. And we're also moving even faster than anticipated, especially with the restructuring component of our operating model transformation. These changes we've made to culture, processes and structure are enabling faster decisions, clear accountability and better service. The team's impact on increasing quality of our customer experience is a great example. We've again set new Xylem benchmarks for on-time performance. That serves to strengthen our customer relationships and reinforce our reputation for reliability. Solid execution is deepening trust with our customers. At the same time, it's expanding margins, and they see the benefit in how we partner with them on innovation because 80/20 focuses our energy and resources on their most important challenges. As we've often said, 80/20 isn't a cost-out tool. It's about resource allocation, helping us redeploy capacity to the areas of our portfolio and customer base where value and impact are greatest, which is aligned with our strategy of portfolio optimization and disciplined capital deployment. It's that discipline and mindset that led to divesting the international metering business, which we announced earlier this month. The sale concentrates our focus on AMI technologies in markets where we have the strongest differentiation and are best positioned for profitable growth. Turning to our outlook. Given our performance and resilient market demand, we're raising our full year guidance for revenue, margin and EPS. Our guide reflects confidence in the team's ability to deliver our commitments even as we manage through continuing macro uncertainty. We expect our momentum to continue through the end of the year and beyond, and we're solidly on track to deliver our long-term financial framework. With that, I'll turn it over to Bill to walk through the quarter's results, our financial position and our updated outlook in more detail. Bill? William Grogan: Thanks, Matthew. Please turn to Slide 5. We're very pleased with the strong quarter and year-to-date progress. Ongoing simplification efforts have improved our organizational agility and risk management effectiveness, positioning us to navigate uncertainty with confidence. We anticipate further benefits as we continue advancing our simplification initiatives through our operating model transformation and fully leverage the advantages of our 80/20 implementations. Demand across the business is healthy, and our year-to-date book-to-bill ratio remains near 1. Orders were down 2% in the quarter, but against tough comps with softness in China mostly offset by growth in the U.S. and Western Europe. Backlog remains robust, closing the quarter at approximately $5 billion. Revenue growth was strong at 7% in the quarter, ahead of our expectations, driven by outperformance in MCS and WSS. North America was particularly strong in the quarter, while we grew across most regions and end markets. EBITDA margin expanded 200 basis points year-over-year, driven by productivity, pricing and volume, more than offsetting inflation, investments and mix. Increased operational discipline continues to come through in our results, with Q3 EPS of $1.37, up 23% versus the prior year. Year-to-date free cash flow was down modestly, primarily due to outsourced water projects and restructuring payments, mostly offset by higher net income and improved net working capital. Net debt to adjusted EBITDA stands at 0.4x, reflecting our strong balance sheet and capacity for continued investment. Let's turn to Slide 6. We had fantastic results across the segments, starting with Measurement and Control Solutions. Demand for our AMI solutions remains robust as orders grew 11% organically with strength across water and energy metering. Backlog remains healthy at $1.5 billion. Revenue was also up 11%, driven by energy metering demand and backlog execution. EBITDA margin was up 60 basis points year-over-year to 21.8%, driven by productivity, price and higher volumes, offset in part by mix and inflation. As Matthew mentioned, at the end of the quarter, we signed a definitive agreement to sell our international metering business. The business, which includes water and heat meters generated around $250 million of revenue in full year 2024 with a consolidated adjusted EBITDA margin of less than 10%. We expect to close in early 2026 with a selling price of $125 million. This will drive a 100 basis point margin improvement in the MCS segment on a run rate basis. The divestiture will allow us to focus on the North American meter market where we have substantial competitive differentiation with the only FCC-licensed proprietary bandwidth on our FlexNet fixed network, serving water, gas and electric utility customers. In Water Infrastructure, demand remains strong across most regions and end markets. Book-to-bill was above 1 despite orders declining by 2% against difficult comps. Significant softness in China and funding timing from the AMP8 cycle in the U.K. were the primary drivers of the decline. Revenue grew 5%, led by strong demand in transport and treatment and growth in most regions with double-digit growth in the U.S. EBITDA margin expanded a robust 400 basis points to 24.4%, driven by productivity, price and mix, partially offset by inflation, volume and investments. And the team continues to get significant traction with our 80/20 efforts as treatment starts to replicate the success we have realized in transport. Applied Water continued its turnaround in the year with orders growth in the quarter just edging into positive territory, making it its 7th consecutive quarter of gains. The result was driven by strength in the U.S., mostly offset by a significant slowdown in China. Revenue increased 1% with growth in both the U.S. and Western Europe and strength in Building Solutions; again, partially offset by China. EBITDA margin expanded 310 basis points to 21.7%, driven by productivity, mix and price, partially offset by inflation, investments and volume. Applied Water continues to gain traction from 80/20 as it accelerates both productivity and growth. And in Water Solutions and Services, orders were down 11% against really tough comps, driven by timing of capital projects, though year-to-date book-to-bill remains above 1. Revenue grew 10% with contributions from capital projects, dewatering and services. EBITDA margin expanded 160 basis points to 26.3%, reflecting strong execution on price, volume and productivity, partially offset by inflation, mix and investments. Let's move to Slide 7. We're updating our annualized tariff outlook based on the current rates, noting the fluid nature of the impacts. As of today, our updated annualized impact is roughly $180 million with the inclusion of additional Section 232 derivative tariffs. While there remains uncertainty around final timing and tariff levels, we are confident that the pricing actions and available supply chain levers will allow us to substantially offset the current impact, though we expect a slight margin dilutive effect. We have not seen a meaningful volume impact on the business due to tariffs, but decision-making has taken a bit longer than normal given the uncertainty. Let's turn to Slide 8. Given our strong year-to-date performance and execution momentum, we are again raising our full year guidance. We now expect full year revenue of roughly $9 billion, representing 5% to 6% total growth and 4% to 5% organic growth. EBITDA margin is expected to be 22% to 22.3%, reflecting 140 to 170 basis points of expansion versus prior year, up from the previous guide of 21.3% to 21.8%, primarily due to an acceleration of our restructuring and simplification efforts. We are further raising our EPS guide to $5.03 to $5.08, up from $4.70 to $4.85. Free cash flow margin expectation remains at 9% to 10%. For the fourth quarter, we expect revenue of approximately $2.4 billion with 2% to 3% organic growth. And as a reminder, we grew 7% in the fourth quarter of 2024. EBITDA margin is expected to be roughly 23% and EPS is expected to be $1.37 to $1.42. We have a strong trajectory as we close out the fiscal year. While there continues to be macro uncertainty, particularly around tariffs and FX movements, the team is doing a great job controlling what we can control and building a systematic process to deliver results. We have confidence in our ability to meaningfully outperform our initial guidance set out in February, supported by strong demand, backlog execution and accelerated benefits from simplification. Let's turn to Slide 9, and I'll turn it back to Matthew. Matthew Pine: Thanks, Bill. Before we move to Q&A, I want to highlight some great work the team has done with Amazon and 2 of our large municipal customers on a couple of projects we announced during the quarter. They're a great example of how Xylem's leadership in digital water solutions positions us in a global economy being transformed by artificial intelligence. Together with Amazon, we're deploying Xylem's Vue advanced analytics in Mexico City on Monterrey, helping these cities save more than 1 billion liters of water each year. This partnership is a model for how hyperscalers and communities can collaborate to ensure water security for both businesses and residents. And it's a clear example of how our solutions are creating meaningful impact for customers and communities. That's only going to become more consequential as AI infrastructure expands. Attention is focused on data centers, which is understandable. Data centers consume a lot of water, so they present clear applications for water management and reuse solutions, but AI's water footprint is much, much larger. The whole AI value chain runs on water. Alongside data center build-outs, water demand is growing across key verticals like power generation, chip fabrication and mining for essential minerals. In examples like the work with Amazon in Mexico, we see the potential for water solutions that resolve the difficult trade-offs between economic growth and community well-being by effectively providing for both. As AI shapes a new economy, we're optimistic about the opportunity to have positive impact on both customers and on the communities that they serve, increasing water security for both. That optimism is built on both underlying macro trends and on solid foundations the team has been building, positioning Xylem for sustainable long-term growth. The word simplification can make it sound easy, but our strong performance over the last several quarters is a function of the team's dedication, drive and tireless execution. Our self-help initiatives, including 80/20, portfolio optimization and our operating model transformation are all delivering results. If anything, we're moving a little faster than expected. Overall, we have a positive outlook for the remainder of the year. We're well on track to deliver our long-term financial framework, and we are strongly positioned to drive sustainable growth and value creation over the cycle. With that, operator, let's open the line for questions. Operator: [Operator Instructions] And your first question today will come from Andy Kaplowitz with Citigroup. Andrew Kaplowitz: Matt and Bill, you're now expecting 140 to 170 basis points of EBITDA margin improvement for '25. I think your Investor Day algorithm has been 100 basis points per year. And obviously, segments such as Water Infrastructure and Applied have had substantial 80/20 benefits so far. So the obvious question becomes how much improvement is still left in the tank? Can you continue to get that 100 basis points off the higher base as you go into '26 and beyond? And is it time to start thinking about a higher potential '27 adjusted EBITDA margin versus your Investor Day target? Matthew Pine: Great question. Just as a reminder for folks that may have not heard our Investor Day numbers, we had put out 4% to 6% growth with 23% EBITDA margin by 2027. Now to be fair, we did finish 2024 at 20.6%. So there was 300 basis points up to 20.6%. We're guiding, to your point, 22% plus for this year ahead of schedule. So there's likely some upside to our long-term targets. Right now, we're focused on delivering 2025 commitments. And quite frankly, working to dial in 2026, there's still a lot of noise out there, macro we're trying to digest. And internally, there's a lot of good things going on that we're trying to calibrate as well. And we'll have a lot more detail in February. But I would say we've made great progress. And I would -- Andy called this the first phase of our journey, and that was really around transforming our operating model, both around our culture, our processes and our structure. And this work never ends. It's always ongoing. But what we're trying to do in the next phase of our journey as we move out of Phase 1, we've taken enough ground into Phase 2, is to leverage that simplification that we created to drive our growth engine in what we call Phase 2. And some examples of that would be enterprise account management, targeted selling, especially with our A customers, customers we call raving fans, and to leverage what we've done in 80/20 to redeploy effort for innovation as well. So maybe the last thing I would also comment what I would call Phase 3 is getting after our long-term competitiveness by doubling down on some of our core franchises like North America metrology. Hence, you saw the divestiture of the international business, commercial services, our transport business, where we really have strong positions. So -- and M&A that aligns to our value mapping and leveraging the strong balance sheet that we have. So I would say that we have a lot left in the tank. There's more on margins. But more holistically, really just in our first phase of our journey and making good progress. Andrew Kaplowitz: Very helpful. And then, Matt and Bill, you had difficult comparisons in Q3 in MCS, yet you still delivered 11% order growth. Is the strength broad-based in energy and water meters? How does that strength sets Xylem up for 2026 in that segment? Does it mean you have good visibility toward growth in both smart energy and water meters in '26? William Grogan: Yes. I mean in MCS, overall demand is still healthy, right? Our pipeline is strong and the fundamental growth drivers for AMI adoption are still solid. We don't have a concern about funding here in the short term. That's been raised a little bit, and we have a long way to go on AMI adoption. We're still less than 50% there. We're through the deployment calibration phase, which took almost a year, but we sit with pretty strong backlog level at $1.5 billion, which is down versus last year, but reflecting a move towards a more normalization to historical levels kind of after the post-supply chain surge and this project redeployment phase. We're typically around 60% of the following year sales, and we're getting closer to that balance. This order strength in Q3, up 11%. It was across both water and energy meters. We have a really strong commercial funnel and continue to gain share with our largest 4,400 municipalities that account for about 80% of the AMI market. Q4, we've talked about all year. We think we're going to be back to a book-to-bill positive as we see some of the water meter project wins convert to orders and our energy funnel still remains robust. So Q4 is shaping up really well. We expected to be up double digits on the water side, making our water growth in the back half kind of mid-single digits. MCS sales will be up sequentially, too, from the third quarter to the fourth quarter. And the outlook for 2026 remains in our long-term framework of high single digits. Operator: And your next question today will come from Deane Dray with RBC Capital Markets. Deane Dray: That was a really nice earnings quality this quarter between organic revenue incrementals and cash flow. So you can check the box there. Would like to hear a bit about the government shutdown. We're getting a lot of questions about that. Just kind of what are the ripple effects into -- from federal funding to state and local? Have some projects been delayed because of that? And just kind of what does that mean for the setup into '26? Matthew Pine: Yes. On the government shutdown front, we haven't seen anything meaningful. Funding mechanisms have always been slow to move in general in this space, especially with the municipalities, and previously allocated funds will still make their way down to fund projects. So right now, we don't see any meaningful impact. In the near term, there could be a pause on EPA grant application reviews, but I don't see that, that's going to have any material impact on Q4 or, quite frankly, on the full year of 2026. So all in all, we feel good about the municipal resilience, not only in the U.S. but more broadly across the globe. Deane Dray: Really good to hear. And I appreciate the answer to Andy's question about the 80/20 implementation and entering Phase 2. But can you just step back on 80/20 because there was such high expectations, and there are still high expectations about the fundamental changes that are happening at Xylem. Broadly, what inning are you in? Have all the businesses gone through their first implementation? And kind of where do you go from here in terms of further divestitures at the margin? Should we be expecting anything like that in the next couple of quarters? Matthew Pine: Okay. I'll start us out here, Deane. 80/20 is, as you can tell by the results, really starting to take hold, almost 2 years into our transformation. And I would say that each quarter, the team continues to take another step towards what we call simplifying Xylem. So it's moving from a tool set to more of a critical piece on how we run the business, which is, in my mind, more cultural. So that's very strong evidence that things are progressing in a positive way. As I said in my opening remarks, it also provides this kind of, what I would call, a maniacal focus on resource allocation, which is really, really important for any company. So to answer your question more specifically, 80% of the business is in some phase of the implementation with our dewatering business globally, our analytics business and our treatment business, the most recent divisions to start the implementation of 80/20. Treatment being probably one of the bigger divisions we have so far to date going into the tool, and we'll see some meaningful impact to that division of our company. As you see from the results, we're moving with more speed, accountability, customer focus. One thing I talk a lot about is on-time performance and quality as metrics of the health of your company. And on-time performance with our A customers reached a record high, and it's nearing what I would deem best-in-class in terms of industrial companies performance to their customers. So maybe the last thing I would say, another proof point is just the margin improvement you're seeing in the legacy Xylem businesses with Applied Water and Water Infrastructure over the past several quarters. So maybe just one thing I just want to highlight for those listening. We're going to continue to walk away from revenue, Deane. We do have divestitures. We, obviously, will have just about 1% this year in divestiture and about 1% of acquisition this year, kind of almost washing. But obviously, the international metrology piece will happen next year. It is a core focus. We've talked publicly about $400 million to $600 million of things that we'll be pruning on the portfolio, and we're still kind of tracking there. But the walkaway business will be a little bit more in 2026 in terms of 80/20. It was just under 1% this year. It will be just over 1% next year. But just to remind everybody, that comes with higher quality earnings. And it's all about simplifying the business so we can really build the long-term growth engine and focus on our customers. Operator: Your next question today will come from Scott Davis with Melius Research. Scott Davis: I'll echo the congrats, not just on the quarter, but it's been a really good couple of years for you guys. I just had to ask, Matthew, this is kind of a strange question, but you led in with culture, processes and structure. What do you specifically mean by structure? I think that can mean different things to different people. So looking for some explanation there. Matthew Pine: Yes. So structure was really getting at -- we were -- prior to this year, we were kind of highly a matricized structure. So we pivoted to more of a -- we had a segment orientation, but more with discrete divisions under the segment, 16 P&Ls with discrete leadership GMs. And it just drives better accountability. I think the matrix structure served us well in the past, but going forward, just to drive better accountability, better empowerment, getting to a kind of a singular access around the segments and divisions, just enables us to make faster decisions. For example, in the prior structure, we would have 20 to 25 people sign off on a delegation of authority. Now we have 4 to 5. And so it just provides us the ability to be more nimble and make our colleagues' lives easier and make our customers happier with our service. And so those were 2, what I would call, pieces of voice of customer that we got 2.5, 3 years ago that we wanted to address. Scott Davis: That makes sense. And then your net debt to EBITDA, 0.4x, I think you mentioned. The -- pegs the kind of question on priorities in the next 12 months. And if you can talk to your M&A backlog or when and if you'd kind of switch to more of a buyback priority and just where your head is in that stuff right now? Matthew Pine: Yes. No, it's a good question. We've always said kind of our priorities are, let's invest in the core. We like M&A. We think it will help us really grow the business in a positive way. Dividends, obviously, would be next. And then we've talked about opportunistic share buybacks. So that's kind of our approach. As I've mentioned in prior calls, we have put a really strong process in place. Before a couple of years ago, we were a bit more top-down in M&A. We're much more bottoms up, assigning targets to our segment leaders that are now focused maybe not equally, but for sure, focused on organic and organic in terms of growing the business. So we've got a very strong funnel, probably the most actionable funnel we've had. And it's largely because of the new process that we've put in place. So we'll continue to be very disciplined, look at things that are strategic fit, meet our hurdles. We've got such a great self-help story right now, Scott, that our real focus is on small to medium bolt-ons. We've talked about deploying $1 billion of capital a year, trying to create $60 million to $75 million of EBITDA. But I wouldn't rule out if there was something very strategic and transformational, we would definitely look at it, but that's not our intent. So our intent is about $1 billion of capital deployment towards M&A each year. Operator: And your next question today will come from Nathan Jones with Stifel. Nathan Jones: A couple of follow-ups on MCS for me. Bill, I think you mentioned in your answer to Andy's question that you're still in the kind of high single-digits framework for 2026. The book-to-bill so far this year is about 0.83, probably gets to 0.85 if you're close to 1 in the fourth quarter. And you have talked about burning off some backlog and backlog being at a more normalized level. I'm just wondering how the math works to get to high single digits for 2026 and why there wouldn't be maybe a little bit of a reset lower because you're not burning off backlog next year. So any additional color you could give on that would be helpful. William Grogan: Well, I think the $1.5 billion that we're at right now, Nate, is still elevated relative to historical. So as we burn existing backlog and start to get to book-to-bill positive, I think that supports that high single-digit framework with -- we talked about the calibration of water getting back to a more normalized growth within that framework and some of the additional projects we have on the energy side that will layer in here over the next quarter or 2 gives us real confidence to get back there next year. Nathan Jones: Great. I guess second follow-up on the margin profile in M&CS, 60 basis points of margin expansion. I think, I probably expected that to be a little higher. I think we're probably expecting the water mix to improve a bit and, obviously, some leverage on volume given the good growth. Maybe you can just talk about what the offsets were to the margin profile for MCS in the quarter and kind of where we should be longer term for that business? William Grogan: Yes. I think, the biggest lever there has been the energy water mix. We talked about last quarter, obviously, the strong performance, there was a pushout in some of the lower-margin energy projects that we've talked about. I think it's calibrated and sequentially, margins for MCS should look fairly similar here with the energy water mix normalization getting back to historical levels later in 2026 with -- that business, though, with some of the structural changes they've made relative to 80/20, you see it come through with Applied Water and with Water Infrastructure. MCS has just been masked a little bit with this mix challenge. So we look for them to continue to expand margins into next year as mix normalizes and the second phase of some of their 80/20 simplification efforts pull through. Operator: And your next question today will come from William Grippin with Barclays. William Grippin: Just a couple of basic ones here, but you had a little bit of M&A spending in the quarter. I'm just wondering if you could provide some color on what that was for. William Grogan: Yes, it's primarily associated with international metering divestiture. William Grippin: Got it. And on that front, are you able to quantify sort of how accretive that divestiture could be to margin for the MCS segment? William Grogan: Yes. In the prepared remarks, we talked about on a run rate about 100 basis points. Operator: And your next question today will come from Andrew Buscaglia with BNP Paribas. Andrew Buscaglia: Just on the MCS margins related to the divestment, wondering how do we compare you guys versus your larger peers in that space? And I ask that in that can you get to or even above some of those peers that you comp to? And I think divesting that international piece gets you one step closer, but are there other things you think you can do? Or how should we think about that long term? William Grogan: I think, Andrew, if we would bucket our margin profile, our core water business within smart metering is at or above our peer set. I think the dilutive nature is obviously the international metrology business that we're divesting. Within the energy piece, we've talked about as at a lower margin profile. Obviously, the team has done a phenomenal job of identifying opportunities to increase that over time, but there will always be a gap there relative to the technology differentiation and the end market applications. But right, our core water business, the profitability is significantly higher than some of our competitors and at some of the leading margin profiles that you're probably referring to. Andrew Buscaglia: Yes. Okay. Okay. That's helpful. And then, I was hoping you could sort of parse out where you're seeing demand pickup versus internal efforts to improve organic sales. If you could just run through some of the end markets and you talk about what was maybe a little bit better, a little bit worse than you expected demand-wise? William Grogan: From an overall demand perspective, I would say if we ticked off, obviously, we spent a lot of time here just talking about, hey, resilient demand within MCS is still there relative to getting -- it's actually been in excess of our long-term framework here this year with the energy meter refresh cycle and then next year getting back to a combo of high single digits for both water and energy. Water Infrastructure, right, we continue to see resilient OpEx and CapEx demand. Transport has been really strong over the last few quarters. It was 5% growth against this quarter due to its -- mission-critical nature of its applications and gaining shares. The team has identified several different opportunities through segmentation, different regional opportunities where they're underpenetrated. Treatment also has had pretty strong growth as it executes its backlog and focuses on different areas of the portfolio that they have the best profitable growth outlook. They're doing a lot of portfolio and looking at different bidding practices to nail down where they have differentiation and go after those areas. Applied Water, we talked about continuing its growth streak with really strong performance in the Western world and within commercial buildings. They've seen along with the biggest headwind for Applied Water and Water Infrastructure has been China with double-digit decline on sales and orders for both segments. And just to frame kind of China overall for Xylem, it had about 2% headwind on revenue and orders growth within the quarter. So pretty material. It's a smaller part of the overall portfolio, but as that market kind of accelerated its decline from kind of a macroeconomic perspective and then the team is getting much more disciplined with the work that we're going after has created some headwinds. And then lastly, I'd say WSS, obviously, double-digit growth again. Continued strength with our outsourced water projects. That's ramped here over the last 2 years as they focused providing some really differentiated technology to some large customers, along with dewatering was up double digits again this quarter. So we've seen lots of strength across all 4 segments with the only area of watch we dial in on China. And then a little bit in our prepared remarks, just talking about large capital projects, nothing has been canceled, but things relative to conversion from our commercial funnel to an order is taking a little bit longer is maybe one area we continue to monitor. Operator: And your final question today will come from Mike Halloran with Baird. Michael Halloran: Here. First, when you triangulate into all the things you just said, Bill, and some of the comments earlier, is there anything to suggest about underlying dynamics in the marketplace where you would not be at least in the range for kind of normal-ish type growth as you look to 2026, meaning we know China is a little bit of a headwind here, but it seems like you're talking to pretty healthy normal dynamics, resilient dynamics, however you want to characterize it for the majority of your markets. So could you just frame that as a thought process as we head into next year? William Grogan: Yes, I think you're spot on. I think the fundamental dynamics for all 4 segments are strong. Again, outside of a little bit of the China headwind, Matthew highlighted a little bit, there's probably a little bit more walk away as the teams are accelerating like kind of their 80/20 progress. Obviously, you're seeing it in the margin. We expect that to continue. But as we get much more selective and make bigger strides on our customer simplification or product line simplification, there's probably, again, a little bit more headwind, a little under 1 point this year, a little over 1 point next year. But outside of that, I think, as we look out as best as we have visibility over the next 12 months with still macro volatility, I mean, the fundamental dynamics are still strong with resilient demand within muni and I think differentiated technology helping us on the industrial side with some of the fits and starts other companies are seeing in that space. Michael Halloran: And what's the long-term thought process on how to manage China from here? I know it's an area of softness today. It's -- maybe there's some deprioritization of U.S.-based products. What's the thought on how you guys plan on addressing or attacking that market from here? Matthew Pine: Yes. I think, we're staying the course, but we're also rightsizing the business for the demand environment, Mike. We're taking restructuring actions as we speak in China to the extent of around 40% of the workforce is coming out. That's -- we don't take those decisions lightly. It's unfortunate, but it's really just an indicator of the demand that we're seeing in the market and the hyper-competitiveness of the market as well. We like the market long term, but we have to size the business for the market that we're dealing with over the next balance of this year and through '26. That's how the approach we've taken. And we'll just -- it will be a watch item for us as we head into the first half of 2026, but that's really where we are right now. William Grogan: Yes. And I think that the teams are stepping back and looking at what is the greatest market opportunity where we have the technology to match that and then reallocating all of our resources around those efforts to try to spur incremental growth as we move forward. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Matthew Pine for any closing remarks. Matthew Pine: Thanks for joining today. We'll wrap it up there. Appreciate the questions. And as always, we appreciate your interest and support. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, and welcome to the Ameris Bancorp Third Quarter Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Nicole Stokes, CFO. Please go ahead. Nicole Stokes: Great. Thank you, Valentina, and thank you to all who have joined our call today. During the call, we will be referencing the press release and the financial highlights that are available on the Investor Relations section of our website at amerisbank.com. I'm joined today by Palmer Proctor, our CEO; and Doug Strange, our Chief Credit Officer. Palmer will begin with some opening comments, and then I will discuss the results of our financials before we open up for Q&A. Before we begin, I'll remind you that our comments may include forward-looking statements. These statements are subject to risks and uncertainties. The actual results could vary materially. We list some of the factors that might cause results to differ in our press release and in our SEC filings, which are available on our website. We do not assume any obligation to update any forward-looking statements as a result of new information, early developments or otherwise, except as required by law. Also during the call, we will discuss certain non-GAAP financial measures in reference to the company's performance. You can see our reconciliation of these measures and GAAP financial measures in the appendix to our presentation. With that, I'll turn it over to Palmer for comments. H. Proctor: Thank you, Nicole, and good morning, everyone. We appreciate you taking the time to join our earnings call today. Third quarter results again beat expectations with above peer performance across the board, including return on assets, PPNR ROA, return on tangible common equity, net interest margin and efficiency ratio. Two of our top focuses have long been growing our core deposit base and tangible book value per share. I'm proud to see our deposit growth at 5% annualized and tangible book value per share growth at over 15% annualized, both very strong metrics. We remain focused on generating revenue growth and positive operating leverage. This is evidenced by our 18% annualized revenue growth in the quarter. And when coupled with a modest decline in expenses and slight increase in margin, pushed our efficiency ratio below 50%. Our margin continued to expand during the quarter, while we grew loans 4% annualized, which is within our mid-single-digit guidance. Our 3.80% NIM remains above most peer levels, particularly thanks to our strong 30% level of noninterest-bearing deposits. Capital ratios grew again in the quarter, which positions us well for future growth opportunities. Our third quarter earnings and capital generation increased our common equity Tier 1 to 13.2% and TCE to 11.3%. Asset quality remained stable with net charge-offs and NPAs, excluding government-guaranteed mortgages at low levels. We grew tangible book value this quarter by over 15% annualized, almost $43 per share, and we're active in repurchasing stock, buying back $8.5 million. Our CRE and construction concentrations remain low at 261% and 42%, respectively. Our 4% annualized loan growth was driven mostly by a good mix of C&I and CRE. Our loan portfolio production also topped $2 billion in the quarter, the best level we've seen since 2022, and deposits grew at a similar pace of 5% annualized with noninterest-bearing deposits remaining over 30%. Our bankers are well positioned to take advantage of growth opportunities and disruption within our attractive Southeastern markets. Overall, we continue to stay focused on what we can control. When I look out at the end of 2025 and toward 2026, I'm very encouraged as we continue to benefit from a history of notable tangible book value growth as good stewards of shareholder value, a granular deposit base, a robust margin and diversified revenue stream, strong capital and liquidity, a healthy allowance and asset quality and a proven culture of expense control and positive operating leverage and a notable scarcity value given our size and scale in the Southeast top markets, which really allows us to take advantage of the banking disruption Southeast continues to experience. So overall, I'm very optimistic and confident about our franchise as we near the end of 2025 and look forward to 2026 and beyond. I'll stop there and turn it over to Nicole now to discuss our financial results in more detail. Nicole Stokes: Great. Thank you, Palmer. We reported net income of $106 million or $1.54 per diluted share in the third quarter. As Palmer mentioned, our profitability remained at levels well ahead of the industry with our return on assets at 1.56% and our return on tangible common equity at 14.6%, both very robust levels. This quarter, our PPNR ROA was at 2.35%, which is an improvement from 2.18% last quarter. Our efficiency ratio improved to 49.19% this quarter compared to 51.63% last quarter as we saw a modest decrease in expenses, but a really strong 17.8% annualized revenue growth, which is what fueled that positive operating leverage. Capital levels continue to increase with our tangible book value per share grew to $42.90 a share, which was a strong 15.2% annualized growth or $1.58 per share in the quarter. Our tangible common equity ratio increased to 11.31%. We repurchased about $8.5 million of common stock. That was about 126,000 shares at an average price of $67.36 during the quarter. Our Board recently also approved a new share repurchase plan of $200 million, which is double our last authorization of $100 million. Our strong revenue growth was driven by increases in both net interest income and fee income. Our spread income grew by $6 million in the quarter or 10.5% annualized. That growth came from interest income growth of $7 million, which outpaced our interest expense growth of only $1 million. Our net interest margin continued to expand, up 3 basis points to a strong 3.80%. And remember, that's a core margin as it includes 0 accretion. The NIM expansion this quarter really came from a 2 basis point positive impact on the asset side and a 1 basis point benefit from the funding side. We continue to believe we'll have some slight margin compression over the next few quarters due to the expected pressure on deposit costs as we see loan growth really pick up in 2026. We continue to be fairly neutral on asset sensitivity. Noninterest income increased $7.4 million this quarter, mostly from better equipment finance fees and also a $1.6 million nonrecurring gain on securities. Our mortgage production was approximately $1.1 billion with mortgage gain on sale at 2.20%. Our total noninterest expense decreased about $700,000 in the quarter, mostly driven by lower compensation costs in the lines of business, offset by some increased incentives and benefits in the banking division. And as I previously mentioned, our efficiency ratio was strong at 49.19%. While we did have positive operating leverage this quarter, the expanded net interest margin and noninterest income growth was the real driver of that lower efficiency ratio and not necessarily an expense savings initiative. And I do anticipate the efficiency ratio to return above 50% in the fourth quarter. During the third quarter, our provision for credit losses was $22.6 million, with over half of that provision related to reserves for unfunded commitments, which is a really positive sign for our future loan growth potential. Our reserve remained strong at 1.62%, the same as last quarter. Overall, asset quality trends remain good with nonperforming assets, net charge-offs in both classifieds and criticized all remaining low for the quarter. Annualized net charge-offs were stable at 14 basis points. Looking at our balance sheet, we ended the quarter with $27.1 billion of total assets compared to $26.7 billion last quarter. Earning assets increased $470 million or 7.6% annualized with the bond portfolio growing $287 million and loans growing $217 million or about 4% annualized, which is in line with our loan growth guidance. Loan growth was mostly from C&I and investor CRE this quarter. Deposits increased $295 million with really strong growth in our core bank of $355 million, a small increase in broker deposits of $67 million, and those were offset by a continued seasonal decline in those cyclical municipal deposits of $127 million. We were able to maintain our noninterest-bearing deposits at over 30%, finishing the quarter at 30.4% and our brokered CDs represent only 5% of total deposits. We continue to anticipate loan and deposit growth going forward in the mid-single-digit range and expect that longer-term deposit growth will be the governor of our loan growth. So with that, I'll wrap it up and turn the call back over to our operator for any questions from the group. Operator: [Operator Instructions] The first question comes from David Feaster with Raymond James. David Feaster: I wanted to start maybe on the loan side. It sounds like production remains pretty strong. We saw unfunded commitments increase. I'm curious, maybe first, just touching on demand. How is demand in the pipeline trending as we look forward? I know you reiterated the mid-single-digit guidance, but just kind of curious about the pipeline and the complexion of that? And then just how payoffs and paydowns are trending and how that's impacting growth near term? H. Proctor: Yes. I think one of the things that drives our optimism for the fourth quarter is the demand, and that's really across the board in all of our verticals that we're seeing. I will tell you, payoffs for the industry remain pretty steady, and we'll see the same thing in the fourth quarter. But in terms of the demand and the outlook going forward, that's where we really garner most of our optimism as we look into the end of '25 and into '26. So all in, payoffs, it's just a necessary evil, if you will, but it's also a sign of a healthy market. So we continue to remain very bullish. David Feaster: Okay. And maybe just staying on that kind of -- to some degree, could you touch on competition and how the landscape is today? On one hand, you touched on a lot of the disruption and the opportunities that come out of that. But at the same time, everybody is -- it seems like competition is heating up for deals. Curious, some of the push-pull between those dynamics and where you're seeing competition? Is it primarily on pricing? Or are you seeing that creep into structure as well? H. Proctor: It's primarily on pricing. And fortunately, for us, we're accustomed to a very competitive environment with our footprint, a lot of it being in high-growth areas. But I will tell you, one of the mitigants to that, even though the pricing will continue to be a pressure point, I think the disruption will help us in terms of garnering additional volume. So we are well positioned for that and ready to capitalize on any disruption that might come. So right now, at this stage, I don't see a whole lot of compromise on structure, which is good for the industry, but I do see a lot of pressure on pricing. David Feaster: And then just touching on the Equipment Finance side of the business. Could you touch on how production has been, how demand is trending there? And what segments of Equipment Finance you're seeing the most demand for? And then again, just any underlying credit trends within that business and some of the fee income opportunities that could come out of there as well? I know it's a lot, but just elaborate a bit on the Equipment Finance side. H. Proctor: Yes. I'll touch on the overall sentiment and then Doug can talk about the credit. But the -- I would tell you, I think it's a good reflection of -- these are small business operators. And so what we're encouraged to see is the demand there. It's obviously picking up. Our credit box is -- we're very pleased with, and you can see that in the declining charge-offs and NPAs. So that seems to be a bright spot for us as we go forward and the economy seems to be holding up. So I think it's a bigger, broader reflection of how well the small business operators are performing at this stage. And Doug, do you want to talk about the credit side of it and the metrics there? Douglas Strange: Yes, sure. Thank you. David, the credit box, we retooled that at the end of '23 and into '24. And I think we have it about right now where we want it, and we've seen very good results, and we've seen charge-offs over the recent quarters kind of right in that target zone that we were looking at. David Feaster: Okay. And then just the last part of that question was the fee income opportunities coming out of that business. You saw nice growth this quarter. Just curious some of the fee income opportunities you're seeing there. H. Proctor: Yes. I think the fee income -- we had a very strong fee income in that sector, in that vertical this quarter. And I think that will moderate. You can expect anywhere probably around 75% of that fee income to continue on a go-forward recurring basis. The other thing that we are excited about with increasing volume is we are -- we've got the ability now and are finalizing the opportunity to start securitizing that paper. And that way, we can increase production and still maintain some servicing and fee income there. So that could be a real contributor as we go forward in terms of prepayment penalties, late fees and everything else associated with the servicing. So that is an add to us in terms of that particular line of business. Operator: The next question comes from Catherine Mealor with KBW. Catherine Mealor: I wanted to start first on expenses. It was nice to see the decline this quarter, but I assume per your comment that the efficiency ratio will move up next quarter, that will probably increase next quarter. And so maybe kind of the big picture question on expenses is, can you talk about a good growth rate to think about for expenses going into next year just with loan growth being better? And then the second part of that is how should we think about how the mortgage expense line looks as mortgage revenue also increases next year? I noticed the mortgage comp line relative to mortgage revenue this quarter declined. And so I was just curious if there was anything going on that's run ratable if that's just a onetime event. Nicole Stokes: Perfect. Thank you, Catherine. So I'll start kind of with general expenses, and I'll say that the efficiency ratio be down in the 49% is really driven from the revenue side, the fact that we had the margin expansion and we had some noninterest income growth there. So I don't necessarily think that expenses were unreasonably low. I think when we look at next quarter, consensus has us about the same as 3Q, and I think that looks very reasonable. And then when you look into 2026, again, kind of -- I hear your question on mortgage, and I'll take that in just a second. So kind of with regular expenses, I think consensus has us right now at about a 5.5% increase. And I think that looks a little -- I mean, I think that looks reasonable. You kind of think about salaries and benefits kind of increasing in that 4% to 5% range, other expenses coming in about 3% and then maybe some increased mortgage revenue or increased mortgage expenses with that increased revenue. So kind of blending all that into that 5%, 5.5% rate for noninterest expense growth next year looks very reasonable to me. On the mortgage expense side, I would say that if we see that tenure come down and we get some real strong tailwind into the mortgage production and we see mortgage pick up, we would have some additional mortgage expenses. I think the easiest way to probably model that out is through an efficiency ratio specialized in mortgage. They're currently running about a 60% efficiency ratio, 60% to 62% efficiency ratio. And as they get the volume back up, their fixed cost stay and the variable cost, which is really the compensation will probably drive them into closer to a 55% efficiency ratio. So as modeling out that growth, I would model out about a 55% efficiency ratio on the growth, if that helps. Catherine Mealor: Yes, that's awesome. Okay. And then maybe my second question, just on the margin. As you just beat us on the margin every quarter this quarter -- or every quarter this year, it's been really special. But I know you think that it's coming down next year, which I appreciate. And so within that, maybe if you could talk a little bit about just on the deposit side, where you think deposits will go? And I don't know if it's easier to talk about it on like a beta for the next 100 basis points, maybe how that looks relative to the past 100 basis points, but help us just think about where deposit costs can go as we see rate cuts. Nicole Stokes: Absolutely. So my margin guidance has said compression for several quarters now, and we haven't seen it. But I will say that we're starting to see it. And so when you look at -- and I say that based on a couple of things. One, we know that our deposits have repriced a little bit faster than our loans and that they were starting to catch up and then the Fed moved again. So we know we have some built-in compression in the future in the margin just from that lag of the loans catching up to deposits. And every time the Fed cuts, it kind of just pushes that lag out a little bit. So I do feel like it's eventually coming from that side. And then the second piece of my margin guide really comes from the competition that I think we will see and we are starting to see on the deposit side. As everybody is really starting to fight for the growth on the asset side, they have to fund it. And so we're starting to see that on the deposit side. So an example, when you look at our retail CDs in the fourth quarter, this is the first time that we've seen this where we have almost $1 billion of CDs maturing, and they're coming off at a 3.71% rate. But our third quarter production for CDs is at 3.89%. So where we've had kind of some tailwind coming into that CD rate up to this point, this is the first time that they're very close to not having that tailwind and maybe actually having a little bit of headwind, thanks to the competition. I will say that our overall growth is still accretive to margin, and it really has to do with that growth in noninterest-bearing. If you look at our loan production coming on at a [ 6.77% ] and our blended deposit rate of our interest-bearing deposits, that spread is about a [ 3.52% ]. But if you add in that noninterest-bearing growth, we flip from being dilutive to being accretive to margin. So the real answer there is can we continue to grow noninterest-bearing deposits. If we don't and we are only able to grow interest-bearing, then we will absolutely have some compression on the margin. But I will tell you that we stay very much focused on growth of NII. So even if we have a little margin compression, I would expect NII to continue to grow. Operator: Next question comes from Russell Gunther from Stephens. Russell Elliott Gunther: I wanted to follow up on loan growth commentary here on the mid-single digits. Just curious in terms of a potential upside scenario given the strength of your markets and considerable dislocation occurring within them. Is there a scenario where we could start to see that begin to accelerate next year from kind of the mid- to the high single-digit rate? H. Proctor: That's certainly what we hope and would like to anticipate. And I think the most important thing is being in a position to capitalize on that, which is where we are. So that's what gives us a lot of confidence in our ability to take it from mid-single digits to upper single digits or maybe even double digits. We're accustomed to growing at a 10% rate in a healthy environment. And given -- it depends on the macro economy, too, and what happens there. But if things start lining up and improving like we're seeing, whether it be in terms of foreign trade, tariffs, employment, GDP, I think you could see an elevated loan growth opportunity and then you compound that with disruption, that will be a huge opportunity for us to capitalize in our primary markets. So we remain, as I said last time, we're in the optimistic camp and not just cautiously optimistic, but we're very optimistic about what we see in front of us. Russell Elliott Gunther: And then kind of in that scenario or perhaps maybe more near term, how should we think about the size of the investment portfolio going forward? Nicole Stokes: So our investment portfolio, as you know, we let it get down to about 3%. We're back up now to right at 9.3%. So we could maybe go up. Our goal is probably that 9% to 10%. So we're very close to being there. We could add about another $175 million or so to get us to that to the 10% range. But I think that's really where we feel comfortable. Although I will say we like the fact that we have the optionality that if we -- which keeps us focused on the deposit growth because we -- if we can grow the deposits, then we have some optionality between both loans and securities. Russell Elliott Gunther: Got it. Okay. And then I guess just last one for me, maybe going back to the optimism around organic growth. Given that opportunity set, is there anything from an M&A perspective for depositories on the buy-side front that makes sense for you guys? Or is the organic, again, opportunity set sort of more of a priority at this point? H. Proctor: I would tell you, it's even more of a priority now the organic piece of it, just given the new opportunities with disruption. I think it would be a mistake for us to get distracted at a time where we've probably got far more opportunities organically going forward as we look out than getting distracted by an M&A deal. Operator: The next question comes from Stephen Scouten with Piper Sandler. Stephen Scouten: So I like this optimism around loan growth. I'm wondering what part of that optimism would come from potential additional hirings. I know I think it was year-to-date last quarter, you'd hired 64 new lenders, but maybe -- and I know you tend to talk about that number in net and gross terms. So just kind of wondering what the scale of that opportunity might be and if that's a big focus and a push behind that organic growth optimism. H. Proctor: Yes. Our focus has and will remain -- we're focused on garnering customers more than we are having to have the dependency on doing lift-outs of teams to capitalize on that. And part of that is just because we're well established in these markets where you've got the disruption. That doesn't mean we won't be opportunistic and look at talent as it comes available. But the nice thing is, once again, for us to execute on our plan for growth, we have all the talent on board, and we're constantly assessing and reassessing that talent. So if you look at what we've done just this year, net, I think we're up 3 people in the commercial group, but that includes 10 new commercial hires. So I think it's important to constantly look at the caliber of the individuals you hire, not just the quantity, but look at the quality. And so that's really -- I think if you do that as you go along, you avoid potential pitfalls as you go forward. So we are certainly in a position to capitalize on what we see out there with our existing teammates. But if we see selective opportunities to bring in new talent, we will certainly consider that. But we are not dependent on that to capitalize on the opportunities we see going forward. Stephen Scouten: Got it. Appreciate that. And then you guys are kind of, in a lot of ways, in my mind, like tip of the spear around mortgage activity and inflection points. I'm wondering what you're seeing given where the 10-year has been moving and if there's any point where you think we could see a greater inflection around mortgage demand, both on the purchase side and the potential for a pickup in refinance activity? H. Proctor: We certainly hope so. And I think things are moving in that direction. Our applications are up tremendously. And I think people are realizing that it may move that direction. But I think if we can get down, if we talked about last time, something with a 5 handle on it in terms of the 30-year, I think you're going to see an accelerated activity in the industry in the mortgage space. And once again, we're well positioned to capitalize on that. We've got a lot of heavy purchase volume right now. But I think that if we start seeing some improvement in the 10-year that will definitely be a tailwind for us as we look into the end of this year and into 2026. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Palmer Proctor, CEO, for any closing remarks. H. Proctor: Great. Thank you. I want to thank our teammates again for another outstanding quarter. We remain focused on producing top-of-class metrics, maintaining our strong core deposit base and growing our tangible book value per share. The bank remains well positioned to take advantage of future growth opportunities and disruption in our attractive Southeastern footprint. We appreciate your interest in Ameris Bank. Have a great day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Welcome to Storytel Q3 Report 2025. [Operator Instructions]. Now I will hand the conference over to the CEO, Bodil Eriksson Torp, and CFO, Stefan Ward. Please go ahead. Bodil Torp: Good morning, everyone, and welcome to Storytel Group's Q3 2025 Earnings Call. We are pleased to report strong financial performance today across both our segments in streaming and Publishing, with robust customer intake and record-high profitability. This performance reinforced our confidence in achieving our guidance for 2025, which we will talk more about today. So I am Bodil Eriksson Torp, the CEO of Storytel Group for a year. Also joining us today is our new CFO, Stefan Ward. So welcome to you, Stefan, to our first call from inside Storytel, and I'm sure that you're going to love it. So, as we just said, we have delivered another strong quarter with over 2.6 million paying subscribers. Most of them, as you know, are highly engaged book lovers, and we increased our paying subscriber base by over 10% year-over-year. We continue a strong financial development, reflecting underlying growth in both our segments, and we delivered revenue growth of 9% in constant currency. The growth was driven by a focus on our customer experience, while the continued operational efficiencies led to our record-high profitability and a strong cash flow generation. Regarding the ARPU, it decreased due to a main factor that is the FX effects of SEK 4, but also due to our continued growth in markets outside the Nordics, where we are having lower price points as we have been talking about before. The Publishing segment achieved strong sales and growth, and also a significant improvement in profitability, partly driven by the successful acquisition of Bokfabriken. But I would also emphasize that the underlying growth, excluding the acquisition of Bokfabriken, remained very solid. So, combined with continued progress in streaming, this is also highlighting our strength of our business model. We delivered a strong Q3 with an increased profitability of 26% year-on-year. And by that said, we also raised our 2025 margin guidance to the range of 18.0% to 19.5%. So here are our group financial highlights. Group net sales increased by 6% year-over-year to over SEK 1 billion. Like many other Swedish companies, we have also been affected by the strong currency headwind. In constant currency, our net sales increased by 9%. The solid development was driven by healthy growth in both our segments, as I said before, and gross profit increased by 6% and the gross profit margin was on par with last year. We reached a record high EBITDA margin of 22.1%. Adjusted EBITDA increased by 26% to SEK 224 million. The net profit for the period increased by 150% to SEK 138 million during the quarter. The significant improvement in profitability was driven by increased operational efficiency. Overall, we are very satisfied with the financial development in Q3. And our financial position provides us with a very high flexibility now for further expanding our businesses. So it's important for us to continue to improve satisfaction and engagement for our customers. So when we look ahead, we will increase our investments in locally relevant content and also the user experience in our services. This will continue to improve both engagement and satisfaction for our current and our future book levers. So when we're looking into rolling 12, we see a strong development with strong momentum. On an annualized basis, our revenues are now close to SEK 4 billion with a margin of 18.4%. This confirms our successful business model, as you can see. So let's continue with our 2 business segments. Over to you, Stefan. Stefan Wård: Thank you, Bodil. We'll continue with a brief overview of our streaming performance. During the quarter, we added 56,000 new subs. And over the past 12 months, we have added 236,000 new subscribers. So solid growth, both on a quarterly and annualized level. Especially the Nordics were strong in the most recent quarter with net adds of 36,000, while we added 58,000 for the full past 12 months. So, a relatively strong intake from the Nordics in Q3. Outside the Nordics, we added 20,000 new subs in Q3 and 178,000 over the past 4 quarters. So relatively softer quarter outside the Nordics in Q3. At the end of the last quarter, our Nordic base was 1.32 million, while our base outside the Nordics was 1.28 million for a total customer base of 2.6 million subs. So we're roughly evenly split between the Nordics and outside the Nordics, and it's a reasonable assumption that we soon will pass the shift will tilt towards our international non-Nordic customer base going forward. As a consequence, we continue to see a decline in ARPU. We have lower average ARPU levels outside the Nordics, but that does not necessarily mean that we have lower profitability on those customers. On the CMB/SAC ratio, we remain well above our target level of 3, supporting arguments for continued subscriber growth. Not only do we have a well-diversified subscriber base in terms of markets, but we also have a highly engaged and loyal customer base, visible in our low churn level, which continued to decline during the quarter to a new all-time low. Looking specifically at the financial performance of the streaming segment, we delivered a reported sales growth of 4% and 7% in constant currencies. Streaming gross margin was unchanged, while our EBITDA margin improved 4.3 percentage points to EBITDA margin for the streaming segment of 17.9%. Operating leverage continued. So our growth in operating profit was 43% year-on-year. In our Publishing segment, we delivered, as Bodil said earlier, a strong growth, 14% year-on-year, SEK 39 million of the annual increase for the first 9 months, a total increase of NOK 39 million, of which Bokfabriken accounted for NOK 22 million. BoKfabriken has, since we acquired the unit, delivered very good results above our forecast. So we're very happy with that acquisition. It's a good example of how we can continue to grow our publishing business. The development was also driven by strong digital and physical sales, with a good performance of new titles. Publishing EBITDA increased by 25% to NOK 108 million for a margin of 33.4%, up 3 percentage points year-on-year. Looking at the cash flow generation, we transform or convert over 80% of our EBITDA to operating cash flow before changes in working capital. So, cash flow grew by 37% and was SEK 203 million in the quarter. On a trailing 12-month basis, it's at SEK 658 million, corresponding to 90% of our run rate EBITDA for the past 12 months  Working capital had a negative impact of SEK 45 million in the quarter. In our view, this is a normal variation, and we will see a release of working capital in the final quarter. A fair expectation for the full year would be to have a relatively neutral impact from working capital in 2025. During the quarter, we also repaid SEK 50 million of our debt. And that, together with the increase in working capital, explains the relatively softer total cash flow for the period compared with last year.  Looking at the balance sheet, it's strong, not much to say there. We have cash and equivalents of just over NOK 0.5 billion. That's roughly on par with our interest-bearing debt. Our equity-to-asset ratio continues to improve, and it's currently at 50%. Speaking of our net debt, it's tiny, it's NOK 23 million. We will go into net cash during the fourth quarter if we don't make any drastic investments. So we have a very good financial position. In addition to our strong operating profitability, we continue to see improved financing costs. So we will have a better financing situation going forward.  We also have a significant amount of deferred tax assets, which are currently off-balance sheet. These are primarily related to losses made in our now very profitable Swedish business. So we are quite certain that we will be able to utilize these deferred tax assets going forward, which will mean that we will have a fairly low paid tax rate, and that is also good for our cash flow generation going forward. With that, I'll hand it back to you, Bodil.  Bodil Torp: Thank you, Stefan. Super good. And thank you for highlighting our strong financials and our position. So we summarized this quarter, and we are satisfied with our operational performance and our solid subscriber growth. And it's also that our highly engaged book levels have led to an all-time low churn rate again. That's really good. So our substantial cash generation provides us with a very strong financial position. And we will continue to expand into new and existing markets in a prudent way. We have launched our services in Estonia during the quarter, while also forming a new partnership in Chile will support growth over time.  So this is to continue the path that we are doing. Our strategic focus is super clear for us. We continue to strengthen our leading position in the Nordics, and we will also accelerate our growth in our core non-Nordics markets. That's super important for us and expand into new adjacent markets. So this strong momentum, coupled with our high degree of financial flexibility, supported by an active M&A agenda, positions us now very well for the future. So we will continue to hopefully end with a really good year here. So now over to your questions.  Operator: [Operator Instructions] The next question comes from Derek Laliberte from ABG Sundal Collier.  Derek Laliberte: I was wondering, you delivered obviously a really strong margin here in Q3, driven by lower costs. It looks like mainly lower OpEx. What were the key components of that? And is this level, so to speak, sustainable into Q4?  Stefan Wård: Thank you, Derek. Stefan here. Yes. So, the primary reason on an annualized basis, we had some costs last year in Q3 that related to headcount reductions that are not apparent this year. Other than that, we just continue to work by improving our efficiencies. As Bodil mentioned earlier, during the first half, we've trimmed the OpEx base. So, part of it will be sustainable, and we definitely see a higher profitability level going forward, hence our raised full-year guidance. I hope that answers your question.  Derek Laliberte: Yes, very clear. And I was also wondering in the summer months here, a strong performance in terms of intake. Can you say something about what you've experienced in the Nordics here with regards to sort of how efficient your conversion of customers has been and what you've seen on the competition front as well?  Bodil Torp: Yes. I think we always, have always increased our efficiency in our MarTech function, and that is also what we are seeing from the figures, while our growth is increasing in the Nordics in a good way. So the competition is what it is. I mean, it's the same as it has been before. So I think we've done a good job during this quarter to also have the increase in the Nordics when it comes to the subscriber base. And that goes to the efficiency and the good function that we have for the Match, I would say. Also, monitoring and being agile in doing the right things in tactical marketing is also important.  Derek Laliberte: Looking at the non-Nordics core markets here, I think you said that Poland and the Netherlands continue to be strong, but is there anything else to highlight in terms of particular tail or headwinds that have had any meaningful impact in any of these countries?  Bodil Torp: I would say we have a strong momentum in Poland and the Netherlands, and that is what we're also telling in the report today. Of course, we are on a good path, and we're taking market shares there. So I won't say that we have any different headwinds than we see. It's more about gaining shares and increasing the momentum that we have in those markets. It's important for us to continue to grow there. And also, as Stefan mentioned in the call that this will, going forward, change a little bit regarding the balance where we see the growth and the customer base in the pay base, regarding Nordic and the growth non-Nordic course. So this is, of course, super important for us, and we have a good momentum there.  Derek Laliberte: I was also wondering, I mean, you've talked for quite some time about further differentiating your product from competitors' offerings. Where would you say you are on this journey? And what benefits are you experiencing from what you've achieved so far? And what should we expect in the future?  Bodil Torp: We increased our efforts to deliver the best streaming service to our customers, of course. So, we have also launched different features during this quarter that go into seamless reading and listening function, for example, and also the audio around Dolby.  So, we are on the right track to increase our deliveries to our customers to actually make it more to increase the customer experience in the app. And that is also important since I mean, we had the big launch of VoiceSwitcher, and then it was a time where we didn't really release any features.  But we are into that momentum now that we have actually launched some features, and we will continue to do that. So, we have good progress in product and tech, and also a new setup there with an organizational setup that is also more focused on delivering the product features to the market to increase our strength in the app, of course.  Derek Laliberte: Finally, you announced yesterday this Klarna partnership. Can you talk about the potential you see in this deal in terms of what it could mean for distribution and conversion?  Bodil Torp: I would say, I mean, we launched it yesterday. So, in the very beginning. But I mean, Klarna's network is reaching over 100 million consumers worldwide, and this goes into different tier models across 14 markets. So, of course, we are very hopeful that this will be a really good partnership for us.  I mean, also, when it comes to Klarna's customers, we know that they are really tech savvy, and they also want to have new services regarding streaming. So, there's a good collaboration, and it's a good fit with Klarna's customers. So, we will come back to this, but we are very happy and have a good forecast that we will have some good business values out of this partnership.  Derek Laliberte: And then I'd also like to ask, I think you mentioned before about adding, I mean, this additional expansion or additional markets. I'm not sure if it was 6 to 8 in total over the years. And we've clearly had your announcements on Estonia here and also the partnership in Chile.  What should we expect going forward here? And what type of approach will you take? I noticed with these 2 launches, so to speak, that you've, I mean, gone for a partnership model to quicker get an attractive catalog up and running in the service?  Stefan Wård: Well, I think you should expect that we continue to add markets to our footprint. We can both reignite existing markets where we've been active in the past and already have a catalog. We can go into new markets, completely new markets, as in Estonia, for example. We can go in organically, or we can go in through acquisitions, and we can also go in via partnerships. These are just 2 examples that we're executing on that strategy, but it's a fair assumption to continue that we will continue to do so. And that's the best answer I can give you there.  Operator: The next question comes from Joachim Gunell from DNB Carnegie.  Joachim Gunell: So, on this raised margin, ambitions for 2025 since we're only 1 quarter to go. And on a trailing 12-month basis, you're already delivering 18.4% adjusted EBITDA. So, how should we think more conceptually about this still fairly broad interval in light of that's only Q4 to go? And then essentially, what scenarios do you play with here in order to hit either the high end or the low end of that range?  Stefan Wård: Well, as you stated, Joachim, we're already delivering within our range. So, we felt that we needed to revise to lift our communication range and notch upwards, and that is what we have done. Other than that, I don't think you should read too much into it. We're confident that we will deliver on our targets for the full year and expect to finish the year in a good way.  Joachim Gunell: There's been a lot of industry chatter about both Spotify launching and also potential relaunch of Audible in the Nordics over the coming quarters. You discussed a bit about the steps you are taking to differentiate the service and then improve the listening and reading experience. But just remind us what you see as Storytel's deepest competitive modes, whether it's, of course, the local content, UI, UX, brand, price, et cetera? And how durable are they?  Stefan Wård: So, our deepest moat is our existing customer base that is not churning and very loyal, and has a very high activity of our content. So, the content that we build over a long time that it's core to our strategy, and it's a very good moat for us. Then hopefully, if new entrants come in, we hope that they will help evolve the entire cake. But we're used to intense competition, and this will be nothing new for us. We have our content-based strategy and think that is what has helped us win so far.  Bodil Torp: Yes. And we should also remind ourselves, this is really a local game. So it's also about having the right competencies and know-how regarding the local game in the different markets. Since we know that over 80% is consumed in a local language, it's super important to have relevant local content, and we are very good at that. So, there's a long history of knowledge in that area in the company.  Also, like Stefan said, it's also about our customer base, who are really engaged book lovers that have been with us for a long time, and the churn is all-time low. So, they're actually having a really good and high engagement and loyalty to Storytel. So, this is also a moat where we know that our customers want to have their bookshelf in our app. So that is the main moat, I would say.  Stefan Wård: We can also add that we are audible has been in the market in the past, as you mentioned, and we face competition from Spotify in, for example, the Netherlands, and we're still able to grow our subscriber base very strongly in that market.  Joachim Gunell: When it comes to providing, say, tools for creators to manage, promote, and grow their audiobook business, I mean, where is Storytel in relation to your ambition when it comes to, say, visualizing different types of data statistics on listeners and those kinds of things to your authors and publishers?  Bodil Torp: I would say we are in the moment where we are digging deep into this. So, we will actually come back on that because we also need to see how we will be better at delivering that kind of data and services to all the authors. So that is a project that is ongoing as we speak.  Joachim Gunell: Just a final one for me. How are your AI initiatives, like the AI generation and then voice switching tracking, versus expectations? I think there was some, of course, initial traction of this, but can you say anything about user engagement trends, suggesting if these are preferred new features? Or do your loyal book lovers prefer the classic experience?  Bodil Torp: There is a good user experience in voice switches. We know that there are a lot of users who actually want to switch the voice when they don't like the voice. So it's 9 out of 10, and there's a high engagement in using the voice switches. So we are actually increasing our voice switches to more titles and more languages as we speak to scale it in a bigger way than we have done. So it's attractive, and it's a really good feature in the app that is highly engaging, I would say. So it's in good traction.  Stefan Wård: And we have an intense AI agenda currently ongoing within the company, both from an efficiency but also from a product enhancement perspective.  Bodil Torp: That goes group-wide in the whole company. And that is an intense agenda, also regarding education.  Operator: The next question comes from Georg Attling from Pareto Securities.  Georg Attling: I have a couple of questions, if I may, just also starting on the margin guidance here for this year. Looking at the financial target in 2028 of about 20% margin, that looks quite conservative considering you're almost there in the higher end of this year's range. I'm just wondering if this is a reflection of you just staying conservative? Or are you seeing areas where you would like to accelerate cost growth?  Stefan Wård: Well, regarding the current year, I think the high end of our updated guidance is not conservative. It's a stretch to reach that. We're at 18.4% on an annualized level, and the update to the high end is 19.5%. So I think we have balanced guidance for the rest of the year that is not too conservative.  Regarding our midterm targets, we say that we're going to be above 20%. That could always be specified, but I think our progress just shows that that is a reasonable expectation to be above 20% in 2028. Then, exactly where we will end up, there will be plenty of time to be more specific about that.  Georg Attling: Also wondering about the Netherlands, you pointed out as one of the markets in the non-Nordic core that's the strongest, which is interesting considering Spotify's sentence there a year or so ago. So I'm just wondering if you can give us some more color on how the market has developed since Spotify entered, because it seems like, if anything, it's been positive for you.  Stefan Wård: Well, yes. So it looks to our best understanding that we do not exactly compete for the same customers in that market, and that they are actually helping to evolve the entire market, and that would be a very positive scenario for the audiobook format. That's our view. Then, the Netherlands is still in a relatively early phase compared to the Nordics. So there's still a lot of growth in the total market to be done. So when we do strategic marketing in the Netherlands, it pays off in a nice way. So we're able to grow our own subscriber base. I hope that helps.  Georg Attling: Yes. Then just a final question from me. There were some comments in some local media here a couple of months ago that you are in talks with Spotify about licensing your content to Spotify, then in the Nordics, if I understand it. Could you give some more color on where you stand with regard to this?  Bodil Torp: I mean, we don't comment on rumors. So we are open to discuss different business agreements when it's having good opportunities, and that goes into all the players in the market. That is all I can say.  Operator: [Operator Instructions] There are no more phone questions at this time. So I hand the conference back to the speakers for any written questions or closing comments.  Stefan Wård: We have a couple of written questions here. And the first one concerns AI, if we see a case where AI becomes a threat to our business model, and how we use AI to improve our business. Any comments there, Bodil?  Bodil Torp: I would say that we are actually using AI in a wide range of the company. Every team is now in both educational mode, but also we have been using AI for a very long time when it comes to, for example, product and tech, and also back in days with all the machine learning. So I would say that we are on the front line when it comes to the AI capabilities. And we are searching, of course, for efficiency increase and also getting the best out of it for our customers when it comes to customer value. So there's a big scope for this, and we're having a strong focus on AI in the company. What was the other question?  Stefan Wård: The other one was whether AI will become a threat to our business model, and that could be bundled into whether we think that AI can help large international competitors challenge us in our home market. I can give a short answer to that, that we do not see AI as a threat to our business model nor do we see it as an enabler for international competitors to threaten us in our home market since having a good offering is based on what content you can access, and that is regardless of whether the technique that we use to produce or distribute the content. But we are certain that we need to work a lot with new AI-based technologies to stay competitive with our offering.  Bodil Torp: Definitely.  Stefan Wård: Okay. And we have a final question, whether we have any plans to reintroduce our Storytel reader to enhance the customer experience of books.  Bodil Torp: Yes. We are looking into that, I can tell. So hopefully, we will have some happy customers in the future. So we are looking into it. We know there are a lot of customers who really want us to restart that product. Thank you.  Then there are no further questions. Stefan Wård: No.  Bodil Torp: So thank you, everyone, for joining us today in the call, and we are looking forward to our next quarter, and we are looking forward to meeting you soon again. And as you know, we are confident in achieving our updated 2025 guidance. So thank you, and have a good day.
Operator: Greetings, and welcome to the Avis Budget Group Third Quarter 2025 Earnings Call. [Operator Instructions] Reminder this conference is being recorded. I would now like to turn the conference over to your host, David Calabria, Treasurer and Senior Vice President, Corporate Finance. Please go ahead. David Calabria: Good morning, everyone, and thank you for joining us. On the call with me are Brian Choi, our Chief Executive Officer; and Daniel Cunha, our Chief Financial Officer. Before we begin, I would like to remind everyone that we will be discussing forward-looking information, including potential future financial performance, which is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from such forward-looking statements. These risks, uncertainties and other factors are identified in our earnings release or periodic filings with the SEC and on the Investor Relations section of our website. Accordingly, forward-looking statements should not be relied upon as predictions of actual results. Any or all of these statements may prove to be inaccurate and we make no guarantees about our future performance. We undertake no obligation to update or revise any forward-looking statements. On this call, we will also discuss certain non-GAAP financial measures. Please refer to our earnings press release, which is available on our website for definitions of these measures and reconciliations to the most comparable GAAP measures. With that, I'd like to turn the call over to Brian. Brian Choi: Thanks, David, and thank you to everyone joining us today for our third quarter earnings call. Last quarter, we took a different approach, less about line items, more about where this company is headed. The response was encouraging. Many of you appreciated the more strategic forward-looking discussion. We plan to keep building on that. That said, a few participants pointed out that we didn't actually talk about our quarterly earnings on our quarterly earnings call. Fair point. The good news is that we now have a seasoned CFO nearly 4 months in, who will walk you through some of the numbers and trends. But before Daniel gets into that, I want to highlight something that I'm proud of our revenue growth this quarter. We delivered $3.51 billion in revenue this quarter, up from $3.48 billion a year ago, a $39 million increase. Modest, yes, but meaningful. This is the first earnings call in 8 quarters where we get to say that our revenue was higher than last year's. The question you're all asking is, what's normalized EBITDA? Well, that's tough to answer until you have some stabilization on the top line and we haven't hand that post-pandemic. I believe that normalized EBITDA and more importantly, sustainable EBITDA growth cannot come from just cost-cutting alone, especially in this type of environment. You have to grow both volume and price by delivering a product that wins the customer's share of wallet. That's what makes you a relevant, viable company. Just to state the obvious, growth at any cost doesn't work for us. Cost discipline is a necessary condition. In our business, it's foundational to survival to be lean. But we can't afford to forego investments that drive productivity, elevate the customer journey, and differentiate us from the competition. It's a simple flywheel and not unique to Avis, be operationally excellent and stay disciplined on cost. That affords you the right to invest in improvements to both the customer and the employee experience, which eventually drives greater revenue and results in operating leverage if you remain disciplined on cost and on and on expense. This quarter marks the first time in quite a while that we've seen all of those elements working together at Avis. Will it be a straight line to the moon from here? No. It will be bumped along the way. But simply put, this is our game plan going forward, cost discipline to afford reinvesting in our product and people to earn revenue growth through a better customer experience. We will be consistent and disciplined in executing that model. And in the quarters ahead, I'll share more about how we're putting these words into action. But for now, I'd like to focus on that better customer experience portion and explain what that means for us today at Avis Budget Group. During my time at Avis, I've noticed that when we talk about customer experience, it often gets reduced to a handful of metrics, percentage of app bookings, number of counter bypasses or express exits and NPS scores, all important things but that's not customer experience. Customer experience is not a number. It's the overall perception a consumer has of a brand shaped by every interaction. When done exceptionally, it creates preference, loyalty and ultimately value creation. Here's the reality. Our industry hasn't done nearly enough on this front. We at Avis intend to change that. One of the core initiatives of this leadership team is a hard reset on customer experience. We try harder in our DNA. But during the survival years of COVID, we drifted from that bedrock principle. Now it's time to return to it with intent. And here's the message we're evangelizing. We are not just a rental car company. We are a service company, delivering a dependable product at the best value proposition. Let me break that down. First, we have to fully embrace that we're in the service business. We don't sell merchandise you can hold in your hand. Our product is a rental day and experience. And if our product is an experience, customers need to know what that experience will be. It has to be dependable. Think about McDonald's. Nobody would return if the drive-thru sometimes took 3 minutes and sometimes an hour. If the Big Mac came out differently each time or if you ordered a Big Mac and found chicken nuggets in the bag instead. And yet in our industry, that kind of inconsistency is commonplace. No cars available, long lines, wrong vehicle class, we've all been there. Our commitment is simple: deliver products consistent enough to build brands around. In an industry often seen as unreliable, service and dependability can be a differentiator. Customers don't just want the lowest price. They want the highest value. Great companies earn pricing power by delivering value worth paying for. That's where we intend to live. So that when corporate procurement teams choose a rental partner, they know Avis holds itself to higher vehicle standards than they require. Or when families plan annual vacations, they know budget won't waste their precious time waiting for a car. Delivering that peace of mind through a dependable product builds brand equity, trust and loyalty. All of that is within our control. It's repeatable if we impose discipline on ourselves and it's the path we've chosen. We will define and deliver a better product, exceed customer expectations and build brands that actually stand for something. The alternative path is to keep participating in the zero-sum game this industry has been playing for years, fighting over basis points of share and torching brand equity in the process. We have no interest in that. We are a service company and dependability delivered at the best value proposition is what we stand for. This is why we launched Avis First last quarter. It's that principle in action, and it's only the beginning. The same rigor around customer experience will cascade through every brand in our portfolio, Avis, Budget, Payless and beyond. The fact that we operate a family of global brands is a competitive advantage that we haven't fully leveraged. I said it on our last call but it's worth repeating. We can't keep relying on this old-school binary view of premium versus value. That framework doesn't reflect how consumers behave today. In rental car, premium brands focus on commercial accounts. Value brands chase leisure customers and the differentiation between those lanes is actually minimal. That's very different from how the airlines across their cabin classes and hotels across brands have approached segmentation. But it's not limited to the travel industry. Think about streaming, the Netflix and Spotifys of the world. They offer clearly defined segments, ad-supported, basic, standard, premium family plans. The more defined your product tiers, the better you can optimize value for both the customer and the business. We need to apply the same logic to our company. When we set out to operationalize this philosophy, we asked ourselves a simple question. What would our St. Regis look like? What would the ideal rental car experience be if you combine the agility of a digitally native company with the scale and expertise of an industry leader? The answer is Avis first. We're not tweaking at the margins with this product. We're making a statement. Avis First is the opening salvo in our broader transformation, proof to customers, employees and investors that we're serious about moving this business out of the commodity trap. It's been just 3 months since launch, and the results confirm we have real product market fit. Concierge coverage has expanded rapidly at our earliest airports in response to strong demand. We've tripled our footprint from a dozen locations at launch to 36 today. We continue to refine the technology stack to minimize delivery and collection times, proving to our airport partners that even during busy periods, curbside flow remains smooth. But here's what I'm most proud of. With Avis First, we don't have to rely on proxy metrics like NPS to gauge customer satisfaction. Every transaction comes with a direct customer rating, 0 to 5 stars. Launch to date, across thousands of rentals nationwide, Avis First renters are giving us an average of 4.9 stars. Did anyone think that was even possible in the rental car industry? Name another major consumer brand with ratings like that. It's rare. Our customers clearly see the value and are willing to pay for it. At an RPD of over $100, Avis First proves that when we deliver consistent excellence, we earn both customer satisfaction and meaningful margin expansion. It's a true win-win for the traveler and for our business. So let me level set expectations. Avis First RPD is higher but it hasn't scaled yet. Our overall Americas RPD still declined 3% this quarter, and I'm not okay with that. Given the pressures we're seeing from rising costs, everything from vehicles to wages to financing, we believe we can reach a structurally higher base RPD. We have a lot of work ahead of us to reshape how consumers perceive car rental but we now know it's possible. We simply need to be brave enough to hold ourselves to higher standards to reinvest in our people and technology and rental by rental, location by location, day by day, deliver a service that we can be proud of. Brand equity and customer experience don't show up in this year's EBITDA. They're investments, and we're making them because we believe that over time, those returns will flow to the bottom line. Jeff Bezos put it best when he wrote, take a long-term view and the interest of the customers and shareholders align. We couldn't agree more. We ask for your patience and support as we stay true to that principle. On our calls next year, I'll share more about the operational work underway and the resources we're deploying to deliver on this game plan. For now, though, I'll hand it over to Daniel, who will walk you through the highlights of this quarter's results. Daniel Cunha: Thanks, Brian, and good morning, everyone. Having now completed my first full quarter with Avis Budget Group, I'm excited to share my perspective on the company's performance and financial position. Over the past several months, I've seen firsthand the strength of our operating model, the resilience of our business and the dedication of our global team. Today, I'll cover our third quarter performance and provide updates on liquidity, capital allocation and outlook. My comments will focus on adjusted results, which are reconciled to GAAP in our press release and in the supplemental financial materials posted on our website. Overall, we're pleased with how the summer played out. As Brian mentioned, revenue grew 1% year-over-year, while consolidated adjusted EBITDA increased 11%. This adjusted EBITDA growth came despite a challenging RPD environment in the Americas and meaningful fleet recalls. Let's go through some of that in more detail. Consolidated pricing declined 1% but dynamics between our regions varied significantly. In the Americas, RPD decreased 3%, reflecting softer leisure pricing, consistent with the weak pricing we saw in the industry overall. Our mix continues to shift towards leisure, which carries higher ancillary attachment rates, a trend that partially offset the broad RPD decline. In International, RPD grew 5%, excluding exchange rate effects, driven by an intentional mix shift towards higher-margin leisure and inbound business. As Ryan mentioned last quarter, we were impacted by a large safety recall affecting vans and mini vans, vehicles that typically yield higher RPD. These units remained out of service through the quarter, reducing utilization and pressuring fleet costs. To meet peak summer demand, we retained some older vehicles we had planned to sell earlier. These carried higher depreciation expense and impacted per unit fleet cost. We had initially expected most recall-related repairs to be completed by the end of Q3. However, roughly 2/3 of those vehicles are still awaiting parts. We now expect the majority of this impact to linger through the fourth quarter and potentially into early 2026. We remain in active dialogue with our OEM partners to accelerate repairs and return these vehicles to service as quickly as possible. Speaking of OEMs, let me also provide an update on our model year 2026 buy. Our 2026 model year buy took longer to finalize than in previous years, largely due to uncertainty around tariffs. Our discussions with long-standing OEM partners were constructive. Both sides approach the table with a shared understanding this is a long game, not just about this year's purchase volume but about relationships we've built over decades through multiple economic cycles. I'm pleased to report that the vast majority of our anticipated purchases are now complete. We've achieved our goal of refreshing the fleet to deliver exceptional customer service while maintaining strict ROI discipline. Our negotiations remain outstanding, and on our next call, we'll be in a position to share more detail around our expected depreciation per unit for fiscal '26. Now let's move on to liquidity and capital allocation. As of September 30, we had available liquidity of nearly $1 billion and additional borrowing capacity of $1.9 billion in our ABS facilities. In July, we extended our $1.1 billion floating rate term loan debt, pushing the maturity out to 2032. Year-to-date, our adjusted free cash flow was negative $517 million, driven by more than $1 billion in voluntary fleet contributions. This $1 billion was funded by $500 million of our operating cash flow and $500 million of corporate debt raised in this first quarter with the intention to repay in the fourth quarter. Our long-term allocation priorities remain unchanged, which are to maintain a strong balance sheet, invest in fleet and technology modernization as well as return capital to our shareholders opportunistically. Looking ahead, we now expect our 2025 EBITDA to be toward the low end of our previously stated range. The shift in vehicle recall impact into the fourth quarter represents the single largest headwind relative to our prior outlook. We are also monitoring declines in the government business tied to the shutdown and softer commercial demand internationally. Even so, our teams remain focused on closing the year with the same discipline and execution that defined the third quarter. With that, I'll turn the call back to Brian for closing remarks. Brian Choi: Thanks, Daniel. Before we wrap up, I want to take a moment to speak directly to our people, the employees who make this company run every day everywhere around the world. The progress we've talked about today from stabilizing revenue to launching Avis First didn't happen in PowerPoint slides or in the boardroom. It happened at our rental counters in our service space and across our airports. It happened through the effort and pride of thousands of people who still believe that service matters. Over the last few years, this industry and our company have been through a lot. We had to fight for survival, and we did it by tightening our belts and pushing through uncertainty. But now we're doing more than surviving. We're building our brands back up. Every car prepared to standards, every customer greeted with respect, every rental turned around just a little faster. That's what drives our flywheel. That's how we can earn trust one customer at a time. It's the kind of excellence that can't be mandated. It has to be owned. So thank you for stepping up and owning that responsibility. Let's keep the momentum and let's keep holding ourselves and each other to the higher standard that's now defining Avis Budget Group. Okay. Operator, let's open it up for questions. Operator: [Operator Instructions] Our first question comes from the line of John Healy with Northcoast Research. John Healy: Brian, I was hoping we could talk just a little bit about the summer season. You kind of expressed some disappointment in the U.S. RPD but also in the prepared remarks, you guys seemed happy with how the summer went. So would just love to understand kind of where we're at in the kind of continuum of pricing? And what do you describe as kind of the main factor of why we saw RPD down this year, at least through the summer months? Brian Choi: John, so in terms of the RPD decline for the summer, so the 3% decline is an average for the quarter. But within the quarter, we saw a stronger performance in July and August, and then there was some softening in September. What we're seeing in the market is fairly typical seasonal behavior, higher RPD during the peak leisure demand like summer and lower RPD in shoulder periods post Labor Day. And you know as well as I do, that's normal market dynamics. But like you said, and I said on my prepared remarks, I'm not satisfied with it. Just given the inflationary pressures we're seeing, we believe that a structurally higher base RPD is justified. We're going to continue to push for that to meet our return on capital thresholds. One thing that's encouraging, though, is when you look at RPD over the past 4 quarters on a 2-year stack, you can see clear stabilization in the trend. And when we look forward to the fourth quarter, it's always harder to predict because demand is concentrated around Thanksgiving and Christmas. But that said, we're pleased with how the book of business is shaping up so far, even though it's still early. So Americas RPD down 3% in Q3. But from where we stand right now, we currently expect a modest improvement in Q4. John Healy: Got it. And then just for the finance team there, I was hoping we could get maybe just a little bit of a cliff notes way to think about kind of interest expense going into next year. Obviously, there's been some rate movements and probably some expected ones, and you guys have done some refinancings and stuff like that. I was just trying to think about how we might think about interest expense, both on the fleet and the corporate level for next year given all the movements. David Calabria: Sure, John. So from a vehicle interest standpoint, we have $3 billion of maturities, term maturities next year. Half of those were issued at lower interest rates. Half of them were at these higher interest rates. So you got to take a look at that as we're going through and as you're modeling out what size you think we are, that will have that impact. But we'll have to refinance half of it at higher rates and the other half at a little bit lower rates. On a corporate interest standpoint, I would say it's probably going to be pretty steady, right? We have some debt that we'd like to pay down at the end of this year. So if you remove that, it will be a little bit lower, and we'll go from there. But with the rates as they continue to drop, most of our debt is fixed. So you're going to have a little bit that's going to come down just based off the lower rates going forward. Operator: Our next question comes from the line of Chris Woronka with Deutsche Bank. Chris Woronka: I guess to start off, Brian or Daniel, I was hoping maybe you could at least bucket for us the recall impact, whether you want to talk about kind of Q3 or maybe full year '25 basis, just between things like RPD, volume, DOE, fleet costs because I think not everyone appreciates the fact that those are all intertwined when you have a bunch of elevated recalls. So if there's a way to kind of bucket that out in terms of overall impact, I think it would be super helpful. Daniel Cunha: Yes, Chris, thanks for the question. You can see we were able to navigate the summer a little better. And as you saw, we had a modest decline in utilization in spite of almost 5% of the Americas fleet being grounded. And we have seen a sizable impact just in cost alone, right, between depreciation, interest, shuttling, parking expenses. something closer to $60 million. In Q3, we anticipated another $40 million. We're probably going to be in the $90 million to $100 million range for the full year, right? In terms of expectations here for Q4, I think you should expect it to be a little bit more challenging for us to continue to post a high utilization for 2 reasons. One, there's a seasonal decline, typically demand go down in Q4 and with less demand, it's a little harder to optimize the fleet. And we still have a significant amount of vehicles that are waiting parts, right? So we typically have sold them by now. We're going to have to carry them for the bulk of Q4 potentially into Q1. Chris Woronka: Okay. That's very helpful. And then as a follow-up, Brian, I'm encouraged by kind of what you're saying about trying to, I guess, decommoditize this industry for your company specifically. I guess the question would be, do you expect do others need to follow your lead in terms of making their product differentiated? And do you think they will? And if they do, is that a good thing? Or do we ultimately end up back at Square One with a kind of recommoditized product? I'd love to hear your thoughts on that. Brian Choi: Yes. Listen, we think that we're going to focus on customer experience as a differentiating factor for Avis. We think the bar is fairly low, like I said, in the industry. If the rest of the industry comes and delivers a better product to the overall customer, I think that's better for the traveling consumer, and we're happy to compete on that environment. I think that the benefit you get from there is that in order to get a structurally higher RPD, you need to give the customer something a little more. And I think that we, as an industry, can hold ourselves to higher standards in terms of what's possible. So we're going to lead the charge. If others follow, we're welcome to see them do the same. Operator: Our next question comes from the line of Lizzie Dove with Goldman Sachs. Elizabeth Dove: Just to expand on Chris' question, bigger picture question here on RPD. It sounds like you do think that can be structurally higher for all the reasons that you pointed out. I guess, how long do you expect these investments to kind of take to play out? Or said differently, is the base case that RPD in the Americas can be up next year? What needs to happen from a competitive standpoint or an industry defleeting standpoint? And how do you balance that? And are you willing to kind of, I guess, give up some share at the expense of RPD? Just curious about the kind of overall algo, I suppose. Brian Choi: Yes. Lizzie, we're not going to get into guidance in terms of what RPD can be for next year. I'm going to stick to kind of what we said before that we think that RPD, just given the cost inflation that we're seeing across several major categories of our business should be going up. We are pushing for that. In terms of -- we don't manage to share over here. We manage to thresholds on return on invested capital, and that has a high pricing component to it. So we're very focused on making sure that we meet those thresholds. And the last thing that I'd point to is what I said earlier, I can't forecast for you and we're not prepared to give out guidance, like I said, for next year. But if you do look at what the 2-year stack has been doing with pricing, there is some stabilization there. So we're encouraged by that. Elizabeth Dove: Got it. That's helpful. And then I guess, like nearer term and in terms of what you have been seeing, could you maybe share how the competitive environment has been tracking? Has it been more aggressive, less aggressive than usual and how you've seen that kind of play out quarter-to-date? Brian Choi: Yes. I mean I think it's reflected in the trends we've been seeing this summer and actually all throughout the year. It's a competitive market. It always has been. I wouldn't characterize it as any more or less aggressive than in previous years. And that's why I think our focus has to be if we want to offer a differentiated product, our stand is going to be on customer experience. We're going to have to find a way to have the customer choose to come to Avis. And my hope is that by offering a better product, we can command a slightly higher price. We don't want to be subject to just always the overall market demands. We're a macroeconomic-driven business. Some of that you can avoid, but that which we can, we're going to try and put a line in the sand, offer a differentiated product and hopefully earn some pricing power for ourselves. Operator: Our next question comes from the line of Chris Stathoulopoulos with Susquehanna International Group. Christopher Stathoulopoulos: Brian, if we could dig a little bit more into demand here. I'm surprised on the September side with leisure or perhaps not though, that's usually when corporate shows up. So curious if actually did corporate show up or sort of "take the baton" from leisure there because it is a dynamic that we did see in airlines. But bigger question here, if you could want to dig into the travel segment pie here. Maybe speak to what you're seeing here with leisure and business for the fourth quarter, U.S. domestic, international inbound, cross-border, how you're thinking about the shutdown? And then next year, there are a few events here as I think about leisure and certainly my coverage here, potential catalyst, World Cup, America's 250 midterm elections. Your thoughts on how Avis is preparing or just sort of participation around that? Brian Choi: Okay. Sure, Chris. A lot to unpack here. So just jump in with a follow-up if I get one of those things. But let's start with a high-level just macro overview in terms of what we're seeing. So we're seeing a mixed environment. So demand has held up better than many expected but it's uneven across segments and geographies. So like you said, leisure remains healthy. Although it's -- that's causing peaks during the weekends. And I mentioned our government segment being affected by the shutdown. But even more than that, before that even on the commercial side of things, and I think this is something more unique to Avis is we have a large government adjacent business, like think of the defense segment. And that's been challenged all year long, and we've been seeing that in our business. From our perspective, I think the right way to navigate this environment isn't to forecast the macro. It's to stay disciplined and agile. So our cost base is lean. Our fleet planning is flexible, and we're focused on controlling what we can, which is service consistency, dependability and execution. I think those are levers that perform in any cycle and will perform in next year as well. We think that the World Cup, and we're planning for that site by site specifically. In certain areas, we think it's going to be a benefit in certain areas that are maybe more city-centric, maybe less so it would be like the Olympics. It kind of depends on the city. America 250, I think, is going to be a help. We're not exactly sure how to model that at this point but we are positioning ourselves to provide vehicles to our consumers for the great American road trips. So we think both of those will be net positive for 2026. Christopher Stathoulopoulos: Okay. And my follow-up here. So I appreciate all the commentary and the color around the customer experience. So we -- there are 2 airlines out here in the U.S. that have been working towards this more premium focus or customer-centric brand loyal focus here for 10 or so years. That's Delta and United, and I'm sure you're aware of that. It's certainly not an overnight event. I'm curious, at a high level, this is the second call that we've been talking about this. What does this plan look like sort of over the next 1, 3 and 5 years because this is going to take some time. And ultimately, of course, this has to translate into margin improvement, earnings, free cash flow, ROIC. What are some of the guardrails here? And maybe, Dan, you can speak to us at a high level. I know you're not giving guidance for the out year. But as we put all this together here, conceptually, ultimately, this has to be one about confidence and sustainability of EBITDA but at a high level here, anything we should think about with respect to equity earnings or ROIC? Brian Choi: Yes. Chris, I appreciate the question, and you're absolutely right. Investing in your brand, investing in your customer experience is not for the faint hearted, and it is a long game. Like you said, with Delta and United, it's been a 10-year journey. And -- but you can see clearly today how that's benefiting both the business and the consumer. So we take that as a framework to model after ourselves. And we're making a very deliberate shift from treating the customer experience as an abstract NPS number, which is a year-to-year thing to running it as an operating system for the company. Our Head of Americas always says you only manage what you measure, and we're doing just that and building customer service around 2 pillars, one being the customer journey and the other being customer care. So the customer journey, it comes down to 3 things. One is predictability. We're improving vehicle readiness and accuracy, and we now monitor fleet uptime and car ready status real time, day-to-day, hour by hour at our major locations. Number two is speed, and we want to be deploying technology that lets customers no matter how they book across channels to precheck before pickup for a smoother, faster experience. And the third is empowerment. That's giving our frontline teams tools to resolve issues on site in the moment instead of escalating them to the back office. So that's one side on the customer journey. On the customer care side, we're reengineering our contact center model with an AI lens. The goal is to resolve the most common post-rental issues. So billing, rental extensions, roadside assistance. We want to solve all of that faster and with less friction. And there's a lot of exciting things happening there. So I'll share progress on that in the quarters ahead. But like you said, this is going to require investments. The way that we're viewing this is that we need a baseline of EBITDA for the business. We've said this before in the past that it's going to be over $1 billion in a normalized annual environment. On top of that, so we want to maintain that base level of EBITDA. And that $1 billion isn't a target. It's a floor, which we intend to build from. And while maintaining that floor and growing that base, we want to continue to invest in the customer experience. So in our -- from our perspective, Chris, we have to do both. We're going to continue to deliver on a level of EBITDA that we think that the company is capable of and requires. And at the same time, we're going to look forward into the future and continue to invest in ourselves and providing a better experience for our customers. Operator: Our next question comes from the line of Ryan Brinkman with JPMorgan. Ryan Brinkman: I thought to ask first on fleet management, including utilization, it looks like it only fell 20 bps year-over-year in the Americas despite the massive increase in recall vehicles being held back as they await repair. So firstly, just how did you manage that better underlying result? And then secondly, what kind of utilization rate or progress in the fleet management front might we be talking about this quarter if it were not for the elevated level of industry recalls? Daniel Cunha: I'll take this one. And as you pointed out, the operations team did a fantastic job over the summer. I think one of the key levers here, repositioning the fleet, moving it where the demand was the highest to maximize utilization as much as we could was how the team got there. Brian can probably touch on a few technology investments the company has been made that has facilitated getting those results. As we pointed out, the fleet being 5% of the Americas fleet being out of service had about a 2.8 point utilization impact in Q3. So that was significant, and that was mostly offset by this great execution. Anything you want to add, Brian? Brian Choi: No, just like you said, maybe the one thing I'd add is we've been investing heavily in our field operating systems and the benefits are starting to show. It's new technology. We're excited about. We're very proud of what the teams are building but it's still in rollout mode. So we'll share more detail on that platform and results in a future call once the implementation is further along. Ryan Brinkman: Okay. That's helpful. I think I heard you say in response to an earlier question that the full year impact of the elevated level of recalls might be $90 million to EBITDA. Did I hear that right? And then my follow-up to that is, what line of sight, if any, might you have based on your conversations with your OEM partners or anything else you might be hearing as to when the level of the elevated level of recalls, it might settle down to something more normal for the industry overall or even specifically for the vehicles that are most impacting you right now? Daniel Cunha: Yes, you did hear that right. So we're estimating $90 million to $100 million of impact for the full year. This is just cost, right? There's no here on lost profits or anything else. So this is all very tangible. And as I mentioned, we still have over 2/3 of our vehicles awaiting parts. The parts are starting to come in. They are not coming in, in very large numbers. And then the repair itself is somewhat of a lengthy process, 2 to 4 hours per vehicle. So we are anticipating bleeding down the number of out-of-service vehicles through the quarter, but we're potentially going to have still some amount into Q1. So that's what we know right now. Operator: [Operator Instructions] Our next question comes from the line of Dan Levy with Barclays. Dan Levy: International is a segment that doesn't generally get a ton of airtime. I know it's the smaller of the 2 segments. But maybe you can just talk about the underlying trends in international because it has driven some of the upside versus Street expectations. I know it's gone through a bit of a transformation here. You've done some restructuring. Maybe you could just talk about the underlying trends in international, what the runway is on some of the increasing RPD, which we saw in the third quarter. Brian Choi: Dan, thanks for the question. So a few things are happening in International. First, I want to acknowledge that the leadership team there is really hitting its stride. So Anna, our President of International; and James, our Chief Commercial Officer in the International segment. They're about a year in, and the organizational and strategic changes they've implemented are really coming together. So we've taken a very deliberate approach to shifting our business mix internationally. This involves increasing exposure to higher RPD leisure demand and exiting some local market monthly business that didn't meet our return requirements. And you're seeing that reflected in the higher RPD and lower volume numbers that we're reporting, and that's by design. And so like you pointed out, this top line mix shift, combined with disciplined cost management, that's what's really driving the substantial EBITDA increase, which is up nearly 40% year-over-year. Are we going to expect that level of increase next year? No, I think we're not going to be catering at those levels. But the overall strategy and trend will remain where we're going to be more deliberate about the leisure business that we take and pruning those -- that business that doesn't really make sense for us. What I would say, Dan, as you rightly pointed out, no other rental car company has the global reach that we do. And historically, given the relative size and where HQ sits, ABG has been Americas focused but we're really changing that mindset today. So we're embracing the fact that we're a truly global company, and you'll see increased focus and investment in our international business going forward. Dan Levy: Great. My second question is on DPU trends and overall depreciation. And I know you'll give us an outlook early next year. But maybe you could just talk within the quarter, to what extent the recalls were weighing on the total DPU. And into next year, a, I know you said that you'll give us commentary on the cap costs, but if there are any early reads. But b, given you just did a big fleet refresh for the model year '25, shouldn't we view that as really the driving factor on your DPU next year and the broader residuals because you've already done the lion's share work and you'll have proportionately lower refresh next year? Brian Choi: So I'll start and then maybe, Daniel, you can chime in. So broadly speaking, I agree with your assessment, Dan. So if you take what's happened this year, so the impact of tariffs certainly provided some uplift to the used car market this year. And what we're seeing is pretty consistent with what the Manheim Value Index -- Used Vehicle Value Index is showing. So there was a bump during the April tax refund season and values have remained relatively stable since. But in the first half of October, we're seeing a bit of giveback, which follows normal seasonal trends. You know as well as I do that by the fourth quarter, when next year's models like really hit the market, it's typical to see a sequential decline in the used car market. The good news is, yes, we did plan for that. So like you said, we've already disposed of a substantial portion of our model year '23 and '24 vehicles throughout the year. We still do have some that we're going to sell in the fourth quarter and in the first quarter of next year. But our fleet mix is shifting towards the newer model year '25 cohort as planned. And like you said, we do think that, that should be the primary driver next year of where depreciation shakes out. So I can't really give you too much commentary around the model year '26 buy. We're still in negotiations with a few of our larger OEM partners. But generally speaking, we think that the model year '26 is going to look pretty similar to the model year '25. That's what we've seen in the deals that we've closed. So we do think that model -- next year, it will be more specifically model year '25, model year '26 driven, and we don't think that we need to rely on kind of the macro shifts we see in the overall industry. Daniel Cunha: Maybe the only color I would add that those macro changes in fleet mix were mostly like Brian shared. But to recall, because those vehicles tend to be larger because they tend to carry higher DPU in the $400 to $500 range per unit in 4% to 5% depending on what fleet you're looking at and what quarter was around that had close to $20 impact on our per unit in the quarter, and we expect it to continue in Q4. Operator: Thank you. Ladies and gentlemen, that concludes our question-and-answer session and we will conclude our call today. We thank you for your interest and participation. You may now disconnect your lines.
Operator: Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Wayfair Third Quarter 2025 Earnings Release Conference Call. [Operator Instructions] I would now like to turn the call over to Ryan Barney, Head of Investor Relations. Ryan, please go ahead. Ryan Barney: Good morning, and thank you for joining us. Today, we will review our third quarter 2025 results. With me are Niraj Shah, Co-Founder, Chief Executive Officer and Co-Chairman; Steve Conine, Co-Founder and Co-Chairman; Kate Gulliver, Chief Financial Officer and Chief Administrative Officer; and Fiona Tan, Chief Technology Officer. We will all be available for Q&A following today's prepared remarks. I would like to remind you that our call today will consist of forward-looking statements including, but not limited to, those regarding our future prospects, business strategies, industry trends, and our financial performance, including guidance for the fourth quarter of 2025. All forward-looking statements made on today's call are based on information available to us as of today's date. We cannot guarantee that any forward-looking statements will be accurate, although we believe that we have been reasonable in our expectations and assumptions. Our 10-K for 2024, our 10-Q for this quarter, and our subsequent SEC filings identify certain factors that could cause the company's actual results to differ materially from those projected in any forward-looking statements made today. Except as required by law, we undertake no obligation to publicly update or revise any of these statements, whether as a result of any new information, future events or otherwise. Also, please note that during this call, we will discuss certain non-GAAP financial measures as we review the company's performance, including adjusted EBITDA, adjusted EBITDA margin and free cash flow. These non-GAAP financial measures should not be considered replacements for and should be read together with GAAP results. Please refer to the Investor Relations section of our website to obtain a copy of our earnings release and investor presentation, which contain descriptions of our non-GAAP financial measures and reconciliations of non-GAAP measures to the nearest comparable GAAP measures. This call is being recorded, and the webcast will be available for replay on our IR website. I would now like to turn the call over to Niraj. Niraj Shah: Thanks, Ryan, and good morning, everyone. We're pleased to be here today to discuss our third quarter results with you. Q3 was a great success. Share gain further accelerated with revenue growing 9% year-over-year, excluding Germany. This came in tandem with more than 70% year-over-year growth in adjusted EBITDA. Our 6.7% adjusted EBITDA margin marks the highest level achieved in Wayfair's history outside of the pandemic period. As we've promised, substantial profitability flow-through is powered by a strong contribution margin and fixed cost discipline as our business has returned to growth. As we shared in Q2, we see the groundwork we've laid over multiple years directly driving share capture and profitability despite a category that remains stubbornly sluggish. Existing home sales continue to bounce along the same multi-decade lows we've seen since late 2022. Decreasing short-term interest rates certainly loosened financial conditions, but mortgages are a longer-duration product, and will require more relief in long-term rates before we start to see a broader unlock in mobility. In that context, it's important to note that our plan to grow is driven by Wayfair-specific factors and is not reliant upon a recovery in the housing market. In spite of the depressed housing environment, we've been encouraged to see that the category has moved past its multiyear trend of double-digit declines. Based on the data we have, the category started down low single digits and has been inching closer and closer to flat over the course of 2025, though it remains structurally underspent against the pre-pandemic baseline. This directional improvement is all the more encouraging given the uncertainty our industry has faced around the evolving tariff landscape this year. These changes have only served to reinforce the relative strength of our model, consistently delivering the best value and experience to our customers, while simultaneously enabling our suppliers to win share and grow their businesses. That strength should be very clear in the KPIs themselves. Revenue growth was driven by order momentum. We saw orders grow by over 5% year-over-year in the quarter, including new orders growing mid-single digits for 2 quarters in a row. Active customers saw sequential growth for the first time since 2023. AOV was up roughly 2% in Q3, driven almost entirely by mix shift as our higher-end brands and B2B outperformed the growth of the Wayfair business. Competition remains intense amongst our suppliers and provides a structural incentive to keep prices as low as possible to win share on our platform. To measure our momentum, we anchor on quarter-over-quarter trends as a barometer of success. Q3 this year was the best sequential growth we've seen in the third quarter since 2019, following strong trends from the second quarter. I'm sure many of you are wondering how much of this is intrinsic growth improvement versus something more transitory like pull forward due to tariffs. The only instances of pull forward we've identified came from a very short-lived increase in large appliances demand back in the early spring and a similarly short-lived increase in vanities late in the third quarter. Neither of these moves the aggregate in a meaningful fashion. We see our outperformance as structural share capture driven by our strong day-to-day execution against the core recipe, the early success of the new programs we've been able to launch and from the broad gains we have brought to bear from our technology team. Since the start of the year, we've highlighted the strong returns we're seeing from initiatives like Wayfair Rewards, Wayfair Verified and our growing fleet of retail stores. These successes all reflect the deeper engineering resources we've been able to dedicate now that our multiyear replatforming is largely complete. At the turn of the decade, we made the decision to modernize our technology stack, including migration from data centers to the cloud. The simplest way to think about this is that by replatforming our code base, we can now be much more agile and, as a result, meaningfully ramp up the pace of innovation and what we can offer our customers and suppliers. We completed the bulk of our replatforming earlier this year and the timing couldn't have been better as we are in the early innings of a new phase in how customers shop online. While AI has certainly become the buzzword of late, we've been on the forefront of machine learning for a long time, leveraging algorithms to drive everything from pricing decisions to marketing investments. Today, there is new ground being broken with the proliferation and sophistication of generative AI, and Wayfair is a leader in the application of AI in retail. To that end, I'm excited to have Fiona Tan, our Chief Technology Officer, here today to spend some time diving deeper into the ways we're bringing Generative AI to bear across all of Wayfair. Let me now turn it over to her. Fiona Tan: Thank you, Niraj, and good morning, everyone. I'm thrilled to join you today to share how our technology teams are shaping the next chapter of Wayfair's growth, powered by a long leadership in AI and machine learning and now by pragmatic advances in generative and agentic AI. Wayfair has always been a technology-focused, customer-obsessed company. Our promise to customers is to make it easy for them to create a home that's just right for them, and the rapid evolution of AI represents a considerable opportunity to deliver on that promise in new ways. Our long history of applying machine learning from the predictive models that power our core pricing and marketing engines to the algorithms that help us classify and organize our vast complex product catalog, means we're not starting from zero, but instead scaling from a position of strength, backed by operational discipline to measure impact rigorously. Our investments in AI are pragmatic and results-oriented centered on three key strategic outcomes. First and most importantly, we are reinventing the customer journey. We are moving beyond simple personalization to create truly intuitive and inspiring shopping experiences that guide customers from their initial idea to the perfect product for their home. Second, we power this best-in-class experience by supercharging our operations and our teams. We are embedding AI into our core processes to make them faster and more efficient and have provided generative AI tools to every employee. This allows us to deliver our customers with a level of excellence that is difficult to replicate. And third, we are powering our platform and ecosystem. We are building tools that make Wayfair the best possible partner for our suppliers and are ensuring our catalog is seamlessly integrated into the next generation of AI-driven commerce. Let me walk you through each of these. Starting with the customer, we are using generative AI to make the shopping journey more intuitive and personal than ever before. We think about this as an AI-powered growth flywheel to inspire, engage, learn and personalize. It all starts with inspiration. And we're using generative AI in multiple ways to help customers discover products they love. We developed Muse, our proprietary AI-powered inspiration and discovery engine, to create shoppable photorealistic room scenes to capture the attention of low intent customers and Spark discovery. Muse offers a visual browsing experience, entirely powered by generative AI. We then incorporate learnings from Muse into our new Discover tab in our app, offering an endless loop-based shopping experience that turns inspiration directly into action, delivering a measurable lift in conversion as well as visit duration for customers that engage with the tab. In parallel, we're using generative AI to understand what inspires our customers beyond just their searches and clicks. Our new interest-based carousels are driving incremental revenue uplift by matching product to every customer's lifestyle and aesthetic, with contextual signals like location and weather coming soon to enhance personalization. Once a customer is inspired, we engage them with a suite of AI-powered tools that builds confidence and removes friction from their journey. We've evolved our on-site search to be more intuitive using a sophisticated LLM to move beyond traditional keyword matching. This allows us to interpret what a customer is looking for with far greater nuance, connecting to the right products with greater precision. For shoppers who have picture, but not the words, our visual search allows them to simply upload or snap a photo and instantly find similar products from our catalog, turning real-world inspiration into a shoppable reality. When customers have specific questions, our AI-powered assistant provides instant reliable answers by drawing directly from product specifications and reviews. These interactions feed our ability to learn, and ultimately to personalize. This is where we combine AI scale with our unique home expertise. We had our own interior designers, annotate nuanced style pairings then used LLM to scale this understanding across our entire catalog. The results are compelling. Customers who see these designer quality personalized recommendations are 1/3 more likely to save, add to cart or order products, reflecting a much higher confidence in our selections. And we are just getting started. We are now preparing to test a new generative AI feature called, Complete the Look. What's unique here is our proprietary ability to generate a complete styled room scene where the products visualized are directly inspired by real shoppable items in our catalog. This allows customers to move from individual product ideas to a complete shoppable design plan more intuitively than ever before. None of this is possible without world-class execution. This brings me to our second pillar, supercharging our operations and our teams. A core part of our operational excellence is the quality of our product catalog itself. We are using generative AI at scale to improve the accuracy, consistency and completeness of our product information. This makes our catalog more reliable for customers and simplifies the management process for our suppliers. This catalog enrichment is already delivering an impactful lift in add to cart rates. At the same time, we are using AI to automatically detect and process duplicate items, which keeps the customer experience clean, and is projected to reduce the cost of this review process by 3 quarters. With a more reliable catalog as our foundation, we deliver superior customer service. We recognize that the unique nature of our category, which involves high consideration and complex orders, requires a sophisticated approach to service. For immediate 24/7 resolutions on common inquiries, we use fully autonomous conversational AI agents. For the more nuanced situations that benefit from human expertise, we've equipped our associates with a powerful real-time AI copilot, which combines several advanced capabilities. It uses our patent-pending intent-based routing to connect customers to the right expert on the first try, and it uses advanced reasoning models to recommend better, more proactive solutions when a standard replacement won't be enough. This holistic system is designed to live first contact resolution and post contact satisfaction, all while reducing our cost to serve and driving down waste. This focus on a reliable experience also extends to trust and safety. Our multimodal AI now uses computer vision to detect fraudulent imagery in real time, better protecting both our customers and our suppliers. Just as AI is evolving our operations, it's also up-leveling how we work. We are committed to ensuring that every Wayfarian can benefit from this AI transformation. Our engineers are integrating leading coding assistants to accelerate development cycles, while business teams, in marketing and merchandising use generative tools to automate repetitive tasks and focus on more strategic work. We have provided a generative AI license to every single employee, and we are fostering a culture of hands-on innovation that goes beyond just structured training. We're encouraging our entire team to find new ways to create value with these tools through programs like our Gen AI Innovation Challenge, where any employee, not just technical ones, can submit ideas that solve real business problems. In fact, many of these have already been implemented across the organization today. By using leader boards and other engagement models, we are making AI experimentation part of our everyday culture. This mindset where our teams are learning with the same urgency and curiosity we expect of the technology itself is fueling innovation that translates directly into better supplier tools and richer customer experiences. Finally, our third pillar is about powering our platform and ecosystem. We win when our partners win, and that means using AI to both improve their operations and to drive more qualified customers to their products. For our suppliers, we've developed an AI agent that automates service ticket classification and resolves a portion of inquiries without manual intervention, a truly agentic implementation that we expect to drive measurable savings over time. Simultaneously, we are using generative AI to put those suppliers' products in front of more customers. We've utilized LLMs to rapidly scale and optimize our SEO titles, leading to greater Wayfair presence in Google Search and a higher volume of free traffic. We've also used gen AI to create superior titles and ad copy for our Google Product Listing Ads, driving strong, consistent results and a powerful synergy between our organic and paid marketing performance. This leadership in search is now the foundation for our work in generative engine optimization to ensure our products are not just discoverable, but are selected and recommended by these new AI platforms. Looking ahead, we are actively shaping the future of agentic commerce with a clear dual-pronged strategy. First, we view this as a new additive channel for growth, so we will be where our customers are. This begins with ensuring a vast and specialized catalog is deeply integrated and accurately represented on leading AI and search platforms including Google, OpenAI and Perplexity. This provides the foundational third-party truth on our selection, pricing and delivery promises, but we are moving beyond just discovery to enable seamless transactions. Our plan is to make our catalog fully transactable on leading AI platforms, allowing customers to shop with confidence and ease wherever their journey begins. Simultaneously, we are building deep competitive moats to ensure our own site and apps remain a premier shopping destination. These moats are built on our unique advantages, a powerful inspiration and personalization road map, fueled by our proprietary data, our foundational strength in selection and fast delivery and unique programs like Wayfair Verified that build customer trust and confidence. That belief in our unique advantages underscores how we're thinking about differentiation in the AI era. In a world of AI-driven commerce, retailers with a large, well-detailed catalog of products, verified supply chains, transparent fulfillment and deep technology capabilities are advantaged. We believe that customer attention will flow to the most trustworthy API, not the loudest ad. The disciplined investments we've made in our core data and technology architecture position us to deploy these technologies safely and at scale. This turns our deep technical heritage into a sustained competitive advantage, and it gives us confidence that we're not only keeping pace with the AI revolution, we're helping lead it. Thank you. And now I'll hand it over to Kate to review our financials. Kate Gulliver: Thanks, Fiona, and good morning, everyone. Let's dive into our financial results for the third quarter before we move to guidance. Starting with the top line. Revenue grew by 8% year-over-year on a reported basis and 9% year-over-year excluding the impact of our exit from Germany. We saw healthy growth across both our segments with the U.S. business up 9% year-over-year, and international up by 5%. Let me continue to walk down the P&L. As I do, please note that the remaining financials include depreciation and amortization, but exclude equity-based compensation, related taxes and other adjustments. I will use the same basis when discussing our outlook as well. Gross margin for the third quarter came in at 30.1% of net revenue, while customer service and merchant fees were 3.7% and advertising was 10.6% of net revenue. As I discussed back in August, our focus is on improving contribution margin, that is gross margin less customer service and merchant fees and advertising, and balancing the trade-offs between these three-line items. The structural gross margin improvements we are achieving through initiatives like supplier advertising and logistics provides us with a wider envelope of dollars to reinvest back into the customer experience. We're doing this while driving savings in other lines of the P&L, such as advertising. We think about where the ROI of each dollar of spend is maximized on a multi-quarter basis as we map out the mix of investments in the customer experience and advertising that generates the most EBITDA dollars. The net of this was a contribution margin of 15.8%, up 150 basis points year-over-year and our best result since 2021. The bulk of this was driven by the considerable leverage we saw in advertising this quarter. We're continuing to see the dividends of investments made in prior quarters paying off as well as the compounded effects of efforts to improve the mix of free versus paid traffic. Last quarter, I mentioned the success we've had in driving adoption of our mobile app, and we saw that ramp even further in Q3. In fact, the revenue from our mobile app grew by double digits year-over-year and total installs grew by nearly 40%. Some of this reduction in ad spend is onetime in nature. We ran several holdout tests in the third quarter, which drove the outperformance versus guidance. These tests are important as they help us refine our perspective on incrementality spend and play a valuable role in refining the machine learning algorithms that drive our advertising operations. Selling operations, technology, general and administrative expenses totaled $360 million for the quarter. In total, we generated $208 million of adjusted EBITDA in Q3 for a 6.7% margin. This is a remarkable achievement, up by more than 70% year-over-year. We ended the quarter with $1.2 billion in cash, cash equivalents and short-term investments and $1.7 billion in total liquidity when including our undrawn revolver. Cash from operations was $155 million, offset by $62 million of capital expenditure. Free cash flow was $93 million, an improvement of more than $100 million compared to the third quarter of last year. The improvement in our profitability picture has demonstrably changed our capital structure profile. A year ago, our net leverage is more than 4x trailing 12-month adjusted EBITDA. Today, that sits at 2.8x, well over a full turn reduction. Having managed our 2025 and 2026 convertible maturities, we've begun to turn our attention to our 2027 and 2028 bonds, which have strike prices of $63 and $45, respectively. In August, we used roughly $200 million of cash to repurchase about $101 million of principal on our 2028 notes. Given the trading price of the stock, these bonds essentially trade as an equity substitute. So said differently, the $200 million of cash was effectively an offset to roughly 2.2 million shares of potential dilution and future interest expense through 2028, all while reducing the gross debt balance outstanding. We are operating with a dual mandate: reducing leverage while also managing dilution, and you'll see us continue to balance these goals opportunistically in the future. Let's now turn to guidance for the fourth quarter. Our quarter-to-date performance is skewed by the timing of our fall, the Way Day, which ran in early October last year and is running right now for 2025. Controlling for that timing, we're seeing strong performance over the first month of the quarter and we're excited about the holiday season ahead. Going forward, we're planning to move away from giving quarter-to-date results given how often it is contorted by comparability issues and will instead just anchor on the full quarter guide. For the fourth quarter, we would expect net revenue to be up in the mid-single digits year-over-year, which includes the roughly 100 basis point drag from the impact of closing Germany. Turning to gross margins. We will continue to anchor you to the 30% to 31% range, likely coming in at the low end of the range once more as a function of both our reinvestment as well as the typical seasonality we see in the holiday quarter. Customer service and merchant fees should be just below 4%, and advertising should be in an 11% to 12% range of net revenue. As I mentioned a moment ago, the outperformance we saw in Q3 was driven in part by the holdout test, which were onetime in nature. While we're certainly making strong progress on driving structural improvement in ad cost as a percentage of net revenue, we would expect Q4 to come in modestly higher than Q3 in the absence of these tests on top of our typically higher spend in the final months of the year. The net of all these moving pieces should get us to a place where we drive a contribution margin that is in line with where we were in the second quarter of this year and a considerable improvement on a year-over-year basis. SOT G&A is expected to stay in the $360 million to $370 million range, likely at the top end of the range given seasonality in the holiday quarter and some spend here tied to revenue like cloud computing costs. This continues to be the appropriate run rate to think about as we look to 2026. Following this all down, we anticipate adjusted EBITDA margins in the 5.5% to 6.5% range for the full quarter. Now let me touch on a few housekeeping items. We expect equity-based compensation and related taxes of roughly $80 million to $100 million. This includes approximately $20 million of impact from the CEO performance award approved by our Board in September. You should expect this to become a recurring part of stock-based compensation in the quarters ahead. The accounting treatment begins expensing the fair value of the grant today, but I want to be clear that there are no shares being issued right now nor will any be issued until the share price targets are met. Depreciation and amortization to be approximately $71 million to $77 million; net interest expense of approximately $30 million, weighted average shares outstanding of approximately $130 million; and CapEx in the $55 million to $65 million range. I want to now wrap up by taking a moment to turn the clock back to where we began 2025. In the shareholder letter, Niraj and Steve, published in February, they talked about our three core goals for the year: one, focus on tight execution to drive profitable growth through taking market share in what is likely a continued challenging market; two, continue improving the financial position and strength of the business; and lastly, invest in building the five long-term moats of the business. We're very proud of how much we've been able to achieve across each of these. As we turn our sights to 2026, we plan to invest judiciously to grow the business at a rapid pace while growing adjusted EBITDA faster than revenue. None of this would be possible without the work of an exceptional team. So I want to end today with an enormous thank you to everyone that worked so hard to make all of this possible across the entire Wayfair team. And with that, we hope everyone takes a moment to check out the exciting Way Day deals. Thank you. And now your Niraj, Steve, Fiona and I will take your questions. Operator: [Operator Instructions] Your first question comes from the line of Christopher Horvers with JPMorgan. Jolie Wasserman: This is Jolie Wasserman on for Chris. Our first question is more how you're thinking about the way the consumer is going to show up this holiday, since you did move Way Day back a few weeks, and from some -- away from some of these more major promos out there across retail like Prime Day. Does this mean you're anticipating spending is going to be more spread out this year? Or are you seeing more of an urgency to get out ahead of the potential 232 tariffs? Niraj Shah: Jolie, this is Niraj. Thanks for your question. Well, I mean, there's kind of a few different things wrapped up in there. What I would say it on the tariffs, we really have not seen any consumer behavior based on the tariffs. So as we mentioned earlier on the call, the minor, minor pull forwards we saw were -- lasted days in duration and were very small. So we don't really think there's any tariff-induced behavior. We actually think the holiday shopping is probably going to be similar to past years. And so what we did with Way Day is we actually went back to the timing that we actually had, not last year, but the 2 prior years. So it's the same timing of '22 and '23, which is late in October. And last year, in '24, we did move it earlier in October. And what we kind of came to the conclusion for is that we think that the period that we've always done it in, late October, is probably more optimal, and so that we just went back to that. So I would just -- you should just view it is, yes, we're running kind of a very similar seasonal cadence to what we traditionally do. Jolie Wasserman: That makes sense. And our second question is just more broadly, how you're thinking about 2026 abilities to lap accelerated share gains, whether price increases are expected to become a bigger driver and also just how you're thinking about getting some more of the gross margin, advertising margin expansions for 2026 more broadly? Niraj Shah: Yes, yes. Great. I mean, so for 2026, what I'd say is, we're definitely focused on driving further top and bottom line growth, and EBITDA growth will definitely outpace revenue growth. And I think the way we're going to do that, it's kind of what we've been talking about since the beginning of this year, which is that since late 2022 through now, we've taken share through continued investment and improvements in the core recipe which is price selection, speed and availability, but then what we've been able to do this year is augment that with the two other pillars of growth that we've historically had through the bulk of our 20-plus year history, which is that we always improve the recipe, which is that core consumer value proposition, but then we augmented that with the second pillar, which was really about new programs and innovation. So some examples of what's been added over the last year and is really scaling is, for example, what we're doing in physical retail stores, our loyalty program, Wayfair Rewards, what we're doing with our editorial program, Wayfair Verified. Those are three notable examples, but there's a long list. And then the third pillar, and the third pillar is that we have a technology organization of around 2,500 people. And these are software engineers, data scientists, applied science folks, product managers, designers. And these folks, generally, the bulk of their effort is focused on improving the customer and the supplier experience, which drives up conversion, drives up traffic, allow suppliers to do more for customers. It compounds through repeat gains. And what we did for the last 2, 3 years since 2022 is we spent a couple of years working on reshaping our organizational model so that we could be lean and focused and execute well, but we also spent about 3 years on a very large technology replatforming effort for almost all of our core systems. And as we've gotten substantially through that by the end of last year, we've then seen the technology cycles return to driving the business forward. So that's part of why we're able to launch all the new programs I mentioned in the second pillar, and it's also contributing a lot to the experience, which is the third pillar. So when you take those three pillars of growth, you see how they provide this compounding benefit. You can then see how we've been gaining momentum through this year, and you can see how it should go into next year, you'll see further top line growth, further bottom line growth, and you'll see EBITDA growth outpace revenue growth. Fiona Tan: Jolie, I want to touch on your question around how to think about the gross margin, and the ACNR for next year because I think that speaks to a really important point that we spoke about a little bit in the prepared remarks, which is thinking about that contribution margin. So the gross margin less the customer service and merchant fees, less the marketing expense gets us to that contribution margin. Obviously, it's been sort of 15%-ish plus over the last few quarters. And we increasingly think that's a thoughtful way to sort of look at the business, right? We want to make sure that, that contribution margin is in a very healthy place. And then the flow-through to EBITDA is really strong because that SOT G&A line below that is holding relatively constant. So as you think about that contribution margin staying healthy and that could be some interplay between gross margin and marketing spend and then the flow through being quite strong, that's how that EBITDA dollar growth is really outpacing that top line growth. And we're very focused on the EBITDA dollar growth continuing. Operator: Your next question comes from the line of Simeon Gutman with Morgan Stanley. Simeon Gutman: I want to first ask about sales, a little follow-up to the prior question. So your top line is running in a place where I think it aligns with the slide deck that you put out, I think, in 2022, mid- to high single digits, if not maybe close to that. Do you think the business is now at this inflection point where it continues to grow in that level? You said it was past some certain technology investments. I realize you can't control what the industry does, but it feels like you've gotten past a bunch of bumps or tough compares plus industry normalizing. So do you think we've gotten past this inflection point? Niraj Shah: Yes. So I'm not 100% sure what you're referring to. I think you might be referring to the Analyst Day that we had in the summer a little over 2 years ago, in the summer of '23 and August '23. There, I think we were talking about kind of the long-term potential of the business, and we provided a view as to how the revenue growth could be kind of meaningfully into the double digits. But when you think about our different lines of business and the initiatives we had and the potential and then getting past the technology replatforming, et cetera, and that we're still very bullish on how this compounding benefit will continue to accrue and when our momentum will climb. And then we also give a view on EBITDA growth and how that could grow over time and get meaningfully into the double digits as well. And you're seeing that play out as we go through time. And we think a lot of benefits are still ahead of us as we get the benefits of volume, as we continue to deploy technology, et cetera. So I would say we feel very good about the direction we're on from that meeting we had 2 years ago. Kate Gulliver: Yes. I think I'd maybe add to that. I think what you're seeing here is share gains, as Niraj spoke about, that are compounding frankly because of the initiatives that we started a year plus ago. So things like the replatforming being completed and tech advancements that Niraj spoke to our loyalty program, Wayfair Verified, over time, you'll physical retail. And so you're seeing that ongoing momentum. Obviously, there's a macro context that we're operating in, and we think the category itself right now is flat to slightly down, but that macro context could move things around on the top line. Simeon Gutman: Okay. And then a quick follow-up. Any predictions -- if paid search moves more towards agentic, how does that change the advertising line? Is this something you can think about? Is there visibility on this? Or it's just theoretical at this point? Niraj Shah: Well, I think we can both think about it and it is theoretical at this point. So I'll give you some thoughts, but it's very, very early, right? And so I think the way to think about it is so there's no question that the use of the chatbot is growing quite quickly. And you could see how search will then evolve, and whether it's the search interfaces become -- that exist today like a Google search becomes more agentic or whether it's that chatbots become a new way to search, there's different things, and they could all emerge into whatever that new version is. At the end of the day, the goal historically of search was to show the best answers to questions. And the goal of these agents is to help you find the best answers to your questions. And it's just a different way of doing it, trying to get you closer to answers that help you. Ultimately, if Wayfair is providing the best offerings and provides the best solutions for people, we're going to surface really well. Ultimately, whoever are the media owners of those properties, there's probably a high chance they're also going to monetize them through advertising, right? And so I tend to think that paid search may turn into a different form of paid services and organic search will turn into a new surface of how organic answers are provided. We've had a long history of being a great partner to all the media properties, whether you think about Google, or you're thinking about Meta, or you're thinking about Pinterest and the list goes on, codeveloping products with them, being an early tester of them, being very optimized for them in the early days. And so the work we're doing with the various AI chat LLM companies is no different, and we're working with a number of them very closely, and that's part of the benefit of having a 2,500-person technology organization and being very technology-oriented, and how we think about how we approach the business and being led by folks who are definitely closer described to being engineers than merchants. Operator: Your next question comes from Peter Keith with Piper Sandler. Peter Keith: Great results, guys. So clearly, there's some share gains happening with your business, but it does seem like the industry backdrop is getting better, which I think is surprising to some investors given a sluggish housing market and tariffs. So Niraj, I was wondering if you could just opine on the industry backdrop, if you think it's getting better and, if so, why and perhaps maybe there's some type of replacement cycle that's already starting up. Niraj Shah: Yes, sure. So I guess I think the way to think about it, I think, is that the industry backdrop is getting better and a different way to say that is, it is no longer getting worse at a fast rate, right? And so if you think about kind of multiple years of double-digit declines, that means that you've kind of come pretty far off of where you were. And if you take the trend back to pre-COVID, we're quite far off what the trend -- the long-term trend had been. Now what's happening now? Well, it's no longer declining at that type of rate, right? We think it's more like flattish. So one way to describe that is that it came off perhaps you would call high, it broke trend. And then it basically has kind of "bottomed out" or it's in a low -- a depressed low of some sort. And once you're at that depressed low, things like the replacement cycle, folks who move still for whatever reason, the degree that household formation is still happening, those things are still going to cause people purchasing items. So it's not like the lowest where you purchase 0 in the category. But then it is, there are cycles, and you're seeing that. Every quarter that goes by, the percent of mortgages below 4% ticks down because some amount of folks refinance to a new mortgage because there is a reason to move. There is a reason to sell their house. There is something that overwhelms the fact that perhaps at a low-cost mortgage and they're going to end up with a high cost margin. So it's happening, it's just happening slowly. And so I do think when you look forward, you're going to see that housing is at a low right now existing home sales. It will end up higher. You'll see that the purchasing in the category will end up higher. And we do think there's kind of a long-term trend that probably, most things revert to the mean over some period of time, and it will probably revert to the mean over some period of time. So I think that's where you can see that it will get better. It's just less clear that it's an acute upturn. And that's why we took some time this morning in the comments to try to clarify the strategy we have and the way in which we have the compounding gains and the compounding share gains and the compounding benefits to growth and even more to EBITDA is really around things we control. So some folks refer to that as self-help, but basically improving the recipe is something we can do, launching new programs, innovation, growing those is something we can do. Investing our technology efforts into improving the customer-supplier experience is something we can do. And so we think that is how we had only $12-ish billion in revenue out of $500 billion in the TAM, have a lot of room to take share and grow even while the category is more anemic. And as the category gets more energy into it, we would expect that to accrue to even more benefits to growth. Peter Keith: Okay. That's very helpful. I guess I had a follow-up question, too, from a topic that's been kind of ongoing during the quarter, which was that Amazon had stopped advertising through Google Shopping early in Q3. And I guess I'm wondering if you think this provided any benefit to sales or maybe ad leverage during the quarter? Niraj Shah: Yes. So Amazon, they for a certain period, cut their spending in a certain channel in half. Then they came back in, and then they took spending down entirely. Then they came back in certain countries. And so they've done various things, probably different versions of testing what it's worth to them and the like. Most advertisers that do hold out tests. We mentioned that we just did some recently of some large-scale. Just you want to make sure that your advertising is productive and incremental and paying off in the way that you would need it to want to continue. That does not -- what they did does not have a very big impact on us at all. And the reason is just that where they're advertising, when you think about the pockets that we specialize in, we're a very significant player already. So what happens is when you think about who surfaces on these paid services, and the auction, there's always multiple folks. And if you're already at a pretty high share. It doesn't really matter whether someone else comes in or out, they just get replaced by someone else. And it doesn't necessarily make sense for you to take more share because you're already purchasing the optimal amount of share that is worth to you. And the places where they may advertise where it's less relevant to you, you're not going to go advertise there anyways even if the price went very close to 0, because it doesn't benefit you. It's not something that you participate in, not a category you sell in or where your offering makes sense to advertise. So the net effect is, I'm sure, for some folks who maybe were just under them in share who -- Amazon's bidding price was such that, all of a sudden, the inventory opened up and they're the next person who could grab it, it would benefit them. But that's going to be very narrow and who it would help. And in our case, given our specialist nature and where we focus and the degree of share we have there, it didn't really have an impact on us. Kate Gulliver: Yes. Peter, to your question around the sort of what drove the ad spend leverage in the quarter, I would think about it as a few folds. First, we are seeing nice gains in free traffic. We've talked about that. I mentioned in the prepared remarks, increased downloads, frankly, of the app and app usage, which is an area that we've been driving for some time. And then there are some onetime benefits because of our own holdout test this quarter. And so when you think about the sort of efficiency beyond that general 11% to 12% range, some of that was certainly driven by the holdout testing that we do. We think that's quite important frankly to ensure the efficacy of our modeling. But I would think about that in general. Yes, and those are onetime in nature. Operator: Your next question comes from Maria Ripps with Canaccord. Maria Ripps: Congrats on the quarter. First, can you maybe give us a little bit more color on what drove sort of revenue acceleration in the later part of the quarter? Is there anything sort of worth highlighting in terms of performance by brand or consumer income levels? And can you quantify the impact have been of this pull forward to Q3? Kate Gulliver: Maybe I'll just start on sort of revenue and then, Niraj, you can jump in. So we don't typically disclose revenue by month or within the quarter. In general, revenue growth has been aided by all of these factors that we've been speaking to, which has been really the compounding share gains from initiatives that have been begun over a year ago, so Wayfair Verified, the loyalty program, the improvements to the site experience from the replatforming, and we're seeing that continue to build momentum. As it relates specifically to brands and income, we are seeing strength in the sort of higher-end brands. That's been for quite some time. So Perigold, which is our luxury brand, and then the specialty retail brands, those all operate at a higher average order value, higher price point, has seen some really nice strength, which I think is consistent with what others have seen from consumers that, that higher income consumer has held in a bit better. Niraj Shah: Yes. And what I would say, the strength we're seeing overall comes from the structural business initiatives we have, not pull forward. So -- and we're continuing to see good momentum on the structural business initiatives, and it's just -- and those are things we control. So I wouldn't think of a pull forward being -- playing a role into how the quarter played out. Maria Ripps: Got it. That's very helpful. And then just to follow-up on agentic shopping, and I appreciate all the color there. Can you maybe give us a little bit more color on how sort of agentic shopping for the furniture vertical could be different from shopping across maybe like other simpler items? And can you maybe give us a little bit more specifics in terms of how you're optimizing your platform and listings for organic chatbot search results? Niraj Shah: Yes. So great. Maybe, I'll let Fiona share some thoughts and then I'll add anything that maybe -- as well. Fiona, do you want to share any thoughts? Fiona Tan: Yes. So certainly, I think for agentic shopping, one of the things that is a little bit different for us in the home category is the fact that it is a more complex category. We've got high consideration items and very complex delivery promises. So one thing we want to make sure that we get right is the foundational first-party truth as to make sure that our catalog, pricing fulfillment is perfectly integrated, and that's the critical first step. And we're working on that actively with all the partners that I mentioned earlier, the AI platforms. And then we also make -- want to make sure that once customers are able to discover our products also that they're able to transact, so something that we are also working on with the partners. Niraj Shah: Yes. And I think, Maria, one thing we've always found is that -- and this goes back to even back to the search days when you think about platforms like Google, Pinterest and Meta, but certainly be true today. This is a category -- it's not a UPC code commodity-driven category where you can specify what you need. And then a lot of the purchasing is replenishment purchasing, where you continue to buy the same items over time, and you want them deliver to you perhaps or maybe pick them up. But either way, you kind of know exactly what you want. And so product discovery is something that is, I think, is unique in our category. And so customers do have a lot of zeal to understand what's available, what styles are developing, what's changing in trends. So I do think in the agentic world, there's a lot one can do with customers to help them, with whether it's product visualization, taking their room and showing them images of what it could be. And I think there's things that can happen on these AI chatbots in there. But I think there's a lot we can also do on our own platform with customers, particularly with all the data we have about them. And I think what you'll find is that there are certain things that may start more upper funnel and as they move lower funnel and maybe different experiences they need that are helpful as the product discovery, product education, nuanced decision-making all occurs. Operator: Your next question comes from the line of Brian Nagel with Oppenheimer. Brian Nagel: Congrats on a nice quarter. So the first question I want to ask, just with regard to -- it's a bit repetitive, but with regard to gross margin, in the commentary this quarter and then, I guess, just recently about the focus now on contribution margin. Is there a philosophical change happening as you're thinking about gross margin? Or are you seeing a lever within that line item now that you're increasingly likely to pull in order to drive a better outcome? Niraj Shah: Let me -- I'll just say one thing, and I'll turn it over to Kate to answer your question. I would say we're very focused on the long-term potential of the business, the long-term profitability of the business. And so if you think about long-term, how do we maximize EBITDA? There's multiple ways to maximize EBITDA. Margin rate is one feature. Revenue volume is another feature. And obviously, if you multiply these things by each other, you then end up with the EBITDA dollars, or we can talk about free cash flow dollars. Ultimately, we care about the owner's earnings dollars, which is really the thing we're trying to optimize, which is where we do think of the stock-based compensation is a real cost. And so the owner's earnings dollars, which is what we care about, we're going to optimize. And we're going to do that by both growing, by managing costs well, and there's an interplay between the two. Now to answer your question more precisely from a financial modeling standpoint, let me turn it over to Kate. Kate Gulliver: Yes. I think, Niraj articulated actually the philosophy and the philosophy that's been consistent for some time, right, which is ultimately what we're focused on is adjusted EBITDA dollars growth on this multi-quarter view. Perhaps what you're hearing from us is we're trying to do a better job of articulating how that happens and the components there. So if we go to contribution margin, again, that's the gross margin less the CS&M, less the ACNR. That contribution margin, we are also focused on optimizing contribution margin dollars on this multi-quarter view and how do we manage the levers that make up contribution margin to get to that point. As we think about those, the variable cost components that sort of drive that contribution margin, we are constantly testing what is the sort of optimum mix and what works best, again, with this multi-quarter dollars view, right? And so to the specific question on gross margin, for the last many quarters, the optimal place to be, has sort of been between the 30% and 31% range, closer to 30%, as you all have noticed. And that's been the right place again to optimize multi-quarter contribution margin dollars and then, obviously, multi-quarter adjusted EBITDA dollars because as we think about having that fixed cost piece of that SOT G&A controls, as we grow those contribution margin dollars, that flow-through to adjusted EBITDA dollars, you're seeing that these last several quarters is quite nice. So again, not a philosophical shift, but hopefully a better articulation of how we're managing it. Brian Nagel: No, that's really helpful. I appreciate all the color. My follow-up question, look, I appreciate all the discussion today on gen AI and how Wayfair is employing the technology, and nice to meet you over the phone, Fiona. So I guess the question, I don't want to go too short term on this, but clearly, Wayfair, there's an improving market share dynamic here we've seen. The question is, as you -- is Gen AI helping that? Or -- and I guess maybe another way to ask it, from an investment standpoint, what should we be watching for in Wayfair results to basically say, look, here's a company that truly is using gen AI to break away from the pack? Niraj Shah: Yes. So one thing I would say to that, Brian. So if you think about the potential of what you can do with gen AI, it's quite substantial, but like if you think about like a baseball game, last night went 18 innings, but say it normally goes 9 innings, you'd still say we're in like the first inning of what you can do. Now, I think what we're doing is meaningfully out ahead of most retailers, but what we're doing is still very early days compared to what we think the potential is. And so the bulk of the gains are definitely yet to come. And in terms of the market share dynamic, in terms of us gaining market share, meaning looking backwards over what's happened over this year so far over the last couple of years, gen AI would not have played a very big role in that. But what we're working on and deploying, we're very excited about, and we can see the trajectory of what it's doing. And so we think it will become meaningful over time, but this is just the latest in what's been an ongoing evolution of technologies. We've been using machine learning for a decade or longer, and there's a lot -- we've always done with technology, that's very helpful. And I think basically, it's hard not to be excited about the potential of gen AI. And I do think you will see some companies be much more adept at using it in a way that's differentiated and faster than others. And so I do think it is yet the latest in something that will separate some from others through technology and the use of. Operator: Your next question comes from the line of Steve Forbes with Guggenheim Securities. Steven Forbes: Niraj, maybe changing topics to the multichannel fulfillment offering, curious if you could just expand on the general receptivity from their supplier network. Any comments on how you expect the offering to mature? And just how fast we should sort of think through CastleGate utilization as that program ramps over the coming years here? Niraj Shah: Yes. Yes. Sure, Steve. So on multichannel fulfillment, so we talked about that last quarter. That's a great example. When I talk about the three pillars of growth, I talked about the recipe, the second is programs, and the third was technology. And a lot of the programs are enabled by technology. Multichannel is a great example of another program, right? And so that's something that required technology work for us to create it and launch it. Obviously, then it's something we execute on our physical operations in our facilities. It's something that adds a lot of value to our suppliers. It helps us with a larger forward position inventory pool for our business. It creates a new revenue stream and margin stream associated with infrastructure we already have. And it's just another way we can be a deeper partner to our suppliers. So it has had many compounding benefits the profitability being one of the benefits, meaning the direct profitability program being one of the benefits, but there's all the other things. And so suppliers have actually been pretty excited about it. It is optimized for what they care about, meaning that we focus -- we generally sell larger bulkier items. And so our program is optimized for larger bulkier items. Most of the fulfillment services suppliers can use that are out there are optimized for smaller, lighter packages, which is the bulk of packages that ship every day, but not in the home space. And so it's been a great offering for suppliers that they've been excited by. We're seeing them -- they start by trialing it out, and then they like it, they start ramping up and they start growing their usage over time. And so we feel good about how that's going to go. The fulfillment center infrastructure we have is quite large. And so it's just another way we can leverage it, and use it and get volume into it. In terms of CastleGate penetration, I think we -- Kate, did we give a stat about how it hit kind of an all-time high last quarter? Kate Gulliver: Yes. We said last quarter, there was roughly 25%. We give that stat from time to time. But I just -- sort of stepping back on that, you are seeing nice momentum there. And that's certainly, obviously, helping as we think about improving that customer offering and getting it tour as fast and as efficiently as possible. Niraj Shah: Yes. And just to be clear, that 25% number is the percent of our order volume that ships out of CastleGate facility, not the percent of our fulfillment centers that are utilized. I think I've seen sometimes confusion on that. So just to clarify. Steven Forbes: Maybe just a quick follow-up. You talked about the replatforming in the shareholder letter earlier this year. I don't know if you could just maybe speak to how you would sort of qualify the benefits of moving past that, how they're trending relative to expectations and if any sort of new opportunities have emerged as you sort of plan for the next couple of years here? Niraj Shah: Okay. So yes. So the way to think about it is so we're 23 years old. And what happens is as you build your technology infrastructure and, as I mentioned, we have a thousands of people, so you're building a large technology infrastructure. Your systems, over time, there's a lot of benefit in replatforming them because what can happen -- what will happen with our core systems is that they basically got very intertangled over time. And they weren't built very discretely because when you're smaller, building them discretely just would be much more expensive than undertaking, and you don't get a lot of benefit. But as you get bigger, the way you could scale is you want them to be discrete and just interface with each other through APIs and other interfaces or published streams of data so that when a team is working on something, they don't need to then go into every other system. They can engage with those systems through published interfaces or easy, simple, clean interfaces. And so what happens as you go through that replatforming is, obviously, it's a very intensive activity and quite expensive from an investment standpoint because you're spending your technology cycles for a long period of time on doing that work. But what you get out of it is then your developer velocity, your speed of developing new things is dramatically faster. Your ability to preclude kind of errors or issues in the platforms is much higher so the quality goes up, and you can actually also reduce costs. So it's undertaking that we've been very -- sort of it was a necessary thing to do. But now that we're quite far along in it, we're seeing the benefits in terms of our velocity, the things we can launch, the speed at which we can launch them, the ways in which we can use third-party products as well as what we do first party. And so it's been pretty exciting, and we're just -- I'd say there's a lot of gains to come. But I highlight it because when we talk about the second pillar of new programs or when we just talk about the core supplier and customer experience, those are both highly reliant on technology and the use of technology. And so it's a very market difference that we're now back in a position where we have the technology cycles to invest in this way, versus where we were committing those cycles to the replatforming. So it's just we're in a very different place, and we're seeing the benefits. Operator: That concludes our question-and-answer session. I will now turn the call back over to the Wayfair team for closing remarks. Niraj Shah: Thanks, everybody, for joining the call this quarter. We're obviously excited with the momentum we're building in the business. Thanks for your interest in Wayfair, and we look forward to talking to you next quarter. Kate Gulliver: Thank you. Operator: Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now disconnect.
Jann-Boje Meinecke: Good morning, and welcome to our Q3 results presentation. My name is Jann-Boje, and I'm heading Investor Relations at Vend. And as usual, our CEO, Christian; and our CFO, PC, are here also with me to present the performance and highlights for the quarter. Following the presentation, we will also have a Q&A session by Microsoft Teams where analysts can connect. Let me then show you the disclaimer slide before I hand over to Christian. Christian, please go ahead. Christian Halvorsen: Thank you, Jann-Boje, and good morning, everyone. Very happy to be here to present our Q3 results. This was a quarter that really showed our progress towards becoming a pure-play marketplace company. We advanced monetization across our verticals. We executed with discipline when it came to cost, and we also took further steps to simplify our company. And financially, group revenues ended at NOK 1,595 million, and this represents a 1% year-on-year decline. Underneath the surface, however, the revenue development was positive for our verticals, driven by a solid ARPA growth. So this overall decline is then a result of several factors, reduction in the other HQ segment, the strategic decision to discontinue certain revenue streams in Recommerce and Jobs as well as a continued soft advertising area. Group EBITDA increased by 24% to NOK 640 million, and this was driven by reduced operating expenses across the group. And this is a reflection of lower personnel costs, also somewhat reduced marketing and lower costs related to the phaseout of TSA agreements with Schibsted Media. As I mentioned, we also continue to simplify the company. This is really to sharpen our execution. And during the quarter, we signed an agreement to sell Lendo, and we also started the sales process for delivery, together with also continued focus on exiting our venture portfolio. In parallel with all this, we are finalizing the removal of the dual share class. And also consistent with the capital allocation policy, the Board yesterday approved a new share buyback program that will start later this quarter. And here at the beginning, I also want to say that I'm very happy that we have appointed Yale Varty as our new Chief Commercial Officer for Vend. To me, this is an important step in strengthening our commercial leadership for the future for this company. So let's then move to the verticals, and let's begin with Mobility. And today, I'd like to -- before we go into the actual results, to spend a little bit time on the latest developments when it comes to dealer product packages and pricing. And one year ago, we announced new dealer packages in Norway, and these went live at the beginning of the year. And I would say that they have been a great success. Right now, around 70% of the volume from dealers is on the Pluss or Premium tiers of these packages. And that is also the reason why we are reporting now a 20% ARPA uplift in Q3. So to me, this model is really a proof that a more structured and a more transparent approach to the market creates value both for dealers and for us. It creates a better customer satisfaction and it improves performance at the same time. So we are now taking the next step. That means scaling this to Sweden, and we will launch dealer packages there in February of next year. And these packages will be very similar to the ones we had in Norway. And that means that they will also include features that really strengthen the value that we deliver to car dealers. And that, for example, includes things like integrated car valuation, buyer safety elements and also better dealer branding. Then there will be additional things that will come throughout the year. For example, Insight products will come later. And I also want to mention that with the Blocket launch on our Aurora platform that will happen a little bit later this quarter, dealers will also benefit from things like improved search, better filtering and also integration and traffic to their digital stores. So I would say, overall, this really marks another step in our path to harmonizing our offering across the Nordics. Now in addition to these changes that we're doing in Sweden, we're also harmonizing and changing the business model in Denmark, where we are moving to a pay per ad model. And we will obviously also continue to optimize the dealer packages that we have in Norway. So then let's move to the quarterly results. And here, we can see that the average revenue per ad or ARPA, which is our most important KPI, continues to grow well across all markets and all segments. And as we also saw in Q2, Sweden really leads the uplift here, and this is driven by both strong professional ARPA, and I would say, exceptional ARPA development in the private segment, and this is driven by upsell by value-based pricing and also new packages. Then in Norway, we also see a solid ARPA growth, and this is driven then by the package launches that I just mentioned that we came in the market with at the beginning of the year. And for Denmark, professional ARPA developed in line with the adjustments that we did at the year-end and also additional changes that we made in August of this year. Here, private ARPA was boosted by the introduction of listing fees for cars below DKK 50,000. However, these changes were reverted in mid-September to reboost listing volumes and to strengthen network effects by having more inventory. So if we then look at volumes. And here, we already announced the July and August numbers in our pre-silent newsletter that came on September 18. So most of this should already be known to you. But in Norway, we show a volume decline in Q3. This is mainly a result of a drop in subcategories. That means things like boat, caravans, motorcycles and so on. In these categories, we see a macroeconomic effect in this quarter. Cars, however, remained flat and even saw growth in the private area. For Sweden, Pro volume dropped, and this is due to the change in business model that we have mentioned before in sub-verticals in categories like heavy machinery. Cars remained flat in Sweden and private volume declined across categories. And in Denmark, I would say the overall market continues to perform very well. That means fast sell times. And unfortunately, for us, that means a decline in average daily listings for our Pro segment. And the drop that we see here in the private segment, that is something that we did expect. We have said it before, and this was driven by the introduction of the listing fees that I mentioned before. These are -- as I said, they have now been reverted and we see since the reversal growth week after week in this area. Moving then to the financials. And revenues in Mobility increased 8% overall in Q3. We had a couple of effects that had a negative effect, and that was the closing of Tori [ Autot ] with approximately NOK 8 million and the split from media with an additional NOK 5 million. If you take these factors into account, the underlying growth was 12%. On the back of the ARPA growth, classifieds revenues grew by 13%, while the transactional revenues grew by 18%. Advertising, however, was down 14% year-on-year. Then OpEx, excluding COGS, remained flat in Q3, and this is despite the continuous investments that we are making both in the transactional service as well as in core product and platform. And all in all, EBITDA increased by 16% compared to Q3 of last year, and this results in a margin of 57%. And if we were to exclude the transactional models, the margin was 64%, and this is up from 62% last year. Moving then to Real Estate. And let me also take a moment here to address some of the recent updates and announcement that we have made to product packages and pricing in Norway. I think these changes are quite important because they are strategic steps that we are making in aligning, let's say, the value that we deliver with the price that we charge to the market. And going into 2026, we are enhancing our large package. The purpose is to offer even greater value to the agents, but also to home sellers and to buyers. And one of the most important improvements is better agent promotion. This is something that we have designed to improve visibility and to really drive new sales mandates to agents on the large package. And just to give you an example of this, the launch of our home valuation tool that we call [indiscernible]. This is a feature that is exclusive to large agents. And it's a feature that, on one hand, helps home sellers get the valuation of their home. But on the other hand, also is a source for quality leads for agents. And it's only 2 months since we launched this service. And in that period, 40,000 homes have assessed their value using this tool, and we receive a lot of positive feedback from this tool. Now we're also narrowing the price gap between large and medium package from approximately 40% on average to now around 22% on average. And this is to more correctly reflect, let's say, the performance difference between the 2 package tiers. So overall, I would say that by offering more structure and by strengthening the platform tools, we really see that we benefit both agents, but also home buyers and sellers. And we see this as continued positive traction in the market where traffic continue to trend in a positive direction for real estate in Norway. Let's then move to the ARPA KPIs. And in Norway, Real Estate ARPA grew by 17%. The main driver here was residential for sale, where the ARPA growth was 18% year-on-year, and this is very much in line with what we have communicated previously. In Finland, we saw 19% year-over-year ARPA increase, and this is stronger than what we saw in the first half, driven partly by price increases, but also by changes in the product mix between for sale and for rent. We've also done better when it comes to upsell. Looking at the volume. And here in Norway, we had an exceptionally strong first half year. And now in Q3, we saw a decline of 3% as we've expected. We pointed out this in our Q2 presentation that we expected a volume decline in the second half of the year because of the very strong start and when we see at the -- let's say, the historical full year trends. In Finland, residential for sale volumes declined by 8% year-on-year and total volumes declined by 10%. And this also reflects the ongoing transition of rental listings from the, let's say, traditional classifieds model to the transactional business model that we have with Qasa. So for Real Estate, classifieds revenues grew by 9% year-over-year. And this was, of course, then driven by the aforementioned ARPA growth in residential for sale in Norway. But our transactional models, Qasa and HomeQ, they have also developed very well in Sweden. I can also add that our launch in Norway is also showing very promising signs. And overall, this segment of the transactional business models, here, we saw revenue growth of 29% in the third quarter. OpEx, excluding COGS, increased 5% year-on-year in this quarter, and this was driven by the marketing efforts that we're doing in Finland. And overall, this results then in an EBITDA margin of 48% for the quarter. And again, here, if we adjust for the transactional business and only look at the more traditional classifieds business, the margin was around 53%. Then to Jobs. And here, we continue to deliver exceptional ARPA growth of 17%. This is driven by our segmented price model, also changes that we have made to discounts as well as improved performance in our distribution products. Volumes, however, continue to decline. This reflects the macroeconomic environment in Norway. And if we look at, let's say, the year-to-date trends and compare it with the numbers from statistics Norway, we see that they mirror each other and that this confirms that we are tracking with, let's say, the overall national averages on volume development. So Jobs delivered then 1% underlying revenue growth in Norway. Classifieds grew by 2%, driven by the ARPA growth, but of course, then counteracted by the volume decline that was around 13%. For Jobs, OpEx, excluding COGS, decreased by 25%, and this was primarily driven by the exits in Sweden and Finland as well as some reductions in FTEs in Norway. And EBITDA grew 11% year-on-year, and this resulted in an EBITDA margin for Jobs of 55%. And finally, Recommerce. Here, transacted gross merchandise value or GMV continued to grow across all our markets, while our take rates remained solid. And this underpins our belief in the strong demand and the scalability of the Recommerce transactional model. Overall, Recommerce revenues declined 2%. This is driven by softness in advertising as well as the phaseout of low-margin and noncore revenue streams, while we still have a strong transactional growth with a revenue increase of 20% year-on-year. And transactional gross margin improved significantly in the quarter, and this was driven by lower cost of goods sold. OpEx, excluding COGS, decreased 2% year-on-year, and this was driven by FTE reductions from the platform consolidation, among other things. And these cost reductions were slightly counteracted by increased marketing efforts in this quarter. So overall, EBITDA improved to NOK 44 million and -- minus NOK 44 million, and this was a 6 percentage points margin improvement for Recommerce. And with that, I'll hand it over to PC to go a little bit deeper into our financials. Thank you. Per Morland: Thank you, Christian, and good morning, everyone. Let me take you through the highlights of the financials for Q3. In total, revenues ended 1% below Q3 last year, primarily driven by the decline in other HQ, offset by continued improvement and underlying growth in Mobility, Real Estate and Jobs. Total EBITDA ended at NOK 640 million, up 24% from last year, driven by positive developments across all our verticals, but also other HQ. Christian has already covered the development in the verticals, but let me give you some color on the other HQ segment. The year-on-year decrease in other HQ was, as earlier quarters, mainly affected by a change in our allocation model and the revenue decline following the split from Schibsted Media. Revenues from Schibsted Media are declining a bit faster than expected due to earlier termination of certain TSA services. Other HQ had an EBITDA of minus NOK 8 million in the quarter compared to minus NOK 31 million in Q3 last year. So far, we've been able to reduce our cost faster than the reduction in the TSA revenues. Now let's move over to cost development in the quarter. This slide shows the development of OpEx, excluding COGS. The overall cost development and workforce reductions are progressing well. Earlier termination of certain TSA revenues, as I mentioned, has enabled an additional NOK 25 million in reduction in external costs. In total, OpEx, excluding COGS, declined by 14% in the quarter. Personnel costs were down 13% year-on-year, driven by significant FTE reduction, mainly from the downsizing process that we executed last year, but also from the process of exiting the Jobs business in Sweden and in Finland as well as ongoing FTE management throughout the year. Our total workforce continued to trend slightly downwards. And at the end of Q3, we are a little bit below 1,700 FTEs in the company. Total marketing costs were down 7% year-on-year, driven by the job exits in Sweden and in Finland, partly offset by higher marketing costs in Real Estate and in Recommerce. Other costs decreased 18%, driven by general cost reduction across, but also a positive effect from the termination of the TSA revenues -- or TSA services with Schibsted Media. So overall, this resulted in a 7 percentage point improvement in OpEx, excluding COGS over revenue from 58% in Q3 last year to 51% in Q3 this year. Let me move to the income statement. Our operating profit for the quarter increased to NOK 440 million, up from NOK 263 million last year. This is mainly due to the improved EBITDA, but also somewhat lower depreciation and amortization costs and also lower net other expenses. The fair value of our 14% ownership stake in Adevinta has decreased from NOK 20 billion in Q2 to NOK 18.9 billion now at the end of Q3. The decrease is due to a multiple contraction in the industry, partly offset by improved performance for Adevinta. And then based on the updated valuation, a loss of NOK 1.1 billion was recognized as a financial expense in Q3. Our valuation methodology is kept unchanged. In totality, net loss for the group ended at around NOK 650 million minus. Let's move to cash flow. Cash flow from operating activities for the continuing operations ended at NOK 442 million, driven by the strong EBITDA. Cash outflow from investment activities in Q3 ended at minus NOK 21 million, and this includes a CapEx of NOK 108 million, offset by proceeds from sales processes within the venture portfolio and also some additional proceeds from the Prisjakt transaction. And then finally, cash flow from financing activities ended at minus NOK 18 million, mainly due to lease payments in the quarter. On the financial position, net debt amounted to NOK 25 million at the end of Q3. There were no refinancing activities in the quarter. Due to the still strong cash balance, Vend has deposited a total of NOK 1.6 billion in short-term liquidity funds to achieve a slightly higher return than bank deposits. The Scope Ratings of BBB+ with a positive stable outlook confirms Vend as a solid investment-grade company. Then let me end my presentation with a reminder of the financial framework and some comments on the outlook. I want to again reiterate our strategy, our medium-term targets and also the capital allocation principles that we laid out at the Capital Markets Day in November last year. Our strategy execution is going well, and we are on track to deliver on our medium-term targets. Regarding portfolio simplification, we are on track, and we have, during the first 9 months of 2025, made multiple divestments. In addition to selling Prisjakt and Lendo, we have also divested several of our venture portfolio investments. The exit processes for our skilled trade marketplaces is progressing as planned. And also during the quarter, we have initiated a process to sell delivery. The collapse of the AMB share structure is currently ongoing and will be completed during November, well ahead of the end of year deadline. And once the share collapse is completed, we will, as announced last night, launch another NOK 2 billion share buyback program. A couple of messages related to outlook before we move to the Q&A. As we enter the final quarter of 2025, we expect continued solid ARPA momentum across all our verticals. Volume trends, though, remain difficult to predict. Our simplification agenda will continue to affect the results also in Q4, reflecting the final effects of the phaseout and the deconsolidation of revenue streams in Recommerce, but also the exit of our Jobs position in Finland and in Sweden. And following the separation from Schibsted Media, advertising revenue continued to be under pressure at least compared to the last year. Our cost agenda remains firmly on track. The cost base is expected to stay below last year's level, although we expect the rate of the decline to moderate a bit in Q4, as we start to analyze some of the big savings that we did last year. Looking beyond 2025, we have already launched and are in the midst of launching go-to-market activities in all our verticals aligned with our product and pricing strategy. These actions are expected to drive revenue growth across our verticals in line with our medium-term targets. Structural initiatives, including common platform consolidation, divestments and support function realignment will continue to deliver efficiencies over time. Revenues in other HQ will continue to be under significant pressure also going into 2026. And then this is driven by completing the TSA with Schibsted Media by the end of 2025, combined with effects from progressing on the other exit processes that I mentioned. Based on the current knowledge that we have, we expect a temporary EBITDA headwind of up to NOK 100 million in 2026 compared to 2025. And we expect to be able to mitigate this fully in 2027. Overall, we remain confident in our ability to deliver on the medium-term targets. And with that, I hand over to you, Jann-Boje, and go into the Q&A. Jann-Boje Meinecke: Thank you, PC. So looking at Microsoft Teams, a lot of questions already. I think first in line is Will from BNP Paribas. William Packer: Three for me, please. So as I'm sure you're aware, GenAI has become a more prominent investor concern for the classifieds in recent months, which has dragged some share prices, a whole host of concerns, be it weakening network effects as traffic leaks to GenAI search or disruption by Agentic AI. I wanted to hone in on a couple of specific areas. So firstly, do you think you can sufficiently invest in your tech stack and consumer offering in the context of these rapidly emerging developments within the envelope of the cost cutting and margin expansion as you outlined in your CMD? I think consensus has 1,000 basis points of margin expansion to 2027. Can you sufficiently invest in offerings such as prompt-based search or hiring new staff with GenAI expertise? Secondly, Zillow has integrated their inventory on to ChatGPT. The U.S. market is a special one with MLSs, high competitive intensity, buying agents. So the market context is obviously very different. But would you consider a similar move? And then finally, on a slightly different note, press reports from the FT suggest that Mobile.de is considering an IPO next year. In the event that it goes ahead, would you consider fully or partially monetizing your stake? Or would you prefer to hold for the long term? Christian Halvorsen: All right. I can answer the AI questions, and you can take the last question. So first of all, I would say that we remain very positive when it comes to the opportunities from AI. We think it plays to our strengths and that this provides significant opportunity both for productivity gains and for delivering better services to users and customers. Of course, there are some risks, as you point out, but I really think that we are in a great position to deliver on that. And it's really about combining world-class AI with this deep vertical knowledge. When it comes to investments, I would say that, yes, AI will require some investments. But at the same time, we also know that AI will have productivity gains and free up capacity. So I think within that, we believe that there is room to make the sufficient investments in AI within the financial guidance that we have given. Then to your question about Zillow, I think it's too early to comment on, let's say, the impact of an initiative like that. When you look at the -- it's very nascent. But when you look at that product today, it doesn't really provide any, let's say, new or very different user benefit. But of course, we're following this. We are testing and experimenting. But for right now, we don't have any plans to launch a similar app, but that may change as things evolve. Per Morland: And then on your third question related to Adevinta, we don't comment on rumors or speculations in the market related to Adevinta. But what I can say is -- just repeat what we have said before is, first of all, we're very happy with being a 14% owner of Adevinta, and we believe this is a good, let's say, case for our shareholders going forward, both operationally and also structurally. And also just reiterate our capital allocation principles in the case that there are any proceeds coming in. As you have seen before, we will follow those guidelines that we have communicated and stick to, and there's no change in that. Jann-Boje Meinecke: Thanks for the question, Will. Then we can move on to the next one, who is Yulia from UBS. Yulia Kazakovtseva: This is Yulia from UBS. I have 3, if I may. The first one is about go-to-market initiatives. Could you please share a little bit more details about what these initiatives are? And is there any particular angle with regards to verticals or maybe geographies? The second question would be about EBITDA loss in other HQ in Q3. That number was meaningfully smaller in Q3 as compared to 1Q and 2Q. Should we think about the Q3 number as a good proxy for Q4 number? And then also, as we think about 2026, should we -- how should we think about that? Should we take Q3 number, then add on top this NOK 100 million headwind and divide by 4, which would imply about NOK 33 million loss per quarter? And then finally, you spoke about scaling dealer packages in Sweden in February. You mentioned that about 70% in Norway of volumes is going through Pluss and Premium already. Do you think the -- like what's -- first of all, what's the Premium penetration? And then do you think this mix between Pluss and Premium is already where you wanted it to be? Or do you expect any further changes? Christian Halvorsen: All right. I'll answer the first and the last, and you can take the middle question, PC. So first question was around go-to-market. And when we talk about go-to-market, it's really all the work that goes into bringing new products, prices and so on to our customers. And that is a process that takes up quite a lot of time and capacity throughout the full year, everything from building products that we really know deliver value to the customers, packaging those in a good way and working with our sales force to train them in how to talk about the value we deliver to customers and so on and how to answer questions and concerns from the customers. So this is something that we have professionalized substantially over recent years and that we're quite happy with how it works recently. And it's particularly important in Jobs, Real Estate and Mobility. Then when it comes to packages in Norway and the distribution among different tiers, I don't think we will comment more on, let's say, the details of how it's divided between Pluss and Premium. But I can say that when it comes to Norway, it is, of course, still an area that we will continue to optimize and work on both when it comes to the pricing and kind of the distribution of products for customers. Per Morland: And then your question on the losses in other HQ. So let me take a step back. So this is where we see the effects, both positive and negative related to the massive sort of transformation we are going through. When we met at the Capital Market Day last year, we had a sort of a last 12 months deficit of NOK 316 million. And at that point, we said that we need to be prepared that this could be NOK 100 million to NOK 200 million worse before it's coming down. If we then look at where we are as of now, over the last 12 months, similar number, we are a bit lower than NOK 300 million in deficit last 4 quarters. And then what we are saying is we've been able to reduce cost faster than the revenue has declined so far. That's not necessarily going to continue going forward. So there's 2 effects that you see going into '26. Both is that you get the sort of -- a bit sort of front-loading the EBITDA effect in '25 and also we're not able to fully address all the effects at the same time as the revenue fall off going into next year. So I'm not going to give you sort of a concrete, let's say, outlook either for Q4 or '26, but I think then you have some parameters to work for. Jann-Boje Meinecke: Thanks, Yulia. Then we can move over to Fredrik from Handelsbanken. Fredrik, can you hear us? Fredrik Lithell: Yes. Christian, when you describe the various verticals, you talk a lot about the effects on ARPA and sort of the volume declines. Are you sure that all the volume declines are just from the backdrop of weak macro? Is it so that you are too aggressive in certain instances when it comes to price increases, for example, as you described in Denmark on the private side. So are there any other areas where you are evaluating any other sort of moves when it comes to pricing going forward would be interesting to hear. Christian Halvorsen: Yes. Great question. Of course, we follow the development between price and volume very closely. And as you mentioned, we saw that the volume decline in Denmark on the private side was too high. So we kind of reverted that initiative. I would say, if you look at this topic more broadly, we are quite confident that the volume declines that we see are driven by macro or other market dynamics, but not that we are losing market share. I mean it could be -- let's say, for example, in Mobility, we see that sub-verticals are doing quite poorly in Norway. That's clearly driven by macro. In Sweden for sub-verticals, it's driven by the business model change that we're doing. and so on and so forth. So we remain confident in the approach that we have made to pricing and packaging in -- yes, broadly, I would say. Fredrik Lithell: Okay. And I have a follow-up, if I may, on Recommerce. It's still loss-making. You sound optimistic about sort of the model you have and the progress going forward. Do you have a plan B? I mean, what's your thinking in terms of how long would you let it be sort of the loss-making in the way it is would be interesting. Christian Halvorsen: We remain confident in the progress and in the potential of Recommerce. So that's what we are aiming for, and we don't have a plan B as such. Jann-Boje Meinecke: Thanks, Fredrik. Then I think we go back to Oslo. So Markus from SEB is next in line. Markus Heiberg: So first one is just to go back on the TSAs. And maybe you can break down into 2026 and in the revenues and cost is up to NOK 100 million, how much is cost and how much is revenues? And then secondly, on the TSAs, it seems in Q3 that HQ costs are coming down due to external expenses rather than headcount. So maybe also you can elaborate when and how you expect to reduce the headcount on HQ and maybe also how that will trickle down to the allocated HQ expenses into the vertical. So maybe you can elaborate a bit more there. And then the second one I have is on the car volumes. New car sales have picked up in the Nordics, and it seems like dealer inventories are improving into Q4. How do you see the Mobility volumes now into 2026? Per Morland: Shall I start... Christian Halvorsen: Yes. Per Morland: The first 2 ones. Yes, on TSAs, maybe give a bit more color on the TSA revenue related to Schibsted Media. Again, bring us back to the Capital Markets Day last year at that point and also entering this year, we said that we had around NOK 300 million in annual TSA revenues. That -- in the first half, that was only slightly going down. And then as I mentioned earlier today, we have seen an acceleration of those revenues going down. And we expect for the year to end around NOK 200 million for 2025. For 2026, that will be 0. So that shows the development on the revenue side. And then the cost side, I'm not going to give you a specific number, but that's included in the perspectives that we then share with you on the development on HQ/Other, both for this year and next year. I think maybe I wasn't totally clear when I talked about Q3. So when I talked about reduction in external spend, that was the additional cost reduction, which is linked to the faster ramp down of the CSA services. And those have specific external components, license costs, cloud-related costs. And that's why they were able to drop down at the same pace as the revenue fall down. In HQ/Other, we have a significant FTE reduction in the already numbers for this year, and we will continue to reduce that also going into next year. So you see a reduction across all cost items in the support functions. Christian Halvorsen: Yes. So when it comes to volumes, I first want to say and reiterate what we have said, it remains hard to predict volume development also going forward. So we will not give you any hard statements as such. But also repeat what we said about the Mobility volumes that it is actually better if you look at cars than it is if you look at the sub-verticals. So that's a general trend. Also, you mentioned some, let's say, more positive signs externally. There is good new car sales in our markets, and that usually translates also to good used car sales. There are also some changes in regulations, for example, that they're changing the VAT for electric vehicles in Norway, where that is being reduced going into '26 and also in '27, and that is likely to increase new car sales for electric vehicles in Norway even further. So let's see what this ends up with. It's hard to predict, but there are at least some promising signs. Jann-Boje Meinecke: Thanks, Markus. Then next up is Petter from ABG. Petter Nystrøm: So 2 questions for me. One is on cost. At the Capital Markets Day, you set a medium-term target of OpEx target of 40% of sales by '27. How should we think about the phasing into '26 and '27 on that? Will this happen gradually? Or should we expect a more significant step down primarily in 2027? The second question is on Mobility in Sweden and the new package structure. I totally understand that this won't go live before February. But have you received any feedback so far on the structure? Per Morland: Yes. On OpEx, excluding COGS over revenue, so as I said earlier, we are on the last 12 months, a year ago, at 65% and communicated a clear target to go towards 40% level. And as you have seen already this year, we are taking steps towards that. We still have some way to go. And that will be a combination of continuing the underlying revenue growth in the verticals that, of course, will help us out, at the same time, manage our cost development. So I think you will see those 2 effects continue to improve on that relative measure towards 2027. And there's not like at one point, suddenly, there's going to be a massive drop. So I'm not going to give you any more color on that specifically for 2026. Christian Halvorsen: Yes. On the car packages for Pro's in Sweden, first, I want to just say that the first step is to launch Blocket on the Aurora platform, and that will happen a little bit later in this quarter. And it's on that new platform that we will launch these new packages in February. So we have actually been out in the market discussing with the largest dealers, both kind of the new platform and how that looks as well as the packages. And I would say that the feedback so far is positive and promising, I would say. Jann-Boje Meinecke: Thanks, Petter. Next one up is Silvia from Deutsche Bank. Silvia Cuneo: Just one question left from my side on the 2026 outlook. I know it's still early, but given the message you provided in the release and earlier in the call that you expect to drive revenue growth across the verticals in line with the medium-term targets for 2026, that implies an improvement sequentially. And I just wanted to ask about your expectations within that for volumes since you said it's hard to predict. How can you be confident to increase revenue towards the medium-term targets without clear visibility on the volumes at this stage? So what are you expecting? And perhaps also related to that, what are your expectations on the macro impacts on advertising now that those phasing effects will be pretty much in the base from the removal of the Schibsted Media assets? Per Morland: Yes, I'll try to give some color on that. So yes, you're right, we have confirmed that our pricing and packaging monetization measures that we have already or are in the midst of introducing help us to deliver on revenue growth in line with our medium-term targets set by each vertical. In general, given that volumes is hard to predict, we assume a quite flattish development of volumes across our verticals. And then it becomes -- if that's significantly different, then we will have to look at that -- what is possible to do. On advertising, if you look at the development this year, it's very much driven by the separation from Schibsted Media. It's not really market driven, and we see no sort of big changes in that. So our base assumption is also that advertising will be okay from a macro perspective and the stabilization and potential sort of improvement over time is coming more from our action of developing advertising products relevant for our customers. Jann-Boje Meinecke: Thanks, Silvia. I can't see any more hands up currently. I'm also checking my Inbox if anyone written a question there, but it seems like we covered it for today. So thank you for tuning in, and I'm sure we stay in touch.
Operator: Hello, everyone, and thank you for joining the CTS Corporation Third Quarter 2025 Earnings Call. My name is Claire, and I will be coordinating your call today. [Operator Instructions] I will now hand over to Kieran O'Sullivan to begin. Please go ahead. Kieran O'Sullivan: Good morning, and thanks for joining us today. We delivered a quarter of strong double-digit growth in our diversified end markets, with sales up 22% versus the prior year period. Diversified sales for the quarter were 59% of overall company revenue. We also expanded gross margin by 66 basis points and had solid operating cash flow. Secondly, our SyQwest team was awarded a sole-source naval defense contract with an initial value of $5 million and the potential to add additional platform awards within the next 12 months. Finally, in transportation, we had a strong quarter with wins of $130 million and added a new braking sensor application. Ashish will take us through the safe harbor statement, Ashish. Ashish Agrawal: I would like to remind our listeners that this conference call contains forward-looking statements. These statements are subject to a number of risks and uncertainties that could cause actual results to differ materially from those expressed in the forward-looking statements. Additional information regarding these risks and uncertainties is contained in the press release issued today, and more information can be found in the company's SEC filings. To the extent that today's discussion refers to any non-GAAP measures under Regulation G, the required explanations and reconciliations are available with today's earnings press release and supplemental slide presentation, which can be found in the Investors section of the CTS website. I will now turn the discussion over to our CEO, Kieran O'Sullivan. Kieran O'Sullivan: Thank you, Ashish. We finished the third quarter with sales of $143 million, up 8% from $132 million in the third quarter of 2024. For the quarter, diversified end market sales, including sales to medical, aerospace and defense and industrial end markets were up 22%. Transportation sales were down 7% from the same period last year. Diversified end market sales were 59% of overall company revenue in the quarter, up from 52% in the third quarter of last year. Our book-to-bill ratio for the third quarter was slightly above 1 in comparison to the third quarter of 2024, where we're marginally below 1. Bookings for our diversified end markets were up double digits in industrial and defense, and an increase in the high single digits in medical on a year-over-year basis. We expect stronger medical bookings in the last quarter, especially for therapeutic products. Third quarter adjusted diluted earnings were $0.60 per share, down from $0.61 in the third quarter of 2024, primarily due to an unfavorable impact from the recent U.S. tax legislation. Ashish will add further color on this and on our financial performance later in today's call. In the medical end market, third quarter sales were up 22% compared to the same period in 2024. Bookings in the quarter were up 8% compared to the prior year period. We are excited about the prospects for growth in minimally invasive applications, where our products help deliver enhanced ultrasound images and make it easier for medical professionals to detect artery restrictions. Our teams are engaged on next-generation product development to further enhance diagnostic capability with our customers. We are proud to highlight that our products support solutions that help save lives. Additionally, our products enable medication delivery for treatment of infected areas, aid blood analysis and flow, cancer treatments and are incorporated in pacemakers and cochlear implants. Our therapeutic products enhance skin aesthetics and in combination with other medical procedures, help improve skin tightness. During the third quarter, we had multiple wins for diagnostic ultrasound and had wins for therapeutics, pacemakers and a win for an ophthalmology application. We are also developing samples for Doppler ultrasound for a vascular flow application. In addition, we added 2 new customers for diagnostic ultrasound. Demand remains strong for therapeutic products, and we expect increased volumes in 2026. Over time, we expect the volume increases in portable ultrasound diagnostics and therapeutics will continue to enhance our growth profile as well as expansion into new applications. Aerospace and defense sales in the third quarter were up 23% from the third quarter of 2024. SyQwest revenues in the third quarter increased to $8.8 million, and we expect to maintain this momentum through the balance of this year. Bookings in the third quarter were up 29% from the prior year period, as we maintain a healthy backlog, and we expect solid bookings in the last quarter of this year. Our strategy is focused on moving from a component supplier to a supplier of sensors, transducers and subsystems and is further validated by our recent naval award. We received multiple orders in the quarter for sonar applications. The order mentioned in my opening comments for the SyQwest business is for a naval munition application, and we expect additional platform awards as we move forward. SyQwest continues to drive a strong pipeline of opportunities. In the industrial market, we continue to see a steady recovery with OEMs as well as a stronger recovery with distribution customers. Sales in the third quarter were up 9% sequentially and up 21% compared to the prior year period, underscoring our expectation of a continued recovery. Bookings in the quarter were up 29% from the same period last year. We were successful with multiple wins in the quarter for industrial printing, EMC, temperature sensing wins for pool and spa and the win for an industrial heat pump application. We added one new customer in the quarter for position sensing. Demand across industrial end market is expected to remain healthy for the balance of 2025. The megatrends of automation, connectivity and efficiency enhance our longer-term growth prospects. Transportation sales were $58.5 million in the third quarter, down approximately 7% from the same period last year due to softness for commercial vehicle products. In the third quarter, we had awards across various product groups, including accelerator module wins with OEMs in Europe, South America and China. Total booked business was approximately $1 billion at the end of the quarter. We had various wins for passive safety and chassis ride height sensors across several regions. We added a new product to the portfolio for brake sensing, securing a business award with a North American OEM. This further strengthens our long-term capability to expand our footwall presence. We also had a large win in commercial vehicle for smart actuators with an existing customer. Additionally, during the quarter, we released our COBROS technology, a new platform for electric motor control. This technology eliminates the need for 3 discrete current sensors and the position sensor, allowing for a simplified design, weight reduction and more precise control. The near-term growth rates for ICE versus EVs and hybrids are less of a concern for us given our light vehicle products are mostly agnostic to the drivetrain technology. The trend towards increasing demand for hybrids with extended range capabilities remains robust. Interest in our e-brake product, offering weight and cost advantages continues across OEMs at a slower pace as certain OEMs recalibrate EV investments and launch dates. We remain confident in the longer-term growth prospects for our e-brake and other footwall products. These, along with existing and new sensor applications will increase our ability to grow content. For our diversified end markets, subject to the uncertain tariff environment, demand in the medical market is expected to remain mixed with strength in therapeutics and softness in diagnostic ultrasound. In aerospace and defense, revenue is expected to grow given the timing of orders and momentum from the SyQwest acquisition. Industrial and distribution sales are expected to improve. Longer term, we expect our material formulations supported by 3 leading technologies and their derivatives to continue to drive our growth in key high-quality end markets in line with our diversification strategy. Across transportation markets, production volumes are expected to remain soft given the tariff impact and demand from customers. The North American light vehicle market is expected to be in the 15 million unit range. European production is forecasted in the 16 million unit range. China volumes are expected to be in the 30 million unit range. We are carefully monitoring for any potential impact from supply chain issues related to rare earth, aluminum and semiconductors, although we are not seeing any immediate impact. Electric vehicle penetration rates have softened in some regions, while hybrid adoption continues to improve. There was a notable demand increase for EVs in September with the elimination of the vehicle subsidy for the North American market. We anticipate general softness in commercial vehicle demand in the fourth quarter. Shipments of our new commercial vehicle actuator continue to ramp as we prepare for 2026, where we will implement further product enhancements. As I mentioned in previous calls, revenue from the SyQwest acquisition will introduce some seasonality where the timing of revenue may be influenced by the approval of funding by the U.S. government. As reported, we saw an increase in revenue for SyQwest in the third quarter and expect to maintain this positive momentum through the end of this year. We continue to closely monitor and evaluate the tariff and geopolitical environment, while focusing on agility and adapting to cost and price adjustments in close collaboration with our customers and suppliers. Assuming the continuation of current market conditions, we are narrowing our guidance for sales in the range of $535 million to $545 million and adjusted diluted EPS to be in the range of $2.20 to $2.25. Now I'll turn it over to Ashish, who will walk us through our financial results in more detail. Ashish? Ashish Agrawal: Thank you, Kieran. Sales in the third quarter were $143 million, up 6% sequentially and up 8% from last year. Sales to diversified end markets increased 22% year-over-year. SyQwest sales were $8.8 million during the quarter. As Kieran has highlighted, we expect the momentum to continue for sales from SyQwest in the fourth quarter. Sales to transportation customers were down 7% from the third quarter of last year due to the softness in sales related to commercial vehicle products. Foreign currency changes had a favorable impact on sales of approximately $1 million. Our adjusted gross margin was 38.9% in the third quarter, up 66 basis points compared to the third quarter of 2024, and up 12 basis points compared to the second quarter of 2025. Our global teams continue to focus on operational execution to deliver margin improvements. Tariffs had a minimal impact on profitability in the third quarter, and we continue to work closely with customers and suppliers to manage the impact. Adjusted EBITDA was 23.8% in the quarter. This is an improvement of 86 basis points sequentially and a reduction of 55 basis points compared to the third quarter of 2024. Earnings were $0.46 per diluted share for the third quarter. The third quarter results include a $4.2 million increase in reserve related to EPA's cost reimbursement claim for a prior environmental matter. Adjusted earnings were $0.60 per diluted share compared to $0.57 in the second quarter of 2025 and $0.61 in the third quarter of 2024. We had an unfavorable impact on our tax rate from changes in the mix of earnings. And in addition, the recent U.S. tax legislation changes had an adverse impact of approximately $0.03 on adjusted earnings per diluted share for the third quarter. Moving to cash generation and the balance sheet. We generated $29 million in operating cash flow in the third quarter compared to $35 million in the third quarter of 2024. Year-to-date, we have generated $73 million in operating cash flow. Our balance sheet remains strong with a cash balance of $110 million at the end of the quarter. Our long-term debt balance was $91 million, leaving us good liquidity to support strategic acquisitions. During the quarter, we repurchased 400,000 shares of CTS stock for approximately $17 million. In total, we returned $44 million to shareholders through dividends and share buybacks in the 3 quarters of 2025. We have $21 million remaining under our current share repurchase program. Our focus remains on strong cash generation and appropriate capital allocation, and we continue to support organic growth, strategic acquisitions and returning cash to shareholders. This concludes our prepared comments. We would like to open the line for questions at this time. Operator: [Operator Instructions] Our first question comes from John Franzreb from Sidoti Company. John Franzreb: I'd like to start with the guidance. It seems to me that you raised the midpoint on your revenue guidance, but lowered the midpoint on the EPS guidance. Now I recognize that you've been suggesting it would be the low end of that EPS. But I guess I'm surprised the dynamic of raising the revenue in light of that. Can you just walk us through what's going on there? Kieran O'Sullivan: Yes, John. So from a top line perspective, we feel good about the direction we're going there. As I mentioned in the prepared comments, the fourth quarter has some headwinds on CV. But overall, we've got good progress in industrial, nice momentum in aerospace and defense, strength in therapeutics and then some things we're monitoring on the diagnostics side. So that's it on the top line. And then on the bottom line, primarily, as Ashish mentioned in his prepared comments, there's the tax impact. And Ashish, you probably want to comment on that. Ashish Agrawal: Yes. So John, there are a couple of things that are having an adverse impact on our tax rate. Number one, the mix of earnings. And then the second piece, which is more pronounced is the tax legislation, given the mix of earnings we have, it actually has an adverse impact on our overall tax rate. So you saw that impacting our Q3 earnings in a meaningful way. And then that impact is expected to continue, obviously smaller into Q4 as well. John Franzreb: Okay. Understood. And Kieran, you just mentioned the CV market. So that begs the question. What are your transportation customers signaling about the 2026 production rates? Kieran O'Sullivan: John, for 2026, it's kind of a bit of a mixed market out there. You hear some OEMs, especially on the light vehicle side, talking more positive, some talking a little bit negative. So it's a very mixed story. What I would tell you is on the light vehicle side in this quarter, excluding Cummins, our large customer in CV, we saw an incremental -- small incremental increase in low single digits. And we had solid bookings in the quarter. So we feel really good about the bookings and where we're going. So the market is going to be a bit mixed still next year from everything we hear on transportation, but feel very good about what we're doing in medical, aerospace and defense and industrial. John Franzreb: Agreed. Can I just maybe touch on the end markets as a whole because the gross margin improvement was nice to see. And I'm actually kind of curious and maybe you could help me frame this better. But if you kind of rank your end markets on the gross margin contribution or should we be thinking about it on the operating margin contribution? How would you -- I know you're not going to give the actual margin profile, but how would you rank them so as we can see the change on a go-forward basis, we can think about the impact to profitability? Ashish Agrawal: So John, we earned good margins on our diversified end markets pretty obviously. I don't know if I would split the margins by end markets in terms of profile. They are pretty decent on the diversified side. Medical, industrial, aerospace and defense, we are doing reasonably good margins on all of those. Transportation is obviously behind in terms of comparison, but we earn good margins on the transportation side as well. John Franzreb: Okay. Kieran O'Sullivan: And John, the other thing I would comment on is you can see the -- you talked about the improvement in gross margin. Our diversification percentage is going up quarter-on-quarter as well. So I think that's what you're going to see is positive momentum there. Yes. John Franzreb: Yes. I was just -- I guess I'm kind of curious as how much, I don't know, medical has more of an impact versus, say, aerospace and defense. I would guess that industrial will be third in that ranking, but that would be me just guessing. Ashish Agrawal: So John, it's a little bit more, I would say, split by product line. The margin profile on different product lines has a different level in pretty much all the end markets. So for example, when you look at our piezo product lines, we have single crystal in there, tape cast and bulk and the margin profile varies. So single crystal would be slightly higher margins than the other 2. In frequency, we'll have a different level of margin, which is higher. And then -- so that -- it's not so much where we are seeing distribution by end market as we are seeing distribution by product lines. John Franzreb: I appreciate that clarity. Kieran O'Sullivan: Okay. Thanks, John. Operator: Our next question comes from Hendi Susanto from Gabelli Funds. Hendi Susanto: First question is for Ashish. The tax impact, the adverse tax impact, will it go away in 2026? Ashish Agrawal: So Hendi, we'll obviously be looking at areas that we can drive improvements. The specific change from the tax legislation that will continue to have a slight adverse impact, but we'll continue looking at other areas of opportunity in terms of tax efficiency as we have always done. So I would expect at this point, 2026 to be similar tax rate as 2025, but we'll continue working on it. Hendi Susanto: I see. And then Ashish, would you be able to spell out what tax rate estimate we should use for our -- like [indiscernible] model? Ashish Agrawal: Yes. So we are in the low 20% range right now, Hendi. We are talking about 21% to 23% type of ballpark on a go-forward basis. Hendi Susanto: Yes. And then this question is for Kieran. Kieran, this morning, NXP Semiconductor reported its September quarter. I know that it's an apple and orange comparison. They do say that Tier 1 inventory burn is getting closer and closer to be completed. How should we view the expectation that inventories in your channel for transportation is close -- is somewhat close to representing the end market demand. And then at some point, they will need to build more inventories internally. How should we view that notion? Kieran O'Sullivan: Yes. I didn't see the NXP data. But what I would look at, Hendi, is if you look at the days of supply on hand, it's probably trending on the light vehicle side around 50 days, which seems pretty normal. I wouldn't be concerned about it at all. There is obviously some further softness in the commercial vehicle market, and that's one we're watching more closely, but not on the light vehicle side. Hendi Susanto: I see. And then looking at SyQwest acquisitions and then your expectation, given we have insight into the quarterly revenue run rate for the last 5 quarters, would you be able to give some puts and takes and whether or not the company's revenue contribution meets or exceeds your target for this year? Kieran O'Sullivan: Yes. So Hendi, if I look at it quarter-by-quarter, we've always said the first half is going to have some seasonality, whether it's heavier in the second half, and that's what we're seeing now. So we've seen a step-up in revenues from Q2 to Q3, and we expect that step-up to continue. We will see some seasonality next year as well, first half, second half due to government funding. And we're very pleased with the pipeline of opportunities. And we called out an award today in the comments, sole-sourced for a new platform with the first $5 million, and we expect other awards in the next 12 months and over the next several years as well. So we feel really good about that, and we want to build on that momentum. Hendi Susanto: Got it. And then one last question for Ashish. The operating expense line. The SG&A is somewhat meaningfully larger this quarter. I know that you mentioned that's a $4.2 million increase in reserve. Is that the main reason of the increase in OpEx? Ashish Agrawal: Yes. So Hendi, that is by far the largest. We also have a year-over-year increase in equity-based compensation as going through the year, sometimes you have to make adjustments based on expected performance. And last year's number had a relatively larger reduction. So that is also causing the year-over-year comparison to look a little bit unfavorable in Q3 of 2025. Operator: We now have a follow-up question from John Franzreb. John Franzreb: Yes. Kieran, I'm kind of curious about your comments on the industrial end markets. It seems like -- to me, it seems like you're more positive than you've been in quite some time. Is that the case, or am I just reading too much into it? Kieran O'Sullivan: No, John. I think when we look at all the diversified end markets, we feel pretty good. And if I start with industrial, which you mentioned, we've seen a 9% sequential improvement over 20% year-on-year. We've seen a strong increase in distribution-related sales. So we feel very good about the trend there. And then I also mentioned on medical, we expect bookings to increase in the fourth quarter and the very same on aerospace and defense. So across the diversified markets with industrial right up there, I feel very good. John Franzreb: And just on the medical, do you think bookings will increase, do you think the diagnostics side of the business will be coming back, or do you think that will remain weak on a go-forward basis? Kieran O'Sullivan: The diagnostics side is a little weaker, but it's still solid overall, and we expect it will improve probably more so next year. But we've got strong momentum on therapeutics, and we feel that's going to continue not just in the fourth quarter, but into next year as well, John. John Franzreb: Got it. And can you kind of walk me through how you're successfully navigating tariffs. A lot of companies I cover anticipate a delay in being able to recover pricing from the customer base. You seem to be doing extremely well. Can you just talk about what's going on there? Ashish Agrawal: So John, we've talked about this in the past where a lot of what we do in Asia stays in Asia. what we do in Europe stays in Europe and what we do in North America stays in North America. It's not 100% that way, but largely, it is that way. And that helps us mitigate cross-border flows, which is where you see the impact of tariff. That's a big portion of it. The other is where we do have tariff impact, we are working very closely with suppliers, with our customers to find ways to mitigate, but then also pass the cost on to our customers as we work through the impact. And so far, we've been able to manage well. We have talked about USMCA. That's where our exposure would increase if USMCA were to go away and it doesn't get replaced with something suitable. But other than that, we've been able to manage pretty well. John Franzreb: Very good. I guess one last question. The fire at the Ford aluminum supplier, does that have any impact on your company at all? Kieran O'Sullivan: John, Novelis, that's the aluminum supplier, and then there's Nexperia the chips. We haven't seen any direct impact, but it's something we're monitoring as we go through the fourth quarter. So nothing to report at this point. John Franzreb: Okay. Keep up the good work. Kieran O'Sullivan: All right. Thank you. Operator: [Operator Instructions] We currently have no further questions. So I'll hand back to Kieran for any closing remarks. Kieran O'Sullivan: Thank you, Claire, and thank you all for your time today. Despite the challenges of tariffs, geopolitical and economic pressures, diversification remains a strategic priority to drive growth and margin expansion. In addition, we are expanding in vehicle powertrain agnostic solutions. We look forward to updating you on our full year 2025 performance in February of 2026. Thank you again. This concludes our call. Operator: This concludes today's call. Thank you for joining. You may now all disconnect your lines.
Operator: Good day, and welcome to the Q3 2025 Materialise Financial Results Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Ms. Harriet Fried with Alliance Advisors. Harriet Fried: Thank you, everyone, for joining us today for Materialise's quarterly conference call. With us on the call are Brigitte de Vet, Chief Executive Officer; and Koen Berges, Chief Financial Officer. Today's call and webcast are being accompanied by a slide presentation that reviews Materialise's strategic, financial and operational performance for the third quarter of 2025. To access the slides, if you have not done so already, please go to the Investor Relations section of the company's website at www.materialise.com. The earnings release that was issued earlier today can also be found on that page. Before we begin, I'd like to remind you that management may make forward-looking statements regarding the company's plans, expectations and growth prospects, among other things. These forward-looking statements are subject to known and unknown uncertainties and risks that could cause actual results to differ materially from the expectations expressed, including competitive dynamics and industry change. Any forward-looking statements, including those related to the company's future results and activities, represent management's estimates as of today and should not be relied upon as representing their estimates as of any subsequent date. Management disclaims any duty to update or revise any forward-looking statements to reflect future events or changes in expectations. A more detailed description of the risks and uncertainties and other factors that may impact the company's future business or financial results can be found in the company's most recent annual report on Form 20-F filed with the SEC. Finally, management will discuss certain non-IFRS measures on today's call. A reconciliation table is contained in the earnings release and at the end of the slide presentation. With that introduction, I'd like to turn the call over to Brigitte de Vet. Go ahead, please, Brigitte. Brigitte de Vet-Veithen: Good morning and good afternoon and thank you all for joining us today. You can find the agenda for our call on Slide 3. First, I will summarize the business highlights for the third quarter of 2025. Then I will pass the floor to Koen, who will take you through the third quarter financials. Finally, I will come back and explain what we expect for the remaining months of 2025. When we've completed our prepared remarks, we'll be happy to respond to questions. Moving to Slide 4 for the highlights of the third quarter 2025. While our overall revenue remained under pressure, I am very pleased with the continued strong growth of our medical unit, where we achieved double-digit growth again on the back of an exceptionally strong third quarter last year. Today, I would like to highlight the progress that we are making in the cardiac segment, one of our newer markets. In 2025, we acquired FEops, a company specializing in AI-driven simulation technology for structural heart interventions. FEops' predictive simulation technology complemented our Mimics Planner, adding advanced simulations to its anatomical measurements. We have now taken 2 important steps in this market. First, we recently released the next version of FEops' heart guide for transcatheter aortic valve replacement, adding important features to the planner. In addition to giving physicians insights into the right size and position of the device in the aortic route, this release helps them to manage the lifetime of the patient. Specifically, this new release includes a predictive simulation of the potential ways to treat the patient should he or she come back for reintervention a couple of years down the line. Secondly, we generated additional clinical evidence to underline the benefits of our cardiac planners. As an example, in a prospective study with 126 patients, a leading cardiac center demonstrated time savings of up to 91% for patients undergoing transcatheter aortic valve replacement. This important time saving came with high accuracy combined -- compared to standard planning tools. Also, the fact that the cardiac planner is a cloud-based system that can be accessed from anywhere by the heart team, which typically consists of several specialties, facilitated the discussions in the preparation of the intervention. This evidence shows that our AI-enabled automatic case planning could play a role in generating efficiencies in this type of procedures, thus potentially enabling the treatment of more patients with a personalized approach in the future. The improved features of our planners and the additional evidence will strengthen our position in this market and provide a great foundation to treat more patients in the cardiac space. I would also like to highlight the progress we made in our existing markets. As an example, we released a new version of our Mimics Enlight CMF planner. You might remember that this software was one of the finalists for the TCT award in the healthcare category earlier this year. In this new version, customers can now benefit from a range of AI algorithms that enable them to plan cases faster and more efficiently. And this is particularly important, for example, for trauma cases. Trauma patients come to the hospital after accidents, sometimes with complicated fractures and multiple fragments of the jaw that the surgeon needs to puzzle together. The trauma planner of Mimics Enlight CMF now gives the surgeons the ability to efficiently plan the procedures and piece those fragments together. This planning also helps to gain time during the procedures because the surgeon knows how to treat the patient. In addition, the surgeon knows what type of device to use in the procedure. And in a world where more and more devices come in a sterile package, it saves a lot of cost if you only open what you need rather than trying multiple products and then having to resterilize and repackage or in some cases throw away what you don't need. So in summary, this new release of Mimics Enlight CMF enables us to target the trauma segment, which is a significant part of the market and first feedback from customers is encouraging. Turning now to our Materialise Software segment. We continue to make progress to establish CO-AM as the ecosystem for all AM operations. In the last 12 months, we launched our Magics SDKs and the next generation of our build processors. As a reminder, our Magics SDKs allow users to create custom preprint workflows by tapping into more than 800 algorithms built over 35 years. These SDKs enable customers to scale AM operations efficiently and print complex, high-performance geometries while avoiding field builds and improving part quality, all of this while protecting the intellectual property behind component designs. Similarly, the advanced algorithms of the next-generation build processors significantly improve build time and quality, thanks to, for example, its advanced strategies for multi-lasers. And they enable a variety of collaboration models, including the possibility for customers to build their own build processors, thanks to the availability of our SDKs. We are now going a step further by launching a low-code enabling technology on CO-AM, making these SDKs more accessible for customers without a deep engineering background. This facilitates new product introductions of our customers and enable easy workflow automation for large-scale applications. The new capabilities, therefore, have the potential to drive efficiencies and optimize the cost of additive parts. We are currently preparing for next month's Formnext, where you will hear more about this and our other capabilities on the CO-AM ecosystem. Finally, in our Materialise Manufacturing segment, we continue to execute on our strategy while facing continued headwinds in some market segments, including the automotive sector. Specifically, at ACTech, we continue to invest in the huge and heavy segment by adding machines able to produce giga castings and other large and complex parts, often at a significant weight. As a reminder, in the third quarter 2024, we celebrated the opening of our second ACTech plant and shipped first parts in the fourth quarter 2024. In segments beyond automotive, such as aquaculture, mining, maritime or energy, parts are typically not only larger and heavier, but also more complex, for example, to achieve better thermodynamic cycles in the large engines with maximum fuel efficiency. The combination of high-precision sand printing, casting and complex post-treatment that we can now offer at ACTech is ideal for these parts. Also, the machines installed in 2025 enable the automation required to produce these complex parts not only for prototypes, but also in small series. I would also like to highlight the progress we are making in the defense sector, where in light of the current geopolitical landscape and the breakdown of traditional global alliances, spending is increasing, in particular, in Europe in order to strengthen resilience and autonomy of the various regions. After the announcement of our broad engagement in this sector, we attended DSEI, one of the world's largest defense and security trade exhibitions and attended a series of other events, engaging with major primes and showcasing our capabilities. Additive manufacturing addresses the defense industry's challenges as additive manufacturing enables rapid, flexible and sustainable production of mission-critical components, reduces logistical constraints, fosters innovation and strengthens strategic autonomy in a complex and evolving security environment. The positive interactions with stakeholders in the industry confirmed that our additive production capabilities in Europe and our software capabilities globally are valuable assets to address the current challenges of the defense industry. I will now turn over to Koen, who will present the financial results. Koen Berges: Thank you, Brigitte. Good morning or good afternoon to all of you on this call. I'll begin with a brief overview of our key financial results, as shown on Slide 5. Our consolidated revenue grew by 2% compared to Q2 of this year, but ended with EUR 66.3 million, 3.5% lower than last year's strong third quarter. Our gross profit margin remained strong at 56.8% in the third quarter of this year, fully in line with the margin realized over the first 9 months of 2025. Adjusted EBIT for the third quarter of '25 amounted to EUR 2.9 million, representing an adjusted EBIT margin of 4.4% of revenue. Over the third quarter of this year, we generated a net profit of EUR 1.8 million. Driven by strong free cash flow in the third quarter of this year, we further increased our net cash position to EUR 67.7 million. In the following slides, I will elaborate further on these results. As a reminder, please note that unless stated otherwise, all comparisons are against our results for the third quarter of 2024. Turning now to Slide 6. You will see an overview of our consolidated revenue. In the third quarter of this year, Materialise Medical posted an all-time revenue record of EUR 33.3 million, growing by more than 10% compared to a particularly strong third quarter of last year. On the other hand, revenues from our Software and Manufacturing segments continue to be impacted by macroeconomic headwinds. As a result, revenue in both segments declined by 7% and 17%, respectively, leading to an overall decrease of 3.5% of our consolidated revenue compared to last year's period, while unfavorable ForEx effects, mainly due to a weaker U.S. dollar also impacted our top line this quarter. As you can see in the graph on the right side of the slide, Materialise Medical accounted for 50%, Materialise Software for 16% and Materialise Manufacturing for 34% of our total revenue over the third quarter of 2025. Our deferred revenue balance related to software maintenance and license fees coming from both our Medical and Software segments decreased in the third quarter of this year, which is fully in line with our seasonal pattern. Over the last 12 months, however, the balance increased by EUR 4.2 million, bringing the total amount carried on our balance sheet at the end of the third quarter of 2025 to EUR 45.3 million. On Slide 7, you will see our consolidated adjusted EBIT and EBITDA numbers for the third quarter of 2025. Consolidated adjusted EBIT totaled EUR 2.9 million compared to EUR 4.4 million for the same period of '24, representing an adjusted EBIT margin of 4.4%. Consolidated adjusted EBITDA for the third quarter amounted to EUR 8.4 million, decreasing from EUR 9.9 million in 2024, representing an adjusted EBITDA margin of 12.7%. Given current market volatility, we believe that it's important to also compare our operational performance on a quarter-over-quarter basis. In this context, both adjusted EBIT and EBITDA remained roughly stable compared to the second quarter of this year and are significantly up from the beginning of 2025 as a result of disciplined cost control and of targeted cost reduction measures, we have taken to safeguard operational profitability. Year-to-date, we generated now EUR 6.6 million of adjusted EBIT and EUR 22.9 million of adjusted EBITDA. Moving now to Slide 8. You will notice that the revenue in our Materialise Medical segment, as already mentioned, increased by 10% compared to the particularly strong third quarter of 2024. The growth was again generated by both medical software and by revenue from medical devices sales, which grew respectively, by 6% and 12%. Within our Medical Devices and Services activity, we saw continued growth in both our direct and our partner sales. In line with the top line growth, adjusted EBITDA grew further to EUR 10.2 million, resulting in an adjusted EBITDA margin of more than 30%. We further increased our R&D investments in Medical and will continue to do so in coming months in order to drive future growth. Year-to-date, our Medical segment realized revenue of EUR 97.2 million, up by 15% from last year, with an adjusted EBITDA of EUR 30 million, which represents a 31% adjusted EBITDA margin. Slide 9 summarizes the results of our Materialise Software segment. In the third quarter, software revenue decreased by 7% to EUR 10.3 million. This was partly due to unfavorable ForEx impacts, while macroeconomic and geopolitical uncertainty also continued to put pressure on our sales volumes, especially in the U.S. markets. During the third quarter, we continued our transition to cloud subscription-based business model. Over the quarter, around 83% of the software revenue was of a recurring nature versus 74% in the same quarter of last year, demonstrating the progress we keep making here. Despite the lower top line, effective cost management allowed us to keep the adjusted EBITDA margin stable at around 18% compared to the same period of last year, leading to an adjusted EBITDA of EUR 1.8 million. Year-to-date, our Software segment realized EUR 30 million of revenue and an adjusted EBITDA of EUR 3.8 million. Now let's turn to Slide 10 for an overview of the performance of our Materialise Manufacturing segment. In the third quarter of this year, the performance of manufacturing remained weak, with revenue declining by 17% compared to last year's third quarter and ended at EUR 22.7 million. Compared to Q2 of this year, however, revenue increased slightly. The macroeconomic headwinds we have been facing for some time continue to impact our operational results. Mainly as a result of the lower top line, the adjusted EBITDA of the Manufacturing segment ended negative this quarter at minus EUR 0.8 million, stable compared to this year's second quarter though. Year-to-date, our Manufacturing segment realized revenue of EUR 70.3 million with an adjusted EBITDA of minus EUR 2 million. Slide 11 provides the highlights of our consolidated income statement for the third quarter of this year. And over the period, our gross profit amounted to EUR 37.7 million, representing a stable gross profit margin of 56.8% compared to the previous quarters of this year, but slightly below the 57.2% realized in a strong Q3 of 2024. Our operating expenses in the quarter increased only by EUR 0.2 million or less than 1% in aggregate compared to the same period of last year, with R&D expenses increasing 4% year-over-year. During the quarter, we invested again over EUR 11 million in R&D, the majority of which was in our Medical segment. Sales and marketing remained flat year-over-year, while G&A expenses decreased by almost 3%, reflecting the impact of continued cost control. Net operating income in the quarter was EUR 0.9 million, remaining stable compared to prior year. As a result of all of these elements, the Group's operating result in the quarter was EUR 2.5 million. In Q3 2025, the net financial results amounted to a limited loss of EUR 0.1 million. Interest income on our cash reserves offset the interest expense on our financial debt and the negative impact from foreign exchange fluctuations. Last year's corresponding period, the net financial loss was minus EUR 1.1 million, mainly due to large unfavorable exchange rate effects at that time. Income tax expense in the quarter amounted to EUR 0.6 million compared to a tax expense of EUR 0.1 million in the corresponding period of last year. And as a result, we once again generated a positive net result in the third quarter of this year, amounting to EUR 1.8 million, representing EUR 0.03 per share. Now please turn to Slide 12 for a recap of balance sheet and cash flow highlights. And also for the third quarter of 2025, we can report a strong balance sheet. Our cash reserve further increased to EUR 132 million at the end of the quarter. At the same time, our gross debt also increased to EUR 64 million. Both changes were impacted by an additional EUR 50 million drawing we made during Q3 on an existing bank credit facility in line with contractually agreed drawing periods. In the next 12 months, we will be drawing the remaining EUR 50 million of this facility. The net cash position at the end of the quarter, which is not impacted by these additional drawings, amounted to EUR 67.7 million, up by almost EUR 7 million compared to the beginning of this year, mainly driven by strong free cash flow. Trade receivables, inventory and trade payable positions on our balance sheet all decreased compared to the position at the end of last year. The total deferred income position decreased to EUR 58 million, out of which EUR 45 million was related to deferred revenue from software license and maintenance contracts, as mentioned earlier, reflecting the seasonal pattern of deferred revenue evolutions. As you can see from the graphs on the right side of the page, the operating cash flow in the third quarter amounted to EUR 10.4 million, significantly up from the EUR 6.9 million generated in the third quarter of 2024. Capital expenditures for the third quarter amounted to EUR 5.3 million, including EUR 3.1 million of non-recurring CapEx, mainly spent on remaining machinery for the new ACTech plant and on the installation of a solar panel park at HTU. Year-to-date, total CapEx amounts to EUR 11.8 million, out of which 60% or close to EUR 7 million can be considered to be of a non-recurring nature. Over the first 9 months of this year, the operating cash flow amounted to EUR 20 million, while the year-to-date free cash flow is positive at around EUR 11 million. And with that, I'd like to hand the call back to Brigitte. Brigitte de Vet-Veithen: Thank you, Koen. Let's now turn to Page 13. I'll conclude my remarks with a discussion of our full year 2025 guidance. As we approach the end [indiscernible] continue to impact the business environment in which we operate in our Manufacturing and Software segments. For fiscal year 2025, we therefore maintained our guidance as previously communicated with revenues in the range of EUR 265 million to EUR 280 million and adjusted EBIT in the range of EUR 6 million to EUR 10 million. We remain confident that our business is solid and resilient and that Materialise is strongly positioned to capture growth opportunities once market conditions improve. This concludes our prepared remarks. Operator, we're now ready to open the call for questions. Operator: [Operator Instructions] And our first question will come from the line of Troy Jensen with Cantor Fitzgerald. Troy Jensen: Congrats on the nice results. So, I'd just like to just unpack a little bit in Medical. Could you kind of give us an update on -- I guess I'm trying to figure out like relative exposure. I think of you guys as probably CMF and HIPS as the 2 biggest sections. I just would be curious if you could kind of rank order. And then this cardiac and some of these other things, how big and important can they be for next year here? Brigitte de Vet-Veithen: Yes. So I think in general, Troy, I mean, obviously, a very good question. I think what we've repeatedly communicated is that we have our existing markets and some new markets. So CMF, orthopedics and our research and engineering segments are the existing markets where we've already been active for quite a long time and that those markets are a little more mature than the others. In our new markets, we address the cardiac and the respiratory space in particular is new markets. So of course, the majority of our revenue comes from our existing markets. The new markets are still small, but we expect them to grow faster than the existing markets in the future. That's kind of how you need to think about that. Now within the existing markets, all 3 markets remain very important for us. Troy Jensen: Okay. All right. And how about just manufacturing here? I get a bunch of questions. I'll just rattle them off quick and see if you can hit them all. But you just hopes on a recovery, and I'm just kind of curious how big is aerospace and defense as a percentage of revenue? Brigitte de Vet-Veithen: So aerospace remain -- it has been a focus segment for us for quite a while. We see in the aerospace segment in general, we have seen continuous growth in that segment and we do believe that that's going to continue. Now the defense industry is a newer industry for us, at least with the broad engagement that we have communicated about earlier this year. So, the defense area at this point in time is not a significant market for us yet. At the same time, with -- as I mentioned earlier in my remarks, I think with the interactions we had so far, I see potential in that defense segment as our capabilities that we have built for aerospace can particularly be leveraged in the defense industry going forward. Troy Jensen: On the defense side, Brigitte, is it more on the metals front or is it polymers also? Brigitte de Vet-Veithen: It's actually a combination of polymer and metal. I'll give you an example on the aerospace segment, where our polymer offering is really important. There's 2 different applications on the polymer side that you can think about. One is interiors for the aerospace segment at large, in particular, for commercial aircraft as an example. The second is tooling where our polymer capabilities are helpful for aerospace companies, and in particular, the larger OEMs driving this. As an example, we were the first qualified supplier for Airbus in the polymer segment and that's a couple of years back. Troy Jensen: Okay. If I could sneak one more in. Can you just talk about just the manufacturing profitability? I mean, obviously, it's been a drag on you guys, unfortunately, here at these revenue levels. Any thoughts on either a recovery in kind of European industrial markets to drive better profitability or are there other things you can do to kind of cut costs to try to prevent that from diluting kind of the profitability level? Brigitte de Vet-Veithen: Yes. So I'll give you a double answer. So the first part of the answer is that, as Koen highlighted in his review of the financials, we have taken measures to significantly reduce our cost end of last year, earlier this year. And we do see the impact on our financials in manufacturing already. They might not be super visible on the EBIT and EBITDA lines given the weakness -- the continued weakness we see on the revenue line, but they have been making a difference, as Koen highlighted. So that's the first one. The second element to the answer I would give is there is 2 things really we need to see recovery on the revenue line. As you mentioned, the European environment is a really important one for us. So recovery in the European markets will certainly be a driver to bring our revenues to a more usual level. The second element that is important to keep an eye on is the automotive sector as such, because admittedly, in manufacturing at large, we are still exposed to the automotive industry and that is in Europe and in the U.S. And the recovery of the automotive industry will help us to recover to a more normal level on the revenue side as well. So it's really those 2 drivers that we need to keep an eye on. Operator: I'm showing no further questions in the queue at this time. I would now like to turn the call back over to Ms. Brigitte de Vet for any closing remarks. Brigitte de Vet-Veithen: Thanks again for joining us today. We obviously look forward to continuing our dialogue with you through investor conference or in one-on-one virtual meetings or calls. And we are also looking forward to meeting some of you in person at the upcoming Formnext event in November. In the meantime, please reach out if you have any questions. Thank you, and goodbye for now. Operator: This concludes today's program. Thank you all for participating. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I will be your conference operator today. At this time, I would like to welcome you to the Custom Truck One Source Inc. Third Quarter 2025 Earnings Conference Call [Operator Instructions] I'd like to turn the call over to your host today to Brian Perman. Sir, you may begin. Brian Perman: Thank you. Before we begin, we would like to remind you that management's commentary and responses to questions on today's call may include forward-looking statements, which, by their nature, are uncertain and outside of the company's control. Although these forward-looking statements are based on management's current expectations and beliefs, actual results may differ materially. For a discussion of some of the factors that could cause actual results to differ, please refer to the Risk Factors section of the company's filings with the SEC. Additionally, please note that you can find reconciliations of the historical non-GAAP financial measures discussed during the call in the press release we issued yesterday afternoon. That press release and our third quarter investor presentation are posted on the Investor Relations section of our website. We filed our third quarter 2025 10-Q with the SEC yesterday afternoon. Today's discussion of our results of operations for Custom Truck One Source Inc., or Custom Truck, is presented on a historical basis as of or for the 3 months ended September 30, 2025, and prior periods. Joining me today are Ryan McMonagle, CEO; and Chris Eperjesy, CFO. I will now turn the call over to Ryan. Ryan McMonagle: Thank you, Brian, and welcome, everyone, to today's call. Building on our momentum from the second quarter, Custom Truck had a strong third quarter, delivering 20% adjusted EBITDA growth and 8% revenue growth versus Q3 2024. Third quarter performance was characterized by continued solid fundamental demand in our core T&D markets and excellent execution by our team, leading to strong results in both our ERS and TES segments and overall year-over-year revenue growth for the quarter. Custom Truck powers the people who strengthen and build our nation's infrastructure. Our trucks are used to build and maintain the grid on a daily basis. Our steady business activity and strong intra-quarter order flow continue to reinforce our optimism about achieving our expected growth targets in 2025. As a result, we are reaffirming our previous fiscal 2025 revenue and adjusted EBITDA guidance. While Chris will discuss our segment's performance in greater detail, I'd like to highlight some key trends. In ERS, our utility contractor customers continue to see sustained and increased levels of activity, which they expect to persist for the foreseeable future, driven largely by spending tied to unprecedented secular growth and electricity demand. As several recent articles highlight, the real bottleneck in the AI build-out is electricity. Current industry projections estimate that total T&D CapEx among U.S. investor-owned utilities for the 5-year period from 2025 to 2029 will be approximately $600 billion. The overall annual growth rate of spending is expected to be almost 10% with transmission spending expected to grow at more than 15% annually through 2029. We feel these trends in the utility end market have been among the key factors driving the growth in our OEC on rents over the last year and position us well for 2026. For the third quarter, average OEC on rent was more than $1.26 billion, a 17% year-over-year increase. We ended the third quarter with over $1.3 billion of OEC on rent and have continued to see growth so far in the fourth quarter. Average utilization in the quarter was just over 79%, up more than 600 basis points versus Q3 of last year and the highest level in more than 2 years. We continue to see mid-70% to mid-80% utilization rates across most of our fleet, demonstrating the long-term resilience of our end markets. These trends drove a year-over-year increase in rental revenue of 18% in the quarter, with total ERS segment revenue up more than 12% versus Q3 of last year. Because of the sustained strong demand, we decided in the quarter to accelerate rental fleet CapEx, which Chris will discuss in more detail. We believe this spending will position us well for continued growth in 2026. At the end of Q3, our total OEC was just over $1.62 billion, our highest quarter end level ever. Coming off near record segment sales last quarter, TES continued to see good sales performance in the third quarter, posting year-over-year growth of 6% and year-to-date growth of 8.5% versus the first 3 quarters of last year. While our backlog was down in the quarter, we continue to see strong intra-quarter order flow, particularly among our local and regional customers. This reflects the current availability of equipment broadly in the market, which decreases the need for customers to place orders far in advance. Signed orders in the quarter from this portion of our customer base were up more than 40% year-over-year, driving overall order growth of over 30%. With the supply of certain vocational vehicles remaining at elevated levels across the market, segment gross margin was down slightly in Q3 compared to the prior quarter. However, it remained within our expected range of 15% to 18%. Overall, our current pace of orders and the continued strong demand for vocational vehicles across our end markets combined to provide us with confidence in our outlook for TES for the rest of the year. We continue to believe that accelerated depreciation provisions contained in the recent federal spending and tax bill will benefit Custom Truck, particularly for sales of used and new vehicles in the fourth quarter. Since the end of the third quarter, we've seen this reflected in our backlog, which has grown so far in the fourth quarter to over $350 million. With respect to the tariff landscape, we continue to feel that as a result of our mitigation actions taken earlier this year, the tariffs will have a limited direct cost impact on our business this year. However, we continue to hear about hesitancy related to new equipment purchase decisions from some of our customers as a result of economic uncertainty, continued high interest rates and the overall inflationary pricing environment to which the tariffs have contributed. We are reaffirming our full year 2025 guidance. Our strong year-to-date results, our robust order flow and resilient end market demand continue to drive our expected growth across our consolidated business this year. Despite some volatility in the macro environment, our business outlook remains positive. Long-term sustained end market demand, buoyed by secular megatrends and our ability to provide exceptional execution on behalf of our customers set us apart from our competition. Our multi-decade relationships with strategic suppliers and our long-tenured and diversified customer base will continue to be key to our success. I continue to have the highest degree of confidence in the Custom Truck team and want to thank everyone for their hard work and dedication that helped achieve these results this quarter. We look forward to updating everyone on our progress on next quarter's call. With that, I'll turn it over to Chris to discuss our third quarter results in detail. Christopher Eperjesy: Thanks, Ryan. For the third quarter, we generated $482 million of revenue, $156 million of adjusted gross profit and $96 million of adjusted EBITDA, up 8%, 13% and 20%, respectively, versus Q3 of 2024. On a year-over-year basis, all our rental segment KPIs improved in the quarter. Average utilization of the rental fleet for Q3 was over 79% compared to 73% in Q3 of the prior year. Average OEC on rent in the quarter was over $1.26 billion compared to under $1.1 billion in Q3 of 2024. Both metrics so far in Q4 are higher than the averages we experienced in Q3, currently standing at more than $1.3 billion and over 80%, respectively. As of today, OEC on rent is up more than $180 million or 15% versus a year ago. The ERS segment had $169 million of revenue in Q3, up more than 12% from $151 million in Q3 of 2024. Rental revenue was up meaningfully on a year-over-year basis, showing 18% growth. Rental asset sales were essentially flat and are up 20% year-to-date compared to the first 3 quarters of last year. Segment adjusted gross profit was $104 million for Q3, up 19% from Q3 of last year. Adjusted gross margin for ERS was 62% in the quarter, more than 370 basis points higher versus the same period last year, driven by a higher mix of rental revenue as well as improved rental margins of almost 76% and sustained rental asset sales margins in the mid-20% range. On-rent yield was 38.2% for the quarter, down slightly from Q3 of last year, but still within our expected upper 30% to lower 40% range. Net rental CapEx in Q3 was $79 million, and our fleet age is just below 3 years. Our OEC in the rental fleet ended the quarter at over $1.62 billion, up almost $130 million versus the end of Q3 2024 and up more than $60 million in the quarter, reflecting our strategic investment given the strong demand environment we continue to experience across our primary end markets, particularly in T&D. We expect to continue to invest in the fleet in the fourth quarter, resulting in high single-digit percentage OEC growth versus the end of 2024, which is higher than previously expected. In the TES segment, coming off near record sales in Q2, we sold $275 million of equipment in Q3, up 6% year-over-year. Gross margin in the segment in Q3 was 15%, down from Q3 2024. We expect TES gross margins to improve in the coming quarters as supply of vocational equipment in the market comes more into balance, reducing some of the pricing pressure we've seen this year. PES new sales backlog decreased by $55 million in the quarter, driven by continued strong sales activity. At 3 months of LTM TES sales, our TES backlog is slightly below our targeted historical average range. However, net orders in Q3 remained strong at $220 million, up more than 24% compared to Q3 of 2024. So far in Q4, which is historically our highest quarter of PES sales, we've continued to see strong order flow and our backlog has grown to over $350 million. That, combined with the ongoing feedback from our customers regarding their equipment needs for the remainder of the year, provides us with confidence that we will see strong revenue growth in TES this year, but we do believe it will be closer to the low end of our guidance range. Our strong and long-standing relationships with our chassis, body and attachment vendors continue to be an important driver of TES production. Our current level of inventory positions us well to meet our production, fleet growth and sales goals for the year as well as help mitigate any impact from tariffs. Our APS business posted revenue of $38 million in the quarter, up 3% compared to Q3 of last year. Adjusted gross margin in the segment was over 26% for Q3, up both year-over-year and sequentially. Our year-to-date adjusted gross margin in APS remains in our expected mid-20% range. Borrowings under our ABL at the end of Q3 were $708 million, an increase of $38 million versus the end of Q2, largely to fund both rental and non-rental CapEx and certain other working capital needs. As of the end of Q3, we had $238 million available and over $230 million of suppressed availability under the ABL, resulting in substantial liquidity for the company. With LTM adjusted EBITDA of $365 million, we finished Q3 with net leverage of 4.53x, a sequential improvement. We did make progress on our planned inventory reduction with inventory down almost $54 million in the quarter. This contributed to a reduction in our floor plan balances of almost $57 million. We continue to expect to reduce our inventory in Q4 and into next year, which should contribute to lower balances on our floor plan lines as well as reduced borrowings on the ABL. However, given the strong demand environment that we are expecting to continue into 2026 and beyond, we now expect to reduce our inventory by $125 million to $150 million compared to the level at the end of last year. We intend to use our levered free cash flow to reduce our net leverage and to continue to target a level of below 3x. This remains a primary and important goal for us and one that we expect to achieve by the end of fiscal 2026. We are reiterating our previous 2025 guidance with total revenue in the range of $1.97 billion to $2.06 billion and adjusted EBITDA in the range of $370 million to $390 million. However, given the sustained rental demand in ERS, we now plan to invest more than previously expected in our rental fleet this year, resulting in net rental CapEx of approximately $250 million. In addition, we expect our non-rental CapEx to be higher this year as well as we have taken the opportunity to fund some additional production and manufacturing improvements at our Kansas City location, which should result in expanded production capacity and better position us for growth across our segments. While our segment guidance remains unchanged, we do expect ERS to finish the year with revenues in the upper half of our $660 million to $690 million range and TES to finish the year with revenues closer to the lower end of the $1.16 billion to $1.21 billion range. The extent of the benefit we get from our customer spending on new and used equipment as a result of the accelerated depreciation provisions is likely to be a key determining factor as to where in our guidance ranges we end up for both ERS and TES. As a result of higher-than-expected rental and non-rental CapEx, as well as the decrease in our planned inventory reduction, we now expect our levered free cash flow to be less than our previous $50 million target. However, we are confident that the incremental CapEx will yield strong returns that will result in higher sustained levels of levered free cash flow going forward. In closing, I want to echo Ryan's comments regarding our continued strong business outlook. Despite some macroeconomic uncertainty this year, our year-to-date results and the continued strong fundamentals of our end markets allow us to be optimistic about the long-term demand drivers in our industry and our ability to produce double-digit adjusted EBITDA growth this year. With that, I will turn it over to the operator to open the line for questions. Operator? Operator: [Operator Instructions] Your first question comes from the line of Scott Schneeberger from Oppenheimer. Daniel Hultberg: It's Daniel on for Scott. So it seems like momentum is really strong here. Can you guys please elaborate on the visibility you feel you have for 2026 to sustain this momentum, please? Ryan McMonagle: Sure. Yes. Good to hear from you, Daniel, and thanks for the question. Yes, we're seeing really good demand in the utility sector and transmission and distribution. And as we talked about on the call in our remarks, we're seeing demand increase, especially around transmission, in particular. So as everybody is hearing, it does feel like we're heading into a strong cycle of transmission demand. And so that's the decisions that we made in Q3 were to invest more into the rental fleet. Some of that will carry into Q4 as well. And we think that's what sets us up really well for 2026. So we said on the call that OEC on rent averaged $1.26 billion for the quarter. It finished the quarter at $1.3 billion and has continued to grow into October. So utilization on rental is back into the 80 -- is north of 80% at this point. And so that's, I think, why we're really comfortable with the impact of that heading into 2026. Daniel Hultberg: Got it. Honing in on ERS and OEC on rent yield. Could you discuss how you think about that going forward and how you feel about the pricing environment? Ryan McMonagle: Yes. We've guided, obviously, high 30s to low 40s from an on-rent yield perspective, Daniel. And we've seen yield increase a bit in September and into October versus what we averaged for the quarter. So we've seen that as a positive thing. Obviously, 2 things in play there, right? One is as we shift more towards transmission, slightly higher yield that we've talked about. And so I would expect that to continue a bit. And then as utilization increases, we've been able to take advantage of some pricing opportunities where it makes sense. Obviously, we have to price to the market. We have to be competitive in the market. And so that's obviously what we're dealing with on a day-to-day basis. But I think it should be in the range that we've guided to, and we -- I would expect that it would increase a bit from where we -- where it was in Q3 of this year. Operator: Your next question comes from the line of Justin Hauke from R.W. Baird. Justin Hauke: I guess I wanted to ask a little bit about the cash flow. I appreciate all the color on the uptick in the CapEx to kind of capitalize on the growth that you're seeing. But maybe just a little bit more clarification on the inventory reduction and the timing of that. You said kind of into '26 to get that down by the $125 million to $150 million from year-end '24. Just trying to think about what that means? Is that more second half of '26? I just don't know how long this kind of elevated CapEx is going to be before those inventory levels start coming down. And then maybe the corollary to that would be just on the free cash flow guidance saying the levered being under the $50 million. I guess it's been kind of a use of cash all year. I'm just trying to think about the fourth quarter and do you expect to kind of continue to use cash in 4Q? Or will that be a cash inflow quarter? Christopher Eperjesy: Yes. Thanks, Justin. This is Chris. And maybe I wasn't clear. So the $125 million to $150 million reduction versus the start of the year will occur by the end of this year. And so we do expect to see -- I think through Q3, I think we're only down $14 million or $15 million. So you should expect another $110 million to -- I guess, it would be $135 million of further reduction in Q4. And so I think at peak last summer, we said we were just under 11 months of whole goods inventory on hand. I think now we're just under 8. We've set a target of trying to get to 6. I think the into and beyond into 2026 relates to getting that further -- getting down to 6 months by the end of next fiscal year. And so I do expect we'll generate free cash flow in the fourth quarter, but it's -- given the incremental investment in the rental fleet and the timing of some of that inventory reduction, we're not going to have -- for the full year, we won't have any meaningful free cash flow. Justin Hauke: Okay. Okay. And I guess just on the non-rental CapEx, the uptick on the production capabilities, can you quantify just kind of how much that is as we kind of think about, I don't know, the difference for next year versus that investment? Christopher Eperjesy: Yes. So I mean the answer is it really is just expanding some of our capabilities here in our KC campus. And I would think of it in the magnitude of $10 million to $15 million kind of impact, and it really is land building and putting some equipment in those facilities. And so I think we -- next year, we get back. I think historically, we've been $25 million to $40 million of non-rental CapEx. I think it will be -- continue to be similar as we move forward. Operator: Your next question comes from the line of Naim Kaplan from Deutsche Bank. Naim Kaplan: This is Naim Kaplan on for Nicole DeBlase. So I was wondering what was the latest on your utility T&D customers' ability to execute projects? I know you kind of touched on this, but just like to have a little bit of elaboration. And it seems like also the industry is back on track after delays in 2024 and 2025, basically. Is that kind of the right way to think about it that we're back on track? Ryan McMonagle: Yes. I think that's a great way to think about it. I think we're seeing -- we've seen distribution really pick up throughout the year. And I think it's back in a very good spot from a utilization and from a demand to purchase new equipment. And then we're seeing transmission pick up. It's been a significant pickup as it normally is in the fall. And obviously, that's what we've been investing into. And it feels like that it's got very good tailwinds behind it when it comes to transmission projects that are in process and under construction and will continue to need our equipment. So yes, I'd say it's back to normal and continuing to improve on the transmission side. Naim Kaplan: Okay. Perfect. And can you provide more color on the drivers of the 30% organic growth in PES? And maybe if you could touch on the customer types as well. And then on the backlog, was that only down year-over-year due to like a prior year comp because you had some past due backlog last year? Christopher Eperjesy: Yes. I'll take the second question. And you may have to repeat the first -- your first question because I don't think we heard -- you gave a percentage that I don't think we're familiar with. But on the backlog, we've said historically, we're not really a backlog-driven business. We're in kind of an order-driven business. And if you go back and look at the history, we've continued to post -- in '23, we posted 30% new sales growth last year, 7%. This year, on a year-to-date basis, almost 9%. And in that period, the backlog has come down almost $600 million, and we've continued to post growth quarter after quarter. Ryan did talk about in his prepared remarks, we have seen the backlog grow almost 25% -- or a little over 25% here in the first 3 weeks of October. So we're back close to $360 million of backlog. So we're feeling really good about kind of the guidance we're giving and overall, just the health of the new sales business. But if you could just clarify the first question for us. Ryan McMonagle: I think -- was it the -- you're talking about 30% intra-quarter order growth. Is that what you're referring to? Naim Kaplan: Yes, within TES. I'm pretty sure what you had in the release. Ryan McMonagle: Yes. No, that's -- we just wanted to make sure you're asking the right question. The thing that -- in addition to backlog, what we're watching really closely and what we have good visibility to is how orders are coming in within the quarter. And so there's a meaningful -- so we're -- that 30% is an increase in signed orders when we compare Q3 of '25 to Q3 of 2024. And I think that's where we're feeling comfortable about the growth we expect in Q4 and obviously, the performance, the 8.5% growth we've seen year-to-date in the TES segment. So in addition to backlog, we're watching kind of the intra-quarter order flow kind of in a real-time basis, and that's what we wanted to share with you all, too. But that's why I think we have comfort in the full year number that we've talked about for TES. Naim Kaplan: Okay. Very helpful. And just to follow up on that, if I may. Any details on the customer type? Ryan McMonagle: Yes. We're seeing -- it's a good -- we are seeing really strong demand in the utility segment. So that's both our utility contractors and our forestry contractors, where we're seeing really strong demand. As we talked about some in the comments, we're seeing a bit more hesitation in some of the infrastructure end markets, things like refuse and some of our dump truck where there's a bit more inventory in the market that we talked about in the prepared remarks. But I'd say there's still a good mix of our large national customers and our smaller customers as well. And so no significant shift there other than maybe skewing a little bit more towards T&D where we're seeing a stronger demand and infrastructure is a little bit softer from a demand perspective. Operator: Your next question comes from the line of Brian Brophy from Stifel. Brian Brophy: You touched on this a little bit, but hoping to get a little bit more color. Hoping you can give us an update on what you're seeing from a large transmission pipeline perspective. What's the latest you're hearing from your customers regarding to when some of these large projects that have been discussed are going to come to fruition? Ryan McMonagle: Yes. We're seeing good demand there, Brian, for sure. And so we have seen a meaningful uptick in our transmission utilization late in the third quarter and into the fourth quarter. So I think that's driving a lot of the increase that we talked about on the call. And I think we have strong expectations for 2026 there as well. There are a couple of very specific projects, right, that are in process now that are driving that demand. And then there's a lot of floating going on, too, that is for early 2026 also. So really good demand there. I think that's where we -- the comment that we made some additional CapEx investment, that's where we did add to the rental fleet to grow that part of the rental fleet further because we're seeing the good demand that our customers are talking about. Brian Brophy: Okay. And then just to touch on one project in particular, I wanted to ask on GreenLink. Obviously, it's been discussed as a project you guys have been involved with, and we saw some headlines intra-quarter regarding a pause in activity. It doesn't seem like it's impacting your fourth quarter based on some of the comments you made. But just maybe any updated thoughts you can provide on this project and if we could see an impact this quarter? Ryan McMonagle: Yes. No, it's still been -- it's not impacting the fourth quarter. We're still seeing good demand on transmission. I think that's what's always interesting when you get into these strong transmission cycles is I think customers don't want to return gear because they know that they may not see it again too. So I think it should not be an impact in our fourth quarter. And that transmission sector, as I said, is staying very strong from an overall utilization perspective. Operator: Your next question comes from the line of Mike Shlisky from D.A. Davidson. Michael Shlisky: Can we back up a couple of questions? You had mentioned some comments about the infrastructure sector and how that's going. Can you maybe kind of round it out by just talking a few senses on how it's going in the telecom world and in rail as well? Ryan McMonagle: Yes. I think we're seeing -- look, across the board, we're seeing growth, right? And so I think that's important to say. We're seeing the strongest growth in transmission and distribution, just given what's going on there. So we are -- within telecom and rail, we're seeing some activity pick up. As you know, telecom and rail are less than 5% of our revenue. So we're seeing some growth in rail. We're seeing telecom, a lot of discussion and a lot of quoting happening. I expect that should pick up some in the fourth quarter and then into 2026 as well. But overall, it's growth. The strongest growth is in transmission and distribution. And then just where there's more competition from an inventory perspective in things like dump trucks or water trucks or some of our refuse product categories, we're seeing less growth or is the right way to say it, Mike. Michael Shlisky: Got it. And then turning to T&D, you start to see headlines from some data center operators as they build the data center, they're also building or contracting for energy production assets either close by, on site, a few miles away, not a long grid connection as far as distance is concerned, I guess. Not all of the data centers, but some of them are trying to co-locate the energy. Does custom trucks still play a role in a project like that? Does it accelerate the pipeline opportunities when people are just saying we can't wait for the utilities go to build at least on our own infrastructure. Does have an impact on pricing and margins when you have a project where it's much closer to the data center than others? Ryan McMonagle: Yes, it's a great question, Mike. And I think the way we're thinking about it is it is very good overall demand, right, for T&D for us, right? And so to me, it feels like there's a lot of generation that's coming online that in some cases, it's temporary generation, too. And so to me, that's why I think we're getting comfortable that there should be a sustained period of long demand here. So in some cases, it's temporary generation, right, to get the data center up and then the expectation is the utility will come back through and bring a transmission line or a substation or whatever is needed, right, for that particular project. And that's where I think it feels like it's going to be good sustained demand for custom truck and for our trucks in both of those cases. Michael Shlisky: Got it. And then, Chris, can I give some more comments on your -- on the CapEx plan that you put out here for the rest of '25. Is any of this pull forward from '26? I'm trying to figure out, is there a point where you pause in the CapEx kind of harvest what you've got and pay down some more debt at some point? Christopher Eperjesy: The answer is yes. As you know, we -- the age of our fleet going back 3 or 4 years ago was a little over 4 years. We're now, I think, at 2.9 or right around 2.9 years. So that's $0.5 billion, $600 million investment to do that over time. And -- but the short answer to your question is we should start to see some improved free cash flow, certainly as we're able to pull back on some of that net investment. Michael Shlisky: Great. Chris, can I just follow up there? You had said you were once 4 years. I think you were a little bit above 4 years depending on how far back you kind of Nesco and so forth. How far would you take it? Like I guess I'm curious where the competition is with their average age? And how close would you get to the competition while still being the newest. I'm trying to figure out how long you might be able to let your assets for if you were to try to find a way to harvest some cash flow. Ryan McMonagle: Yes, it's a great question. And look, it's -- there's not great data out there, but we do think that we are the youngest fleet, the youngest utility rental fleet that's out there. And so you're right, Mike, there is the ability to age it. And so to me, if you kind of use the bounds of where we are today of under 3, 2.9 or whatever the exact number is right now, and you think about the fact that we were over 4 just a few years ago, to me, that's a pretty good band that you can live in and allow to age -- and allow ourselves to age our fleet and therefore, generate cash flow that way. So I'd give you that as a pretty good band to think about and still have a very strong performing fleet where we take care of the customer and are very competitive from an overall age perspective. Michael Shlisky: And I appreciate you've got a lot of opportunities coming in, so I don't want to issue your balance. So -- anyways I appreciate [indiscernible] a lot. Operator: [Operator Instructions] There are no further questions in queue. I'd like to turn the conference back over to Ryan McMonagle for any closing remarks. Ryan McMonagle: Great. Thanks, everyone, for your time today and your interest in Custom Truck. We look forward to speaking with you on our next quarterly earnings call. And in the meantime, please don't hesitate to reach out with any questions. Thank you again, and have a good day. Operator: This concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the TriMas Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Sherry Lauderback, Vice President, Investor Relations and Communications. Thank you. You may begin. Sherry Lauderback: Thank you, and welcome to TriMas Corporation's Third Quarter 2025 Earnings Call. Participating on the call today are Thomas Snyder, TriMas' President and CEO; and Teresa Finley, our Chief Financial Officer. We will provide our prepared remarks on our third quarter results and full year outlook, and then we will open up the call for questions. In order to assist with the review of our results, we have included today's press release and presentation on our company website at trimas.com under the Investors section. In addition, a replay of this call will be available later today by calling a (877) 660-6853, meeting ID of 13756458. Before we get started, I would like to remind everyone that our comments today may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. Please refer to our most recent Form 10-K and 10-Q to be filed later today for a list of factors that could cause our results to differ from those anticipated in any forward-looking statements. Also, we undertake no obligation to publicly update or revise any forward-looking statements, except as required by law. We would also direct your attention to our website where considerably more information may be found. In addition, we would like to refer you to the appendix in our press release or presentation for the reconciliations between GAAP and non-GAAP financial measures used today during the call. The discussion today on the call regarding our financial results will be on an adjusted basis, excluding the impact of special items. At this point, I'll turn the call over to Tom. Tom? Thomas Snyder: Thank you, Sherry. Good morning, everyone, and thank you for joining us today. As I conclude my fourth month as CEO, I remain energized by the opportunity to lead this great organization. Over these 4 months, I've had the privilege of engaging with our teams around the world, visiting 16 facilities, listening to our employees and gaining a deeper understanding of operations and the opportunities that lie ahead. What I've seen is a company with solid capabilities powered by talented people and deeply committed to delivering value for our customers and our shareholders. At the same time, we have identified opportunities for continuous improvement, areas where I believe we can evolve, innovate and enhance our foundation for the future. Let's turn to Slide 3. This quarter, we've continued to take meaningful steps to strengthen our company and position TriMas for long-term success. I'd like to take a moment to highlight a few initiatives on this call. First, we're launching a comprehensive global operational excellence program to drive continuous improvement, enhance efficiency and share best practices across our footprint. This will be our company-wide operating system rooted in Lean Six Sigma principles and designed to improve safety, quality, delivery and cost while increasing speed and standardization. In the next 2 weeks, we'll begin implementation within our packaging business at 2 larger locations in Indiana and Mexico as initial model lines for this rollout. We expect to use these pilots to prove benefits, refine the playbook and then scale across the network, supported by visible daily management and leadership accountability. Over the next month, we are beginning a comprehensive strategic planning process. While strategic assessments are a regular part of our annual cycle, this year's approach goes much deeper. We will rigorously assess where we win, where untapped potential exists and where to focus going forward. Using internal and external data structured strategy tools and fresh voice of the customer input, we will develop a Hoshin Kanri road map often called True North Alignment that cascades from the enterprise value to each division and site. This work will set clear direction on our most important objectives, define actionable initiatives and assign ownership and time lines for accountability. Our goal is simple: align the entire One TriMas team on the few priorities that matter most and ensure consistent execution across the company. In our Packaging group, we've also launched the One TriMas branding initiative, a strategic effort to unify and elevate our brand identity and organizational culture across all regions and business units. Our goal is to consolidate the 6-plus legacy brands into one consistent brand across TriMas Packaging, creating a more cohesive and compelling experience for our customers and our employees, enhancing cross-selling opportunities and simplifying and fine-tuning our message. As part of this effort, we are conducting internal and customer-facing interviews to gain deep insights as to how our brand is perceived, where we can improve and how we can more effectively communicate the value we deliver. Additionally, we have successfully rolled out our new ERP system to a second location, significantly streamlining our operations and enhancing data visibility. We will continue to invest in automation and tools to enhance productivity, provide critical business data and increase responsiveness. These investments will help us reduce costs, improve consistency and free up our teams to focus on higher-value activities. And finally, as part of our global manufacturing optimization strategy, we are starting to actively evaluate our capacity and footprint to better support growth, enhance operational efficiency and respond to evolving market dynamics. In light of evolving trade policies, including tariffs and the increasing customer demand for manufacturing flexibility, cost effectiveness and localized production, it is more important than ever that we have the right capabilities in the right locations. This effort involves a thorough assessment of our global operations to ensure we can deliver high-quality products efficiently while remaining agile and responsive to customer needs. We are analyzing production volumes, logistic flows, cost structures and regional demand patterns to determine where we can scale, consolidate or invest to optimize performance. Together, these initiatives reflect our commitment to build a more agile, efficient and growth-focused enterprise. By strengthening our operational foundation, aligning strategic priorities and investing in our people and infrastructure, we are positioning TriMas to deliver sustainable value for our customers, employees and shareholders. I'm confident the actions we are taking will serve as a strong catalyst for long-term success. Before I shift gears to talk about our third quarter financial performance, I wanted to touch base on the Board-level strategic portfolio review we announced earlier this year. We are well into that process of evaluating our options and actively working on bringing this review to conclusion. However, as we have said in the past, we're not able to specifically announce any updates at this time, but we'll let you know as soon as we can. The team remains committed to making decisions that serve the best interest of our company and our shareholders. Turning to Slide 4. I'm pleased to report a strong third quarter performance with year-over-year sales growth across all 3 segments. TriMas delivered over 16% organic sales growth, along with improved cash flow and earnings per share, driven by solid execution and disciplined operational management. TriMas Aerospace led the way, posting record quarterly sales with over 37% organic growth, expanded margins and a strong backlog that supports continued momentum. TriMas Packaging remains on track for GDP plus growth, supported by ongoing improvement initiatives that position the business for enhanced performance as we look into 2026. These results are a testament to the dedication and focus of our global teams. I want to sincerely thank all our employees for their hard work and continued commitment to delivering value. With that, I'll turn it over to Teresa to walk through the financials and segment results for the quarter. Teresa? Teresa Finley: Thank you, Tom. Let's turn to Slide 5, highlighting our third quarter 2025 financial performance. We delivered another strong quarter with consolidated net sales reaching $269 million, up more than 17% year-over-year. Organic growth exceeded 16% for the quarter, excluding the effects of currency fluctuations and acquisitions and dispositions. Sales from our February acquisition of GMT Aerospace in Germany contributed $6.2 million, more than offsetting the $5.2 million reduction from the divestiture of Arrow Engine in our Specialty Products segment. Favorable currency exchange contributed an additional $2.1 million to net sales, further increasing our overall growth for the quarter. Consolidated operating profit increased by 34% year-over-year to $30.3 million, reflecting strong revenue growth and a 140 basis point expansion in our operating margin, led primarily by improvements in aerospace. This performance translated to a meaningful increase in consolidated adjusted EBITDA, which grew more than 25% to $48 million with margin improvement of 110 basis points to 17.8%. Our adjusted earnings per share increased to $0.61, representing a 42% increase compared to third quarter 2024. Turning our year-to-date performance on Slide 6. I won't spend too much time here as the trends closely align with our strong third quarter results. Year-to-date, sales are up 12.7%, driven almost entirely by organic growth of 12.6%. We've expanded our operating profit margin by 240 basis points to 11% and delivered diluted EPS of $1.68, a 38% increase year-over-year. These results reflect the sustained momentum across our businesses and the disciplined execution of our initiatives. Turning to the balance sheet and capital position on Slide 7. We continue to maintain a solid and flexible balance sheet, supported by low interest rates and long-term debt with no maturities until 2029. Net debt declined from both prior periods as we continue to pay down the increase associated with the GMT Aerospace acquisition. As a result of higher earnings and ongoing debt reduction, our net leverage improved to 2.2x as of September 30, 2025, down from 2.6x at the end of 2024. Free cash flow for the third quarter improved to $26.4 million, bringing year-to-date free cash flow to $43.9 million, more than triple the $12.6 million generated during the same period last year. This improvement reflects our enhanced operating performance and working capital management. Overall, we believe our capital structure is well positioned to support both near-term operations and future strategic investments. Let's shift gears and take a closer look at our Q3 segment performance, beginning with packaging on Slide 8. In the Packaging segment, organic sales grew 2.6% after adjusting for currency, reflecting continued strength in demand for dispensers in the beauty and personal care market. This was partially offset by softer demand for closures and flexibles, primarily used in food and beverage applications. Operating profit for the quarter was $18.2 million, a 4.3% decline primarily due to a tough year-over-year comparison as third quarter 2024 included a $1.1 million in gains from the sale of noncore properties. As a result, operating margin contracted by 120 basis points to 13.4%, while adjusted EBITDA margin came in at 20.1%. Once again, our teams continued to navigate direct tariff impacts effectively through proactive commercial strategies, including pricing adjustments and supplier negotiations. Looking ahead to full year 2025, we continue to expect GDP plus sales growth and relatively stable margins compared to 2024 as we continue to drive commercial discipline and continuous improvement initiatives that Tom mentioned earlier. With 1 quarter remaining, we're closely monitoring the evolving global tariff environment, which does remain one of the most significant external factors affecting the packaging industry. Longer term, we remain focused on positioning our package business for sustainable, profitable growth. Turning to Slide 9. I'll review our Aerospace segment. Our Aerospace Group delivered another record-setting quarter, once again surpassing $100 million in revenue with a year-over-year sales increase of more than 45%. This outstanding performance was driven by continued strength in the aerospace and defense market, improved throughput against a robust order book, disciplined contract execution and $6.2 million in acquisition-related sales from GMT, now operating as TriMas Aerospace Germany or as we call TAG. The year-over-year comparison also benefited from the absence of a work stoppage that impacted Q3 2024 results. Operating profit more than doubled compared to the prior year with margins expanding by 860 basis points. Our trailing 12-month adjusted EBITDA margin now stands at 23% reflecting the aerospace team's strong execution across the board from accelerated factory floor and operational excellence initiatives to strategic procurement actions and delivering innovative solutions that meets evolving customer needs. Given our strong year-to-date performance, we remain confident in achieving full year 2025 organic sales growth of 20% plus, along with margin improvement of over 500 basis points versus 2024. We're highly encouraged by the long-term growth outlook, supported by a healthy backlog and our continued focus on customer-driven innovation. To sustain this momentum, we are prioritizing targeted capital investments to expand capacity and drive further operational improvements across TriMas Aerospace. If we turn to Slide 10, I will now cover our Specialty Products segment. Norris Cylinder delivered improved performance in the third quarter with sales up 31% year-over-year as they continue to recapture market share. This growth more than offset the $5.2 million reduction in sales resulting from the divestiture of Arrow Engine. As a result, the segment posted overall sales growth of 7.2% compared to Q3 2024. Operating profit for this segment was relatively flat year-over-year as the higher profit contribution related to Norris Cylinder was offset by the loss of profit related to the divestiture. However, it's worth noting that Norris Cylinder grew operating profit year-over-year nearly 40%, while expanding margins another 50 basis points. For full year 2025, we expect Norris Cylinder to deliver mid- to high single-digit sales growth with operating margins trending slightly higher year-over-year. We remain focused on driving operational efficiency and leveraging demand tailwinds to support continued profitable growth within the segment. I will now turn the call back to Tom to provide further details on our outlook. Thomas Snyder: Thank you, Teresa. Let's now look -- turn to Slide 11. As highlighted in our press release this morning, we are raising our full year 2025 outlook following 3 strong quarters. We're increasing both our sales and earnings per share guidance supported by continued strength in our Aerospace business. We now expect full year sales growth of approximately 10% compared to 2024 and adjusted earnings per share in the range of $2.02 to $2.12 as compared to the previous guidance of $1.95 to $2.10 per share. At this new midpoint, this represents a 25% increase over last year's earnings per share of $1.65, an encouraging step forward in our growth trajectory. While we expect much of this positive momentum to continue, it's important to note that Q4 typically reflects seasonal softness driven by fewer production days and customer holiday shutdowns. Additionally, the evolving tariff environment continues to introduce uncertainty in customer ordering patterns and consumer demand, which we are actively monitoring. That said, we remain focused on mitigating these impacts through proactive planning and ongoing performance improvement initiatives. Before turning to Q&A, I want to reiterate how pleased I am to be part of TriMas and how excited I am about our future. While each of our businesses, TriMas Packaging, TriMas Aerospace and Specialty Products is at a different stage in its cycle, all are well positioned to deliver long-term growth and value. I'm excited about what we can accomplish together, and I look forward to working with our teams, customers and investors to build an even stronger TriMas. Thank you. And with that, I'll turn the call back to Sherry. Sherry Lauderback: Thanks, Tom. At this point, we would like to open the call to questions from our analysts. Operator: [Operator Instructions] Our first question comes from Ken Newman with KeyBanc Capital Markets. Katie Fleischer: Teresa, I just wanted to clarify -- sorry, this is Katie on for Ken. I should have said that. Teresa, I wanted to clarify one of the comments you said when you were talking about expectations for packaging margins. Did I hear you say that there's -- you expect those to be relatively stable in full year '25 versus 2024? Teresa Finley: Yes, that's correct, Katie. We expect about flat margins year-over-year. Katie Fleischer: Got you. Okay. And then can you help us think about how much cost out benefited margins within Packaging this quarter? And then how much dry powder you think is left for improvement within that segment? Teresa Finley: Well, I'll start, but I'll turn it to Tom. I think we see some definite upside on the activities that we're putting in place across the Packaging business. The continuous improvement initiatives that Tom referenced should certainly help us manage our costs going forward no matter what environment is presented to us in 2026. So we certainly see opportunities ahead. Thomas Snyder: Yes. We're early in that process. We're identifying opportunities. I anticipate a lot of activity, especially as we look towards next year and the opportunity to -- everything I said earlier really about optimizing our footprint, figuring out where we should be making what and then putting the tools of lean in place and driving standardization across these facilities. As we've talked before, these were really separate companies run independently in a lot of regards, not running to any best practices or any particular standards. And so there's definitely a lot of opportunity to improve that. But again, we're early in that. We're kicking it off right now, and I look forward to continuing to report on that as we go forward. Teresa Finley: Katie, I would add that in the quarter, as previous quarter and likely in Q4, we continue to manage our tariff pressures across the Packaging business. We're doing pretty well and managing that through pricing actions and procurement actions, but there is a bit of a headwind, obviously, on our business and FX that we need to continue to try and overcome, maybe somewhere around 30 to 40 basis points in a given quarter. But we're doing well managing that, but that is a headwind we don't think is going to -- it doesn't look like it's going to disappear anytime soon. Katie Fleischer: Got it. And then if I could just squeeze one more in here. I think Howmet had mentioned that they put it up 30% EBITDA margins in their fastener business recently. Any thoughts on how high the TriMas business could get and if that's a reasonable long-term goal? Teresa Finley: We get that question a lot, Katie. We've had such great performance out of the Aerospace. But I would just say we like where our margins are today. We're looking at certainly balancing growth and balancing continuous increase in margin. We think there's always opportunities. We're constantly looking at robotics and other things to take out costs and to create more throughput. So I don't want to say we're done, but I would say we like where we are today. Thomas Snyder: I would just say, too, let me add to that and say that in the visits that I've been to in these facilities, there's a lot of activity about increasing throughput, value stream mapping their operations, identifying areas where they can reduce waste. They're energized about that. We're pretty excited to see kind of the work that they're doing in that area. And so I think between the throughput improvements that they're making in the plants and then the additional -- and we've talked about this before, the capacity that we had largely through adding human resources, skilled trades into these operations. That is one of the bottlenecks to continuing to improve throughput, and we do that in a very measured approach. And so we did that this year. We have opportunities to continue to do that next year. So we'll see both, I think, throughput increase as well as productivity, overall volume and productivity, both in those aerospace facilities. Hopefully, that gives you a little bit of additional color. Operator: Our next question comes from Hamed Khorsand with BWS Financial. Hamed Khorsand: I just want to start off with on the packaging side. You've talked about different strategic events there and trying to manage the business. Why is it every quarter, there's a lot of moving parts associated with it. And do you feel like you're ahead of the curve or right at where the market is? Thomas Snyder: Can you explain a little bit when you say a lot of moving parts, what you're looking at, what you're thinking about? Hamed Khorsand: Sure. Like last quarter and 2 quarters prior, you were talking about the beauty market moving higher. This quarter, you're talking about how you're trying to manage the business with growth strengths. So I'm just trying to understand like do you actually have -- you're on the pulse of this business or you just plan... Thomas Snyder: Yes. Let me -- I can give you a little bit of insight from my perspective here. We continue to see strong growth in the dispensing side of the business. Especially in certain markets, we see a lot of growth in Latin America. We continue to see that. And I think we've been consistent, I think. I mean I haven't been here that long, but I think that's what we've been saying. The -- on the closure side of the business, it's been -- I think we've been consistent there as well. It's been softer than we'd like to see. And both in the U.S. and in Europe for different reasons, perhaps. We've seen some softness. We're more beverage oriented in Europe, and we're more food-oriented, let's say, on the here. So we've seen some, like I said, softness in that closures market. I think it's consistent with what we've been addressing all year. And the Industrial business, that continues to be a very stable business. This year, in fact, slightly growing for a very mature business. And so that's the -- if you want to talk about the moving parts, I mean, those are the parts that are moving. Teresa Finley: Hi, Hamed, I would just add that we've been consistent all year that we're going to turn out GDP plus growth, and we are on track to do that this year. So in terms of consistency there, I don't know if that helps with your question. That's helpful. Hamed Khorsand: And as you look out into 2026, is there anything that bothers you as far as clarity goes in the packaging business. Thomas Snyder: Well, overall, the situation we're talking about, the tariff situation, the lack of global, let's say, demand and economy, all those kind of macro factors that are going to impact any business, those always worry me a bit. But I tend to be a lot more optimistic than pessimistic when I think about next year because, again, I just think there's a lot of things that this business should have been doing that they weren't doing over the past. And I've addressed those in the plan that we laid out here a few minutes ago as far as looking into the future. So I know consolidating our businesses into like one brand, bringing broader awareness to our customers. I mean a lot of customers don't even know TriMas, let's say, when I say not necessarily our customers, but broadly into the packaging space. When you talk about TriMas, they might know some of the brands. They're closer to some of those individual historic brands, but they don't know the breadth or the depth of kind of what we can provide. And we've seen some firsthand situations here recently where there's been some real surprise, like, "Oh, you do that, that's great." So I think we're going to. That's a really important thing. And then getting our plants operationally aligned and driving best practices, that's something that should have been done from the time these plants were acquired. And so we're going to see improvements on the operating side. We're going to see improvements on the commercial side. And I'm very comfortable with an optimistic view as we look forward. Hamed Khorsand: Great. And just lastly, on the aerospace side, how does your order book look for '26. And Do you have the capacity to grow compared to 2025 levels on a unit volume basis? Thomas Snyder: Yes. Our order book is order booked for the most part, right, for 2026. It's a very, very strong backlog. And then we did add some -- spend some capacity -- some CapEx this year to meet the demands of some of our contracts moving forward. And as I mentioned earlier, we're constrained primarily around our skilled resources that we have in our facilities. They're very high skilled tradesmen that are operating in these facilities. We grow capacity roughly 10% a year, somewhere in that area based on the amount of people that we feel is responsible to add and train and bring up to speed in this highly quality-oriented business. Operator: We have reached the end of our question-and-answer session. I would like to now turn the floor back over to management for closing comments. Sherry Lauderback: Once again, thank you for joining us today and for your continued interest in TriMas. We appreciate your ongoing support, and we look forward to updating you on our progress next quarter. Thank you. Thomas Snyder: Thank you, everyone. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Ladies and gentlemen, welcome to the Alfa Laval Q3 '25 Report Conference Call. I'm Valentina, 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 Tom Erixon, CEO. You will now be joined into the conference room. Tom Erixon: Good morning, and welcome to Alfa Laval's Third Quarter Earnings Call. And Fredrik and I, we're going to take you through the quarter. So let me, as always, start with a couple of introductory comments. Now with a solid order book and good demand in service and short-cycle businesses, sales grew 8% organically in the quarter. It was a stable and clean quarter operationally and earnings increased to a new record level of SEK 3.2 billion in the quarter on the EBITA level. And then finally, as you noticed, we have adjusted our financial targets to better reflect our financial performance levels. And I will comment on the financial targets a bit later. So let me go to the key figures. Order intake was good in the quarter with a 10% organic decline as expected due to the normalization of demand in cargo pumping applications. In the short-cycle business, both order intake and factory utilization are is at high or record high levels in several end markets and product groups. Sales developed well, supported by all 3 divisions and generated a margin of 18.4%. In all, it was a well-executed quarter with mix effects contributing to the margin improvement. Moving on to the Energy division. The market dynamics are shifting towards a stronger HVAC, heat pump data center growth and moderate expectations on CapEx projects in the fossil fuel business. Cleantech remains on a positive growth track across a wide range of applications despite growing concerns regarding the political support for the decarbonization journey in Europe and in the U.S. Strong momentum in energy efficiency, growing demand for nuclear and an expected scaling, making new technologies financially sustainable are the foundation for future growth in the cleantech sector. The margin was sequentially stable, but note that transaction costs related to the Fives Cryo acquisition was charged to the P&L in Q3 on the Energy division. So moving on to Food & Water. Order intake was firm in most end markets. Large order bookings were relatively slow, although the project pipeline still remains healthy in terms of outstanding quotations. Short-cycle demand drove a positive mix change with a healthy margin. The project business generated a positive margin improvement in the quarter, but we are still working through some project execution issues in the quarters to come. Then coming to Marine. Profitability remained sequentially stable on a high and good level with good order execution in the quarter. While the record ship contracting year in 2024 will not repeat, contracting at the yards is expected to remain at about 2,000 vessels per year pace, approximately matching the global yard capacity. As expected, the 2024 contracted ships are now converted into our order books with record level orders in several product groups within the Marine division. The order intake decline compared to last year was entirely related to the expected normalized order level in cargo pumping with new orders at a normal rate for the business. So on to service. Service has grown substantially over many years and now accounts for 31% to 32% of orders, structurally somewhat higher than historically. Still, this year, we have worked through a lot of operational challenges, both related to physical distribution centers and the digital systems supporting the spare parts flow in the Energy division. It is and was a needed scaling project to cope with the larger volumes. And with the troubleshooting behind us, we expect the Energy division to return to service growth in line with other divisions. In the Marine division, service accounted for 40% of order intake, supported by a larger installed base and an aging global merchant fleet. If the aging fleet provides some tailwinds, the constant transfer of older tankers to the Russian dark fleet is a headwind and obviously outside our business scope. Then finally, a few comments on key markets. China and the U.S. accounting for approximately 40% of our business had a strong quarter with good demand in many areas. Note that the cargo pumping affecting an otherwise growing business in both China and Korea. Most markets are stable to positive at this point in time in the quarter, but looking forward, Middle East CapEx projects may be negatively affected by the lower oil price. And with that, I hand over to Fredrik for some further comments. Fredrik Ekstrom: Thank you, Tom. So hello, everyone. Let us get started by recapping the order intake in quarter 3 at SEK 16.6 billion. Organic growth contracted with 10% in the quarter. A substantial part of this contraction stems from the lack of large project orders. In the Energy division, both the welded heat exchangers and Circular Separation Technologies noted the absence of large orders. Desmet and food systems in the Food & Water division denoted the same pattern. And finally, in the Marine division, the continued normalization of tanker vessel contracting impacted the numbers. Important to mention in this context is that the project list remained strong, both in quantity and quality. It is the conversion to orders that is occurring at a lower pace, reflecting uncertainty in the market driven by external factors. Transactional business has a different development, up 8% in the quarter comparatively, excluding currency movements. Both gasketed and brazed heat exchangers booked orders above the same period last year in the Energy division. Fluid handling equipment, separators and decanters also booked higher order intake levels than in quarter 3 last year in the Food & Water division. And finally, our traditional marine products are also continuing to outperform quarter 3 last year. Service was up 8% in the quarter, excluding currency movements. Currency has an overall negative impact of almost 6% and, our acquisitions so far this year have a positive impact of 3% on the total. The same pattern repeats on a year-to-date basis and is an important input to any trend analysis. Book-to-bill in the quarter was 0.96 with a remaining strong backlog of SEK 51 billion, of which SEK 16 billion is slated to be invoiced in quarter 4. The backlog price levels are well in line with current input prices and in line with current tariff levels. Now on to sales. SEK 17 billion in sales in quarter 3 represents a strong historical level for quarter 3. Our manufacturing entities are delivering to our customers on commitment and on high utilization levels, which is clearly visible in the gross profit boosted by a strong factory and engineering result. Currency once again impacts negatively on a comparative basis, but prominently organic growth is up 8% in the quarter. Worth mentioning here is that the proportion of large project business in the invoicing mix is high. Transactional volumes are up, but not to the same extent. Net sales for service grew 3.1% compared to the same quarter last year, accounting for a mix of 30%. We expect this mix pattern to continue into quarter 4. Gross profit improved to 36.8%, boosted by better factory and engineering results and positive purchase price variances compared to the same quarter last year. Operating income increased with 12.6%, to SEK 3 billion. Sales and administration expenses were SEK 2.6 billion during the third quarter, corresponding to 15.4% of net sales. Research and development expenses were SEK 427 million during the third quarter, corresponding to 2.5% of net sales. Earnings per share in the quarter amounted to SEK 5.53 and SEK 15.22 for the first 9 months. The corresponding figure, excluding amortization of step-up values and corresponding tax was SEK 15.97 for the first 9 months. Now on to profitability. The Energy division posted an EBITA margin of 16.6%, which is lower than previous quarters due to a shift in mix towards large orders and costs related to the acquisition of Fives Cryogenics. Continued strong sales in the transactional business portfolio and service compensated for a large project mix invoicing in the quarter, yielding an EBITA of 16.1% for the Food & Water division. The Marine division continued with a positive mix of invoicing from cargo pumping systems and service, which yielded a 23.5% margin. On a group level, the adjusted EBITA margin of 18.4% is a record with a -- sorry, is high with a record SEK 3.2 billion in money terms with a negative currency impact of SEK 178 million. Now on to the debt position. Post 3 acquisitions so far this year, most notably the Fives Cryogenics business, debt stands at SEK 18.6 billion or 1.3x last 12 months EBITDA. Net debt, excluding leases at 0.86 and including leases at 1.1 last 12 months EBITDA. Given our stated thresholds, the group retains sufficient debt power to complete further quality acquisitions as those opportunities arise. Cash flow from operating activities was SEK 2.2 billion in the third quarter and SEK 5.8 billion for the first 9 months. The lower cash flow is mainly due to an increased working capital compared to the same period last year, driven by inventory and predominantly [ WIP ] and decreasing advance payment as large projects are invoiced. Acquisition of businesses in the first 9 months was SEK 9.3 billion, whereof SEK 8.8 billion for the Cryogenics acquisition, and SEK 529 million was due to two minor acquisitions. Financing activities amounted to SEK 3.9 billion in the quarter and SEK 4.5 billion in the first 9 months. These numbers primarily composed of the additional debt added for the acquisitions of SEK 8.7 billion and a shareholders' dividend of SEK 3.5 billion. Before concluding, some guidance for the quarter ahead and looking into 2026. CapEx guidance for the fourth quarter is SEK 700 million, and reiterated guidance of SEK 2.5 billion to SEK 3 billion in 2026. PPA amortization of SEK 175 million in quarter 4 and SEK 580 million in 2026. These numbers include the preliminary purchase price allocations for the three acquisitions in 2025. Tax rate is guided to stay in the interval of 24% to 26%. And with that, I hand back over to Tom for some words on quarter 4. Tom Erixon: Thank you, Fredrik. Some forward-looking comments then as a summary. Let me start with the financial targets. The change in financial targets should not be seen as a change in guidance. We are making the adjustment because of two main reasons. First, we tend to overshoot the targets and consider them a floor level for performance. Now we are moving the targets into the present performance range, and it's important for us, including for internal reasons that we have similar objectives externally and internally. Second, we want to recognize that the investments during the last 5 years into technology and capacity were made for good reasons. We believe we have invested our shareholders' money responsibly and profitably, and we expect to continue to convert those investments into profitable growth in the next 5-year period. So finally, our crystal ball is no better than yours. If global macro deteriorates, if the energy transition stumble, if AI and data centers run into difficulty, we and others would find financial targets challenging. But with that said, we have changed the targets in terms of growth to 7% sales growth. And the EBITA margin moved up to 17% over the cycle. And we kept the ROCE target at the current 20% just to allow for the effects of future potential acquisitions. Regarding the next quarter, we believe demand in the fourth quarter is sequentially stable and on about the same level as in the third quarter. And on a divisional level, we expect the Energy demand to be higher, the Marine to be somewhat lower and the Food & Water to be stable compared to the third quarter. So with that, let's get over to the Q&A session. Operator: [Operator Instructions] The first question comes from Gustaf Schwerin from Handelsbanken. Gustaf Schwerin: Can I ask on the Energy division orders? If we look at this organically, they are largely unchanged versus Q2, so a bit lower than what you guided back during the summer. You, of course, mentioned the decision-making here. So given that you're now saying this should increase in Q4, has anything underlying really changed? Or is this just a matter of slower commercial rates on the orders? Yes, that's the first one. Tom Erixon: It's a good question. I think our perspective is that it is a fairly stable growth curve and sometimes projects end up in one quarter or another. So we are relatively positive to the demand trend in Energy. And given that we see improvement on the HVAC side and in a number of areas, the outlook for Q4 is reasonably positive. So I think it's more a question on when bookings are taking place than any change. We had a reasonable positive view 3 months ago in terms of the growth perspective, and we remain committed to that. Gustaf Schwerin: Okay. Then secondly, on the margin in Energy, can you give us a rough sense of the M&A costs here, and if we should expect this going forward as well? Tom Erixon: You should expect that the margin was essentially unchanged compared to Q2, excluding the cost related to the transaction. There will be some costs also in Q4, but I believe on a lower level. And we are not dealing with them as adjusted earnings. We're just [ charging ] them straight off. Operator: The next question comes from Magnus Kruber from Nordea. Magnus Kruber: Magnus from Nordea. Could you -- with respect to Cryogenics, does that business sit completely within the process industry end market? Tom Erixon: Yes. I mean it depends. There are essentially three application areas for Cryo at present. One is normal industrial gases, and the other one is LNG. And gradually, we expect hydrogen and energy transition applications, including carbon capture, be growing as part of the segment. So those are the end markets that we are dealing with. Largely, the applications are for larger projects in the industrial space. But I remind you that there's also Cryogenics pumping side that may fit well with our Marine business and some other applications as well. So I think the Cryo side may be a bit wider as we go along. But presently, essentially, you could consider it the process industry-related application. Magnus Kruber: Perfect. And secondly, light industry and tech saw a second quarter of declines year-over-year. Of course, FX is part of that. But could you comment a little bit about the momentum in data centers and other parts of the business, please? Tom Erixon: Yes, I think it's a correct observation. We are very comfortable with the development on the data center side. And we are entering into the expected frame agreements. And -- but I think what happens is that in terms of the actual quarterly bookings of the order, there are some variations. So in terms of progress on the data center side, it was good in the quarter. We expect that to continue into Q4 and next year. So we're on track with our plans, but the actual order intake bookings in Q3 was not that strong. Operator: The next question comes from Carl Deijenberg from DNB Carnegie. Carl Deijenberg: So first, I want to come back to the acquired Fives Cryogenics. I know you've talked about in the past that the aftermarket exposure in this entity relative to the, let's say, core Alfa Energy division is lower. And I just wanted to understand is there any difference here in the seasonality on the earnings given the sort of differences in the operational character? And also maybe going forward, I saw that you were adding roughly SEK 2 billion in the backlog. I guess this relates to the acquired entity. And given, let's say, the longer cycles you're addressing there relative to the transactional exposure in the Energy division, is there any significant quarter here going forward that you're set to finalize something or any large order that is going to come in that we should be aware of? Tom Erixon: I will not comment on individual orders, of course, but we always monitor our pipeline of outstanding quotes. And if I look at that pipeline, both in the Food & Water division and in the Energy division, it is relatively positive. The conversion time and if it gets through the final CapEx decision, there's always some uncertainties. But in general, we have a positive feeling around the pipeline in the Energy division, specifically for Q4. The Cryo, I don't -- it is, as you say, low on service. It will probably remain that way. The order intake will vary over the quarters. We had, I think, a normalized Q3. We expect a relatively strong Q4 on the Cryo applications. But in terms of earnings and how we execute those projects, it's percentage completion. I think we will -- Fredrik will work to have that as a stable and correct representation of progress every quarter. So I don't think -- if you want to add something? Fredrik Ekstrom: No, there's no particular seasonality to the percentage of completion. It's when the projects come to fruition and commissioning starts. So there's no deviation from that point of view, and there's no seasonality from that point of view. Carl Deijenberg: Okay. Very well. And then secondly, just very quickly on the pumping systems side. I see here in Q3 that orders seem to be stabilizing and actually being up slightly Q-on-Q, not by a huge amount, but a little bit. And could you just talk a little bit now on the sort of backlog or the timing on the orders you're taking in now on Framo and the lead times, just to understand the phasing of the backlog and so forth in Marine? Tom Erixon: Yes. I will not give you the full timeline on everything, but we are clearly fully booked for Q4, and we are essentially fully booked for 2026. So what we expect to see now is the normalized level renewing normal order flows as the contracting in '26 is expected to remain at about the 2,000 ships. And we don't see huge fluctuations in tanker contracting either. We think sort of with some variations between quarter, we will see a reasonable amount of new orders being signed, new contracts being signed. And so we were at Q3, if you think about it historically, actually perhaps somewhat on the high side when it comes to sort of our average order intake level. So we were pleased with the quarter. I think it substantiates that although we are not going to be at 2024 level in terms of order booking expected for a long time, we will continue to run that business on a good level. And that is also reflected in the investment decision we announced with our biggest CapEx decision in our history of SEK 4 billion. Although spread over a number of steps, a number of sequences and over 5 years plus, it is a big commitment to a business we believe in. Operator: The next question comes from Uma Samlin, Bank of America. Uma Samlin: My first one is on your guidance. So would you be able to help us to clarify how should we think about your growth guidance of 7%? What component of that is organic versus inorganic? And also on the margin guide, did I hear you clearly that the guidance is not a floor, but more of a through-cycle average margins? If that's so, where do you think we are in terms of the cycle? Tom Erixon: Yes. The growth ambition includes the possibility of acquisitions. We will make those judgments as we go, partly on where we are on the organic side and the macroeconomics and partly what opportunities we have on the M&A side. But we feel we have built a stable foundation for organic growth in the coming years. So without that, we would not have stretched our growth targets above the 5% we were at historically. And obviously, as you see, current level is higher. And at some point in time, the spread between the target and the floor level versus where we were just becomes a little bit problematic. So we think this is a good reflection on the growth side. On where we are in the cycle? If you asked me 10 years ago, I would give you a reasonable answer. After the last 5 years when we've been going through a COVID, shutdown, hyperinflation, a trade war, I have no clue where we are. The only thing I know is that with all of the turbulence that we've been living with in global markets, we come through that in a good way. And if we get some stability in the world regarding wars, regarding trade routes, regarding tariffs, I expect that we will have a couple of good years ahead. But to predict the macro events at this point in time seems to be a bit problematic. So we will deal with it as we go. But obviously, if we have a sharp downturn in the coming years, it will affect our financial performance just as everybody else. Uma Samlin: That's super helpful. May I just have one more follow-up on Marine. So how should we think about your expectation for Marine orders into Q4 and into '26, given the contracting has been fairly weak year-to-date. We just heard from your competitors who's expecting sort of like for '26 and '27 marine contracting to be up 30%. What's your thinking on that? Where do you see is the normalized level for Marine orders? Tom Erixon: Well, as I've said a couple of times, if we look at our invoicing path in Marine, it's a somewhat better way to track us financially than on the order intake and the contracting side. The global shipyard capacity in terms of deliveries is at about the 2,000 ship level, thereabouts. It may increase somewhat in the years to come, but we are not quite there yet. So that means that irrespective -- and basically, the yards are fully loaded for the years to come. So we see a lot of stability in terms of our delivery path in the coming years. In some areas, we are obviously tight on capacity now, but we are meeting our commitments and our obligations towards our customers. And there's a team who's doing a very, very good job on that. But sort of the downward risk in terms of volumes of invoicing for the foreseeable future is not -- does not look as a huge challenge at this point in time. I remind you that last year, we had an order intake of SEK 30 billion, about 50% ahead of the normal numbers. And so I said then, and I repeat that we are not a SEK 30 billion division in terms of invoicing, but we are on the SEK 20 billion plus. And I think it's from that level that we work with the organic growth and potential acquisition growth going into '26. Operator: The next question comes from Andreas Koski, BNP Paribas Exane. Andreas Koski: So three questions. First, on Marine sales. Can you give an indication of your pumping systems sales in the quarter? Are we at a level around SEK 2.5 billion or even closer to SEK 3 billion? And did I understand it correctly that you are fully booked through 2026. So the sales level that we're seeing in Q3, we should also expect through 2026? Tom Erixon: I will not give you detailed numbers to the million on individual path. But I want to remind you that the pumping systems include an offshore business. It does include a small aquaculture business. And so the whole thing is not and will not be on cargo pumping applications for tankers. So just for you to keep that in mind. But with that said, all of those businesses are in a good shape. And the demand situation looks -- despite some concerns on the oil and gas side, the demand situation for offshore looks reasonable going forward. The service business in that area remains strong. So that's sort of the backdrop of the business. I think in terms of invoicing, we are more or less at capacity, and the big investment program that we are doing is partly going to cope with the existing demand pressure, modernization, efficiency, automation and site consolidation improvements. But that will not have any major impact on invoicing capability for next year. And in any case, I think at the end of the day, it's the yard capacity that is determining the invoicing level in 2026. And I think they are pretty much running at full pace as we see it. Andreas Koski: Yes. The reason for asking is to try to understand if we should expect a margin of 23%, 24% also for the full year 2026 because the mix will remain as positive as it is today, but maybe you don't want to give any indications of that. Tom Erixon: I have full confidence in your ability to make your own calculation on that. Andreas Koski: Yes. Okay. And then on the order intake side in Q3, I understand Fredrik -- I think Fredrik mentioned that you lacked large project orders in Q3, but that the project business remains strong, both in quantity and quality. So I just wonder, in your outlook statement, have you assumed that the larger part of that project pipeline will convert into orders? Fredrik Ekstrom: No. To say that a larger part of the project list that we have right now would convert into quarter 4, then we would be giving you a different guidance... Andreas Koski: No. I mean a larger part than in Q3, I mean. Fredrik Ekstrom: Well, the conversion rate is determined by a lot of factors, and some of them are clearly external and clearly are held back on uncertainty. And if we see the uncertainty decreases in the coming 20, 30 days and assuming that, that's sufficient for somebody to make the final decision on an investment, then we might see that we have orders that have slipped in from quarter 3 that we expect to come into quarter 4, and there will be orders in quarter 4 that may very well slip into 2026. So it's hard to give you an exact guidance more than the one we already provided for quarter 4. Andreas Koski: Understood. And then lastly, if I may, on your new financial targets. If you want to elaborate and explain why you didn't go for a more ambitious margin target? And how much of your new growth target is expected to be organic? Tom Erixon: Yes. I think on the organic, some people already observed it was quite in line with our 2030 target of SEK 100 billion. We stick to that one. And let's see how the mix is. Obviously, the reason we are increasing the growth target is for organic reasons. We may or may not have some M&A opportunities converting in 2026 and 2027. But we think we have a good growth platform installed, build up, invested into capacity-wise created space for. So the organic growth is, I think, for us, the most important part of the growth story for us. So I leave it at that. We see where it comes. On the profitability target, I said this during many years, at the 15% level that our ambition is not at this moment in time to optimize our margin at all costs. We are a growth company. We are investing what we think is responsibly and profitably into technology and capacity. We continue to do so. And we think the long-term shareholder will benefit from long-term growth plan, stability in our execution. So we don't want to put ourselves into a type of a profit escape opportunity where we are acting everything that is not generating 17% plus. So this was a measured step reflecting approximately where we were and leaving the floor of 15% a little bit behind us and accepting that the current performance level is perhaps about the target range that makes sense for us. Andreas Koski: So does that mean that we shouldn't expect 17% to be sort of the floor as the 15% was? Tom Erixon: No. I think we did the 15% 20 years ago. I don't think it was, at that time, a floor. It was an ambition. We are not super guiding you on the margin. I mean, as you could notice this quarter, we were above. I think we will fluctuate. I think my point is saying, and I've told you this before, that it would be a very simple trick to increase the margin in Alfa Laval from where we are today with a percentage point or 2 if we decided that the long-term future was less opportunistic. And so we are committed to our long-term growth plan. We are investing in that, and we don't want to cut and limit our opportunities for the long-term growth potential that we see. So that will, in a sense, determine a little bit where the margin will be, and that's why we don't want to go too high on our ambitions because we think there are opportunities. But we also recognize that the 15% is not all that relevant as a financial target. And if you look at your own and everybody else's assumptions, I think the market estimates for the coming 3 years is pretty aligned with our targets. So that's why we're saying that don't think about this as a very strong guidance comment. It's more creating a relevance, not least internally for what we expect ourselves to work with. Operator: The next question comes from James Moore from Rothschild & Co. Redburn. James Moore: Can I just go back to Fives and the charges and just confirm that the Fives integration costs were SEK 215 million in the quarter and that the charge is basically exactly in line with the 430 bps impact on the energy margin year-on-year. And would it be fair to say about SEK 100 million for the fourth quarter? And attached -- maybe we start there, and I could follow up. Fredrik Ekstrom: Yes. No. So what we have indicated is that if you look at the sequential development and you look back a quarter, you probably get a better indication of what that charge was in relation to where we were -- finished in quarter 3 and that the same will probably hold true into quarter 4. Of course, some of this is also dependent on the invoicing mix that we have in quarter 4 with the invoicing mix that we had in quarter 3. decreased the margin. I think a good guidance is to look at quarter 2. So sequentially stable. James Moore: Sequentially, not year-on-year. My mistake. And the underlying performance of Fives, did -- it looks like you did SEK 620 million of revenue for, I don't know, [ 2.75 ] months, which to me looks like it's growing 20%. I don't know if that is the case. And if you strip out the charges, what was the underlying operating margin at Fives slightly accretive to Energy in the kind of low 20s margin range as you previously hoped? Or did it go up with growth? Or was it below due to seasonality? And how does the Fives seasonality play out over the coming few quarters, please? Fredrik Ekstrom: Yes. And as we indicated before, there's no real seasonality to the Fives or to the Cryogenics business unit, as we call it. There's no real seasonality to that invoicing. It's more how it's delivered to the customer and the milestones that are agreed with the customers from a percentage of completion point of view. Of course, the invoicing was good in quarter 3 for the Cryogenics business, and the margins were in line with expectations as we took on a business. There are some -- there is an element of onetime charges and integration charges, but we include those as part of the operating business. James Moore: I understand. And lastly, if I could. I understand the philosophy behind your new targets through cycle, internal benchmarking, et cetera. But obviously, behind that is a fair degree of confidence on long-term organic growth potential. I was just wondering to what degree is that underpinned by existing backlogs? And to what degree is it once you've got through those backlogs, you still see a high pace of growth continuing? And what is it that gives you renewed confidence on that apart from recent growth trends being better? Or is it just recent growth trends being better? Tom Erixon: Yes. We think it's better to look at -- if you're a debt analyst, you will look at the last couple of years and make a prediction of the future. If we do that, and we look at all the investments we've done, and how we described the 2030 target last year, and we will go through that again in our Capital Markets Day in November, there is the basis for our belief. We have, I think, an end market exposure that couldn't be better. And so I think it's up to us to utilize those positions in Energy, in Marine and in Food & Water alike. And are we convinced that we will reach the targets? We think this is the best indication we can give to ourselves, and we communicate the same to you guys that this is where we think we will be. But I would recommend you to come to the Capital Markets Day for a little bit of a review of the verticals and the business opportunities, the way we see the plan going forward rather than just a quick Q&A here. Operator: The next question comes from John Kim from Deutsche Bank. John-B Kim: I was wondering if we could speak a little bit about Marine regulations. You may have seen the MEPC 84 session in October delayed the decision on, I guess, stronger emissions controls. I'm wondering if you're seeing any knock-on impact in terms of how your customers are ordering, not ordering, delaying orders? Tom Erixon: Yes, it's a very good question. And it's, of course, a situation we monitor extremely closely. It does potentially impact the way a customer will decide. I think our best estimate at this moment in time is that one of the main drivers other than efficiency and fuel efficiency and such, for environmental technology and multi-fuels capabilities, is to create an insurance against having a stranded asset some years from now when and if a new regulatory environment is forcing a decrease in the emissions. Now obviously, for many reasons, not only Alfa Laval's business, we are hoping that there will be a framework implemented in terms of emissions control on the Marine side as well as in other areas. And I think short term that the fair amount of ship owners will continue to hedge their bets as they order new ships. And I remind you that if we look at the multi-fuel levels in the industry right now about -- if you take ammonia and LNG and a couple of other sort of main alternative fuels to heavy fuel oils, the current level of orders are representing about 15% or so of the global fleet, equipping themselves with multi-fuel capabilities. So even if it should go down somewhat, it's not going to be a major impact on us in the next quarters or so. If we look at the current trend curves as they are, they are continuing to grow. But of course, those trend curves are back to time almost driven by decisions prior to the delay of the implementation side. So it's a bit early to really make a call on what is the immediate effect. But I would be surprised if we will see a dramatic change in the trend curve over the next couple of quarters while the uncertainty remain. John-B Kim: Great. And if I may, I'm sorry if I missed this, but can you update us on your newer product offerings in energy? I'm speaking specifically about the liquid-to-chip offering? Tom Erixon: Well, it's -- listen, it is our normal product ranges that are going into air and water cooling, and it's a question of capacities for certain sizes and formats and things like that. So the product mix in our supply chain is changing somewhat. But we are not in a technology development -- we do an awful lot of technology development, but for the data centers, it actually is in line with our current supply capabilities. And so our main challenge is to figure the volume demands in the coming years and matching sort of the supply chain capacities that we need in order to serve that market. So that's where we are on that one. Operator: The next question comes from Klas Bergelind from Citi. Klas Bergelind: Klas at Citi. I had -- coming back to the Energy and Food & Water margins. In Energy, obviously, some costs are linked to the recent acquisition, but you still have the R&D ramp. I was under the impression that, that R&D ramp concluded already in the second quarter. So I'm interested in how you look at this into the fourth. And then in Food & Water, you booked quite a lot of large orders in the second quarter. And obviously, this is a very good margin you're delivering right now. But I'm just trying to understand whether the mix from having then that backlog built up on the larger side will start to weigh on the margin here a bit in Food & Water. I'll start here. Fredrik Ekstrom: Well, if I take Food & Water first, of course, the -- we have a large percentage of large orders invoicing out in quarter 3. But we also have a substantial resurgence of the transactional business, and that's been happening over the last 6 quarters that we have seen an increase in the transactional business, including service. And of course, the fundamental margin accretion that we get from that transactional business and the service mix into Food & Water, of course, lifts the margin overall. So it's not that we have drastically changed the margin profile of large project orders. It's rather the mix that we see in the current quarter. That mix may look different, of course, in coming quarters. But -- so it's a little bit based on that mix. And if we then look at the Energy division. Well, the Energy division, we have spoken a little bit about the margin development before. And if we look at specifically the R&D as your question was, well, we have not put an end date to R&D. R&D is something we continue to do over indefinite period really. I mean, it's about product development. And if I take it one step further back to the question that Tom answered just a second ago around data centers, yes, we have a lot of products that are directly applicable and have a really good fit with the current demand for data centers, but we also have the ability to adapt those products further. And that's part of the R&D that we continually do, and that we do in dialogue with our customers. So I don't think, Klas, you should see the investment into R&D as something that has an end date when it comes to the Energy division or any of our other divisions for that matter. And I don't know if Tom wants to complete more on that. Tom Erixon: I agree. Fredrik Ekstrom: Agreed. Klas Bergelind: Okay. Okay. That's good to hear. Then looking at project orders in Energy, I mean, last quarter, and I'm zooming in now on clean energy. I mean, last quarter, i.e., second, you said that decisions were pushed to the right, reflecting increased uncertainty. It looks like orders are coming back here this quarter. So I'm interested in what happened here. And if you see this elsewhere, i.e., that decision-making on the larger side, Tom, is easing a bit or whether it's just normal lumpiness. Tom Erixon: I think maybe a little bit of both. There is a normal lumpiness in that. We have been having and we continue to have, a rather diversified cleantech order book and order pipeline. And that holds both geographically and application-wise. So the bookings were good in Q3. And although good means that the comparable quarter was maybe a bit weak side, so -- but anyhow, it was in line with what we were hoping for. And if we look at the pipeline, which obviously stretches more than a quarter forward, we see a number of projects and some of them, I would say, financially sustainable without being based on regulatory frameworks or such. So there are -- we have obviously moderated our expectations in the 5-year period as to what the energy transition will do. But we are still following an interesting track on a steady growth area in related to carbon capture, in related to plastic and packaging replacement materials in relation to possibility of SAF, and biofuel coming back a bit after a very low investment period during the last few years. So we are cautiously hopeful that we will see the energy transition continuing in a good way. Klas Bergelind: Good. Finally, back to you, Fredrik, on the ROCE target. It's unchanged despite lifting the margin by 2 percentage points. I guess this is just incremental intangibles from recent M&A? Or how should we think about it? Obviously, you're going to invest now in Framo, quite over capacity, but also curious to hear about your further working capital ambition within that. Fredrik Ekstrom: Yes. No. And the reason we have retained the return on capital employed target at 20% is because of exactly the dynamics that you bring up here. It is about a continued CapEx ambition going forward, we reiterate the SEK 2.5 billion to SEK 3 billion a few years going forward. We have announced the investment package in Framo, and we should expect that there will be other acquisitions, beyond the one -- acquisitions we've already made. We have the firepower in our balance sheet to make sure that we can also add on inorganic growth beyond the organic growth opportunities that we have. And a reflection of all of that ambition is why we have returned the return on capital employed target as it is. And it may temporarily -- should all of those things align very much in a short period of time, go below 20%, but with the ambition of going to 20% and above 20% in the long run, of course. Operator: The next question comes from Johan Eliason from SB1 Markets. Johan Eliason: I was just going to ask about the return target that you kept unchanged, but you sort of already replied to it. But I was wondering a little bit. I remember you did lower -- this was before you, but the Board lowered the target from 25% to 20% when you did the Frank Mohn acquisition. How has your major acquisition delivered versus the 20% return target? I guess Frank Mohn today is probably benefiting well above this 20% target. But what about the Norwegian weather forecasting service? Is that also performing well in line with these return targets? Tom Erixon: Well, may I first say that it's so nice to meet an analyst who's been longer with us than ourselves almost. So I appreciate the question very much. And I was not present at the Frank Mohn acquisition, but I think you are completely right that although it was a highly profitable business at the time, but when you put -- I think it was around SEK 13 billion on the balance sheet, to get a 25% return on that number is very hard. We have commented. And of course, as we go forward now, if we look at the Framo acquisition, in today's books, as you know, we are conservative on the goodwill side. So we put as much as we can into amortization, and that is almost completed for the Framo side now. So I think next year is the last year, if I remember correctly. And so we have a slightly smaller balance sheet post on it. We have a company that may be close to twice as big and at maintained margin, I think the return on capital on that investment, now, 12 years later, will start to look quite good. We haven't run those numbers, I think. But we may actually do this ahead of the Capital Markets Day. It's an interesting question. When we have looked at the entire M&A portfolio in recent times, we have concluded that if you take out the acquisitions over the last 15 years or so, our return on capital for the traditional Alfa Laval business or Alfa Laval classic is about 50%. And with the current multiples in the M&A market, we struggle to get to 20% regardless of the profitability. The pricing on those assets allows us maybe to get to a double-digit return number, but definitely not to close to 20%. So we don't see that our CapEx program into our existing businesses is affecting ROCE negatively. We were actually a little bit worried about that when we started the big investment programs years ago, but growth has compensated for that. So we -- the returns on our organic growth journey are excellent. And the question that's going to decide whether we are 25% or 20% or below 20% is the amount of capital we deploy on M&A. We'll get back to that question, I think, at the Capital Markets Day. It's a good one. Fredrik Ekstrom: It's well noted. Tom Erixon: Yes, well noted. Johan Eliason: Yes. No, but it will be interesting. I think the return target is important because it does give you some top price that you're willing to pay, that's obviously interesting for the investors. Looking forward to Capital Markets Day, as I said. Tom Erixon: I think with that, we take the last question. Operator: We have a follow-up question from Magnus Kruber from Nordea. Magnus Kruber: I just wanted to see if you could comment a bit about the development in the other end market category in Food & Water. You've seen a very good pickup there over the past few quarters, and you break out starch and sugars in this quarter specifically. Could you comment a little bit how sustainable this level is? Tom Erixon: Yes. We are reasonably -- well, it tends to be the stability of Alfa Laval, right? It doesn't change that much. The normal dynamics of GDP growth and a happier middle class is taking demands forward. When you think of stability in the Food & Water side, the thing I want you to remember is that we actually dropped quite significantly on the biofuel side 2 years ago. And it's been a very low project activity on the biofuel side other than some exceptions on the ethanol side. And so I think that is still not quite in the books. Pharma came down for us a bit after the COVID, where we had a lot of vaccine-related implementations on pharma. We expect that to come back. Dairy has remained quite good. Beer has been a bit up and down after years of consolidation. We see less of that now, but still the return of CapEx on the brewery side has been a bit better recently than before. So all in all, we see the coming years as reasonably interesting. What I would add to that, if I round up your question with that and say thank you for that, I'll just do a little marketing campaign for the Capital Markets Day. So we will meet in Flemingsberg, which is the technology center for Food & Water and the high-speed separation centers. We are inaugurating that, and we are also displaying part of the technology that we are developing there. And in that context, we will do divisional reviews. And one of the things that is changing is that we are redoing the strategy in the Food & Water division under new leadership with new growth aspirations and new opportunities. So we will review a number of interesting things, some things you will see visually and some things you will see on the slide. We hold those tools as realistic growth opportunities. So I hope you are excited about it. We are almost sold out. Ticket prices are rising. So I would recommend you to sign up quickly, and we look forward to welcome you in Flemingsberg in November. Operator: We have no more questions. Tom Erixon: Thank you. Operator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.
Annukka Angeria: Good afternoon from Helsinki, and welcome to Nokian Tyres Q3 2025 Results Webcast. My name is Annukka Angeria, and I'm working at Nokian Tyres Investor Relations. Together with me in this call, I have Nokian Tyres' President and CEO, Paolo Pompei; and Interim CFO, Jari Huuhtanen. As usual, Paolo and Jari will start by presenting the results. And after that, there will be time for questions. With these words, I will hand over to you, Paolo. Please go ahead. Paolo Pompei: Thank you, Annukka, and good afternoon also from my side. Let's start this presentation with our headline, which is a stronger operating profit improvement in quarter 3, driven by announced pricing in passenger car tire, actions ongoing to further strengthen our financial performance. We are closing an important quarter. And I have to say that I'm very pleased to tell that we are really moving in the right direction. As we said in the headline, our operating profit increased significantly. And obviously, this is very encouraging for the future journey that we have ahead of us. But what we are going to do this afternoon, we are going to talk about our quarterly highlights, the financial performance. Jari will comment on the business unit performance. And then, of course, we will close the presentation with assumptions and guidance. Now let's go to the quarterly highlights. In Slide #4, we had double-digit sales growth. We were able to grow in all the regions. The sales growth was 10.8% in comparable currency. The operating profit improved significantly, plus 427%, and this was mainly driven by our effort in improving our pricing in the passenger car tires. We still have a lot to do. There are still a lot of actions going on in order to improve our financial performance. We're also very pleased about our ramp-up of the operation in Romania that are progressing extremely well, and we are now actually running 24/7. This -- in the month of September, we were also expanding our product offering and brand partnership. We will tell something more in a minute. And of course, there is also starting from the 1st of September, a favorable tariff development in North America for Nokian Tyres. Moving to Slide #5. Let's talk about our new factory in Romania. We are very pleased to say that we are in line with our plan. We will reach 1 million pieces by the end of this year, and we started now operating 4 shifts 24/7. We have now all the people we need to carry on our journey and to make sure we will be able to achieve the target of this year of 1 million pieces. We also released a few weeks ago a new product line that is completing the summer product range at this stage after the all season range that we released only a few months ago with the start-up of the operation in Oradea. Moving to Slide #6. This is also an important step forward for the factory, but also for Nokian Tyres, in particular, for our business in Central and South Europe. We released our Powerproof 2 a few days ago. This is our premium offering in the ultra-high performance segment summer tire. This range is performing extremely well, has been certified in terms of performance and tested by the TUV SUD. And we were able to launch in this new product in the beautiful scenario of our test center in Spain, HAKKA RING, together with more than 160 customers and journalists coming from Central and Southern Europe. This obviously will support our growth in the Central European market, together, obviously, with our winter tire range as well as our all-season tire range. Moving to Slide #7. We're also pleased to tell you that we received once again several testimonies of our premium performance in the winter tire segment, in particular in the Nordics, where we were able to be tested in several magazines or by several associations being scored as #1 tire or on the podium when we talk about studded and not studded winter tires. So we keep our leadership, and we still have new projects coming up in the next few months that will actually reinforce our leadership in the winter tire segment. But we have also some good news related to the heavy tire business. We will receive in a few days silver metal for our Intuitu 2.0 smart tire technology that is going to be fitted in our agricultural tires. This is a very important step forward in terms of connecting the tire to the machine and the operator of the machine, measuring the load of the machine or the pressure and optimizing the operating performance of the machine at the right pressure. Moving to Slide #8. We're also reinforcing our effort in terms of communication. We signed an important agreement for 2 years with the IIHF Association, which is actually Federation, sorry, which is actually going to support the world competition in the Ice Hockey segment in Switzerland in 2026 and in Germany in 2027. We are very pleased to be partner of this important sport because it reflects our value and also it is giving the possibility to Nokian Tyres to be visible to millions of Ice Hockey fans that are obviously happy to view and to support this nice competition. Moving to Slide #10. We are going to look at our performance. Quarter 3 was in some way, stable in Europe, a little bit down in North America. When we look at the performance now year-to-date, we have the market pretty stable in Europe, and we see the market gradually declining in North America when we talk about passenger car tires. The market in truck tires or in the agri tire has been stable in truck tires, while in the agricultural segment is still down compared to previous year, both in the replacement market as well as in the original equipment market. Moving to Slide #11. Despite the, I will say, difficult market condition or stable market condition when we talk about Europe, we are very pleased to say that we were able to grow by 10.8% with comparable currency in the quarter, and we were able to grow in all the regions. But we did really an exceptional good performance in the North American market in a declining market environment. So we are finally doing extremely well in North America, and we are very pleased about the journey that we have done so far. Our EBITDA as well has been increasing up to EUR 65.4 million. This is actually now 19% in percentage of sales. And our segment operating profit has been growing by over 6% to EUR 32.4 million. It's very important to remember that the comparability when we talk about segment operating profit is heavily affected by EUR 13.3 million exclusions or write-down related to the write-down of the contract manufacturing product that we did last year in quarter 3 2024 that are in some way impacting the comparability. This is why we are very pleased about the extremely important growth of over 427% in the operating profit performance that is reflecting really the performance of the company at 360 degrees. Moving to Slide #12. As I mentioned before, we are growing in terms of net sales in all the regions in Europe by 4.6%, in Central Europe and Southern Europe by 9.2%, and we're growing by 27% in North America, supported by good pricing and mix. Moving to Slide #13. We move to the cash flow, in particular, we were able to improve our cash flow performance. This was mainly driven by lower investments, but also by improved working capital as we will see in the next slide. Overall, year-to-date, we are growing in terms of sales by more than 9.4%. And of course, we are improving our segment EBITDA as well as our operating -- segment operating profit. Looking a little bit deeper to the cash flow. You will see that, obviously, the improvement of cash flow was coming, obviously, from the EBITDA improvement of EUR 33 million, then, of course, by an improvement of the working capital, we've been able to grow, reducing our inventory level in our operations. We are also obviously investing less. We are getting step-by-step to a normal level of investments. And of course, we have higher financial expenses. And obviously, we had a lower dividend, but obviously higher debt. So overall, year-to-date, we are improving. And obviously, our target is to become cash positive, meaning generating positive operating cash flow already next year. As we mentioned, we are now guiding EUR 180 million investment level at the end of 2025. This will basically close a long cycle of approximately 3 years that was necessary to reinforce our operations and to build our new manufacturing footprint, in particular, with the latest investment we did in Romania in Oradea. The CapEx are expected to return then next year to a normal level. And of course, we -- as you know, we are entitled to get state aid from the Romanian government up to EUR 100 million, and we are expecting to receive the first part of this incentive by the end of the year or in quarter 1 next year. Moving to Slide #16. I would like to pass the stage to Jari for the performance of the business units. Jari Huuhtanen: Okay. Thank you, Paolo, and good afternoon. I'm moving to Page Passenger Car Tyres. In third quarter, we continued sales and profit growth. Net sales was EUR 234 million and the increase in comparable currencies plus 13.2%. Our average sales price with comparable currencies improved and the share of higher than 18 inches tires increased significantly. Segment operating profit was EUR 38.9 million or 16.6% of the net sales. And the segment operating profit improved due to price increases and favorable product mix. Moving to Page 18. Here, we can see Passenger Car Tyres net sales and segment operating profit bridges in third quarter. Net sales improved from EUR 210 million to EUR 234 million. And clearly, the biggest positive contribution is coming from the price/mix, plus EUR 35 million. Sales volume was slightly down comparing to last year, minus EUR 7 million. And in addition, we had some currency headwind coming mainly from U.S. and Canadian dollars. In segment operating profit, you can see that there are 2 components which are clearly coming visible. First of all, this positive price/mix, EUR 35 million. On the other hand, in supply chain, we have a negative impact of EUR 25 million. Here, the reasons are mostly related to non-IFRS exclusions what we had in last year third quarter. Contract manufacturing inventory write-downs and Dayton ramp-up related exclusions. In material costs, we still had a slightly negative impact, minus EUR 3 million. However, we can say that we are very close to previous year cost level at the moment. Sales volume, minus EUR 3 million, but otherwise, it's very stable performance comparing to prior year. Moving to Page 19, Passenger Car Tyres net sales components, quarterly changes. In price/mix, we can see a significant improvement comparing to last year, plus 16.5%. This is due to implemented price increases and better product mix comparing to last year. In sales volume, minus 3.3% and in currency, minus 1.7% in the third quarter. Moving to Heavy Tyres. In third quarter, we had lower volumes, which affected the net sales and profitability. Net sales was EUR 55.4 million and the change in comparable currencies, minus 4.4%. Net sales decreased mainly due to lower volumes in truck and agri tires. Segment operating profit was EUR 5 million or 9% of the net sales. Profitability declined in Heavy Tyres, mainly due to lower volumes and inventory revaluations, which had a positive impact in last year's third quarter numbers. And in Vianor, in third quarter, we reported improved sales and operating profit. Net sales was EUR 74.9 million and the increase in comparable currencies, plus 7%. Segment operating profit seasonally negative minus EUR 6.4 million or minus 9% of the net sales. However, we can see an improvement both in operating and business profitability. Then I'm handing over back to you, Paolo. Paolo Pompei: Moving to Slide 23 to the assumptions and guidance. Well, we have a very good news in quarter 3 coming from the North American market. As you know very well, we are exporting all-season tire from our factory in Dayton in United States to Canada. And this -- there were obviously counter tariff implemented by Canada in quarter -- at the end of quarter 2. Those counter tariffs have now been removed. So obviously, today, we are in the ideal situation to deliver tires from U.S. to Canada without duties. Anything else remains as it was before 85% of what we sell in the United States is made in United States, and this is making the company much less vulnerable, being -- having a business model that is local for local. And the winter tire business that is going to Canada is supported by our factory in Nokian based in Finland. So moving to Slide 24. Our guidance for 2025 remain exactly the same. We are expected to grow and segment operating profit as a percentage of net sales to improve compared to previous year. We are assuming a stable market to remain at the previous year level. And of course, we are like anybody else, we observe the development of the global economy as well as the geopolitical situation since trade and tariffs are creating some uncertainty and may create some volatility to the company business environment. Of course, we follow our own journey. We have opportunities to grow also in a changing market environment, also supported by our new manufacturing footprint in Romania that is supporting our Central and South European market. We close this presentation. And obviously, we are happy to reply to all your question and answer. Annukka Angeria: [Operator Instructions] The next question comes from Akshat Kacker from JPM. Akshat Kacker: Three, please. The first one on price increases that you implemented, -- congratulations on a good quarter. If you could just put that into context for us, could you just talk about a few regions or product ranges where you've increased these price increases? And specifically, how do you think about the sustainability of these price increases going forward? Because a couple of your peers, the bigger Tier 1s have actually taken down their price/mix assumptions in the last quarter based on the inventory situation and the price mix trade down that they are seeing from the consumers in the market. So just the first question on the price increases and the sustainability of that going forward. The second question is on volumes. I noticed on the passenger coverage that volumes have declined by around 3.5% in the quarter. It's the first quarter where we've seen that volume decline, obviously, somewhat explained by the price increases. But just could you talk to us about overall expectations for volume growth going forward given that the business has been in a supply-constrained mode? And the last one on passenger car margins, please. Again, a very strong development in Q3. Margins have improved to 12% versus the 2% that we saw in Q2. Could you talk about your expectations into Q4? Should we still expect improving mix, improving margins as we go into Q4, please? Paolo Pompei: Excellent. Thank you very much for your question. And obviously, I'm happy to reply to at least the first 2 questions. Talking about price increase, this is a journey that we started already at the end of quarter 1, as you may remember. It was necessary, first of all, to compensate the raw material cost increasing in quarter 1 compared to previous year. And that was mainly valid for all the regions, in particular for Nordics. Then, of course, we combine these price increases also to necessary to gradually reposition our products in Central Europe as well as in North America. The question is if this is sustainable? Of course, we cannot keep increasing pricing. It was extremely important for us, again, to compensate the increasing rising raw material costs and at the same time, to gradually repositioning our products in Central Europe and in North America. Is this affecting volume? Going to the second question, in reality, in a very small part. What I mean is that this important improvement is also related to the strong write-off and consequent sellout of a lot of tires that we did in quarter 3 last year. This is what is affecting the comparability of segment operating profit, but at the same time, it's improving significantly our profit. So this 3% in reality is extremely -- if we take away the action that we did last year in order to release quickly the slow-moving inventory accumulated due to the crisis in the Red Sea, then of course, we can still calculate an important growth for the company. And that is really where the volume effect is coming from. So we are not expecting the price increase to affect volume at this stage and minus 3% is well by the comparability with the previous year due to the action we made in order to release the slow-moving stock that we have accumulated due to the crisis in the Red Sea channel. The margins are improving, obviously will keep improving because at the same time, we are not only improving in terms of prices, but we are also operating more efficiently with our own factories. So obviously -- and now we are moving to the last part of the season, meaning that we will sell in this quarter more winter tire. And so by definition, our margins will keep improving in quarter 4. I hope I replied. Annukka Angeria: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I have 3 as well, please. The first one is on your planned adjustment measures, the personal negotiations that may lead to 80 permanent white collar job cuts. Could you put that in perspective? Is that part of your better or more efficient operations? Or is that coming on top of what you were describing with the new Romanian plant and the substitution of your offtake by your own production? Second question will be on the EUR 180 million CapEx guide. Could you confirm that it does not include any Romanian state aid that may or not happen in 2025? And finally, you had a tough quarter for your ag and trucks business or what I would call the specialty business or industrial tire business. Could you tell us whether you already see a trough coming for that business and when that would be or whether it's still not visible yet when that would be? Paolo Pompei: Thank you very much for your question. I start with the negotiation. Obviously, this is part of our journey when we want to improve efficiency and productivity. So -- and this is necessary to support the company in this journey, in particular, when we talk about SG&A development. So we start the negotiation. And obviously, we will inform you about the progress. But in general, I mean, it's part of our journey to improve our efficiency and productivity within the company. When we talk about the state aid, I confirm that within the EUR 180 million, there is nothing about the state aid. So this -- at the moment, we are not including the state aid in any calculation when we talk about CapEx as well as cash. About the agri and truck business, well, this is a million-dollar question. However, I believe the agri business, in particular, is subject to cycles. And cycles can be long or short. But in general, obviously, we are now landing at the end of second, I would say, almost second years of downturn. So obviously, I'm expecting the agri business at the OE level in particular, to recover pretty soon in the next 6 to 12 months. Obviously, this is not scientific. I'm just observing the history and the cycle that were affecting the agricultural, in particular, tire business in the last 20 years, and you will see there is a growing trend if you take the last 20 years, but this growing trend has gone through up and down with cycle that were lasting in a positive or negative way 2 or 3 years. I hope I replied to all your questions. Annukka Angeria: [Operator Instructions] The next question comes from Artem Beletski from SEB. Artem Beletski: So I also have 3 to be asked. So the first one is relating to the price/mix development in Passenger Car Tyres. And I guess it's also volume related given the fact that it was a bit messy comparison from last year. I think you agree with it. And maybe just a question on pricing side. So could you maybe comment whether there has been some further price changes, what you have done, for example, during Q3, which are not yet visible in the numbers? Then the second question is related to net debt. So I understand that Q3 seasonally is the peak, what we always see in your case. Maybe you can provide us with some type of indication where you see net debt landing by the end of this year. And the last one is just relating to winter tire season. So how you have seen the demand picture so far when it comes to Europe and also North America? Paolo Pompei: All right. Thank you for the questions. And I start with the first question about price and mix development. I agree with you. Obviously, the comparability with last year is affected by the write-off and consequently by the sale of the slow-moving tires in the Central European market. However, we can say that the price and mix development was good for the company also without this effect. Clearly, we have implemented pricing action in quarter 2 and in quarter 3. There will be a carryover in quarter 4, and that is pretty clear. Then of course, we will not make any comment about future price development for obvious competition rules. Regarding the second question was -- sorry, the third question was about the net debt. As you know very well, considering our seasonality, quarter 3 is always the period of the year where obviously our debts are getting to a higher level. So we are expecting the level of net debt to go down in the next quarter. And about the winter tire season, we can say that obviously, the weather was actually a little bit too warm, let's say, in September, but now it's getting colder, both in the Nordics as well as in North America. So we are expecting the winter tire season to basically start as I speak in this moment in November. We had also a good presales activities, obviously, in the previous month. So the market -- we see the market is still growing. So obviously, we are pretty positive about the development of the winter tire sales. Operator: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I'll take the opportunity to ask some follow-up questions, please. First, I'd like to discuss a bit about your working capital, if that's possible. I mean your inventories declined, but receivables increased. Could you indicate whether you see any risk of write-down? And could you talk about your exposure to [ ATD ] Whether it's new, how much it increased? I mean this company went under recently. Did you have any exposure as it moved into Chapter 11 or not? And when I look at your payables, they are higher than usual. Could you explain why and whether this will be a headwind on the working capital front in Q4? And my last question will be on your net interest charge. I mean your net debt obviously has gone up the last 3 years because of your investment program. We've seen the net interest charge in your P&L and your cash flow statement going up. Could you give us some indication about what we should expect for '25, both on the P&L and on the cash flow statement and whether it will already be declining in '26 or be flat in '26 and '25? Paolo Pompei: Okay. Thank you. I will reply to the first one and maybe Jari can also support the discussion on the last 2 topics. About the working capital, the working capital is improving with growing sales year-to-date. So we are very pleased about this development. And obviously, this is really driven in particular by the reduction of the inventory that we have implemented in -- basically during the whole year, in particular now in quarter 2 and quarter 3. The receivables are growing because we are growing in terms of sales. And about ATD, obviously, is a new partnership. I think ATD today is very well supported by strong equity funds, extremely strong from the financial point of view. Of course, our exposure is relative low since we are at the beginning of the journey. So we will grow together with ATD, and we will support -- ATD will support our growth in North America. They are by far the largest national distributor in North America, and they are able actually to very well support our sales in any corner of that country. Payable are higher, obviously, because we are growing in Oradea. But please, Jari, would you like to comment the payable and net interest? Jari Huuhtanen: Yes. Thank you. So first of all, payables, of course, we have multiple different actions ongoing to get a little bit better performance in payables. Unfortunately, at the moment, we are not -- have not been able to see, but of course, we will continue and we want to improve in that respect. And I think the second question was related to net debt and interest expenses in our P&L. Of course, we have more net debt as we discussed earlier and interest expenses are higher than what we had in last year. And then on top of that, you can notice from the report as well that we have some hedging costs, which are related to our Romanian operation and especially to the project to build a new factory in Romania. It's quite difficult to comment anything related to '26 at the moment. So let's come back to that later. But that -- those are the main kind of answers or reasons behind. Annukka Angeria: The next question comes from Rauli Juva from Inderes. Rauli Juva: Rauli from Inderes. A question still on the passenger car tire margins. You touched this already, but just want to be clear, you posted in Q3 now around 16% EBIT margin as in last year and then your Q4 last year was really weak. So I guess you should be improving from that year-on-year. But how do you see the dynamics on the passenger car tire margin from between Q4 and Q3? Paolo Pompei: I think the level of margins that we are reaching today are rewarding really the strong effort of the team globally in improving pricing and at the same time, improving our cost when we talk about manufacturing. So they are a natural consequence of what we are doing around the company. And obviously, we should expect that we are improving because this is what we are here for in order to reach our financial targets. Pricing, as I told you, already has a strong impact, but we should not underevaluate as well the improvement that we are having also from the manufacturing point of view, also considering that last year, we were excluding in quarter 3, the part of the cost that we had in North America in Dayton, while this year we don't have those kind of exclusions. So in terms of comparability, I believe that we are really progressing in the right direction, and this is really encouraging. So you should see step-by-step margins improvement. Akshat Kacker: The next question comes from Akshat Kacker from JPM. A couple of follow-up questions, please. The first one, when I think about your production capacity and your footprint, could you talk about your overall plans for capacity additions going into next year, please? Are you adding more capacity at Dayton or in Finland, please? And the second part of the question is, could you just clarify the contribution from the Romanian plant in terms of commercial tires in this quarter? And how should we expect offtake agreements to progress going into next year? Just a total overview on overall capacity planning, please? Paolo Pompei: Thank you very much. As I mentioned several times, and this is very important, I will focus -- we will focus as a company on profitable growth. So capacity now is there. We were able to build this capacity. We are very pleased about what we were able to do so far, but now it's really time to focus on profitable growth. So the capacity that we have today, it's enough to support our strategic term objective for the next 3 years. So we will not need to implement additional capacity at this stage in -- both in Central Europe as well as in North America. Clearly, we will do specific adjustments on specific lines since we are going, for instance, in terms of mix. So we are producing bigger and bigger sizes. So we will need to do some adjustments in order to increase eventually the capacity on bigger sizes. But in general, I would say, overall, I think it's now time to harvest what we did in the last 3 years and to make sure that we are able to saturate our existing capacity. So answering briefly to your question, we don't see the need to add additional capacity in the next 2 years at this stage. When we talk about offtake, of course, we are reducing the level of offtake. We have indicated that from the strategic point of view, in average, 10% of our total volume will remain in offtake to keep flexibility and to make sure we will be able to get the support of somebody else for product lines that we believe is not strategic to produce internally within the company. Romania start to contribute to the sales in the Central European market. And that is already ongoing since May, June this year. And obviously, we can expect that in the future, more than 80% of what we sell in the European market will be supported by our Romanian factories for Central Europe as well as Southern Europe. Annukka Angeria: The next question comes from Thomas Besson from Kepler Cheuvreux. Thomas Besson: I'm sorry for coming back in slot time, but just to come back on the previous question. I just want to make that clear because right now, you're talking about 1 million Romanian capacities, and you said you don't want to increase capacities, but you still aim to have substantially higher production levels in Romania if you plan to be able to supply 80% of your European sales with Romania. So you mean -- I just want to clarify what you said. You mean you're not going to have to add incremental CapEx, but you're still able to increase the absolute level of production in Romania, 2 million, 3 million, 4 million in the next couple of years, knowing that the investment is behind you, right? Paolo Pompei: Thank you very much. And you don't need to apologize if there are questions. So this is really what this section is all about, answering to your question. So we're happy to do it. We need to distinguish about production and capacity. By the end of this year, we will produce 1 million tires, but we have already capacity to produce up to 3 million tires. Step by step, we will during 2026, complete this expansion and obviously, adding semifinished product lines more than curing or building machineries. So this is why we say the investment in Romania for the next 3 years will be really limited because we are at the end of the process. So in total, we will have 6 million pieces capacity already by, let's say, the end of next year, eventually, obviously, we -- this is really how the factory works. So 1 million is the production, but the capacity already by the end of the year will be up to 3 million pieces and up to end of next year up to 6 million pieces, reinforcing areas that are not strictly related to curing and building, but mainly about mixing and semi-finished products. I hope I replied to your question. Annukka Angeria: The next question comes from Artem Betsky from SEB. Artem Beletski: Yes. Also one follow-up from my end. And it is relating to PCT profitability. So what we have seen during years '23 and '24 and also beginning of this year is that margins have been extremely volatile on a quarterly basis. Looking ahead, do you anticipate this type of volatility will be clearly lower? And maybe just coming back to past development, what have been the key reasons in your view that margins have been swinging so much in that segment? Paolo Pompei: For sure. Thank you for your question. Clearly, again, we need to look at the history of this company in the last 3 years. So we came out from the storm, and it was difficult to reach stability when we had obviously the necessity to switch and to change completely our production footprint, moving out from Russia quickly and then building our new footprint, reinforcing our factory in Finland as well as in North America and at the same time, building a new greenfield in Romania. So it was really difficult for the team to manage all this transition. And in some way, we are still managing this transition. But of course, we see finally good progresses, and we see finally a gradual stabilization of our performance and continuous improvement. So answering to your question, of course, you will see more stability in the development of the margins moving forward because now finally, we can leverage our increased capacity. We can leverage efficient and efficient manufacturing footprint. And at the same time, we are improving day by day, as I mentioned, already in placing our product in the market and improving pricing capabilities around the company. I hope this will reply to your question. Annukka Angeria: There are no more questions at this time. So I hand the conference back to the speakers. Operator: If there are no further questions, it is time to end this call. I want to thank you, Paolo and Jari and especially all of you who participated in this call. We wish you a nice rest of the day. Paolo Pompei: Thank you very much, and looking forward to the next call. Jari Huuhtanen: Thank you.