加载中...
共找到 14,404 条相关资讯
Operator: Greetings, and welcome to the First American Financial Corporation's Third Quarter Earnings Conference Call. [Operator Instructions] A copy of today's press release is available on First American's website at www.firstam.com/investor. Please note the call is being recorded and will be available for replay from the company's investor website and for a short time by dialing (877) 660-6853 or (201) 612-7415 and enter the conference ID 13756641. We will now turn the call over to Craig Barberio, Vice President of Investor Relations, to make an introductory statement. Craig, please go ahead. Craig J. Barberio: Thank you. Good morning, everyone, and welcome to First American's earnings conference call for the third quarter of 2025. Joining us today on the call will be our Chief Executive Officer, Mark Seaton; and Matt Wagner, Chief Financial Officer. Some of the statements made today may contain forward-looking statements that do not relate strictly to historical or current fact. These forward-looking statements speak only as of the date they are made, and the company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date the forward-looking statements are made. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these risks and uncertainties, please refer to yesterday's earnings release and the risk factors discussed on our Form 10-K and subsequent SEC filings. Our presentation today also contains certain non-GAAP financial measures that we believe provide additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors. For more details on these non-GAAP financial measures, including presentation with and reconciliation to the most directly comparable GAAP financials, please refer to yesterday's earnings release, which is available on our website at www.firstam.com. I will now turn the call over to Mark Seaton. Mark Seaton: Thank you, Craig, and thank you to everyone joining our call. Today, I will provide a brief review of our earnings and share our outlook on the market. Today, we announced adjusted earnings per share of $1.70 for the third quarter, another strong result that highlights the resilience of our business. We continue to see 2 distinct market dynamics. Our commercial business delivered outstanding performance, while the residential market remains in a period of transition. Even so, our adjusted consolidated revenue grew 14% and adjusted EPS increased 27%. Commercial revenue increased 29%, and we set a record for average revenue per order at just over $16,000 per closing. The rebound in the commercial market began in the third quarter of 2024, which means the year-over-year comparisons are becoming more challenging. Nonetheless, even against tougher comps, we delivered another strong quarter with a 29% growth rate. We continue to see broad-based strength in commercial, led by the industrial sector which includes data center transactions, a consistently high-performing sub-asset class. Even excluding data centers, the industrial market remains robust, driven by sustained e-commerce demand for logistics and warehouse space. Multifamily was our second strongest asset class with solid performance across a wide range of geographies. Investment income grew 12% this quarter. Our investment portfolio, and particularly our bank continues to serve as a countercyclical earnings driver. The residential side of our business continues to navigate challenging market conditions. Purchase revenue declined 2%, primarily due to reduced demand for new homes. The purchase market has remained soft over the last 3 years, largely driven by affordability challenges and elevated mortgage rates. However, when purchase volumes begin to normalize and return to long-term trends, we are well positioned to capture growth, thanks to our operating leverage and strong relationships with local real estate professionals who play a critical role in driving purchase activity. Refinance revenue was up 28% this quarter. Although we've seen an uptick in volumes, the refinance market remains at historically low levels. Our home warranty business continues to post very strong earnings. Our pretax income was up 80%, driven by a lower loss rate, and we continue to grow our direct-to-consumer channel, which is offsetting the ongoing weakness in real estate. I'm optimistic about our long-term outlook. We're at the early stages of the next real estate cycle and our industry-leading investments in data, technology and AI position us to outperform as the market strengthens. By modernizing our platforms and integrating AI across our operations, we expect to drive significant productivity gains, reduce risk and unlock new revenue opportunities. further extending First American's leadership in the industry. Now I would like to turn the call over to Matt for a more detailed review of our financial results. Matthew Wajner: Thank you, Mark. This quarter, we generated GAAP earnings of $1.84 per diluted share. Our adjusted earnings, which exclude the impact of net investment gains and purchase-related intangible amortization was $1.70 per diluted share. Adjusted revenue in our Title segment was $1.8 billion, up 14% compared with the same quarter of 2024. Commercial revenue was $246 million, a 29% increase over last year. Our closed orders increased 6% from the prior year, and our average revenue per order was up 22%. Purchase revenue was down 2% during the quarter, driven by a 5% decline in closed orders, partially offset by a 3% improvement in the average revenue per order. While refinance revenue was up 28% compared with last year, it accounted for just 6% of our direct revenue this quarter and highlights how challenged this market continues to be. In the Agency business, revenue was $799 million, up 17% from last year. Given the reporting lag in agent revenues of approximately 1 quarter, these results primarily reflect remittances related to second quarter economic activity. Information and other revenues were $276 million during the quarter, up 14% compared with last year, primarily due to refinance activity in the company's Canadian operations, revenue growth in the company's subservicing business and higher demand for noninsured information products and services. Investment income was $153 million in the third quarter, up 12% compared with the same quarter of last year, primarily due to higher interest income from the company's investment portfolio partly offset by a decline in interest income from operating cash due to lower balances and lower short-term interest rates. Net investment gains were $6 million in the current quarter, compared with net investment losses of $308 million in the third quarter of 2024, which were primarily due to losses realized from the company's investment portfolio rebalancing project. Personnel costs were $543 million in the third quarter, up 10% compared with the same quarter of 2024. The increase was primarily due to incentive compensation expense resulting from higher revenue and profitability and higher salary expense and employee benefit costs. Other operating expenses were $276 million in the quarter, up 9% compared with last year, primarily due to higher production expense driven by higher volumes and increased software expense. Our success ratio for the quarter was 62%, which is in line with our historic target of 60%. The provision for policy losses and other claims was $42 million in the third quarter or 3.0% of title premiums and escrow fees, unchanged from the prior year. The third quarter rate reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of $11 million in the loss reserve estimate for prior policy years. Pretax margin in the title segment was 12.9% on both a GAAP and adjusted basis. Looking at October, we are seeing a similar pattern in opened orders to what we have experienced so far this year with a strong commercial market and sluggish residential market continuing. For the first 3 weeks of October, commercial orders are up 14%, while purchase orders are down 6%. The strength in commercial order activity is positioning us well for the remainder of the year and into 2026. Turning to the Home Warranty segment. Total revenue was $115 million this quarter, up 3% compared with last year. The loss ratio was 47%, down from 54% in the third quarter of 2024. The improvement in the loss ratio was primarily due to lower claim frequency, largely driven by favorable weather conditions. Pretax margin in the Home Warranty segment was 14.1% or 13.5% on an adjusted basis. The effective tax rate in the quarter was 23.1% and which is slightly below the company's normalized tax rate of 24%. Our debt-to-capital ratio was 33.0%. Excluding secured financings payable, our debt-to-capital ratio was 22.5%. This quarter, we raised our common stock dividend by 2% to an annual rate of $2.20 per share. We also repurchased 598,000 shares in the third quarter for a total of $34 million at an average price of $56.24. Now I would like to turn the call back over to the operator to take your questions. Operator: [Operator Instructions] And our first question comes from the line of Mark Hughes with Truist Securities. Mark Hughes: On the commercial ARPO revenue per order, obviously, 3Q is very strong. Could you talk about that, the sustainability, perhaps what you're seeing so far in 4Q? Mark Seaton: Thanks for the question, Mark. Yes, I would say it's sustainable. I mean typically, in commercial, there is some seasonality to ARPO, right? It usually builds throughout the year. And we think it will continue to build in Q4. We're just seeing a lot of momentum in commercial. There's a lot of big transactions. We track 11 asset classes. 10 of our asset classes were up in the third quarter year-over-year. The only one that wasn't up was energy, which has historically been a really good asset class for us, but Q4 is typically a big energy quarter. We've got some big deals in the pipeline. So just in terms of Q3, it exceeded our expectations. And we're really optimistic about what we see in Q4. So it's been a really good story for us. Mark Hughes: Yes. How about the outlook currently for investment income? I know you've talked about some historically some sensitivities, but kind of what should we anticipate in Q4? Matthew Wajner: This is Matt. Thanks for the question, Mark. So for Q4, we continue to see -- we think it will be down slightly sequentially just due to kind of some of the headwinds from rate cuts. But it should be modestly down sequentially. It's the expectation right now. Mark Hughes: Okay. And then when we think about the refi orders, what's the kind of recent trend in refi per day? Matthew Wajner: The -- so for the first 3 weeks of October, we're opening about 875 open orders per day in refi. Operator: The next question comes from the line of Terry Ma with Barclays. Terry Ma: I was hoping you could give an update on maybe just Sequoia and Endpoint in terms of the time line for the pilots. I think last quarter, you said Endpoint pilot was going to roll out December. Is that still on track? And then for Sequoia in the markets that you're piloting currently, any kind of early results? Mark Seaton: Yes. Thanks, Terry. Well, first of all, in terms of Endpoint, yes, we're still on track with everything we talked about in the third quarter. We -- the product is ready for testing. In fact, we got people here on campus last week and this week testing the product and testing is going well, and we are still on track to roll it out in our first office in December. And we're -- right now, we're planning on sort of a broader rollout in the springtime to kind of start rolling it out throughout the country. It's going to take us roughly 2 years or so to get it national, but it's something we're really excited about. Our current system, which we call FAST, we rolled it out in 2002, and so we've been on the system for 23 years. It's been a good system for us for a long time. But obviously, technology has changed and AI is here and we're really excited about Endpoint. It's going to give us productivity improvements we haven't seen before. It's going to be a great user interface for our escrow officers and it's really going to amplify their talent. It's going to reduce the mundane task or part of the escrow transaction and free up more time for our escrow officers to spend more time with the client. We're really excited about it. And we're really on track with everything since last quarter, since we talked about last quarter. So that's we keep hitting our milestones. In terms of Sequoia, we're also very optimistic about Sequoia. We really started Sequoia with the vision of having instant title for purchase transactions. It's never been done in the industry. There's instant title for refinance transactions. We've got a solution for that. Our competitors have solutions for that. Nobody has it for purchase transaction. And we're continuing to make milestones with Sequoia too. We have rolled out our AI engine for Sequoia and we're running live refinance orders through Sequoia today, and that's a big milestone. The product is out there. It's in production. It's in 3 counties. We've sort of exceeded our expectations in terms of the hit rates that we can get. And as of right now, the plan is to have our first purchase transaction go live in the first quarter. And so we -- that's been our plan, and it continues to be our plan, and we see really good progress with Sequoia as well. So we're going to start testing the purchase product in the first quarter. And that's similarly, it's going to take us roughly 2 years or so to do a national rollout. But when we do, we'll be able to produce a commitment faster arguably with more accuracy and cheaper than anything that's out here in the market. So we're really excited about really both Endpoint and Sequoia. Operator: The next question comes from the line of Bose George with KBW. Bose George: Just sticking to Sequoia and Endpoint, can you remind us just what the margin impact of those programs are of just running the 2 platforms and just the way to think about the time line for that kind of rolling off? Mark Seaton: Yes. Thanks a lot, Bose. One thing I would say is we initially broke out our -- we call it our margin drag from Endpoint and Sequoia early on because we really wanted investors to be able to evaluate the performance of our core title business without these investments that we were making with Endpoint and Sequoia. And at the time, we didn't know if they were going to work or not. There were big technological hurdles. We weren't sure it was going to work. Well, now we're -- we know it's going to work. I think there's still -- there's always questions on the timing of things, but we know that they're both going to work. And so we are integrating them into our core operations now. It's just part of our title segment. So we're not going to disclose the drag with endpoint Sequoia anymore. A, because we don't feel like it's fair to back that out. We want investors to judge us on our core operating performance, including those. And b, is because they're being integrated in their core operations before they were really stand-alone entities. But now it's just being -- it's harder and harder for us to track it just because they're being more integrated into what we're doing. So we're not going to give that anymore. Bose George: That makes sense. But I guess I'm just trying to think about -- but there will be a benefit as once they rolled out and your old platforms are shut down, right? So I guess because it's hard to quantify at the moment, but there is going to be that sort of benefit at the end of this process. Mark Seaton: There's no question about that, Bose. The last time that we have talked about the drag, it's been roughly 100 basis points. And so you don't spend 100 basis points just to get nothing. I mean, you spend 100 basis points to get more than 100 basis points, right? And so there's a few different ways to get value. The first is we're really supporting 2 different systems. I think for both Endpoints and Sequoia, we've got our old system where our business is running on the old systems. And then we have the new systems which are showing a lot of promise, but they have very little volumes, right? So we're really double paying with technology right now. And eventually, we'll get everything on the new systems, and there'll be some savings by shutting down the old systems. That's the first thing. The second thing is -- the thing we're excited about is it's not just a copy and paste in terms of productivity. I mean the new system is going to create a lot more productivity, and we'll see that. And the third is I really believe that we can gain market share for both of those products. And that remains to be seen. It's tough to gain market share in our business, but I think there's a lot of reasons to believe that more customers are going to want to do business with First American because of this modern platform that we have. And so I think there's 3 different levels of value creation and that will happen over -- gradually over time, you'll see incremental improvements. Bose George: Okay. That's helpful. And then actually just on the order count, the default and the other -- that line item has gone up quite a bit again. Is that -- I mean, are those like you sort of clients allocating product? Or just curious what's going on there. Mark Seaton: Just so you're looking at the default and other, Bose? Bose George: Yes. Just -- yes, the order count, just the increase in the order count in that other line item. Mark Seaton: I would just say, first of all, it's -- of all of our order counts, we look at purchase commercial refi and then of course, what you're referring to is the other. We have seen an increase in default activity. It's there, but it's -- I wouldn't say it's material and it's really not a material part of our business right now, but we have seen it. And there's like -- it's not necessarily like foreclosures. There could be some foreclosures. A lot of it is like loss mitigation work that we do in some alternative products. Operator: The next question comes from the line of Geoffrey Dunn with Dowling & Partners. Geoffrey Dunn: Mark, back on Sequoia, it doesn't seem like there's a demand for instantaneous title. So it really sounds like it's more about efficiency gains. But then obviously, you have political pressure picking up every so often according to the cost of title. So as you think about the longer-term profile of the business, is this just naturally where the business is evolving to and maybe you struggle to keep those gains? Or do you think that there's something more sustainable in those efficiency gains over time? Mark Seaton: Well, I think it's -- well, there's a few things there, Jeff. And I want to make sure I answer your questions, if I don't call me back, call me out on it. But first of all, I think for Sequoia, I don't know, I would take issue that the demand isn't there for instant title. I mean I've heard that, but I'll tell you, I've talked to customers and our sales team that think that instant title for purchase transactions is a big deal. And so maybe it is, maybe it isn't, but we're going to test it. We're going to be the ones that test it. And even if it's not, even in the worst case that it's not helpful to have an instant purchase transaction, right? And you can have an instant purchase transaction when the transaction won't close in 55 days. Even if it's not, we're really turning a labor product into a data product. And it gives us a lot more flexibility and innovation to create new products out there. So I think that it will be at advantages. And I think particularly on the agency side, if you can have a lower cost to produce your products, you're going to have an advantage out there. In terms of like the title waivers and where the market is going and are these sustainable? I mean we're in the title insurance business. We're not in the title waiver business. I think we've got a responsibility to consumers to not only a, protect consumers and lenders, but also to do it at a reasonable price point, too. And so there's been a lot of talk about the title waiver pilot. I just think the title insurance is going to be here, it's necessary. And the title waivers, we all, as an industry, have an obligation to do what's best for the consumer, both in terms of protection, protecting their property rights, but also we've got an obligation to make it affordable, too. And so we'll see what happens -- we'll see what happens and how the market develops. But I think particularly with Sequoia it just gives us a lot of strategic optionality going forward once it's naturally rolled out. Geoffrey Dunn: Okay. And then I thought it was interesting, you brought up AI directly in your press release, you mentioned again on the call. Can you give some examples of how you're using AI? And I guess, in particular, how much is AI coming into play with your kind of living title initiatives? Mark Seaton: It's a huge deal for -- well, okay, for both Endpoint and Sequoia, which we were reading a lot of questions on this call. And for good reasons, we're spending a lot of time talking about it internally and focusing on it. We started both of those initiatives and without AI. We started to reimagine the title production process through Sequoia and the settlement process through Endpoint, and it wasn't AI-driven at first. We wanted to build modern platforms. And really about 6 to 12 months ago, these AI models came out. These new LLM models came out, Agentic AI has come out, and it's really changed our thinking on how to do things. And so we pivoted -- and both of those are AI-native platforms. Now both Endpoint and Sequoia, they leverage AI at the core to build a better product than we were on pace to build just because these technologies have become available to us in the last year. So those are AI-driven and AI-native products that we're very excited about. And they're going to be -- they're just going to be better than the track that we were on. So we have this top-down approach with leveraging AI, but we also have a bottoms-up approach with leveraging AI. And we've got ChatGPT enterprise for all 19,000 of our employees. We just rolled it out in October -- October 1. And I'm very excited to see what that produces to. And I have anecdotes of us keeping customers because of AI, us reducing risk, us thinking about new ways to do our process. And so we have a top-down and bottoms-up approach. And I think the gains are going to happen over time. We're not going to wake up 1 quarter and see 300 basis points up margins because of AI. But I think over time, gradually, we will start to become more and more efficient as we as a company, learn how to use these technologies. Geoffrey Dunn: Okay. And then just specifically to the living title efforts, is AI a big part of that? Mark Seaton: It is, yes... Geoffrey Dunn: Or is that still... Mark Seaton: No, it's -- so the living title it is AI. And so I could go into more details on this. I'll just say that when I think of Sequoia now, it's an AI-driven product that is producing an automated title commitment for refis today and purchase tomorrow using AI. Operator: The next question comes from the line of Mark DeVries with Deutsche Bank. Mark DeVries: Looks like you only purchased about 20,000 shares after you reported 2Q results. Is there any color you can provide on why you pulled back and what you need to see to get more active? Matthew Wajner: Mark, thanks for the question. This is Matt. So yes, I mean we're continuing to focus on returning excess capital to shareholders. During the quarter, we raised our dividend. And like you mentioned, we repurchased some shares during the quarter. We purchased $122 million worth of shares this year. But at the time -- at this time, we paused our buyback program to just evaluate how things develop and consider whether there may be better uses for the capital. But we continually evaluate it, and we will be buying back shares opportunistically. Mark DeVries: Okay. It looks like you ended up delevering a little bit in the quarter. Could you just kind of discuss the range of debt-to-capital ratios you'll look to operate in and kind of where you'd expect to get more aggressive on using excess capital? Matthew Wajner: Yes. So over the long term of the cycle, we targeted debt-to-capital of 20%. Right now, we're a little bit over that at 22.5%. And which we feel very comfortable and because we're at the lower part of the market right now, lower part of the cycle. So it's okay for us to have a little bit of a higher debt-to-cap. And when you say we did levered, we didn't pay down any debt. We just -- as we generate earnings, we obviously generate additional capital. So it went from, I think, 23% to 22.5%. So we're comfortable where we're at. As the market continues to increase in the cycle turns, we look to get back towards the 20% over time. Mark DeVries: Okay. And are you guys seeing more of potential interest on the M&A front that could be a use of some of that excess? Mark Seaton: Yes, we are. We are seeing it. When the market initially fell in the first half of 2022, I think we were really hopeful that there would be acquisitions and deals to do. And we just really didn't see much. And over the last couple of years, we've really kind of leaned into the buyback, and we were -- felt really good about that. But now there are more things that are coming across our desk. And so we'll see if those deals close or what happens, but they're both on the title side and the non-title side. And there's just more opportunities today than there have been in the last couple of years. Mark DeVries: Yes, it makes sense. I mean is it fair to say that some of the weakness in the residential side is creating more and more pressure from potential sellers at this point? Mark Seaton: Yes, we're seeing that. We're definitely seeing that. So we're disciplined. I mean I would just say just on the M&A side, too, Mark, is we don't feel like we have to do anything. We're not just trying to grow for the sake of growing. The deal has to make sense and it has to be strategic, and we have to make sure we have a good expected outcome in terms of the financials. So if we don't do any deals, we're fine with that. But we do think what we know, there's just more and more opportunities that are rising because the sluggish market has lasted a long time. And I think more and more people are calling us now. Operator: The next question will come again from the line of Mark Hughes with Truist Securities. Mark Hughes: Yes. Mark, you'd mentioned the title waiver, you're proposing a title solution. Anything new on the regulatory front, either on the demonstration project or maybe even on the rate front at the various states, anything new? Mark Seaton: I would say there's nothing new since last quarter. I mean, the title waiver pilot is still going on, and we're just on the sidelines waiting to kind of -- and we're sort of monitoring results and seeing where that goes. There's been nothing new on that front. On the state front, I would say there's nothing new. I mean the most material thing that is the Texas rate issue. And again, that's not new from the last call, but there's -- the industry now is expecting a 6.2% rate cut in Texas in March. It's not final yet. There's still another hearing that needs to happen, but I think that's the -- that's what we're sort of expecting internally. That's probably the biggest news on the rate side. But again, that's not new since the last call we had. Mark Hughes: Yes. And then when we think about net investment income for 2026, any early thoughts there? Matthew Wajner: Yes, Mark, from an early thought perspective, when I look out into '26, right, the obvious headwinds for interest -- for an investment income are the expected rate cuts and then we've already gotten a rate cut this year. So as a reminder, each 25 basis rate cut -- basis point rate cut impacts us by $15 million on an annual basis. So each rate cut will reduce investment income by approximately $15 million based on kind of current balances. I would say the offsets that we have potentially for next year that could help that are, one is we are expecting growth in kind of all of our markets that matter to us, specifically commercial and moderately in purchase. And if we get growth in transaction levels and transaction volumes, we can -- we'll get growth in deposit balances. So we'll have a higher balance rate or a higher level of balances, which will be helpful. The other thing that we did recently towards the end of Q3 is we made some operational enhancements at our bank, which now allows us to put 1031 exchange deposits at our bank. So historically, we had to put those positive third-party banks, and now our bank can handle those deposits, which will just increase the economic value of those deposits. And that will be a tailwind going into next year. That will hopefully offset any impacts of rate cuts. Mark Hughes: And just a follow-up on that. So the -- is the kind of takeaway message, the balances, the operational enhancements, maybe offsetting the rate cuts and so therefore, kind of a more stable outlook for '26? Matthew Wajner: I'd say it's too early to say, right? And it's dependent on the level of activity and the level of rate cuts. But right now, where we sit, we would probably see investment income being down year-over-year. Operator: Thank you. There are no additional questions at this time, and this will conclude this morning's call. We'd like to remind listeners today that today's call will be available for replay on the company's website or by dialing (877) 660-6853 or (201) 612-7415 and enter the conference ID 13756641. The company would like to thank you for your participation. This concludes today's conference call. You may now disconnect.
Operator: Greetings, and welcome to the Tri Pointe Homes' Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce David Lee, General Counsel at Tri Pointe Homes. You may proceed. David Lee: Good morning, and welcome to Tri Pointe Homes earnings conference call. Earlier this morning, the company released its financial results for the third quarter of 2025. Documents detailing these results, including a slide deck, are available at www.tripointehomes.com through the Investors link and under the Events and Presentations tab. Before the call begins, I would like to remind everyone that certain statements made on this call, which are not historical facts, including statements concerning future financial and operating performance, are forward-looking statements that involve risks and uncertainties. A discussion of risks and uncertainties and other factors that could cause actual results to differ materially are detailed in the company's SEC filings. Except as required by law, the company undertakes no duty to update these forward-looking statements. Additionally, reconciliations of non-GAAP financial measures discussed on this call the most comparable GAAP measures can be accessed through Tri Pointe's website and in its SEC filings. Hosting the call today are Doug Bauer, the company's Chief Executive Officer; Glenn Keeler, the company's Chief Financial Officer; Tom Mitchell, the company's President and Chief Operating Officer; and Linda Mamet, the company's Executive Vice President and Chief Marketing Officer. With that, I will now turn the call over to Doug. Douglas Bauer: Good morning, and thank you for joining us today as we review Tri Pointe's results for the third quarter of 2025. I want to begin by recognizing our entire Tri Pointe team, their dedication and focus allowed us to deliver strong results in a period that continues to present challenges to the housing industry. In the third quarter, we exceeded the high end of our delivery guidance, closing 1,217 homes at an average sales price of $672,000 generating $817 million in home sales revenue. Our adjusted homebuilding gross margin, excluding $8 million of inventory-related charges, was 21.6%, while adjusted net income was $62 million or $0.71 per diluted share. We remain focused on creating long-term shareholder value. During the quarter, we spent $51 million repurchasing 1.5 million shares, bringing our year-to-date total spend to $226 million, representing a total of 7 million shares. This activity has reduced our share count by 7% year-to-date and by 47% since we initiated the program in 2016, underscoring our disciplined approach to enhancing shareholder returns. Additionally, we also strengthened our liquidity by increasing our term loan by $200 million with optionality to extend the maturity into 2029. We believe this incremental leverage is prudent, supporting capital efficiency, funding for our community count growth and continued flexibility to return capital to our shareholders. We ended the quarter with $1.6 billion in total liquidity, including $792 million in cash and a debt-to-capital ratio of 25.1% and a net debt to net capital ratio of 8.7%. Market conditions remained soft throughout the third quarter. Home buyer interest remains somewhat muted with lower confidence driven by slow job growth and broader economic uncertainty. However, we continue to see underlying demand homeownership among needs-based buyers. We anticipate that home shoppers are preparing to reengage when conditions stabilize, leading to more normalized absorptions. Our management team has successfully navigated multiple housing cycles, and we remain focused on near-term execution while staying aligned with our long-term growth strategy. In the short term, we are prioritizing inventory management, disciplined cost control and the sale of move-in ready homes while steadily increasing the mix of to-be-built homes over time. For long-term success, we continue to invest in both our core and expansion markets with the goal of scaling our operations, consistently growing community count and increasing book value per share to drive sustained shareholder returns. We are encouraged by the progress of our new market expansions in Utah, Florida and Coastal Carolinas. Development activity is well underway and strong local leadership teams are in place. While initial contributions will be modest, we expect these divisions to generate meaningful growth beginning in 2027 and beyond as they gain scale. During the quarter, we are pleased to open our first two communities in Utah, a key milestone for that region. A cornerstone of our strategy is to invest in well-located core land positions close to employment centers, high-performing schools and key amenities. We currently own or control over 32,000 lots, position us well for community count growth in the years ahead. We expect to end 2025 with approximately 155 communities, and we anticipate growing our ending commuting count by 10% to 15% by the end of 2026. The majority of this growth will be driven by expansion in our Central and East regions. This disciplined growth strategy enhances our operating scale, increases geographic diversification, and positions Tri Pointe for sustainable, profitable growth as demand improves and our expansion divisions mature. At Tri Pointe, our product is primarily targeted to premium move up buyers with financial strength, seeking better locations, larger homes, curated finishes and elevated lifestyles. This segment has demonstrated resilience even amid shifting market conditions, supported by strong income profiles, down credit and larger down payments and our backlog reflects this strength. Homebuyers financing through Tri Pointe Connect, our affiliated mortgage company have an average household income of $220,000 FICO score of 752, 78% loan-to-value ratio, an average debt-to-income level of 41%, consistent with recent quarters. These strong characteristics have reinforced the financial stability and quality of our customer base and the durability of our future deliveries. As consumer confidence improves, we expect pent-up demand to grow the pool of move-up buyers attracted to our premium communities and design-driven offerings that align with their lifestyle aspirations. Our premium brand community locations and innovative product design continue to differentiate Tri Pointe in the marketplace. We have the financial strength and operational discipline to invest through the cycle while returning capital to shareholders. Together, these strengths, along with an experienced management team, positions Tri Pointe to drive long-term performance and value creation. With that, I'll turn the call over to Glenn to provide additional detail on our financial results. Glenn? Glenn Keeler: Thanks, Doug, and good morning. I'd like to highlight key results for the third quarter and then finish my remarks with our expectations and outlook for the fourth quarter and full year. The third quarter produced strong financial results for the company. We delivered 1,217 homes, exceeding the high end of our guidance. Home sales revenue was $817 million for the quarter with an average sales price of $672,000. Gross margin adjusted to exclude an $8 million impairment charge was 21.6% for the quarter. SG&A expense as a percentage of home sales revenue was 12.9%, which is at the lower end of our guidance, benefiting from savings in G&A and better top line revenue leverage as a result of exceeding our delivery guidance. Finally, net income for the year was $62 million or $0.71 per diluted share, also adjusted for the same inventory related charge. Net home orders in the third quarter were 995 with an absorption pace of 2.2 homes per community per month. Regionally, our absorption pace in the West was 2.3, with the Southern California markets outperforming and the Bay Area experiencing softer market conditions. The Central region averaged 1.8 absorption pace for the quarter, with increased supply of both new and resale homes in Austin, Dallas and Denver impacted pace during the quarter, while Houston continued to outperform in the region. In the East, absorption pace was 2.8 led by strong results in our D.C. Metro and Raleigh division, while Charlotte was consistent with the company average. We invested approximately $260 million in land and land development during the quarter and ended with over 32,000 total lots, 51% of which are controlled via option. Looking at the balance sheet. We ended the quarter with $1.6 billion in liquidity, consisting of $792 million of cash and $791 million available under our unsecured revolving credit facility. As of the end of the quarter, our homebuilding debt-to-capital ratio was 25.1%, and our homebuilding net debt to net capital ratio was 8.7%. As Doug mentioned, we increased our term loan by $200 million to a total outstanding amount of $450 million and added extension rights that if exercised could extend the due date to 2029. The term loan is an effective source of additional liquidity to help fuel our future community count growth and other capital needs. Now I'd like to summarize our outlook for the fourth quarter and full year of 2025. For the fourth quarter, we expect to deliver between 1,200 and 1,400 homes at an average sales price of between $690,000 and $700,000. We anticipate homebuilding gross margin percentage to be in the range of 19.5% to 20.5%. We expect our SG&A expense ratio to be in the range of 10.5% to 11.5% and we estimate our effective tax rate for the fourth quarter to be approximately 27%. For the full year, we expect deliveries between 4,800 and 5,000 homes with an average sales price of approximately $680,000. We anticipate our full year homebuilding gross margin to be approximately 21.8%, which excludes the inventory-related charges recorded year-to-date. Finally, we anticipate our SG&A expense ratio to be approximately 12.5% and we estimate our effective tax rate for the full year to be approximately 27%. With that, I will now turn the call back over to Doug for closing remarks. Douglas Bauer: Thanks, Glenn. In closing, I want to thank our team members, customers, trade partners, and shareholders for their ongoing trust and support. We're proud to have been recognized once again as one of Fortune 100 best companies to work for in 2025. A reflection of the culture and values that drive our performance. While the near-term environment remains uncertain, our long-term outlook is very positive, and we are confident that our strategy, our people and our financial and operating discipline, position Tri Pointe Homes to deliver sustainable growth and long-term shareholder value. With that, I'll turn the call over to the operator for any questions. Operator: [Operator Instructions] Our first question is from Paul Przybylski with Wolfe Research. Paul Przybylski: I guess, first off, could you provide some color on the monthly cadence of your orders and incentives through the quarter? Glenn Keeler: Sure, Paul, this is Glenn. The monthly cadence was pretty consistent actually through the quarter. If you look at absorption, it was roughly the same each month, with September being a little bit better than August. And then on incentive, incentives were also consistent throughout the quarter. Incentive on deliveries were 8.2% for the quarter. Paul Przybylski: And then I guess your absorptions are getting down close to the 2 level. Is there an absolute floor that you want to maintain on your sales pace, i.e. increase incentives to keep a level? Douglas Bauer: Paul, it's Doug. It's a good question. I mean the industry is kind of working through a big -- it's like tudging through mud right now. And somewhere between 2 and 2.5 is kind of where everybody seems to be landing and if you're looking at -- we're really looking at a very strong community count growth in '26. So as we look towards that, and even under similar market conditions, we've got some pretty nice growth in orders going forward. Operator: Our next question is from Stephen Kim with Evercore. Stephen Kim: If I could just follow up on Paul's question here on the incentives, you said 8.2%, I think, of revenues or home sales. Were -- how much of those were financial incentives, if you sort of include closing costs and rate buydowns for purchase commitments and that sort of thing? Glenn Keeler: Stephen, it's Glenn. You're correct. It was 8.2% of revenue in the quarter and about 1/3 of those were financing related, including closing costs. Stephen Kim: Okay. And what do you -- how about forward purchase commitments specifically, do you use them very much? Linda Mamet: Stephen, this is Linda. Yes, we do. We primarily use forward commitments for advertising purposes and they do have good value in driving additional interest in traffic. But ultimately, as Glenn said most of our customers really don't need to have a significantly lower interest rate to qualify for the home, so they prefer to use more of their incentive dollars and design studio personalization. Stephen Kim: Yes. So like if you think of 1/3, let's say, the 35% or whatever that are financial incentives, how much of that 1/3 would you say is forward purchase commitments? Linda Mamet: It's very small, under 1%. Douglas Bauer: Yes, very small number. Stephen Kim: Yes. That's great. And then your average order ASP, not your closings ASP but your order ASP has come down to, call it, a 654, I think, this quarter. Last quarter, it was like about 665. So is it reasonable to think that eventually your closings ASP is going to be at roughly that kind of level, 650, 660? Glenn Keeler: It is, Stephen. I mean the mix within the quarter does play a part. But when you look at our growth next year of a lot of Central and East regions, and those do carry a little bit lower of an ASP versus the West. And so just -- it's really just mix for us more than anything else. Operator: Our next question is from Jay McCanless with Wedbush Securities. James McCanless: First one, the SG&A guide for the fourth quarter, it looks like you guys are getting much better leverage than what the top line would suggest. Are there some onetimes in there? Can you talk about how you're able to potentially get this figured SG&A to sales number? Douglas Bauer: No. We're all specific onetime there, Jay. It is just a little bit more revenue in the quarter with a higher delivery number, and that's what's really driving it. James McCanless: Okay. And then kind of -- that was actually going to be my next question. The gross margin guide is better than we were expecting. Is there some mix in there, more move up? Anything you can give us on that? Glenn Keeler: A little bit of mix. I think some of the divisions that continue to outperform our strong margin divisions like when you look at like Houston, Inland Empire and Southern California things like that have driven the mix of margin to our benefit. So that plays a little part into it, Jay. James McCanless: And then one more, if I could. Just kind of thinking about the newer markets you all discussed and just wondering what you all think ASP might look like next year, just given some of the smaller medium price markets that you're going to be expanding into? Glenn Keeler: We'll give that guidance next time, Jay, as we kind of roll out the plan and see what that looks like. But I don't think you're going to be too different than where we're at this year. Douglas Bauer: No, we're not getting significant contributions out of our new expansion divisions yet next year. So it should have a minimal impact. Operator: Our next question is from Alan Ratner with Zelman & Associates. Alan Ratner: Can you just update us on your spec position and strategy and how you're thinking about spec just in terms of the contribution to the business? And I guess just thinking forward to '26, you're going to enter the year with a backlog that's down quite a bit. So -- are you going to lean heavily on spec next year to kind of bridge that gap? Or is that kind of a TBD based on what happens in the spring? Douglas Bauer: Its Doug, Alan. We've got about 3/4 of our orders are running at specs as into the end of the year. All the builders have a little bit more inventory than what they anticipated. So we'll burn through that inventory going into the first quarter or so of next year and then get to a more balanced approach. Again, demand is very inelastic and we're going to continue to focus on price over pace as we go into the new year. We're just assuming similar market conditions. What we're really focused on is that strong community count growth even at similar market conditions, as I mentioned earlier, we'll have a really good order growth going into '26 and then '27. So we're really looking to the future while we've been dealing with some of the obviously, the challenges the market has posed to the entire industry. So that's kind of how we're looking at our approach. Linda Mamet: And just to add to that, Alan, we did reduce our total spec inventory by 17% quarter-over-quarter. Alan Ratner: Got it. Linda, is that total specs under construction or completed homes specifically? Linda Mamet: Both together. Alan Ratner: Got it. That's the total number. Perfect. Doug, you mentioned community count growth next year several times. I'm just curious, when you think about the pricing strategy there. Obviously, you guys have been very steadfast in your approach. When you open up communities, how do you think about pricing on those? Is the intention to kind of maybe come out of the gate with more attractive pricing and build up a backlog as you -- and then raise prices through the life cycle of the project? Or are you kind of maintaining a similar strategy to your active communities like you have an idea of what the value is and you're going to come to market with that price and whatever the absorption is, that's what it's going to be for the time being. Douglas Bauer: Yes. No, Tri Pointe, as you know, Alan, is more of a premium brand proposition. So we look at our value proposition as it enters the market. Sure, you'd love to start with some momentum, but there's not a any sort of material pricing thought process there because we're building along Main and Main, great locations, close to employment and great amenities. So the value proposition is what we're looking at. And frankly, as you said, I'm really -- my lens is to the future. We've been dealing with choppy market conditions, in my mind, for about 18 months. So -- and if it's more of the same next year, so be it, but we're going to have a strong community count and we'll price the product appropriately to the marketplace to have the right value proposition that we propose. Operator: Our next question is from Mike Dahl with RBC Capital Markets. Unknown Analyst: Is Chris on for Mike. Can you just talk through your initial thoughts around the administrations, affordable housing push? What conversations have you had to date? And how are you thinking about the opportunities and risks to your operating and capital allocation strategy? Douglas Bauer: Yes. No, obviously, several builders have already made comments on that, and we're kind of the tail wagging the dog here, so to speak. But we share the administration's goal of providing more housing in the U.S. As Duly noted, I mean, the industry has been underbuilt and been doing this for 35 years. It kind of started out to the great financial crisis that makes me very old. But we welcome working with the relevant stakeholders at the federal, state and local levels. It's a very complicated interrelated discussion. Most of it happens at the local and state level but we look forward to working with the administration wherever Tri Pointe can help. We will build -- I mean we've got 32,000 lots that we own and control. We're opening very strong community count growth of up to 15% next year. So we'll be doing our share of bringing in more communities that will be attainable for our buyer profile. Unknown Analyst: Makes sense. Yes, the community count growth was definitely encouraging. And just shifting to the 4Q gross margin guide. Could you just help bracket some of the big moving pieces moving pieces around the sequential step down in gross margin? How much of that is incremental incentives, mix, stick and brick, just help frame that for us. Glenn Keeler: Yes. This is Glenn. Good question. And it's not really stick and bricks or anything like that. I think it's a little bit of mix but also just we've increased incentives as we've gotten through the year. We have spec homes to sell and close within the quarter, and those generally carry a little bit higher of an incentive. So all that kind of goes into that margin guide. Operator: Our next question is from Ken Zener with Seaport Research. Kenneth Zener: I am hoping you can walk us through kind of the logic, not giving guidance or anything, but just kind of understand the cadence. So looking at starts and orders, it looks like you guys did about 500 starts this quarter in the third quarter versus orders that were higher than that. So as we exit the year, how are you thinking about starts versus orders because your inventory is down -- units are down about 30% year-over-year. So I'm just trying to understand, since you're talking about opening communities, And Doug, I think you just said upwards of 15%? Or is that what you had said as well community growth next year potentially? Douglas Bauer: We indicated that community count growth will be 10% to 15%... Kenneth Zener: So I'm just trying to see how we actually get these right, the units in the ground, which could portend future closings. So that's why I'm focusing on the starts versus the order and how you're thinking about that. Thomas Mitchell: Yes, Ken, this is Tom. It's a great place to focus on as we've been focused on it as well. As Doug mentioned earlier in the Q&A, we're focused on getting our business back to a more balanced approach of spec to be build. And you're right on with our starts for Q3 was about 577 and that's down significantly from where we were in Q1 and Q2. But again, it's relative to that balanced approach. I think you'll see Q4 starts more comparable with what Q3 was just because of the amount of in-process under construction homes that we have available, and that's our #1 goal to move through that inventory. And then after that, we'll move to a more normalized strategy, which takes into account absorption on a community-by-community basis. Kenneth Zener: What I heard you say 4Q starts is going to be similar to 3Q. Is that right? I mean that means you're ending inventory. I'm just trying to imagine the growth you're having in community count with the actual contraction in your inventory units. I guess I'm trying to -- is that -- I think if there's some greater inflection that I don't understand. Thomas Mitchell: No, I don't think you're missing anything there. I mean as you look at it on a community-by-community basis, obviously, when we're moving into new communities, we're making the necessary starts relative to our anticipated demand. But where we have existing communities, obviously, we have excess inventory that we're going to be working through before we move to a more normalized balance start strategy. Kenneth Zener: Appreciate it. And then on the community count growth, most of that G&A, the fixed G&A already kind of loaded in there. Is there any big lift we should expect there? Glenn Keeler: Not too much of a lift on the G&A side, maybe some incremental -- that's more field than sales that will exceed to open those communities, but... Operator: There are no further questions at this time. I'd like to turn the floor back over to Doug Bauer for closing remarks. Douglas Bauer: Well, thank you, everybody, for joining us today. We're looking forward to sharing our growth plan and strategy for 2026 and beyond with you at our next quarter's call. And as we go into 2026, we're very excited and bullish about the future for housing. So thank you, and talk to you next quarter. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time.
Ulrika Hallengren: Welcome to the presentation of Wihlborgs' 9-Month Report 2025. There's an old saying when you think you can see the light at the end of the tunnel, beware, it could be an oncoming train. We never know what will happen ahead, and we try to be prepared for whatever we can think of. But let us be clear, we see some glimmer here and there, maybe not the full ray of light yet, but nice glitters in the horizon. It's a very busy report week for all of you, so I will try to be short and precise. That means standard procedure about the last results of our continued growth and some new records, but also some figures regarding loyalty among our customers, how we can calculate retention rates and not at least our view on future occupancy. We start with a summary of the quarter, July to September. Rental income up 6%, a new record at SEK 1.101 billion; income from property management, plus 11%; net letting positive at SEK 6 million; net EBIT to EBITDA at 10.3x, good access to financing. And as said many times before, but this still stands, demand remains for good quality in good location, and we are proud to be able to continue with the project investment that gives continued good potential for growth. Looking at the whole period, first 9 months, rental income up to SEK 3.243 billion, plus 4%. The operating surplus increased to SEK 2.334 billion and income from property management increased by 12% to SEK 1.482 billion. The result for the period amounts to SEK 1.370 billion, corresponding to SEK 4.46 per share and EPRA NRV has increased by 10% to SEK 96.23 per share adjusted for paid dividend. A comparison of the rental income first 9 months '24 and first 9 months '25. Indexation gives plus SEK 30 million; acquisition, plus SEK 90 million; currency effect, minus SEK 21 million; additional charges, plus SEK 21 million; and completed projects, new leases and renegotiation plus SEK 8 million. And here is also a new higher property tax of approximately SEK 15 million included. So higher vacancy today than a year ago, but small improvement since last report and during 2026, the improvement from new leases will show. And the streak of positive net letting continues, plus SEK 6 million in the quarter, plus SEK 65 million for the period and in total, new leases at a yearly value of SEK 300 million signed in the period. For the third quarter, the volume of new leases of SEK 66 million is good. And maybe I expected the net letting to be a bit better than SEK 6 million, but we got a late termination of SEK 16 million from a tenant who I'm not sure if they really want to move or just renegotiate. Discussions are ongoing, but the total termination is registered. So a possible upside ahead, 42 quarters in a row with positive net letting. Here are some of the tenants that we have signed during Q3, a combination of expanding tenants and new tenants from many industries, health care, insurance, biomaterials and a company that manufactures equipment for land-based fish farms as examples. And here, we have the net letting in a historical perspective, lettings in green, termination in light blue and dark blue stacks are the net letting. And as mentioned, quite high volume of new leases for being a third quarter. And the list of our 10 largest tenants in alphabetic order, strong customers, and they contribute with 20% of our rental income. 7 out of 10 are governmental tenants and the public sector contributes with 23% of total rental income. Rental value as of 1st of October is SEK 4.889 billion per year, plus 7.2% and rental income, SEK 4.379 billion, plus 4.6%. Effects from acquisition, indexation and higher willingness to pay for the right quality. Looking at like-for-like figures, all the properties we owned a year ago, excluding projects compared with updated figures, we can see that rental value is up 2.4% and rental income is down 0.8%. The growth in the rental market is supported by indexation of 1.6% in Sweden and approximately 1% in Denmark last year. Indexation ahead in Denmark expects to be a bit higher, and that will be reflected in the rental levels for 2026. I think the September number was 2.3% or something. Lower rental income in like-for-like is an effect of higher vacancy than a year ago. And at least, it's encouraging to see that vacancy appears to have bottomed out in several areas. More on that topic later. Changes in the market value of our properties. We started the year with SEK 59.168 billion in accordance with the external valuation of 100% of our portfolio. We have made acquisition, which adds on SEK 2.552 billion; in investment, SEK 1.911 billion; divestment, minus SEK 114 million; changes in valuation, plus SEK 450 million. And together with currency translations of minus SEK 500 million, that summarizes to a value of SEK 63.457 billion. The valuation this quarter have no changes in valuation yields, indexation or other underlying parameters. Expectation ahead is more likely to be positive, if I may guess. These figures, the running yield show how we actually perform in relation to the valuation, so not the valuation yield. For the whole portfolio, the occupancy rate is 90%, excluding projects and land and with an operating surplus of SEK 3.326 billion, that gives a running yield of 5.6%. Fully let, the portfolio would give a running yield of 6.4%. Good earnings capacity in relation to the value of the portfolio and good cash flow generation is the foundation also ahead. Occupancy is slightly up looking at the decimals since the last quarter and at least that is in the right direction. In the office portfolio, the market value is SEK 50.394 billion with an occupancy rate of 91%, 92% in Malmö, improved to 90% in Helsingborg, 90% in Lund and 92% in Copenhagen. The improvement has started and will be clearer during 2026. Operating surplus from offices summarized to SEK 2.755 billion and running yield of 5.5%, 6.2% fully let. The demand for logistics and production continues to be good in Malmö with an occupancy of 93%, lower occupancy in Helsingborg at 83%, 91% in Lund with a small portfolio and 96% in Copenhagen. 87% occupancy rate as a whole with a running yield of 6.4%, 7.5% fully let at a total value of SEK 8.988 billion. As mentioned before, we continue to see harder competition in the third-party Logistics segment with very quick changes in needs. That also means that occupancy can improve quickly when the market changes. But I assume that vacancy in the southern parts of Helsingborg will be a bit sticky since the area will go through a makeover that would take a number of years. But as mentioned before, still a decent running yield of 6.4% even with the high vacancy and the market as such continues to be interesting. The development of our total portfolio running yield, 5.6% brings stability, not least since the portfolio overall has a high quality and good location. As noticed before, a high increase of the running yield since 2021. Some sustainability highlights from Q3. We have been appointed as Global Sector Leader by GRESB, completed a battery storage in Lund and actually one in Helsingborg as well. We have signed more sustainable -- sustainability-linked loans, also including Scope 3 carbon dioxide performance, and we continue to reduce our energy consumption. As a new example, we have reduced the electricity used for heating and cooling by 50% at Ideon Gateway in Lund, including both offices and hotel. New cooling technology and of course, the Janne solution is the answer. And something about what our customers think about us. Our latest customer satisfaction index from now in September shows an index of 79 and a loyalty score of 82, very high numbers. Tenants are especially happy with our personal service with 88% satisfaction, our competence scoring 86 and accessibility score 85. Let me just say that I totally agree with our customers. I'm also very satisfied with my competent and service-minded colleagues. I give them 100 out of 100. A catalog of our value and properties in our 4 cities in Q3, 39% of the value in Malmö, 23% in Helsingborg, 17% in Lund and 20% in Copenhagen. The region and especially these 4 cities continues to be of high interest for future growth, both in population growth forecast, which will otherwise be a challenge in many places and in a number of new workplaces. And time for financials. Over to you, Arvid. Arvid Liepe: Thank you very much, Ulrika. Looking at the income statement for the third quarter isolated. Are we on the right slide? There we are. Thanks. Rental income grew by 6% to SEK 1.101 billion, and operating surplus increased by 4% to SEK 790 million. There are a couple of things to bear in mind looking at those 2 numbers. First of all, we've been through a new property taxation, and we got the new taxation values this summer. The taxation values are higher, which means that the property tax also is higher. The property tax -- the new property tax is applicable from 1st of January. So we have, you could say, a catch-up effect. So we -- the changes for all 3 quarters are accounted for in the third quarter numbers. That means that on the rental income line, as Ulrika mentioned, that has been affected with plus SEK 15 million from increased property tax, and on the operating cost side, our operating surplus has been affected with minus SEK 20 million from the increased property tax for the first 3 quarters during this year. So the ongoing -- or the future effect of the increased property tax will be smaller on a quarterly basis than you can see in the Q3 numbers. It's also important to bear in mind that on the rental income line, we've had a negative effect from currencies of minus SEK 7 million, and that same currency effect on the operating surplus line has been minus SEK 5 million. The income from property management amounted to SEK 495 million. We've had a small positive impact there from FX since we borrow a lot in Danish kroner as well. Income from property management up 11% versus the same quarter in 2024. We had positive value changes in the quarter of SEK 103 million. And all in all, a profit for the period of SEK 487 million. Looking at the balance sheet. The value of our property portfolio is now SEK 63.5 billion, up SEK 5.6 billion versus 12 months previously. Equity stands at SEK 23.5 billion, up SEK 1.2 billion versus 12 months previously. And during that time, we have, as you know, also paid approximately SEK 1 billion in dividends to our shareholders. And our borrowings are SEK 33.2 billion, SEK 3.5 billion higher than 12 months previously. Translating that into key numbers, our equity assets ratio now stands at 36.2%. The LTV has gone down from the last quarter to 52.3% and the interest cover ratio for the period stands at 2.8x. Looking at some per share numbers, I'd just like to highlight the EPRA NRV value at SEK 96.23 per share, which is up 10% adjusted for dividends versus 12 months previously. On the next slide, you can see the historic development of EPRA NRV, a stable growth over many years and the average annual growth adjusted for dividend is actually 15%. Moving on to the historical development of our financial ratios. The equity assets ratio at 36.2%, as you can see, is well above the 30% that we have set as the minimum level for ourselves and also on decent levels in a long-term historical perspective. The loan-to-value in the perspective of approximately 10 years has come down from around 60% now to 52.3%. And the interest cover ratio, as we've talked about before, has been very variable, especially during the special period when we had almost 0 interest rates when we had an extremely strong interest cover ratio. The rate is now stabilized and 2.8x is a quite decent level to be at. On the next slide, you see the net debt in relation to EBITDA, also that's in a long-term historical perspective. The ratio stands at 10.3x. It varies with a couple of decimals up and down, but being at 10.3x is a comfortable level for us. Looking at our sources of financing, we still have approximately half of our loans from bilateral bank agreements with Nordic banks, about 1/3 from the Danish rail mortgage system and 17% from the bond market. I would say that the banks are definitely more proactive in their lending efforts than they have been for many years actually. And we do see bank margins gradually moving downwards. The bond market has also -- as we noted already in the Q2 report, the bond market is a lot stronger than it was a year ago, and we can issue unsecured bonds at quite attractive levels in this market. The structure of our interest rate portfolio, you can see on this slide. The average interest rate is 3.29%, 3.33% if you include costs for unutilized credit facilities. We have both in the past quarter, but also if you look over the coming couple of years, we will have some effects of attractive interest rate swaps expiring, but we also see an effect of the margins that we pay to banks and in the bond market coming down somewhat. So overall, over the coming few quarters, I would expect the average interest rate to be reasonably flat. And yes, we can move to the next slide and see the development of the fixed interest period, which has gone up a touch in the quarter. It's now 2.7 years. And the average loan maturity in the loan portfolio is 4.8 years. And lastly, from my side, looking at available funds, we have unutilized credit facilities plus liquid funds of SEK 2.9 billion at the end of the third quarter, which gives us, in our view, enough financial flexibility to manage operations and seize opportunities in a good way. With that, I hand the word back to you, Ulrika. Ulrika Hallengren: Thank you. And an update on our investment in progress and a quick overview of our largest project. During the period, we have invested SEK 1.911 billion, and it remains SEK 2.730 billion to invest in approved projects, good volume in all our cities, a reasonable yield on cost with 6% or a bit above 6% for new build offices and 7% or a bit above that for industrial and a good mix of refurbishment and new build in the portfolio. Let's start in Copenhagen with our project at Ejby Industrivej 41 in the beginning, planned as and decided for a multi-tenant transformation, but with a 15-year lease with Per Aarsleff turned into a single-tenant building. 24,000 square meters, investment SEK 231 million and yield on cost a bit above 6%. Completion is planned to February 2026. The large project at Amphitrite 1 in Malmö has started off really well, a bit about 20,000 square meters for Malmö University at a 10-year lease. We have started at site with deconstruction. And during September, we got the building permission from the municipality. Completion is planned to Q4 '27 and procurement will be completed shortly. In Malmö and Hyllie, we continue with Bläckhornet 1 VISTA, an SEK 884 million investment. The mobility hub has already been completed and the office will be completed in Q1 '26 and during '26. Yield on cost, 6.2% and today, approximately 40% pre-let. The best possible product and low competition from new build in the area, but we still need more activity and more decisiveness from our customers before we are satisfied. An example of top-level refurbishment in Malmö is Börshuset 1. This is an almost iconic building right beside the train station, 6,000 square meters, offices, restaurant and co-working and absolutely top rents in a Malmö perspective. Completion in Q1 '26 and moving in will continue during '26. Pre-let, 95%. At Kranen 7 in Malmö, we will invest approximately SEK 136 million in a preschool for the municipality, 2,900 square meter zoning plan approved and completion is expected to Q3 '27. Public procurement act starts now. And at Sunnanå 12:54, 17,000 square meter logistics, 100% pre-let in a 15-year lease will be completed 1st of December '25, SEK 280 million investment and yield on cost close to 7%. In Lund, we are building a new modern office right beside the Central Station, Posthornet, phase 2, 10,100 square meter, yield on cost, 6.5% and completion Q2 '26. Pre-let, a bit above 40% today. But together with ongoing discussions, I believe we can reach approximately 70% before year-end, keep our fingers crossed, and very attractive product. And at Vätet 1, also in Lund, we continue with refurbishment and adding on areas for our new tenant, Arm, 5,700 square meters and a 7-year lease, investment SEK 145 million, excluding value of the land, and yield on cost a bit above 10% and over 6.6% yield on cost, including ingoing property value. In the southern part of Lund, we continue to develop of Tomaten. This product for BPC, completion Q2 '26 and investment SEK 79 million, 3,600 square meters and yield on cost 7%. Next to that, at former Stora Råby 32:22, now named as Surkålen 1, we have been able to improve since the project started. Tenants will be both Note and Lund University. So well-used land area and long leases. In total, 14,500 square meter completion in Q2 for Note and Q4 '26 for Lund University. Investment, SEK 260 million and yield on cost 9.2%. In Hörsholm, Copenhagen, we invest in a new school for NGG, 25-year lease, 11,600 square meter and investment SEK 390 million. Completion in Q1 '26. And at Giroströget in Höje Taastrup, the refurbishment for Novo continues, 62,000 square meters. Our investment is limited to SEK 423 million and completion is expected in Q1 '26, but Novo also pays rent during the refurbishment period. That was some of the ongoing project and just to touch on future possibilities as a repetition. 4 possible projects in Lund and Helsingborg, where we can develop some 70,000 square meters in the future. Zoning plans are approved for the first few projects and ongoing at Västerbro in Lund and some of the office possibilities in Malmö in the area of Nyhamnen and Dockan. High interest for the future, of course. If you should ask me which projects of these will be the next one, my best guess today is that will be none of these. The Ideon site in Lund is developing very well, and we have building rights there that might be of high interest for the growing defense and tech industries. Early volume studies have started, but nothing I can show yet. And the summary of Q3 again. Rental income up 6%; income from property management, plus 11%; net letting positive, net debt to EBITDA at 10.3x and good access to financing. And we will continue with a focus on cash earnings and future growth. We have been able to grow every year during different economic environment since 2005. We know how to adapt, find new ways and we will continue with this knowledge and ambition. Growth and cash flow is our passion and the compound interest effect of stable growth is hard to beat from SEK 7 billion to SEK 63.5 billion without any new equity from our shareholders. We have been able to grow, thanks to continued investments. They contribute to upgraded attractiveness and new demands and what comes first, higher rents or investments, have no answer, but these factors have a relation. Here is a graph showing the market rents for prime offices in Malmö and our quarterly investments during the same period from 2010 to present. The green bars represent our investment and the green line represent rent levels. And finally, a market outlook. Employment growth in our region continues. Office rents show long-term growth. Wihlborgs' project investment increase over time. Tenants on average, stay in the premises for 14 years, which support the strong customer satisfaction score. And if we just take the largest leases we have signed, we have a volume of some SEK 320 million moving in from now until end '27 and during the same period, terminations of some SEK 190 million, a good gap. So possibilities for growth is in sight. And with that, we are open for questions. Operator: [Operator Instructions] The next question comes from Oscar Lindquist from ABG Sundal Collier. Oscar Lindquist: So firstly, on projects. The 2 projects completed in the quarter, Galoppen and Kranen, how much did they contribute in the quarter? And how much should we expect into Q4? Ulrika Hallengren: They didn't contribute in the quarter, but will contribute for the full Q4. Oscar Lindquist: And then on the Sunnanå project, from when should we expect contribution from that project? Ulrika Hallengren: Also from 1st of October. No, 1st of December, sorry. Oscar Lindquist: 1st of December. Okay. And then the Börshuset project was moved to Q1. What's the reasoning? Ulrika Hallengren: The tenant will start moving in there. So there's no delay in the project, but it's a difference between when the building is completed and when tenants moving in. So I think the -- we will have a ceremony there in February, but the rent will be started to pay in Q1. Arvid Liepe: However, everybody does not move in Q1 of the signed leases. Ulrika Hallengren: Correct. we have moving in during the whole '26. Oscar Lindquist: Yes. And then if we move over to net letting, you mentioned a late termination of SEK 16 million in the quarter. When do you think you will know if they terminate or extend their contract? Ulrika Hallengren: We have calculated as terminated and discussions are ongoing. So I guess now during Q4, there will be a decision if they stay or... Oscar Lindquist: Yes. And if they terminate the impact would be in 9 to 12 months or what's fair to expect there? Ulrika Hallengren: Just a minute. 2027, from 1st of January 2027. Oscar Lindquist: Okay. And then -- so if we adjust for that termination, net letting was positive SEK 22 million. What's the mix here between projects and existing properties? Ulrika Hallengren: In the quarter, I don't have that figure right away. But I think actually that the existing portfolio contributed very well this year and also in the quarter and also good contribution from all our cities, at least for the 9-month period. So I would say that we see positive signals in all our 4 cities. Oscar Lindquist: Okay. So effectively [indiscernible] Arvid Liepe: It's -- in the quarter, I would say, without -- I don't have the exact figure either, but I would say that more existing properties than projects during this quarter in the net lettings. Oscar Lindquist: Okay. Perfect. And then if we look on the Bläckhornet project and the Posthornet project, how is discussions going there? You improved the occupancy slightly in Bläckhornet now in the quarter. What's your sort of ambitions closing in on completion? Ulrika Hallengren: Our ambition is to improve, of course. It's a very good product. And -- but the volume is quite large. So something tends to take longer time when you can choose of good things in many levels, so to speak. So I can't give a figure when I think it's -- but I think we will continue with the work for letting also during 2026. That's reasonable to think that. But let me also mention that we see a good -- we have signed new leases in [indiscernible] in the same area. And also, actually, we -- the portfolio we bought 1st of April, there was some vacancy at [indiscernible], for example. And that is now, I think, 20%, 30% vacancy, and that is now fully let. So there is definitely activity out there. Oscar Lindquist: And would you say sort of the outlook or discussions with the tenants has improved in the quarter and going into Q4 or... Ulrika Hallengren: Yes, I think so. But it depends. One day, you think it's slow and one day you think it's very active. So -- but overall, I would say that there's more positivism out there. Oscar Lindquist: Yes. And then on occupancy, it's essentially flat Q-on-Q, and you sort of alluded or guided to improving occupancy in the second half. Could you quantify what you expect in -- or what we could expect in Q4? Ulrika Hallengren: I especially guided on occupancy in offices in Helsingborg, and that have improved 2% during the year. And otherwise, I think that we will continue to have some improvements, but not quick improvements since we also have -- I mean, for example, SAAB will move out the 1st of January '26, and that will take some time before we have entering new tenants there. But a very good example of that is that we have already signed new leases for that building with new tenant moving in a year. So only 9 months for refurbishment. And I... Arvid Liepe: For part of the building. Ulrika Hallengren: Yes, for part of the building. So they take -- yes, [ they'll likely ] take one part of the building, and we also have good discussions for more areas there which might also end up in moving in, yes, I mean, October next year or so. So quite quick period between moving out and new tenants moving in. And not for the total volume, but at a good part of it. So... Operator: The next question comes from Eleanor Frew from Barclays. Eleanor Frew: Just one question from me. So on rental growth, your chart clearly shows there's prime rental growth, but can you comment on the more secondary assets? What's the rental growth you're seeing there? And is there any negative re-leasing on those poorer-quality assets? Ulrika Hallengren: I mean, of course, when you look into the absolutely best location and top rent levels, that is one area. If you just take a small step from that and still good location and good quality, the rent levels continue to develop well. If you go to more poorer area, we have not a large amount of equity there. So I can't really give a good guidance. But of course, it's harder to find higher levels of rents in poorer area. There will be a larger difference there in the market as it is today. Operator: The next question comes from Lars Norrby from SEB. Lars Norrby: I'm a bit late into the call. So cut me off if I ask a question that somebody else has already asked. But I have a follow-up on a question I heard, and that was about the occupancy rate, once again, flat in the quarter. Just to be clear, I mean, you have some 6 projects or so being completed in the first quarter of '26 and then you talked about that SAAB moving out. But based on what you know today, has the occupancy rate bottomed out? And at what point in time do you expect it to improve, at what stage in '26? Ulrika Hallengren: I would say that for the whole portfolio, I think the vacancy has bottomed out, but we can see for a shorter time or period, higher vacancy in some areas, for example, when SAAB moves out and before we have new tenants in place. But we meet that well with new rental agreements. So yes, I think we have bottomed out and will improve, but the improvement isn't a quick shift. It will take some time. And especially during 2026 and end of 2026, as mentioned before, we have a quite large volume coming in. But also now in Q4, we have good volumes coming in from Galoppen and Sunnanå, for example. So yes. Of course, we want the occupancy to be even higher, but still, it's good to see that we have flattened out and are on the up-going way on the occupancy again. Lars Norrby: Second and final question. 2025 has been a year where you're growing through projects, but also through a quite substantial acquisition. Looking ahead, '26, '27, is it very much all about projects? Or are you considering adding additional size of any magnitude through acquisition as well? Ulrika Hallengren: I expect that we will see a combination. It's good with the project volume because you can manage that and plan for that. And acquisition is harder to plan for. But we continue to be active and trying to find the best premises for us. And of course, it's an interesting period we're in. Lars Norrby: And just a quick follow-up on that. In what geographic area? Are we talking primarily about Copenhagen then? Or is it more likely to be in Sweden? Ulrika Hallengren: I think there is interesting things going on both in Sweden and Denmark. So we try to be active on both places, both countries. And as mentioned, I mean, you can't plan for transaction if you want them to be the best things for you. So of course, you can be aggressive and try to buy whatever, but we will continue to be picky on what we want to go into, of course. Lars Norrby: Sounds good. I hope you don't buy whatever. Ulrika Hallengren: We will not. Operator: The next question comes from Oscar Lindquist from ABG Sundal Collier. Oscar Lindquist: So I just had a follow-up question on the property tax you mentioned weighing on the NOI margin. So the effect in this quarter was SEK 5 million, as I understand it. Is that correct? Arvid Liepe: On the operating surplus line, yes. A negative effect of SEK 5 million. Oscar Lindquist: Yes. But going forward, will you be able to sort of pass on the full increase in property tax to tenants? Arvid Liepe: Not 100%, but the very largest part. I mean, we do have some vacancies, for example, and we have a very small proportion, but still a few inclusive contracts, so to speak. Oscar Lindquist: But then significantly lower than the SEK 5 million we saw this quarter? Arvid Liepe: Yes. 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 and closing comments. Ulrika Hallengren: Perfect. Thank you. Have we got any written questions as you can... Arvid Liepe: Let me double check. Not that I can find. No. Ulrika Hallengren: No? okay. So of course, you're welcome to come back to us whenever with whatever asked questions. Thank you for this. Arvid Liepe: Maybe we should conclude. This may actually have been a record quick presentation. Ulrika Hallengren: Definitely, 42 minutes. It's our quickest [ version ] , I think. We try to be precise and quick, but that was part of it. Arvid Liepe: Thank you, everyone, for listening in. Ulrika Hallengren: Thank you.
Operator: Welcome to the Icade 9-month Trading Update Conference Call. [Operator Instructions] Now I will hand the conference over to Nicolas Joly, CEO. Please go ahead. Nicolas Joly: Good morning, Nicolas Joly speaking. Thank you all for being here today on this call. Along with Bruno Valentin, we are delighted to present this morning Icade 2025 9-month update. This presentation will be, of course, followed by a Q&A session. Let's move to Slide 5 for an overview of the main messages. To date, Icade has completed or signed preliminary agreements for EUR 430 million in disposals. This includes a reduction of the group exposure to healthcare activities by circa EUR 210 million and the sale of mature or non-strategic assets for EUR 220 million. The investment division reported a very good rental activity with circa 166,000 square meters signed or renewed to date. This volume was boosted in October by the renewal of 41,000 square meter in EQHO Building with KPMG. For several months, the financial occupancy rate has improved, notably for well-positioned offices and light industrial assets. On the property development front, H1 trends are continuing into H2. By the end of September, Icade recorded stable order volumes with a total value decrease of minus 5%. Lastly, we reaffirm today our 2025 group net current cash flow guidance between EUR 3.40 and EUR 3.60 per share. On Slides 6 and 7, we focus on the good progress made on disposals. Early August, Icade signed an agreement with BNPP REIM to sell its stake in a diversified portfolio of 23 health care assets, accounting for circa 15% of its exposure to the healthcare real estate sector. This transaction with one of France's leading real estate investment management firms confirms the quality of healthcare portfolio in Italy. These sales represent circa EUR 173 million for Icade, in line with the asset values included in the group NAV as of June 30, 2025. The proceeds from the sale will repay the shareholder loan from Icade to Icade Healthcare Europe almost in full. The deal is scheduled to close at the end of the year. In addition, year-to-date, Icade reduced its exposure to Praemia Healthcare by EUR 36 million through 2 smaller transactions completed in the first half of 2025. The property investment division also secured EUR 220 million in disposal of nonstrategic or mature assets. Since the last year results, preliminary agreements were signed on additional assets for EUR 115 million, namely an office asset covering 1,800 square meters on Charles de Gaulle for EUR 17 million, the remainder of the B&B Hotel portfolio for circa EUR 30 million and the entire Mauvin business park in the north of Paris, representing 21,000 square meters for EUR 69 million. This successful transaction is the direct result of the hard work of our asset management teams who managed to bring the occupancy rate of this park up to 100% by the end of June. All of these transactions represented an average yield of about 6.1% and were completed at prices above the net asset value as of the end of December 2024. Let's look now at the performance of investment division on Slide 9. Over the first 9 months of the year, the rental market remained challenging with take-up in the Greater of Paris region down 8% year-on-year. The subdued economic environment and French political instability continue to weigh on corporate real estate decisions. As we observed in the previous month, there has been still in Q3 2025, a lack of new leases signed for spaces over 5,000 square meters. In this environment, Icade teams delivered a very solid performance with around 125,000 square meters signed or renewed by the end of September. These agreements represent an annual rental income of EUR 29 million with a WALB of 6.8 years. This achievement demonstrates our ability to secure large leases over 5,000 square meters and to support our clients over many years like Club Méd, who has been our tenant within Pont de Flandre for 30 years. It also shows our expertise in creating spaces tailored to our client needs as we have done with Sopra Steria in the Orly-Rungis business park. The total financial occupancy rate stood at 84% as of September 30, 2025. In the well-positioned office segment, the financial occupancy rate stood at 88.8%, up plus 0.8 points compared to the end of December 2024, following, in particular, the leases signed for more than 3,000 square meters in the Hyfive building and nearly 2,000 square meters in the EQHO Tower. After including the [indiscernible] in the first building scheduled to start in Q4 2025, the financial occupancy rate of well-positioned offices stood at over 90%. In the light industrial segment, the occupancy rate stood at 90.4%, plus 1.5 points versus December 2024, thanks to leases signed in November, Port de Paris business park. In addition to the 125,000 square meter, we are very pleased to announce that we renewed in October the lease with KPMG for approximately 41,000 square meters. This lease has a firm commitment until 2031. In total, Icade has signed or renewed more than 60,000 square meters since the beginning of 2025 in the La Défense and Péri-Défense area, which offers significantly lower rents than Paris CBD, while still being very well served by public transport. Let's now move on to the operational performance of the development business line on Slide 11. The trends have remained consistent with the first half of the year. The development division recorded a stable orders volume with 2,815 units totaling EUR 722 million, down by 5%. Activity in the individual segment declined by 11% in volume, in line with the overall market. This decline occurred in an unfavorable tax environment marked by the end of the P&L tax scheme, which led to a sharp contraction in individual investor activity, i.e., minus 43% year-on-year. The momentum was more positive for our owner-occupier orders, which increased by 14%, supported by favorable measures promoting homeownership. Bulk orders showed an 11% increase in volume, but a 6% decrease in value. This discrepancy between volume and value changes is explained by a temporary shift in the product mix. Institutional investors continue to support business activity as they accounted for 51% of orders in volume terms year-to-date. It is also worth noting that institutional investor activity has historically been stronger in the second half of the year with circa 60% of bulk orders made in Q4 in both 2023 and 2024. I'll now turn the floor over to Bruno to present the change in revenues. Bruno Valentin: Thank you, Nicolas. Let's move to Slide 13, which we present the trend in consolidated revenue as of September 13, 2025. Icade's total IFRS revenue is down by 9% due to lower revenue from both the property investment and the development divisions. Let's dive into the financial performance and property investment division in Slide 14. In line with the figures reported in the first half of the year, gross income decreased by 6% to EUR 253 million, mainly due to tenant departures last year and the gradual crystallization of negative reversion of renewals. These effects were partially offset by the positive impact of indexation, which has gradually moderated but still contributed plus 3.2% and by early termination fees mainly related to the to-be repositioned offices. Move to Slide 15. On property development side, economic revenue amounted to EUR 729 million as of September 13, 2025, down by 12% year-on-year. This decline results firstly, from a drop in commercial segment with revenue down by 42% year-on-year due to the completion of major projects at the end of 2024, coupled with the low volume of new contracts signed in 2025. And secondly, from the progressive decline in residential backlog. I will hand over to Nicolas for the conclusion. Nicolas Joly: Many thanks, Bruno. So, let's move on Slide 17 for the 2025 guidance. We reaffirm our 2025 guidance of a group net current cash flow of between EUR 3.40 and EUR 3.60 per share. This includes net current cash flow from nonstrategic operations of approximately EUR 0.67 per share, excluding the impact of disposals. As of September 2025, the income already recorded by Icade represented 92% of annual net current cash flow from nonstrategic activities. Let me remind you that the contribution from nonstrategic activities does not include the payment of a potential interim dividend from Praemia Healthcare in 2025. Well, to conclude, in an environment that remains complex and uncertain, Icade teams achieved a number of successes during the quarter as illustrated by the continued execution of our disposal plan and a very strong leasing performance. We remain focused on implementing our strategy with priorities that include improving the occupancy rate of our assets, diversifying our portfolio and rigorously managing our balance sheet. And with that, let's start the question-and-answer session. Operator: [Operator Instructions] The next question comes from Florent Laroche-Joubert from ODDO BHF. Florent Laroche-Joubert: So 3 questions for me, if I can. So, my first question would be in offices. So, you have said that improving the occupancy rate is a high priority. So maybe could we say some words on your next challenges in offices for notably for the end of 2025 and 2026. So, what shall we expect? Maybe second question on healthcare assets. So, have you any comments to make for the other assets to be still sold in healthcare? And maybe last question on the 2933 Charles de Gaulle comment on your intention to dispose or not at the end of this asset? Nicolas Joly: Thanks for your question. Well, maybe start with the financial occupancy rate. Well, you saw that there were some recent improvements indeed in the occupancy rate for well-positioned and light industrial segment. As I said, including the positive effect of Pulse by the end of 2025, the occupancy rate will be above 90% for the well-positioned. Light industrial 90.4%. Well, of course, there will be a slight negative impact to be expected post disposal of the Mauvin business Park, but thing is getting better month after month. Once again, this remains and shall remain the first priority for the teams as for the Investment division. Maybe to give you a bit some visibility on the -- what to expect in 2026 regarding the expiries. I would say it's globally the same trend as in 2025, of course, with some expiries to be expected concerning the to-be repositioned assets. As more than half of the expiries will occur in H1 2026, we shall be in a position to give you some good visibility for the full year 2025 result presentation. And on the second question on the healthcare portfolio, well, clearly, given the political environment in France, which does not help and could discourage some international investors, our first priority is to focus on the international side. We've shared some good news with the Italian portfolio that shall be closed at the end of the year. We are also focusing a lot on the Portuguese assets, which are, as you know, high-quality assets that can attract unsolicited interest. And we are also marketing the small remaining part of the Italian portfolio, which constitutes of 5 assets, representing roughly EUR 20 million. On France, once again, on [indiscernible], there's no major news to share given the French context, but we are still exploring some additional routes, sale of noncore assets, additional swaps as we've done during the H1. And on the Charles de Gaulle asset, of course, we won't comment specifically on the asset or the process, but will keep being consistent with our DNA, which is to capture the maximum of the value creation. And once again, for this asset, in our view, a large part of the value has been already created through the eviction of tenants and the obtaining of the permit. And there's a good window because they have very strong liquidity on the investment market for core plus and value-add assets in Paris CBD. We saw a lot of transaction there with loads of cash. So clearly, with those 2, an opportunistic approach in our view shall be considered. Once again, the key decision will be made on value creation. Operator: The next question comes from Stéphane Afonso from Jefferies. Stéphane Afonso: First, on the EQHO Tower, could you please share the reversion rate reflected in this renewal? Second, on Icade's promotion, should we expect additional provisions or impairments since market parameters have changed? And finally, on asset values, market data points to further yield expansion. So, what should we expect in terms of asset value decline in H2? Or at least what assumptions are you using in your business plan? Nicolas Joly: Thanks for your question. Well, starting on the EQHO Tower, maybe just before sharing thoughts on the economics, let's take a minute to celebrate, which is really good news rewarding the hard work of the team that have been working on this for several months now. As we shared with you, we try to anticipate as much as possible the large break options we are facing and we have some strong relationship with our major tenants. So, we were really happy to succeed in that. Of course, we cannot share the detailed figure but maybe highlight the one thing is that as put in the PR, the signature rent is in line with the RV as we usually do. Of course, this crystallized a significant negative reversion. It was the highest negative reversion potential in the portfolio. That shall be captured after the end of the actual lease from October 2027. But I'm sure that if you put some raw figures, you can be able to estimate this roughly. As for the incentive, they are slightly above the market trend, but in my view, remain fully consistent with the very large surface that is considered. We are talking here about circa 41,000 square meters. So, this to conclude on the EQHO Tower is, in my view, an emblematic transaction, testifying once again the good dynamics of the area in La Défense district and the strong relationship we have with our tenants. Stéphane Afonso: Maybe jump in on your -- I have in mind that the reversionary potential was minus 11%. So, taking into account this renewal, where does it stand now? Nicolas Joly: Yes. This accounts for roughly 2 points out of those 11 on the average portfolio. Yes. But this once again will be captured at the end of the actual lease in 2027, because until then we are still on the current rate, okay? Is that clear? Stéphane Afonso: Okay. Yes. Thank you. Nicolas Joly: Jumping on your second question on Icade promotion. Of course, the market trend is still very tough. As you saw on the residential business, we've been deeply impacted by the end of the P&L tax scheme that had a negative impact on orders of individual investors were roughly minus 43%. As shared, there's better dynamic for owner occupier. The bulk sales still represent more than half of the total orders with a historical volume very strong in the Q4 and of course, very low activity in the commercial division, and that shall be the case in the years to come. So, we are still very selective in our operations. There may be 1 or 2 operations identified will be more difficult than expected. We've done the job on the whole portfolio in June 2024. So, there is no thing that is expected once again on that. And I would say that for the global activity, there are no recovery, in my view, expected before 2027, especially due to the political agenda. As you know, next year will be the local election on the town. So, this is usually years with very low level of building permits. Stéphane Afonso: So in your view, the provision and impairment that you recorded maybe 2 years ago are conservative enough at this stage? Nicolas Joly: Yes, we went through the whole portfolio on that. As I said, given the context, there still can be some operation selectively that can have some issues. But once again, on the whole portfolio, the job has been done. And on the last question on the evolution of the asset value, where you saw in H1 that there was a small deceleration of the asset value decline of minus 2.8%, if I remember well, in like-for-like, both from negative impact of residual yield decompression and to a lesser extent, lower expectation for indexation, clearly. Light industrial were more resilient, of course. But if we focus on offices, while it's still difficult to confirm the timing of value stabilization as there are still very few transactions on the market to assess properly the target cap rate. And on top of that, there are still some persistently high sovereign yields. But nevertheless, as you saw, we had a strong divestment activity during the first 9 months of the year and the sale of core assets completed year-to-date confirm the level of our actual NAV. Operator: The next question comes from Celine Soo-Huynh from Barclays. Unknown Analyst: I got 2 questions, please. The first one is about the guidance. In the press release, you said that the disposal of the Italian healthcare portfolio could impact the NCCF depending on the closing date. So, could you please give us a number around this? And the second one is around your outlook. You sound very cautious. I would almost say quite negative on your outlook for 2026. And we know your S&P credit rating currently is negative. Are you expecting a credit downgrade coming? Nicolas Joly: Maybe quickly on the first one, well, globally, the impact of the disposal of the Italian portfolio will be nonsignificant on the cash flows because it's expected to occur at the very end of the Q4, so not significant. On the outlook, well, cautious clearly because 2026 globally will remain very tough, in my view, on market conditions. Well, you get this political agenda in France that will definitely have an impact on the pace of recovery. We are facing persistently high sovereign yields that won't help. And thirdly, there's a lower positive indexation to be expected in 2026. On top of those macro effects, more specifically on Icade side, well, as I said, on the property development, given the political agenda, there is no expectation in our view of recovery in 2026. And on the investment side, I was mentioning a lower positive impact on indexation that we expect roughly at 1%, so much lower than expected some months ago. And as you know, there are still some negative reversions to be crystallized in the cash flow. Of course, this is already, as you know, in the NAV, but still to be crystallized lease after lease in the cash flows. And there are still some departures, mainly on the to-be repositioned assets that will still while on the like-for-like clearly. So not negative, but clearly, cautiousness in our view on both businesses and the macro is necessary. And maybe Bruno, you want to. Bruno Valentin: Yes. So, we remain highly focused on SAP, of course, the 3 points. First one, the disposal achieved over the last 9 months helped to keep the LTV ratio under control. Secondly, we have a limited committed level of CapEx in the pipeline. But nevertheless, we remain subject to variation in asset valuation. Nicolas Joly: And Celine, you were mentioning, I though the outlook, but the current outlook is stable. Bruno Valentin: It's not negative. Unknown Analyst: Sorry, I thought your outlook was negative. Nicolas Joly: No, no. This is stable. BBB stable. Operator: The next question comes from Michael Finn from Green Street. Michael Finn: Yes. I was just curious given the change in the sources of funds. Since it seems slightly better than it was, I'm curious if there is any change in the uses of those funds as well. Should I assume that the strategy is in line with the Investor Day from Feb of '24? Nicolas Joly: Yes, Michael. Well, we are still bang in line with ReShapE. As I shared in my conclusion, we are focused on our existing portfolio and the occupancy rate. We are also focusing on diversifying our exposure to additional asset classes such as PBSA or data centers, for example. There were no major news to be shared during this Q3. But clearly, we intend to reallocate into relative developments, the cash that comes from the divestment, but we are still bang in line with the main guidelines of the ReShapE strategic plan that we've shared in February 2024. Operator: The next question comes from Samuel King from BNP Paribas Exane. Samuel King: Just one clarification question on earnings guidance, please, and specifically on the contribution from nonstrategic operations. I understand that it excludes a potential interim dividend from Praemia Healthcare. But am I right in thinking it also excludes a potential dividend from IHE, which last year was around EUR 10 million? And if so, what is the decision made if IHE pays a dividend? Because in theory, the disposal and repayment of shareholder loans should improve the financial position of IHE and therefore, its ability to pay a dividend this year? Nicolas Joly: Yes. Thanks, Samuel for your question. Well, indeed, there was no assumption of an interim dividend on Praemia Healthcare and no dividend on IHE, but we don't expect dividend on IHE, most of the cash flows were drawn through the shareholder loan. So, nothing to expect on this regarding IHE. And as for Praemia Healthcare, we'll see there is an interim dividend before the year-end. And if this is the case, of course, we will be telling the market that it's the case. But indeed, you were right on the current guidance, the EUR 0.67 does not include any interim dividend on Praemia or any dividend on IHE. Operator: The next question comes from Valerie Jacob from Bernstein. Valerie Jacob Guezi: I just wanted to ask a follow-up question on your rating with S&P. My understanding was that S&P had assumed approximately EUR 700 million in order for your outlook not to be downgraded. I mean I know your outlook is stable, but I'm talking about an outlook downgrade. So, I was wondering you've only done EUR 400 million so far. If you don't sell Charles de Gaulle in 2025, is there a risk that your outlook can be downgraded? Or maybe if you can share some discussion you're having with S&P. Nicolas Joly: Well, today, once again, we are consistent with the trajectory we've shared. We've demonstrated our ability to sell assets, even sell assets at the right price. We said it was above NAV. There is a few opportunities in the pipeline that make us confident in being able to secure the debt on debt plus equity threshold at 50%. So, at this stage, nothing specific to worth sharing. Valerie Jacob Guezi: So if you don't sell anything until the end of the year, there is no risk in your view that your outlook is going to be downgraded. Is it what you're saying or? Nicolas Joly: Well, it's not for me to say. I mean it's S&P to say. But clearly, today, we've demonstrated that we are able to secure our debt on debt plus equity trajectory. And on top of that, the additional 2 KPIs are very comfortable headroom regarding the guidelines set by S&P. Operator: There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments. Nicolas Joly: Okay. Thank you very much. Happy to share this part of the morning with you. Looking forward to talking to you. Have a nice day. Bye-bye.
Operator: Ladies and gentlemen, welcome to the Q3 Results 2025 Conference Call of Beiersdorf AG. I'm Moritz, the Chorus Call operator. [Operator Instructions] And the conference is being recorded. The presentation will be followed by a question-and-answer session. [Operator Instructions] The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Christopher Sheldon, Head of Investor Relations. Please go ahead, sir. Christopher Sheldon: Good morning, everyone, and thank you for joining us for our third quarter conference call. I'm here with our CEO, Vincent Warnery; and our CFO, Astrid Hermann. As always, we will start with the presentation of our sales performance of the quarter and the first 9 months of the year, followed by a Q&A session. And with that, I'd like to hand over to Vincent. Vincent Warnery: Thank you, Christopher, and good morning, everyone. Thank you for joining our conference call. Astrid and I will provide an overview of our sales performance and key developments of the third quarter and the first 9 months of the year. The third quarter continued to be impacted by a very challenging market environment. Despite the headwinds, Beiersdorf was able to improve its performance versus the prior quarter. Our Derma business continues to outperform, delivering outstanding double-digit growth and winning market shares across regions. In September, we kicked off 2 major NIVEA launches. In our face care franchise, we roll out our breakthrough ingredient Epicelline. In our deodorant range, we launched the new Derma control line. While the initial impact on Q3 was limited due to timing, these launches are a key building block for our performance in Q4. We've also initiated a strategic rebalancing of the NIVEA core portfolio by broadening our efforts beyond face care to other skin care categories and reinforcing high potential categories like deodorants. And finally, in a continued challenging market, La Prairie returned to growth in Q3, supported by improved momentum in China. Let's take a closer look at how these developments are shaping our recent performance. The third quarter showed signs of gradual improvement, while we continue to see volatility across key markets. NIVEA continues to face pressure from an even weaker mass market environment especially in emerging markets, resulting in an organic sales decline of 0.4%. The major launches initiated in September only had a limited impact on Q3. Excluding the strategic repositioning in China, which is now completed, NIVEA's organic sales growth would have been positive. Our Derma business, with Eucerin and Aquaphor, once again delivered strong double-digit growth of 12.4%, reaffirming its role as a key growth driver in our portfolio. Our Health Care business, which includes the Hansaplast and Elastoplast brands outstanding growth of 9.8%, still supported by the successful rollout of our Second Skin plaster innovation. And despite ongoing market volatility, La Prairie continued its sequential quarterly improvement as planned, turning to positive organic sales growth of plus 1.6% in Q3. Overall, our Consumer Business recorded organic sales growth of 2.1% in the third quarter. Let me point out that our skin care organic sales growth increased to 4% in Q3 compared to 2.6% in the first half of the year. Beiersdorf's performance in the third quarter was flat, in line with our expectations and impacted by the difficult environment in the automotive industry. The Electronics segment, on the other hand, delivered a positive contribution, driven by a strong performance in Asia. Overall, this results in group organic sales growth of 1.7% in Q3. Looking at our Derma business in more detail. Once again, we delivered double-digit growth of 12.4% in the third quarter, a fantastic results on top of the tough 2024 comparison base when we first launched Epicelline. This underlines the strength of our innovation pipeline and our ability to identify and capture white space opportunities. It proves that we can deliver outstanding results and outperform competition even in markets that have slowed down substantially compared to previous years. Innovation remains the cornerstone of our success. This applies both to breakthrough ingredients and to the regular relaunches across our portfolio. Epicelline launched just a year ago, continues its successful rollout and remains a key growth driver in our Derma portfolio. And Thiamidol, which has been on the market for 7 years, continues to grow double digits. At Europe's leading dermatology congress EADV, Thiamidol was recognized as the only Derma-cosmetic active ingredient delivering effective treatment of hyperpigmentation at the root cause. This was endorsed by a newly established global consensus for the treatment of hyperpigmentation, a powerful validation of our science-led approach. But innovation doesn't stop with our hero ingredients. We continue to invest in regular relaunches across our portfolio. With our new Eucerin DERMOPURE Clinical range, for example, we are not simply introducing a new product line. We are delivering science-based solutions for acne, a skin concern that affects up to 85% of people globally. Acne is a leading reason for dermatological consultation and one of the fastest-growing categories in skin care. Our Derma business is not only performing across categories, it's also delivering across regions. In North America, our largest market for Derma, we achieved outstanding growth of plus 56% in the Eucerin Face category despite the slow overall market. The launch of the Eucerin Radiant Tone range with Thiamidol earlier this year, is showing excellent traction. In Europe, we are excited to report double-digit growth of plus 10%. This was fueled by the continued success of Epicelline, which is reinforcing our innovation leadership in the region. Looking at Northeast Asia, the entry of Eucerin into the domestic market in China has exceeded expectations with exceptional organic sales growth of plus 86% in the third quarter. Following the official approval of our patented ingredient Thiamidol last year, we are already seeing early success in the market. The Eucerin Thiamidol serum has already achieved a double-digit market share making it the #1 derma anti-pigment serum in China. And last but not least, we'll be launching Eucerin Japan, another white space next month. With NIVEA, we successfully started the launch of our breakthrough ingredient Epicelline in September. Building on the strong results achieved with Eucerin, we are now scaling this innovation into the mass market. This is the biggest NIVEA launch of all times. While the impact on our Q3 figures were still limited due to timing of the launch, the first week has already performed above our expectations. We are seeing strong early traction, including #1 category positions across key European markets. In France, for example, the NIVEA Epigenetics Serum reached the #1 position in hygiene and beauty products. And in Germany and Austria, we secured the #1 face care position at dm, the region's largest drugstore retailer. The initial strong launch performance is also visible in our September net sales figures for NIVEA with organic sales growth of plus 7.8%. A key driver of this momentum alongside the very recent NIVEA Epicelline launch, has been our NIVEA Derma Control Deodorant range. This is where our skin care expertise meets the high performance of personal care, the skinification of deodorants. While our recent launches are encouraging, we acknowledge that NIVEA's overall performance has fallen short of our initial expectations this year, particularly in the second quarter. So let me remind you of the journey we are on. Four years ago, we put a strategic focus on skin care, our core strength. We are committed to innovation, expanding into white spaces guided by our belief that beauty is global and offer-driven. This strategy has delivered outstanding results since 2022, 2023 and 2024, NIVEA achieved exceptional growth in some cases even double digit. That success gives us confidence in the path that we have chosen. Now to ensure that NIVEA continues on the strong growth trajectory we are making targeted adjustments with a proactive rebalancing of our portfolio. What does it mean? We are broadening our focus within skin care. While face care remains a key category, we are balancing our R&D and marketing investments across other skin care segments. We're also reinforcing deodorants as a strategic growth pillar, a category where NIVEA has a strong right to win through innovation. NIVEA is a value for money brand and stands for affordable prices, and that remains unchanged. While we see customers' willingness to pay for breakthrough innovations like Thiamidol and Epicelline, most of our portfolio continues to be priced at accessible price ranges. We know there is work ahead, but we also know that we are capable of, and we are taking action to bring NIVEA back to stronger growth and continue building on its legacy as 1 of the world's most trusted skin care brand. And let's not forget, as we have always said, even a brand has established as NIVEA still offers significant white space opportunities. A great example is India, where we launched NIVEA Face earlier this year and are continuing our double-digit trajectory. We are equally excited about the potential of NIVEA Thiamidol in China, where we are just beginning to build momentum. This leads me to our NIVEA repositioning efforts in China, which were completed at the end of Q3. Performance has stabilized, and NIVEA in China is already back to growth in October setting the stage for acceleration in the remaining fourth quarter. Our strategy in China is clear. We aim to win through innovation in skin care. With Thiamidol as our hero ingredient, we are confident that it provides a distinct competitive edge in this highly dynamic market. China remains a key opportunity for us in the mid- to long term. It's a demanding environment, but with the right portfolio and continued innovation, we are convinced that NIVEA is well positioned to compete even against strong local brands. Coming to La Prairie, which is back to growth. While the market environment remains volatile, La Prairie delivered a solid Q3 performance with growth of plus 1.6%. This was driven in part by continued momentum in China, which achieved growth of 3% and an outstanding double-digit sellout. I'm also pleased to announce a major milestone in our global expansion strategy. After successfully establishing NIVEA Face and Eucerin in India, we've now expanded our premium portfolio with the launch of La Prairie, exclusively on Nykaa. This marks our entry into 1 of the world's most dynamic and fast-growing beauty markets, an important step in strengthening our global footprint. Before I hand over to Astrid, let me turn to our e-commerce performance. E-commerce continues to be a key growth driver for Beiersdorf. In the first 9 months, we achieved organic sales growth of 16.6% with Q3 accelerating to 19.2%. We are gaining market share everywhere, with particularly strong momentum in emerging markets in Europe. Our Luxury e-commerce business continues to grow, fueled by targeting online activations, while our Derma portfolio shows global trends delivering double-digit growth across all regions. Astrid will now take us through the tesa results and our financial performance in more detail. Astrid Hermann: Thank you, Vincent. Now let us review tesa's business performance for the first 9 months of 2025. Despite ongoing market challenges, tesa delivered 2.0% organic sales growth year-to-date, rising uncertainty and the potential impact of U.S. tariffs continue to affect demand, particularly in Europe and North America, while Asia continues to be a strong growth contributor. Our Electronics business was a key growth driver, supported by strong demand for major customers, particularly in Asia. The automotive segment continues to navigate a complex and volatile market environment. Despite the challenges, the segment showed resilience and delivered growth in some regions, particularly in Asia Pacific, where we are winning new customer projects. tesa's consumer segment remains under pressure, especially in Europe, Nevertheless, it achieved growth over the first 9 months, supported by a solid performance in the third quarter. Finally, I'd like to highlight a leadership change Dr. Kourosh Bahrami, has succeeded Dr. Norman Goldberg as CEO of tesa, with over 30 years of international leadership in the adhesive industry, Dr. Bahrami brings strong leadership and a clear commitment to drive customer value and sustainable growth. We thank Dr. Goldberg for his transformative leadership and look forward to continuing tesa's successful course under Dr. Bahrami's direction. Now let's continue with our 9-month sales performance in more detail. In the first 9 months of 2025 Beiersdorf Consumer division grew by 2.0% organically. Due to unfavorable foreign exchange effects, nominal sales declined slightly to EUR 6.25 billion. The tesa division reported solid organic growth of 2.0% for the same period. In nominal terms, net sales remained flat at EUR 1.29 billion. Overall, the group generated EUR 7.5 billion net sales in the first 9 months of 2025, translating into 2.0% organic sales growth. Now let's take a closer look at the performance of our brands within the Consumer Business segment. Vincent has already provided an overview of the third quarter sales results. So I will focus on a summary of our brand's performance in the first 9 months of this year. In a persistently challenging market environment, NIVEA delivered modest growth of 0.6% in the first 9 months. Our performance was further impacted by higher competition from local brands and the strategic repositioning in China, which we successfully completed at the end of Q3. In addition, our innovation pipeline was weighted towards the second half of the year, especially Q4. Key launches, including Epicelline and Deo Derma Control, were launched in September and only had a minor effect on Q3. They are expected to be a strong pillar of our growth in Q4. Derma sustained its strong momentum with an outstanding performance over the first 9 months, achieving 12.3% sales growth, clearly outperforming the market and our peers. Eucerin Face delivered exceptional results driven by the successful rollout of Epicelline and the launch of Thiamidol in the U.S. Growth was further supported by the remarkable success in Latin America, particularly in Brazil and Mexico, as well as the successful launch of Eucerin in domestic China and India. Building on the strong momentum from the first half of the year, Health Care continued to reinforce its market position in Q3, delivering a remarkable 8.8% sales growth for the first 9 months. Australia and Indonesia delivered double-digit growth, both in Q3 and across the 9-months period, while Germany also accelerated to double-digit growth in Q3. For La Prairie, we have seen a gradual improvement quarter-by-quarter, resulting in a return to growth in the third quarter. This recovery was supported by an improving performance in China, particularly a strong e-commerce business during Q2 and Q3. Let's take a closer look at the organic sales growth of our Consumer Business in the first 9 months across regions. In Europe, we grew by 1.2% with Western Europe growing 1.7% and Eastern Europe slightly declining with 0.7%. Western Europe was negatively impacted by the global luxury travel retail business, particularly during the beginning of the year. Eastern Europe faced pressure from a broader market slowdown and retailer conflicts, particularly in the first half. The Americas region concluded the first 9 months with a robust growth of 2.2%. North America showed a mixed performance with excellent results in Derma, driven by the Thiamidol launch in the U.S. while facing some headwinds in the mass business and with Coppertone in the tough sun care market. Latin America grew by 2.0%, also reflecting a mixed performance. Eucerin delivered strong double-digit growth with outstanding results in key markets such as Mexico and Brazil while our NIVEA business was impacted by general market slowdown, particularly in the deo category and by increased competition from local brands. The Africa, Asia, Australia region delivered solid sales growth of 2.9% despite a negative impact from the ongoing NIVEA portfolio cleanup in China, which was successfully concluded by the end of Q3 as planned. Strong growth was recorded in markets such as India and Japan. With that, I would like to hand over to Vincent, who will provide the outlook for the rest of the year. Vincent Warnery: Thank you, Astrid. Let us conclude with our guidance for the rest of the year 2025. The Consumer Business delivered plus 2% organic sales growth over the first 9 months with an improvement visible in Q3. At the same time, we saw a further deterioration of the market in the third quarter, especially in emerging markets, which is affecting the core of our mass market business. As a result, we are adjusting our full year guidance to around 2.5% organic sales growth for consumer. Our expected growth for the fourth quarter is based on the following pillars. NIVEA is entering the final quarter with a strong innovation pipeline. We recently launched Epicelline, our breakthrough innovation in skin care along with our new derma control deodorant. These launches are still in the early stage and are expected to gain traction and visibility throughout the fourth quarter. Early indicators and the September performance are positive as highlighted in our presentation. The remainder of the year will be driven by the performance of these launches as well as the strengthening of Nivea core business to support both we have implemented targeted rebalancing measures to reinforce our core categories, while at the same time, supporting the successful rollout of our innovations. In China, the strategic repositioning of Nivea, which had a negative effect on our performance during the first 9 months has now been completed and will no longer weigh on our results going forward. Our luxury business with La Prairie is beginning to show encouraging signs of improvement, the return to growth in the third quarter. Finally, our Derma segment continues to perform strongly. We expect double-digit growth over the full year while Q4 is expected to remain below the 9 months performance due to an exceptionally strong fourth quarter in 2024 when Epicelline was rolled out initially. We still confirm our EBIT margin guidance with an improvement of 20 basis points, excluding special factor in the Consumer segment for the full year. In the tesa Business Segment, we confirm our guidance of 1% to 3% organic sales net growth and an EBIT margin, excluding special factors, at around 16%. At group level, we expect organic sales growth of around 2.5% with the EBIT margin, excluding special factors, slightly above last year's level. We continue to be committed to outperforming the market over mid-term, driven by innovation and strategic expansion into white spaces. On profitability, as we have stated in the past, will not sacrifice long-term value creation potential over short-term margin optimization. Nevertheless, we remain committed to profitable growth with EBIT growing at least as fast as the top line. We'll provide further guidance for 2026 and beyond in our full year 2025 call. Now over to you, Christopher for the Q&A. Christopher Sheldon: [Operator Instructions] And we will start with Patrick Folan of Barclays this morning. Patrick Folan: Just 2 questions for me. Maybe focusing on NIVEA first. You had a strong September performance. Was this mainly due to the Epicelline sell-in here and your Derma deo performance? Or was there a wider recovery in the core portfolio here? And my second question is that you talk about value for money for the NIVEA brand, are there any changes you are making to the current pricing strategy with NIVEA in any of your markets? And in terms of the Epicelline price point in Europe, are you still targeting a EUR 25 to EUR 30 pricing? Vincent Warnery: Patrick. On your first question, yes, absolutely, the success of the month of September is mostly due to the launch of Epicelline, NIVEA Epicelline and Derma Control, as the core business, the core market has been in line with Q2. Epicelline is really doing extremely well. I receive every day very good sell-out results. I mentioned, #1 hygiene and beauty product in France. I mentioned also Germany. I was looking also at Italy. This is already the #1 serum in Italy. This is the #1 serum in Netherlands. This is the #1 face care product in Switzerland, in Belgium, in Spain, in Portugal. So clearly, it was already by far the best ever launched Epicelline, but we clearly sell out going in the right direction. Derma Control, we launched it a bit later. We are doing extremely well. I mean, Romania, we are back to the best ever market share in deo. We are regaining market share in deo in Germany. So I feel also very positive about that. On your question about the value for money, I think you have to really to remember that there are only 2 expensive products in the range of NIVEA, which are the Epicelline and the Thiamidol launch. The rest of the product are priced between EUR 2 and EUR 4. So there is no issue of price positioning. This being said, we are currently launching Epicelline. And the way the business is managed, we have some promotions. So for example, if you go to the U.K. that [ Bucci ] is promoting the product at GBP 24, for example, versus a normal price at GBP 29. We have also some promotions. So we will fine-tune the -- we'll see a little bit of the first months are working. And if we feel the need to go below EUR 29, could be EUR 28, EUR 27. We'll do it just to be sure that we have absolutely the right price elasticity. On Derma Control, we had EUR 2.80, so absolutely no issue. So the only open question and again, we'll have the market results soon is do we decrease the price of Epicelline by EUR 1 or EUR 2 in Europe, knowing that, as you might remember, in emerging markets, we are pricing Epicelline below. We are at EUR 22, having also a specific packaging, which allows to keep the same margin, but at a lower price. Patrick Folan: Okay. Just to clarify one thing there. Just on pricing, so you feel comfortable with the price points you have in your current portfolio as we go into next year? Vincent Warnery: Absolutely. I mean the prices are between EUR 2 and EUR 4. What we are clearly trying to do is to reduce the price increase we do next year. You might remember that we were the only brand doing a price increase in 2025, which created some customer retaliations. We try to minimize that next year, focusing really on the products and the innovation where we are bringing a real added value to consumers. Christopher Sheldon: The next question is from Celine Pannuti of JPMorgan. Celine Pannuti: My first question is on the market growth. Vincent, you said that the market has decelerated, especially in emerging markets, and you adjusted your guide for that. How do you feel the company can deliver as you look into 2026? So also given that you're talking about the rebalancing of investment for NIVEA, I wonder as well if you can provide on how you feel in terms of your new level of investment in the deodorant and personal care part and whether for 2026, we should expect that you have -- you need this extra investment and maybe a limited margin expansion? That's my first question. I'll give you the second one after. Vincent Warnery: On your first question, Celine, so what we clearly see, and I mentioned that in my speech that the market -- the skin care market is difficult. And we have -- if you look at the year-to-date figures, we are more -- we are around 0.5%, 1% growth on the market with, of course, different dynamics in mass market, we are around 5%. Derma, this is the news, we are more into the 3%, 4% and luxury is still at minus 5%. So this is a market which is not growing as much as expected. We are expecting a small recovery in the months to come. We see, for example, that the derma market in the U.S. is doing better, and we are over performing this market. We see also luxury, I was mentioning China, but also saw some good figures in luxury going in the same direction. So overall, for the market growth this year between 1% and 2%, and we believe that we go slightly above next year. What we are -- what is making us optimistic in a way is that the worst market dynamics is the derma market. And this is a market which really used to be growing at double digit. And we are now into a market dynamics, which is around 3%, 4%. And this is a market where we are overperforming by a factor to between 2 and 3x the market because we are coming with innovation and because we are supporting those innovation. And this is why when I look at the dynamics next year, on NIVEA. I feel a little bit better than I would say, in 2025 because we have the launches that we are doing right now, and I mentioned Epicelline and Derma Control, but we have also a launch plan, which is much more -- much better balanced next year with more launches in the first semester versus this year and something where we can really have a more balanced dynamics launches versus core. And we are indeed, thanks also to the courageous decisions we have taken on prices, we are able to manage a pretty good gross margin, allowing us to invest -- to continue to invest on those launches. So we will rebalance a little bit the investment between the face care premium product, and we had to launch both Thiamidol and Epicelline in 2025. So rebalance this money into not only other skin care categories, also on more affordable face care proposal, for example, in emerging market, but also on the other end. So with the current P&L equation, we can increase the marketing spendings beyond NIVEA. And of course, on Derma, there is no question, we will continue to invest more. Celine Pannuti: All right. Just maybe to follow up on that, asking whether the 50 basis points plus margin expansion that's your midterm target, how you feel about it going into '26. So that's my follow-up. And then my second question, Astrid now. Can you provide a bit more details about Europe, which really came back to good growth at 3%. Was there a travel retail impact there? If you can tell us what quantify this? And how do you feel about the overall consumer and retail environment? Of course, you have the benefit of the sellout and sell-in of Epicelline. But overall, how you feel the European market is developing as we look into the quarters to come. Vincent Warnery: On your first question, so we will not give a guidance for 2026, and we'll give that in 2025, but we maintain the idea that we have to overperform the market and continue to grow profitably. So we'll come back to that in 3 months. On your question about Europe, yes, travel retail has an impact on the performance of Europe. This is a 40 basis point impact because we are overperforming this market with La Prairie, but this is a double-digit negative market. So this has an impact on Europe. When you look at the question sell-in versus sell-out, the fact that we see some improvement in deo, for example, which was really the biggest market share loss in 2025 in Europe is making us more optimistic. Even if you look at Germany, which is by far our biggest deo market we have been gaining market share over the last 3 months in a row, which is a good news. We see also that the outstanding success of the sun season in Europe, we grew 12% in a market which was growing double digit, but this is really one of the best performance in Sun is also giving us some good momentum. So deo, I would say we feel positive. Sun care is positive. The question is face care. As I said, the sellout results we are getting from specific retailers is promising. But you remember my story, sell-in is one thing, sell-out is another thing. Repurchase is absolutely essential, and this is what we'll be able to measure in the first quarter. So not to -- neither optimistic nor pessimistic, but some good signals that will -- should give us some better performance in Europe next year. Christopher Sheldon: The next question is from Jeremy Fialko of HSBC. Jeremy Fialko: So a couple of questions from me. First one, just to go into the Eastern Europe region that was kind of pretty negative within the period. So just what's going on there? And then the second question is just on kind of capital return. Now you've done the EUR 500 million share buyback for the last couple of years. Do you think -- what do you think the potential would there be to increase that in 2026, given where the share price is [indiscernible] given the kind of existing authority that you have got, if that's something you think would be on your agenda to bring on a board? Vincent Warnery: First question, yes, indeed. Eastern European used to grow double digit. The market was really booming. It suddenly decelerated vigorously and moving from a plus 12% to plus 2%, plus 3%. There's also interesting competitive environment, which has changed. If you look at a country like Poland, 100% of the growth is coming through Korean brands and not really big Korean brands, but Korean brands are there for 6 months and then replaced by others. So all of us, all the global brands are suffering from that. What also worsened the situation are a few customer issues that we have been able to solve. So that's something where we should have a positive momentum in 2026. But the key question is, and this is where obviously rebalancing the portfolio for us is to be sure that we are not only investing on Epicelline and Thiamidol, but we have also a strong action on deodorants. This is by far our biggest market in Eastern Europe. So that's what we are doing right now. And I mentioned the example of Romania, for example, where we reached our best ever market share in deo. That's something which is giving us some hope. On your question about share buyback, we just closed, the second time we did share buyback. So you have to allow us to discuss with the Supervisory Board at the end of the year what we want to do. What is essential? You remember that in terms of priority, we know that we have too much cash available and the priority should and will continue to be M&A. Christopher Sheldon: The next question would be from Guillaume Delmas from UBS. Guillaume Gerard Delmas: Two questions for me, please. The first one on the 2025 revised outlook. I mean, still trying to reconcile this updated guidance of around 2.5% for Consumer. That seems to imply a little bit more than 4% organic sales growth in Q4, but you also had that very strong momentum of NIVEA in September, growing nearly 8%. So why -- wondering why you would expect such a sequential slowdown between September and the fourth quarter? And then my second question, it's on the changes you are making to your strategy, particularly that stronger support behind more skin care categories and deo. I mean, I guess, first, when do you think we should start seeing some benefits from this? I mean, could it be immediate? Or is it more of a slow burn? And secondly, given that your margin guidance for the year for 2025 for Consumer is unchanged, would it be fair to assume that at this stage, it's much more about reallocation of resources rather than an overall increase in your marketing budget? Vincent Warnery: Guillaume, on your first question, you should not forget that, obviously, when you launch a new -- I mean, the biggest launch ever on Epicelline and NIVEA plus a range of 6 or 7 SKUs of deo in September, you cannot continue the same momentum for the next 3 months. So you will have -- the pipeline effect will be, I would say, September, October. And then you have the sellout. So this is why we have indeed planned the growth with the full success of those launches, but a core business, which will not improve dramatically. So that's the assumption of the Q4. This is why we wanted to come with a more realistic assumption for Q4, which is, by the way, consistent with what all of you thought. On the rebalancing, no, I mean, the reason why we came with Q2 and we decided to change the guidance on EBIT moving from plus 50 basis points to plus 20 basis points is simply because we knew that those big launches were coming in Q4, and we knew that it would have been a shame not to support them just because we wanted to deliver in a kind of dogmatic way the first guidance we gave on EBIT. So the 20 basis points that we -- the 30 basis points that we decided to allocate to marketing budget are exactly the money we're going to spend in Q4, and we have the biggest ever spending on the face care launch on NIVEA and the biggest ever spending on the deo launch on NIVEA on top of, of course, continuing to support the launch of all the launches and the activity of Derma and the bigger mission in China with 11/11. So no change in the media strategy, just using the 30 basis points that we freed in the Q2 to support those big launches in the weeks to come. Christopher Sheldon: The next question is from like Ulrike Dauer from Dow Jones. Ulrike Dauer: I hope you can hear me. I don't have much of a voice today. Sorry. I'd like to ask a question about the U.S. import tariffs after the failed tariff deal between Switzerland and U.S., the import tariffs are now 39%, which are affecting La Prairie. And I was just wondering, will you be able to pass on the additional cost to customers? How much more expensive will be even already expensive products deal? And is that still not enough for a strategy change? Or do you consider maybe producing more in the U.S. now like many other companies more or less voluntarily are planning to do? Also, the overall import tariff exposure, you said that a lot of the products for the U.S. market are produced in Mexico or other countries. Can you quantify additional costs related to those new import tariffs by quarter, by full year? Is there any additional information you might be able to provide? I have some other question about Kering. Maybe you can answer that question later. Vincent Warnery: Your question about La Prairie. So yes, indeed, the Swiss government has not yet been able to negotiate a reduced tax level tariff increase with the U.S. So we have indeed this extremely difficult situation. We have been, of course, anticipating the change of service. So we are covered, I would say, in terms of stocks in the U.S. For the time being, we are waiting -- wait and see in a way. We do not believe today that it will be wise to implement immediately the tariff increase on the La Prairie prices, which, as you mentioned, are already very high. You imagine that in percentage is high, but in absolute value, it's extremely high for La Prairie. So we are not planning to do that. You can imagine that we have anyway a gross margin, which is pretty comfortable on La Prairie. We will see the way other competitors are acting. What is absolutely out of the question is to produce in the U.S. because the strength of La Prairie is made in Switzerland. That's the story of the brand. So we'll absolutely not produce in the U.S. We'll continue to produce in Switzerland. On your second question, you rightly mentioned that we are in a way, lucky because we have one -- a big part of the production that we are selling in the U.S. is produced in the U.S. and the other big part is in Mexico, where there was no additional tariffs. So we have today an economic equation, which is pretty good for our business. Yes, we have a few products produced in Europe. So they will be affected by the 15% tariff increase, but it's really a minor, minor part of the range, and we'll be able to absorb that either through small price increases or just by managing value engineering projects. So all in all, yes, La Prairie is an issue, but it's a small part of the business in the U.S. The rest of the range is in a way, protected. Ulrike Dauer: May I ask one more question about the Kering brands that were up for sale. Have you looked at them and considered or don't they really match your portfolio strategy? Vincent Warnery: Ulrike, we are good in 1 category, which is skin care, skin care, skin care, and we are lucky enough that this is by far the biggest beauty category in the world. We have no expertise in perfume. So it would have been a mistake to enter this field without any expertise, so we did not even look at the project. Christopher Sheldon: And the next question is from Bernadette Hogg of Reuters. Bernadette Hogg: I'm sorry. I was still in mute. So it's a bit of a recap question on the slowdown of the market -- in the emerging markets for skin care. So do you see these factors as temporary? Or is it more structural? And how long do you anticipate it lasting? And what are the major causes of the slowdown? Vincent Warnery: A clear deceleration. We used to have an emerging markets, skin care growing double digit. We end up to a level which is close to low single digit, even negative in some countries. There are a few phenomenons which are taking place. Obviously, Latin America is hit by the -- not only the political uncertainties, but also all the discussions about U.S. tariffs, not U.S. tariffs and Mexico is a country where obviously, we -- the market was suffering with that. We see in other countries, the development of simplified routines. People -- this is what they call the skinimalism trend where people are buying less product and some of that cheaper. So the only solution, and this is what we are doing pretty successfully with Derma is to come with innovation. In fact, the worst market dynamics in emerging market is the derma market, and we are growing extremely high with double-digit growth in each and every market. We gained market share everywhere. So the recipe that we have been using successfully with Eucerin, we are using it now with NIVEA with also some changes and some rebalancing. For example, I mentioned already the fact that we -- it's the first time we are launching the same global product Epicelline with 2 different packaging proposal, so one allowing us to sell it at below EUR 22 in emerging markets, and that's much cheaper than the EUR 29 we have in Europe. We are also putting a lot of focus on products like NIVEA Soft in India, which is a fantastic accessible product, but also Facial in Brazil, which has a 30% market share in skin care. We are rebalancing our investment also on deo. I mentioned Derma Control, which is a global launch that we are launching everywhere. So we are not optimistic on the development of the emerging market dynamics. We'll see what happens. But clearly, we are coming with a much stronger innovation portfolio and -- I would say, much more -- much better adapted launch portfolio to emerging markets. So we hope to see some good figures in the months to come. Christopher Sheldon: The next question is from Anna Westkämper of Handelsblatt. Anna Westkämper: I have 2 questions regarding tesa. First of all, how dependent are you on the recovery of the automotive sector here? And second of all, are you looking into expanding into other industries like defense with tesa? Astrid Hermann: Thank you so much, Anna, for your questions. So look, automotive is a big part of the tesa business. Between automotive and electronics, they're really the pillars of what tesa has established. The nice thing about tesa is that they continue to make progress in each of the industries, in automotive as well. So while the market certainly was challenged in Europe and North America, the projects it gained, particularly in Asia Pacific, have really helped kind of balance that impact. so again, not an easy market and certainly not a huge growth driver for tesa year-to-date, but 1 that is also not a huge drag, which is very, very helpful. And yes, tesa has really invested if you followed some of our commentary also in previous calls. They've really invested over the last few years significantly into innovation and business development, and that is really to go beyond these 2 industries as well and significantly drive more business in other industries. Christopher Sheldon: And the next question is from Olivier Nicolai of Goldman Sachs. Jean-Olivier Nicolai: Just very 2 quick follow-ups. First, on NIVEA Epicelline, you obviously have it in Europe and a few other countries. But are you planning to roll this brand out across your whole geographic footprint in next year? And then secondly, on tesa, just a quick follow-up. In the context of obviously what we just discussed about the automotive market, should we expect most of the growth for tesa for next year to come from Electronics? Vincent Warnery: Thanks for your question. Yes, absolutely, NIVEA Epicelline will be launched and is launched absolutely everywhere. So obviously, not yet in China because we are focusing all our energies in Thiamidol. But this is -- the objective is to launch it in most of our NIVEA countries in the next 6 months. We have already covered Europe. We are starting now in Q4 to launch it in some emerging markets, but this is clearly a very big priority for NIVEA globally. On tesa, Astrid? Astrid Hermann: Yes. Thank you for your question on tesa. Look, we -- the tesa business absolutely wants to continue to grow in electronics. As you know, a lot of the Electronics business is a project business. So we need to win projects every single year, for example, also with the big device manufacturer. So absolutely, we continue to look for growth in the electronics business as well. Christopher Sheldon: Next question is from Mikheil Omanadze from BNP Paribas. Mikheil Omanadze: The first one would be on NIVEA. So if September was so strong, it would imply quite a sluggish delivery in July, August. Would you please be able to provide some color by categories within NIVEA, which were particularly weak in July, August? And my second question is on Chantecaille and Coppertone. How did both brands do in Q3? Vincent Warnery: On your question about the NIVEA, yes, July, August was well low also because, obviously, we had 0 launches at the time. We had also no effect on any price increase. So we did a minus single digit, I think, on NIVEA, if I remember well, on July, August, compensated by the figures of September, I was just sharing. You have also to keep in mind that's important also to mention that, that the Chinese relaunch has changed -- has obviously impacted strongly the development of NIVEA. If you look at the first 9 months, if we didn't have that this revamping of the Chinese business, NIVEA will be growing plus 1.3%. So that's also something which obviously we decided to do. We are hoping at the time to have a better NIVEA business, but it has obviously impacted the situation. The second question, Mikheil was? Mikheil Omanadze: It was on Coppertone, Chantecaille. Vincent Warnery: Coppertone, Chantecaille, yes. Coppertone, the only good news on Coppertone is that we finally found our way. We clearly have tried a lot of things with Coppertone, trying to launch in face care, trying to launch in spray, trying to develop the brand in a lot of directions. If you know a little bit the U.S. market, we have refocused on sport. We took a very famous rugby -- female rugby player. We are gaining market share on sport. It's not enough to compensate the loss of the rest of the categories. But at least we will continue to support that. We'll focus all our investment on sport, which is the legacy, the origin of the brand and try to gain market share in this category. Chantecaille, we had a very good first semester with also the launch of China, which impacted the figures. Q3 was a little bit more difficult because we suffered from the slow development of the U.S. luxury market, and we are very dependent on the luxury market. And we have not yet been able to open the stores we wanted to open. They are more coming in the fourth quarter and the first quarter. So all in all, we grow at 7%, 6.8%, which is good, but I was hoping to do better. And we'll see really the way the Chinese business, but also the Indian market, and we are launching in India will also complement hopefully, a better U.S. business in the months to come. Christopher Sheldon: And then we have Tom Sykes next in line. Tom Sykes: Just, I guess, some -- a couple of follow-ups on questions already been asked. But in terms of the rollout or level of innovation in full year '26, excluding the sort of country rollouts of Epicelline, then what's the level of that in full year '26 compared to '25? Because you obviously had theoretically a large upgrade of many products in NIVEA? And how would you view that being phased H1 versus H2? And just on pricing, I don't know whether you've given the -- I don't think you've given the commentary on sort of pricing versus volume at all at the moment. But any view on commentary you can give on that? And to what degree do you need to push price to maintain gross margins given that FX has moved from where we were, please? Vincent Warnery: Tom, on the rollout, yes, absolutely. We have a better launch plan for next year, better in 2 directions. First, balance between H1 and H2. I mean, one of the difficulties that we had this year was the fact that we had almost no launches on NIVEA in the first semester. One of the reasons being that I didn't want to launch NIVEA Epicelline too early after the launch of Eucerin Epicelline. So it has clearly created a first semester with a very low level of innovation. Next year, we have a big plan in the first semester, where clearly it's really 50-50 in terms of new launches, H1 versus H2. The second difference also it's also a wider plan in the sense that most of the initiatives in 2025 were in face care and Derma Control deo at the end of the year. We have next year some very good launches on body, on deo, on lip, on sun care. And on face care, which is interesting, not only the, I would say, the usual suspects, the premium product, Epicelline and Thiamidol, but also a very big ambition also on some more accessible offer, NIVEA Q10, NIVEA Soft, facial in Brazil in order to be sure that also in face care, we maintain this good value for money dimension. On pricing, I always say that the objective is clearly to have a dynamic which is more 2/3 volume, 1/3 price. What I find interesting in the third quarter is, in fact, this is a quarter which is purely driven by volumes. And this is the first time because obviously, the price effect was in Q1 and Q2, which I find interesting because it proved that this is one of the best performance in volume we had since a lot of quarter. We are able to regain this volume growth and also to recruit new consumers. So next year, will be surgical. We'll not do price increase over the board. We'll be surgical. We'll do it only when we are obliged indeed to do it because we want to protect the gross margin. And we are also willing to be much more demanding in terms of cost of goods increase. We are challenging our suppliers. We are moving also from a high dependency on single sourcing to a much better multi-sourcing in order to make some negotiation on the cost of goods. And we'll show that we do price increase where we have to protect the gross margin and/or where we are coming with an innovation or innovation was a true added value in the eyes of retailers, but also in the eyes of consumers. So the level of price increase will be strongly, dramatically below the one we had in the years before. Christopher Sheldon: And it looks like we have one follow-up question from Celine. Celine Pannuti: What China did in the third quarter, it seems that it was negative for NIVEA. But overall, if you can talk about how comfortable you feel about the reacceleration in the fourth quarter? And if you could comment as well on La Prairie. Vincent Warnery: I must say, Celine, I feel well with China. Let me start with the absolutely obvious success. We have Eucerin, which is growing 83% in Northeast Asia, which means that we are growing 150% in China. We have the anti-pigment serum of Eucerin, which is today the #1 anti-pigment serum in China. So we are beating not only the global competitors, but also local competitors. And the first 11/11 figures, so it's only 30% of the time, but we are growing in sell-out by 83% versus last year. So pretty, pretty happy with Eucerin. We have a great story. We have this unique ingredient, which is exactly what you need to succeed in China. So more to come, but an outstanding performance in 2025 and 2026. The second element, which is making us optimistic is La Prairie. I mentioned the fact that we are growing in net sales by 3%. But if you look at sellout, we are growing at 10% and with e-commerce growing at 30%, and that's really something that we did not experience in China since a long time. So La Prairie, good dynamics, compensating -- more than compensating the difficulty of Hainan, which was always small for us. I think the job which has been done by the new CEO and the team is starting to pay off. And the fact that we discovered late, but clearly, with a great execution, e-commerce is doing well. Last but not least, NIVEA, this is a question. What I can tell you that when you look at the face care business over the last quarter, we have been growing step by step. If you look at sellout quarter 2 plus 18%, quarter 3 plus 36%. Again, if I look at my 11/11 first figures, again, 30% of the time, we are growing plus 30%. I also believe that this Thiamidol story with, of course, a better price is an asset for NIVEA. And again, we are also using Eucerin to make some -- to create some awareness on Thiamidol. So I would not open champagne, but I think when I look at the 3 major brands in China, we have pretty good signals and more to come in Q4, which will be extremely strong for China. Christopher Sheldon: Thank you. That was the last question. This concludes our conference call. Beiersdorf's next Investor Relations event will be the release of our full year results on March 3, 2026. We appreciate your interest in Beiersdorf and look forward to seeing you back here again in the new year. Thank you very much. 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.
Operator: Ladies and gentlemen, thank you for joining us, and welcome to the Plexus Fiscal Fourth Quarter and Fiscal Year-end 2025 Conference Call. [Operator Instructions]. I will now hand the conference over to Shawn Harrison, Vice President of Investor Relations. Please go ahead. Shawn Harrison: Good morning, and thank you for joining us today. Some of the statements made and information provided during our call today will be forward-looking statements. including, without limitation, those regarding revenue, gross margin, selling and administrative expense, operating margin, other income and expense, taxes, cash cycle, capital allocation and future business outlook. . Forward-looking statements are not guarantees since there are inherent difficulties in predicting future results, and actual results could differ materially from those expressed or implied in the forward-looking statements. For a list of factors that could cause actual results to differ materially from those discussed please refer to the company's periodic SEC filings, particularly the risk factors in our Form 10-K filing for the fiscal year ended September 28, 2024, is supplemented by our Form 10-Q filings and the safe harbor and fair disclosure statement in our press release. We encourage participants on the call this morning to access the live webcast and supporting materials at Plexus' website at www.plexus.com, clicking on Investors at the top of that page. Joining me today are Todd Kelsey, President and Chief Executive Officer; Oliver Mihm, Executive Vice President and Chief Operating Officer; Pat Jermain, Executive Vice President and Chief Financial Officer. With today's earnings call, Todd will provide summary comments before turning the call over to Oliver and Pat for further details. With that, let me now turn the call over to Todd Kelsey. Todd? Todd Kelsey: Thank you, Sean. Good morning, everyone. Please advance to Slide 3. Fiscal 2025 was an outstanding year for Plexus, highlighted by our ongoing delivery of a differentiated value proposition for our customers that created the opportunity for Plexus to expand customer relationships and gain market share. Our robust and well-balanced new program win results across our solutions that will support future growth. Our team's dedication to innovating responsibly to help create a better world. In our strong financial performance with a 40 basis point expansion of non-GAAP operating margin, 30% non-GAAP EPS growth, another year of tremendous free cash flow generation and robust ROIC. I'm excited that the momentum gained during fiscal 2025 across these areas positions Plexus during fiscal 2026 to deliver revenue growth in excess of our end markets through new program ramps, inclusive of market share gains, accelerated revenue growth, positioning Plexus toward our 9% to 12% goal, strong financial performance with a focus on achieving our goal of a 6% non-GAAP operating margin while also investing in talent, technology, facilities and advanced capabilities to support sustained future revenue growth and greater operational efficiency and robust free cash flow generation that will be deployed to create additional shareholder value. Please advance to Slide 4. Revenue of $1.058 billion approach the high end of our guidance range, marking our third consecutive quarter of sequential growth. Our team ability to support late quarter demand upside from semi cap and energy customers more than offset minor delays in new program transition in our aerospace and defense market sector. Non-GAAP EPS of $2.14 substantially exceeded our guidance due to favorable discrete tax items with in-line non-GAAP operating margin of 5.8%. We expanded non-GAAP operating margin by 40 basis points and non-GAAP EPS over 30% in fiscal 2025 as compared to fiscal 2024. Finally, we delivered fiscal fourth quarter free cash flow of $97 million, resulting in fiscal 2025 free cash flow of $154 million, an amount that substantially exceeded our projections. We have now generated $495 million of free cash flow over the past 2 fiscal years while deploying excess cash to reduce our borrowing and accelerate our share repurchase activity. Please advance to Slide 5. For the fiscal fourth quarter, we secured 28 new manufacturing programs, worth $274 million in revenue annually when fully ramped into production. Included in these wins were expanded relationships with commercial aerospace customers, growth in our exposure to unmanned aircraft, expansion of share with existing health care, life sciences and industrial customers, and notable market share gains within semi cap. For fiscal 2025, our team generated 400 -- 141 manufacturing wins, representing $941 million in annualized revenue. In addition, efforts to diversify our engineering solutions engagements successfully drove increased wins for fiscal 2025, including a record result in Aerospace and Defense. Finally, our sustaining services team achieved record wins for the fiscal year, positioning the offering for stronger future financial performance. In addition, while producing the strong wins performance, we expanded our funnel of qualified opportunities versus the prior quarter and year-over-year. Please advance to Slide 6. At Plexus, we are committed to boldly driving positive change and promoting a sustainable future for and through our people, our solutions and our operations, all of which is built on a foundation of trust and transparency. The following are recent highlights of how Plexus lives our value of innovating responsibly. In September, GE Vernova presented Plexus its Supplier Innovation Award at the Gas Power Supplier Conference in Shanghai, China. This award recognized Plexus' strategic engagement and collaboration in supporting a successful program transition to our facility in Xiamen, China, well ahead of GE Vernova's original time line. Next, as we reflect on the accomplishments of fiscal 2025 and our guiding principle that people are at the heart of who we are and what we do. I'm thrilled to share that our global team members completed over 32,000 volunteer hours during the fiscal year. This incredible achievement is a 47% increase compared to fiscal 2024 and serves as a powerful testament to how our team members live our vision of building a better world. Additionally, in fiscal 2025, we granted $1.4 million to global nonprofits through our Plexus Community Foundation, deepening our connections to causes and organizations in the communities where we live and work. Further, through a focused effort across our operations, we reduced our waste to landfill by over 30% globally in fiscal 2025, far exceeding our goal. This achievement is underscored by a remarkable 8 sites reaching zero waste to landfill status, which accounts for over 40% of our manufacturing sites. Finally, we reduced absolute Scope 1 and 2 emissions by over 10% across our global manufacturing sites versus our fiscal 2023 baseline. This reduction represents the second consecutive year of exceeding our emissions reduction goal. I'm incredibly proud of and grateful for the contributions of our global team members as they deliver a consequential environmental and social impact in support of our vision of building a better world. Please advance to Slide 7. For our fiscal first quarter, we are guiding revenue of $1.05 billion to $1.09 billion, non-GAAP operating margin of 5.6% to 6.0%, and a non-GAAP EPS of $1.66 to $1.81. With modest end market growth across the majority of our sectors, we expect to deliver revenue growth through ongoing new program ramps, inclusive of market share gains. In addition, during the fiscal first quarter, we will continue to invest in talent, technology, facilities and advanced capabilities to expand our industry-leading solutions, drive greater long-term operational efficiency and prepare for accelerated fiscal 2026 revenue growth. For fiscal 2026, we anticipate another year of strong operational and financial performance. Currently, we expect to deliver revenue growth in excess of our end markets, realizing year-over-year growth in each of our market sectors while accelerating momentum toward our 9% to 12% revenue growth goal. We also anticipate delivering another strong year of operating margin and free cash flow performance even as we continue to make significant investments to increase our long-term competitiveness. In closing, thank you to our global team for making fiscal 2025 outstanding through your support of our customers, communities and each other. We're excited to leverage this momentum during fiscal 2026 into generating growth in excess of our end markets, delivering strong financial performance and creating long-term shareholder value. I will now turn the call over to Oliver for additional analysis of the performance of our market sectors. Oliver? Steven Frisch: Thank you, Todd. Good morning. I will begin with a review of the fiscal fourth quarter performance of each of our market sectors. Our expectations for each sector for the fiscal first quarter and directional sector commentary for fiscal 2026. I will also review the annualized revenue contribution of our wins performance for each market sector and then provide an overview of our funnel of qualified manufacturing opportunities. Starting with our Aerospace and Defense sector on Slide 8. Revenue decreased 6% sequentially in the fiscal fourth quarter, below our expectation of flat revenue. Minor delays in the timing of new program ramps contributed to the performance. Fiscal 2025 saw essentially flat revenue for the Aerospace and Defense sector as various new product launch delays and inventory adjustments in the commercial aerospace supply chain, more than offset double-digit growth in the defense and space subsectors. For the fiscal first quarter, we expect revenue for the Aerospace and Defense sector to be up mid-single digits from strength and new program ramps within the commercial Aerospace, Defense and unmanned aircraft subsectors. Our wins for the fiscal fourth quarter for the Aerospace and Defense sector were $54 million. This is the strongest wins performance for the sector since the fiscal first quarter of 2021. Our Boise, Idaho site won a follow-on award from an existing customer in our unmanned aircraft subsector based on the strength of the partnership that we've built with this customer. We also captured share gain through 2 new programs in the commercial aerospace subsector that were awarded to our team in Penang, Malaysia. Our robust growth outlook for fiscal 2026 is supported by strong defense sector growth, new program ramps and unmanned aircraft subsector and a return to growth in commercial aerospace associated with new program ramps and the expectation of modest market growth. Please advance to Slide 9. I Revenue in our Healthcare/Life Sciences market sector was up 1% sequentially for the fiscal fourth quarter, aligned to our expectation of a low single-digit increase. Fiscal 2025 for our Healthcare/Life Sciences sector saw a 5% revenue increase based on strength from the imaging and monitoring subsectors. New program ramp revenue and customer demand increases with previously ramped products contributed to the result. For the fiscal first quarter, we expect the Healthcare/Life Sciences market sector to be up high single to low double digits, driven by multiple ongoing program ramps, and strengthening customer demand and the monitoring and imaging subsectors. Fiscal fourth quarter Healthcare/Life Sciences sector wins of $55 million included a follow-on award for the remediation and repair of a therapeutics product for our Guadalajara, Mexico campus. Our sustaining services team's exceptional quality and delivery performance drove the win. Our Aradia, Romania facility is welcoming a new customer to Plexus as we were awarded the assembly for an AI-powered digital cell analysis platform. Our proactive, flexible and collaborative engagement through the quoting process as well as a strong cultural alignment between the 2 organizations contributed to the win. As we look to the next fiscal year, revenue contributions from ongoing new program ramps as well as improved end market demand, support our robust growth outlook. Advancing to the industrial sector on Slide 10. Revenue was up 11% sequentially in the fiscal fourth quarter. The result exceeded our guidance for up low single digits, increased end market demand for specific customers in the semi cap, broadband communications and energy subsectors more than offset various other demand changes. Revenue was flat for fiscal 2025, low double-digit growth in the semi-cap subsector, offset reductions in industrial equipment and vehicle electrification. Our fiscal first quarter outlook for the industrial sector of a high single-digit decrease is driven by seasonality within our energy subsector and generally muted near-term demand. The industrial market sector wins for the fiscal fourth quarter were strong at $165 million. This marks a 9-quarter high for the sector. Our semi cap wins were robust, including an award for 2 substantial programs from an existing customer for our Bangkok, Thailand facility. Continued operational excellence contributed to the award which included share gains on a growth platform. Our Appleton, Wisconsin facility was awarded the assembly of a high-voltage complex product supporting the global rail industry. The flexibility of our engagement and supply chain solutions contributed to the award from this new customer. Our modest growth outlook for the industrial sector for fiscal 2026 is supported by strength in both the semi cap and energy subsectors offsetting otherwise muted demand. Please advance to Slide 11 for a review of our funnel of qualified manufacturing opportunities. The funnel of qualified opportunities is up 2% sequentially and positive performance given the strength of quarterly wins and robust at $3.7 billion, inclusive of a record high value of aerospace and defense sector opportunities. The sector's momentum is further supported by a record high aerospace and defense funnel for our engineering solutions, reflecting the continued progress of our diversification efforts. In summary, our continued focus on delivering excellence and creating customer success is being recognized by our customers. Ongoing and new program ramps market share gains and specific subsector end market growth supports our view that we will deliver revenue growth in excess of our end markets and accelerate growth for fiscal 2026 toward our 9% to 12% goal. I'll now turn the call over to Pat. Pat? Patrick Jermain: Thank you, Oliver, and good morning, everyone. Our fiscal fourth quarter results are summarized on Slide 12. Gross margin of 9.9% was consistent with our guidance. As anticipated, gross margin was slightly lower than the fiscal third quarter due to mix and additional incentive compensation expense. At the same time, we experienced improved fixed cost leverage from higher revenue and continued productivity gains realized across our manufacturing sites. Selling and administrative expense of $51.7 million was slightly above our guidance due to additional incentive compensation expense, mainly driven by our strong performance. As a percentage of revenue, SG&A was consistent with the fiscal third quarter. Non-GAAP operating margin of 5.8% was within our guidance range. Nonoperating expense of $3.4 million was favorable to expectations due to lower-than-anticipated interest expense and foreign exchange losses. . Non-GAAP diluted EPS of $2.14 exceeded the top end of our guidance due to the items mentioned and a favorable tax rate. Turning to our cash flow and balance sheet on Slide 13. As shown across these financial metrics, we continue to improve our performance and liquidity. We were extremely pleased with our free cash flow performance as we wrapped up the fiscal year. For the fiscal fourth quarter, we delivered $132 million in cash from operations and spent $35 million on capital expenditures, generating free cash flow of approximately $97 million. Over the past 2 years, we have generated close to $0.5 billion in free cash flow, an outstanding result. For fiscal 2025, we reduced our debt by over $100 million while continuing to return cash to shareholders through our expanded share repurchase program. For the fiscal fourth quarter, we acquired approximately 161,000 shares of our stock for $21.5 million. At the end of the fiscal year, we had approximately $85 million remaining on the current repurchase authorization. Similar to last quarter, we ended the fiscal year in a net cash position. We had $40 million outstanding under our revolving credit facility with $460 million available to borrow. For fiscal 2025, we delivered a return on invested capital of 14.6%, which was 570 basis points above our weighted average cost of capital. Our invested capital base is significantly lower than the prior year due to our efforts to drive sustained improvement in working capital. This, combined with improved operating performance drove the expansion in ROIC over the prior year and represents the highest ROIC in 4 years. Cash cycle at the end of the fiscal year was 63 days, favorable to expectations and 6 days lower than the fiscal third quarter and 1 day lower than last year. This level of cash cycle was the best result delivered in the past 5 years. Please turn to Slide 14 for details on this exceptional performance. Along with the seventh consecutive quarterly reduction in gross inventory dollars, we experienced a 10-day sequential improvement in inventory days. increased revenue and continued progress on working capital initiatives contributed to the sizable reduction in inventory days. Our teams delivered a year-over-year reduction in gross inventory of $82 million and a reduction of over $330 million when compared to the fiscal 2023 year-end balance. For days in advance payments, we experienced a 4-day reduction with a net of $17 million being returned to customers during the quarter. As Todd has already provided the revenue and EPS guidance for the fiscal first quarter, I'll review some additional details, which are summarized on Slide 15. Fiscal first quarter gross margin is expected to be in the range of 9.8% to 10.1%. At the midpoint, gross margin would be slightly above last quarter despite additional investments in talent, technology, facilities and advanced capabilities to support future revenue growth and greater operational efficiency. We expect selling and administrative expense in the range of $51.5 million to $52.5 million, which is fairly consistent with the prior quarter. Note that this estimate is inclusive of approximately $6.6 million of stock-based compensation expense. Fiscal first quarter non-GAAP operating margin is expected to be in the range of 5.6% to 6% exclusive of stock-based compensation expense. Looking towards the fiscal second quarter, we expect to maintain margins at a similar level with an opportunity to meet or exceed our 6% margin target as the year progresses. Nonoperating expense is anticipated to be approximately $4.6 million, which is sequentially higher primarily due to an increase in interest expense. Prior quarters had benefited from the capitalization of interest expense associated with site additions. Consistent with our expectations, we are anticipating an increase to our effective tax rate with the impact of global minimum tax, taking effect in certain jurisdictions. As such, we are estimating an effective tax rate between 16% and 18% for both the fiscal first quarter and for fiscal 2026. Diluted shares outstanding are expected to be approximately $27.3 million. Our expectation for the balance sheet is that working capital investments will increase compared to the fiscal fourth quarter. Based on our revenue forecast, we expect this level of working capital will result in cash cycle days in the range of 66 to 70 days. We anticipate improvements in our cash cycle as we progress through the year and would expect to end the fiscal year at a similar level to fiscal 2025 despite greater investments in working capital to support revenue growth. With these higher investments in working capital, we expect the usage of cash for the fiscal first quarter, a trend we have experienced in the last several years. While a usage this quarter, we expect to follow up fiscal 2025 with robust free cash flow of approximately $100 million for fiscal 2026. We plan to continue to deploy any excess cash to create additional shareholder value. One final comment on fiscal 2026. We expect capital spending to be in the range of $90 million to $110 million which would be consistent with our fiscal 2025 spending. With that, John, let's now open the call for questions. Operator: [Operator Instructions] Your first question comes from David Williams with the Benchmark Company. David Williams: Congrats on the solid results. I guess maybe, first, this quarter seems fact there was a lot of discussion around the investments that you're making across the business. And it feels like you really pointed to that to support your future growth. It sounds to me like you're getting at least a little more confident in that kind of growth trajectory. And I guess first question, is that fair to say? And then secondly, what gives you that confidence, I guess, if you look out into this year in terms of the growth opportunity? Todd Kelsey: Yes. So David, yes, it does imply that we're getting more confident in the future growth potential. So we think we're on a nice growth trajectory in creating substantial momentum as we go into fiscal 2026. With regards to investments, we do, and we've talked about our new Penang facility coming online, which is having a bit of a near-term impact. But amazingly, in 1 quarter, that site will breakeven, and in 2 quarters, it will be close to corporate profitability. So that will be a very near-term drag for us. Hence, Pat's projection that Q2 will recover nicely and be better than a typical quarter, which is usually down for us. But Back to the confidence in the growth trajectory, a lot of it comes back to the new program ramp. So we have a number of substantial new program ramps in play. Oliver highlighted a few, substantial share takeaways in the semi cap market this quarter, which are certainly play into this. There's others that are well underway. In addition, I would say, from an end market standpoint on aggregate, I would say we're seeing modest improvement in end markets as we look forward, which is really good to see. Although we still haven't factored in any substantial aerospace rebound, so that could be additional upside for us as we look to fiscal '26. David Williams: Great. No, great color there. And then maybe the second here. Just kind of curious, I know that -- on the AI side, there hasn't -- there's been a lot of discussion at least in terms of your participation there and those potential opportunities. It sounds like -- forgive me if I'm wrong here, but it sounds like you said Romania picked up the new AI platform there. Just kind of curious if you could give us a little more color around that, and maybe what your opportunities are in the AI space overall? Oliver Mihm: Yes. That -- what I was talking about there was a new product and the product itself has AI technology in it to help with that cell analysis. Todd Kelsey: Yes. And what I'd add, David, is we're seeing a lot of opportunity within power generation and thermal management within AI. We're still, as we've talked about in the past, we believe the compute market is not the right space for us to be in. We believe that's going to commoditize quite heavily. But we're focused on power and thermal. In addition, we participate via the semi cap business and also Oliver pointed out an example within health care, but a number of the technologies that we're engaged with are leveraging AI. And I would say healthcare is a real leader in leveraging AI. So we have a number of programs in play where the product itself is leveraging AI. Operator: Next question comes from Jim Ricchiuti with Needham & Company. James Ricchiuti: First question is, I was wondering, are you anticipating any fallout in any of the major market verticals from the government shutdown? Particularly the defense area, or maybe some of the other markets. Any sense of that yet if this continues? Todd Kelsey: Yes. Well, so far, we're not seeing any indications of slowdown as a result of the government shutdown. I mean we're certainly keeping our eyes open on that. I don't know, Oliver, if you have any additional color you want to add on that front? Oliver Mihm: Yes, I'll just corroborate what Todd said. So no indication of any change from our customers. Yes. I mean broadly, just in terms of continued government regulatory changes, we keep watching from a supply chain perspective, partnering with our customers and ensuring that we have good diversification of supply so we can ensure we have components to build their products. James Ricchiuti: Got it. And the second question I had is, I was hoping to drill down into your comments a little bit more about the strength in semi cap and the growth in energy. I'm wondering, has your view of semi cap for fiscal '26 changed at all versus a few months ago? Just given the modest expectations for WFE in 2026. And then on the energy side, you highlighted, I think, power gen, how big a driver is that in terms of what we're hearing in the data center build-out? Todd Kelsey: Yes. I'll start with the semi cap and Oliver can jump into the power generation. But with regards to semi cap, at this point, we're viewing '25 and '26 to be pretty similar. I mean the forecast we're seeing are WFE growth in the low single digits. And I think overall, that kind of collaborates where the sweet spot of our customer forecasts are, but we do expect some pretty significant share gain. And if you look at fiscal '25, we ended as we had been targeting during the -- our commentary over the course of the past year in the low double digits, so in the low teens within semi cap growth, and we'd expect to do something fairly similar as we look to fiscal 2026 on the back of share gains. Oliver Mihm: And then from an energy perspective, I'll jump in there. A couple of things that we're seeing. One is, more specifically, what we're seeing is customer revenue growth inside infrastructure and power narration as well as electrification. We talked about the fact program wins are helping to accelerate that revenue growth through F '26, and we're also seeing increased opportunity in EMEA and energy. Operator: Your next question comes from Melissa Fairbanks with Raymond James. Melissa Dailey Fairbanks: I had a question probably for Oliver, the Healthcare/Life Sciences business, finally seeing some strength in imaging and some of the monitoring stuff this was an area over the past year or couple of years where there was a lot of inventory overhang, limiting your growth opportunities there. Just kind of wondering how much of the strength in this area is from maybe we finally negated that inventory overhang or if it's new program ramps that are driving that revenue? Oliver Mihm: Melissa, I'll say it's a bit of both. So we are certainly, as we gave directional guidance here for fiscal '26 of robust growth. That does include strength of new program ramps. But in general, I think the inventory overhang has worked itself to the system. So we also noted that some modest market growth is expected, and that was to be indicative of the fact that, that inventory has been. Melissa Dailey Fairbanks: Okay. Great. Another one for you, Oliver. So in industrial, it's pretty clear that semi cap is pretty strong. You did also highlight Broadband Communications, which had been a driver over this past fiscal year. I know that business tends to be kind of lumpy driven around geographic upgrade cycles. Just wondering what you're seeing going forward in that business? Oliver Mihm: Yes. I think we've previously used the term nonlinear. I think lumpy is a good term as well as we see the industry is still working through and I'd say, testing solutions and figure out what they're -- where they're going to go with that. We did highlight part of our Q4 beat was from some strength in that specific subsector as we got some orders for legacy product from our customers. . Yes. And just looking at '26, I mean, difficult to call exactly when is that going to become more linear. I generally lump that into the broader -- or the recognition of broader industrial was muted for the [ year ]. Melissa Dailey Fairbanks: Okay. Great. Having covered that space for a while. I would say, it's probably never going to be linear. Operator: [Operator Instructions] Your next question comes from the line of Ruben Roy with Stifel. Ruben Roy: Todd, I wanted to ask maybe a bigger picture question on sort of customer conversations, there was a lot of kind of volatility earlier this year with tariffs and otherwise inventories moving around some customers maybe not ramping as quickly as we thought they might. And I'm wondering as you kind of get towards the end of the year here -- calendar year, how the customer conversations are going in terms of -- I know tariffs is -- maybe not discussed as much, but how are you feeling about sort of visibility that you're getting from your customers as you think about, I guess, calendar '26, fiscal '26, however you want to sort of talk about that topic. Todd Kelsey: Yes. Well, I think in general, visibility seems okay right now. Markets have kind of stabilized and are trending up a bit. The programs that we have underway that are ramping are generally progressing well. So we feel good about that. And a lot of focus on making sure that they continue in that direction. When we think about I mean you mentioned tariffs and tariffs -- the situation is fairly similar internally than what -- as to what we've talked about, not really any movement of existing products, just given the uncertainty of the end state as well as the cost that's associated with moving and moving the supply chain, but a lot of thought about where to source next-generation programs and NEXT programs and a lot of efforts from our trade compliance team just around mitigating challenges that come up on a regular basis, USMCA being one, but there's certainly others around various components and what have you that need to be worked through. Ruben Roy: That's helpful. And then I got a follow-up on the energy discussion because there's been a lot of discussion even last week at a trade event conference on sort of kind of going forward, power generation into data centers and around data centers, et cetera. Is that something that you would characterize as I think you just kind of mentioned how you're going and sourcing new programs, et cetera. Is that something that you put more focus or emphasis into, Todd, just given how much activity there is around power and data center and obviously AI? Todd Kelsey: Yes, we're definitely putting more focus around there, Ruben. And I mean we talked about an award we got from a pretty substantial player within that space. We've got some other customers in that space as well. So we're positioned well, we believe, to capitalize on that demand. Ruben Roy: Perfect. And then last question for Pat. Pat, you mentioned that as the year progresses fiscal '26, you potentially have the ability to meet or exceed the operating margin target. And I'm wondering if you could maybe just walk through some puts and takes. Is that based on getting towards that 9% to 12% revenue goal? Or are there other factors that might impact the operating margin? Patrick Jermain: Yes, sure. Definitely, revenue growth will benefit us from a fixed cost leverage perspective. Although I would point out, we do expect higher incentive compensation this year, given that a key component of that program is based on revenue growth. So we do have to overcome that headwind, which we expect to do. But Todd had mentioned how quickly we're ramping the Malaysia facility. The other one I'm really pleased about is Thailand. Oliver had mentioned new programs going into Thailand. And year-over-year, we expect a nice margin improvement within that facility that will benefit us overall. And then I talked about some of the productivity and automation efforts that we're investing in. We've seen that take hold in fiscal '25 with a 40 basis point improvement in operating margin from '24 to '25. We expect that to continue in '26. So yes, as Todd pointed out, we're looking at pretty similar margins for Q2 and then that ability to improve as the year goes on with automation, continuous improvement efforts. Operator: Your next question comes from Anja Soderstrom with Sidoti. Anja Soderstrom: Covered a lot of ground here already. But I'm curious with the quick ramp of Malaysia, are you going to reach full capacity pretty quickly then? And how should we think about further expansions in CapEx? Todd Kelsey: No, we won't reach full capacity. In fact, there's enormous amount of expansion capacity within that facility, but it's just the efficiency with which our sites run it in Malaysia. So they'll be at a fraction of their full capacity but still be at corporate margins is because of the way that the facilities are run there. Shawn Harrison: It's Shawn. One of the things we're doing with our automation and efficiency efforts is really looking to create more revenue capacity within our existing sites. And so whether it's warehouse automation, whether it's machines within our facilities, utilizing them more efficiently, driving down CapEx long term by being more efficient within the sites we have to drive more revenue out of each as well as more profitability. Todd Kelsey: And just to add just a hear more to that as well, too. I think given our current footprint and the efforts that are underway, we feel pretty comfortable that we're set for a bit, barring any major changes in the geopolitical landscape that would make 1 location significantly more desirable than it is today. But right now, we have good capacity in each of our locations. . Anja Soderstrom: Okay. And also you mentioned that the target for this year in revenue doesn't does not account for a return of the commercial aerospace. What are you seeing there? Todd Kelsey: Yes. Oliver, do you want to jump in on one, why don't you take it? Oliver Mihm: Yes. So we are -- as we noted earlier, we're expecting some commercial aerospace tailwind here. As we look at the broader fiscal year or F '26, I should say, but that's not contemplating any Boeing or Airbus demand change, so to speak. So the recent news just last week, regulatory bodies allowing them to increase their demand, increase their production rates, I should say, that has not trickled through to a demand signal change for us yet. . Anja Soderstrom: Okay. And you don't have any sort of indication on when you expect that to happen? Or is it like you're not expecting it to happen this year? Todd Kelsey: It could happen this year. I mean it needs to happen at some point as Boeing and Airbus run through the inventory that they have at their facilities and through the gliders other situation. So it just remains to be seen. It just isn't visibility to us as to when that's going to happen. Shawn Harrison: Anja, I mean, the announcement was made last Friday, if we see a change in a demand signal, we can pick that up typically within 90 days. And so if it flows through to the customers we support, that would begin to potentially help us out in sometime in calendar 2026. . Operator: Your next question comes from Steven Fox with Fox Advisors. Steven Fox: A couple of clarifications, if I could. First, on the comment that you could accelerate towards like 9% to 12% revenue growth. Is that an indication that maybe exiting the year, second half of the year, you can get there? And like what are the biggest sort of wildcards to sort of getting to that pace of growth over time? Todd Kelsey: Yes, I don't think it's necessarily -- we're not thinking of a hockey stick kind of revenue ramp to the year. It's more of a, call it, a linear ramp is the way that we're looking at it right now. I think the things to getting in the 9% to 12% is continued steadiness to modest improvement in end market and then just continued focus on new program ramps that are underway. Steven Fox: Okay. That's helpful. And then secondly, just another clarification. In terms of the investments, because you mentioned it several times, are we -- should we consider the level of investments to be mainly focused around Penang? Or if it's not just Penang, can you sort of call out what the next sort of biggest items are? And how this sort of the investments relate to like the fiscal year just completed? I'm trying to understand like if there's an unusual drag on margins for the investment level. Oliver Mihm: Yes. This is Oliver. I'll start by saying Pat noted that our CapEx guide for the year is $90 million to $110 million. So that encompasses all of that, and that's fairly consistent to prior year. And so what we're looking at is less about bricks-and-mortar and more about specific investments to help either improve operational efficiency or enable further rent growth. So some examples would be One, we're investing in IT infrastructure to support CMC compliance, which enable further defense opportunity. We continue to invest in a number of different tools and technology. We previously talked about automating our warehouse and based on our initial pilot that we did in fiscal '24, we saw a 300% increase in PIK rate, a 60% reduction in space and similar reduction in labor. And so we rolled that out with 2 additional sites in fiscal '25. We're looking at doing another 4-ish sites in fiscal '26. And by the end of '26, we'll probably have captured about half of our opportunity across our sites there, based on where that would be applicable. Other tools that we have, Shawn mentioned earlier, there's tools that we're using to essentially optimize machine performance. So if you think about a surface mount technology line, we've decommissioned and turned off a number of lines. So that creates improved operating cost for us and then with less CapEx. As we continue to grow and utilize those in the future, we're deploying automated material robots across the organization. That has quite a fast ROI, and we're looking at having that deployed at all of our sites by spring of 2026. So that's the kind of stuff that we're investing in tools, advanced capabilities to drive operational efficiency. Todd Kelsey: And the one thing I'd add to, Steve, is that it's not a long-term drag that we're anticipating on margins. We have a near-term drag, mostly driven by Bridgeview, the new site that we have in Penang, Malaysia, but that will quickly be overcome. And in the meantime, in the background, we continue to invest in these other technologies, but we believe we'll will overcome them very quickly and then they'll start to provide additional productivity improvements as we move forward. Operator: [Operator Instructions] Next question comes from the line of Steve Barger with KeyBanc Capital Markets. . Steve Barger: Just a longer-term question. You drove about 40 basis points of annual margin expansion over the past 3 years to the 9.5% in FY '25. And that's on revenue that really didn't grow much since 2022 or FY '22. Looking forward, I know this is an investment year, but after this, do you expect you can get back on to a margin expansion plan similar to that? Or how are you kind of thinking about long-term ability to drive operating margin expansion, given the current investments you're making and the mix you see going forward? Patrick Jermain: Yes. Steve, this is Pat. As you know, a few years ago, we have reevaluated our operating margin target and set it at 6% or above. And you're right, the last several quarters, we've been able to hit that 6%. What I'd like to see is kind of getting through fiscal '26 and our performance and our ability to hit that 6%. But I could see us sitting here a year from now reevaluating that margin target. And what gives me some confidence in that is something I said earlier about this year, we do have to overcome the incentive compensation headwind. Once we do that, I think we have that ability to see better fixed cost leverage with revenue growth. And as Oliver pointed out, a lot of the automation efforts that we're investing in now I think will drive productivity improvements for us in the future. Again, one of the last things Shawn mentioned was just improving capacity within our existing sites to cut down on footprint expansions as quickly as we would normally have had to put up new sites. So I think all of that combined could have us sitting here next year, looking at what's our next target to go after. Steve Barger: Understood. Yes. And I guess kind of a related question. I know engineering and sustaining services are a small part of the mix, but they are good for margin. Are the wins there causing you to think differently about your pricing strategy broadly? Todd Kelsey: I wouldn't say they're causing us to think broadly different about our pricing strategy, but we certainly feel optimistic about our ability to be able to grow those businesses, which we Engineering is already well above corporate target margins and sustaining, we believe, has the potential to get there as it scales. . Operator: We have a follow-up question from Jim Ricchiuti with Needham & Company. James Ricchiuti: Just on the program ramp timing issue for Q4, was that mainly in the defense area that you alluded to? Patrick Jermain: Yes. So Q4, timing issue -- yes, minor delays in defense is what -- is the big contributor to the quarter's result. Yes. James Ricchiuti: And that is behind you looking into Q1, Q2? And then maybe just a follow-up on the A&D wins that you talked about. Again, is that mainly coming from Defense? And to what extent did unmanned going to be a bigger driver for you just given all the activity we're hearing in that market? Oliver Mihm: Yes. So that is behind us. We are, as I noted previously guiding Q1 up mid-single for Aerospace and Defense for the sector as a whole. I want to make sure I catch all your components to your question. You talked about unmanned aircraft, yes. So we do see that as being a bigger factor going forward that market -- as we've been watching it has evolved, we saw a good fit. We see a strong opportunity for us to be a value-add player there. And so that's what warranted the explicit focus in the commentary today around that specific subsector. I also talked about the fact that we had additional follow-on win there. So that just further corroborates our ability to grow that subsector as we go forward here in F '26. Did I catch all the components of your question? James Ricchiuti: You do. Shawn Harrison: Just one follow-up. I mean we do expect a really strong growth year in Defense in fiscal 2026. We've picked up new wins, expanded engagements over the past a couple of quarters as well as a couple of years. Todd and Oliver mentioned investments. We're doing some particularly technology and cybersecurity investments to make us an even more relevant player in that market as we see future growth opportunities, expanding our competitive moat. And then we are investing in looking to gain additional businesses we expect to see over time additional military spending in both the U.S. and Europe. So really strong outlook for Defense, really strongly positioned there to capture new business win market share. Operator: There are no further questions at this time. I will now turn the call back to Todd Kelsey for closing remarks. Todd Kelsey: All right. Thank you, John. I'd like to thank shareholders, investors, analysts and all of our Plexus team members who joined the call this morning. In summary, I'd like to reiterate that we're pleased with our strong finish to fiscal 2025, with 3 quarters of sequential revenue growth, strong wins across all of our services, a 40 basis point expansion to our non-GAAP operating margin, 30% non-GAAP EPS growth and greater than $150 million of free cash flow generation. We believe we're well positioned to carry this momentum into fiscal 2026 anticipate accelerating revenue growth and strong financial performance. Thank you again, and have a nice day. Operator: This concludes today's call. Thank you for attending. You may now disconnect.
Operator: Greetings, and welcome to the Third Coast Bancshares Third Quarter Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Natalie Hairston. Please go ahead. Natalie Hairston: Thank you, operator, and good morning, everyone. We appreciate you joining us for Third Coast Bancshares conference call and webcast to review our third quarter 2025 results. With me today is Bart Caraway, Founder, Chairman, President and Chief Executive Officer; John McWhorter, Chief Financial Officer; and Audrey Spaulding, Chief Credit Officer. First, a few housekeeping items. There will be a replay of today's call, and it will be available by webcast on the Investors section of our website at ir.thirdcoast.bank. There will also be a telephonic replay available until October 30, and more information on how to access these replay features was included in yesterday's earnings release. Please note that the information reported on this call speaks only as of today, October 23, 2025, and therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening, or transcript reading. In addition, the comments made by management during this conference call may contain forward-looking statements within the meaning of the United States Federal Securities Laws. These forward-looking statements reflect the current views of management. However, various risks, uncertainties and contingencies could cause actual results, performance or achievements, to differ materially from those expressed in the statements made by management. The listener, or reader, is encouraged to read the annual report on Form 10-K that was filed on March 5, 2025, to better understand those risks, uncertainties and contingencies. The comments made today will also include certain non-GAAP financial measures. Additional details and reconciliation to the most directly comparable GAAP financial measures were included in yesterday's earnings release, which can be found on the Third Coast website. Now I will turn the call over to Third Coast's Founder, Chairman, President and CEO, Mr. Bart Caraway. Bart? Bart Caraway: Good morning, everyone, and thank you, Natalie. I'll begin by sharing the highlights from the company's performance this quarter. After my remarks, John will discuss the financials, and Audrey will give a review of credit quality. Finally, I'll cover our merger announcement and share management's outlook for the remainder of 2025. The third quarter was particularly impressive for Third Coast as the company reached several key milestone achievements in growth, innovation and shareholder value. First, the recent listing of TCBX on both the New York Stock Exchange and the NYSE Texas marked a strategic shift aimed at enhancing market visibility and providing shareholders with greater liquidity. Second, we experienced notable growth in the third quarter, creating substantial asset value. For the first time in the company's history, we surpassed $5 billion threshold in total assets with a compound annual growth rate of 19.3% since our IPO in November 2021. Our relationship banking model has remained effective, evidenced by the consistent quarter-over-quarter growth in both deposits and loans. Additionally, we set new records in book value and tangible book value, reaching $32.25 and $30.91, respectively. Our return on average assets also hit a new high, reaching an annualized 1.41% for the third quarter of 2025. These accomplishments not only demonstrate our growth strategy, but also underscored our commitment to creating lasting franchise value for our stakeholders. Third, the successful completion of the bank's first and second securitization transactions mentioned during our Q2 earnings call, received international recognition, winning the SCI Risk Sharing award for North American transaction of the year at a recent ceremony in London. These transactions demonstrated that what we once thought impossible is now within reach. And Third Coast is immensely proud to have set new standards for a bank our size, while redefining risk management for real estate development loan portfolios among our peers. Lastly, our ongoing efforts to optimize operating leverage led to improvements in efficiency, profitability and opportunity. Our efficiency ratio improved to 53.05% for the third quarter. Net income rose driven by enhancements in interest and noninterest-bearing income, while keeping expenses stable, resulting in a total of $18.1 million for the quarter. Collectively, the third quarter results position us as a strong performer and create a solid foundation for potential M&A opportunities ahead, including the definitive agreement with Keystone that was announced yesterday, and I will discuss more in detail later in the call. In summary, the third quarter not only exceeded expectations, but also set several new records for the company. And overall, we remain committed to delivering on our strategic priorities and providing sustained value for our shareholders. With that, I'll turn the call over to John for the company's financial update. John? John McWhorter: Thank you, Bart, and good morning, everyone. We provided the detailed financial tables in yesterday's earnings release. So today, I'll provide some additional color around select balance sheet and profitability metrics from the third quarter. We reported third quarter net income of $16.9 million, up 8.3% versus the second quarter of 2025. This resulted in an ROA of 1.41% and a 15.1% return on equity. The net interest income was up $15 million, or 3% from the second quarter. This increase was primarily due to a better-than-expected net interest margin and growth in average earning assets of $229 million. Noninterest expenses were essentially flat in the third quarter, where salary and employee benefits were up but legal and professional expenses were down. If you recall, last quarter, we noted relatively high legal fees associated with the securitizations. Investment securities were up $21 million to $583 million, and quarterly average balances were up $117 million. Yield on the portfolio at September 30 was 6.07%, and AOCI improved slightly with a gain to $10.9 million. Deposits increased $92 million for the quarter, resulting in a loan-to-deposit ratio of 95%, and our cost of funds declined slightly. Net interest margin declined to 4.10% but was still higher than expected due to relatively high loan fees. In fact, speaking of loan fees, despite higher-than-expected accretion, capitalized loan fees at 9/30 were a record $19.9 million. But with that said, we're forecasting a margin of between $3.90 and 3.95% for the fourth quarter. Third quarter average loans were up $158 million versus the second quarter of this year. Period end loans, however, were up $85.4 million. Loan demand remained strong with loans already up $50 million in October. We've recently hired several new employees that we believe will be significant contributors to both loan growth and deposit growth in future quarters. That completes the financial review. At this point, I'll pass the call to Audrey for our credit quality review. Audrey Duncan: Thank you, John, and good morning, everyone. The third quarter highlighted the stability of our credit quality, a result of our disciplined risk management practices and underwriting standards. Nonaccrual loans declined for the second consecutive quarter, improving by $2.6 million in the third quarter. Quarter-over-quarter, nonperforming loans increased by $1.6 million. However, they are $2.3 million lower than the same period a year ago. Similarly, the nonperforming loans to total loans ratio rose by 3 basis points quarter-over-quarter, but still improved by 10 basis points compared to the same period last year. The 4 basis point increase in provision expense was attributable to growth in gross loans outstanding, and the company recorded net recoveries of $17,000 for the quarter. Our loan portfolio remains well diversified and similar to the previous quarter's allocations. Commercial and industrial loans were 43% of total loans, while construction, development and land loans were 20%. Owner-occupied CRE was 10%, and nonowner-occupied CRE was 16% of total loans. Our office and medical office portfolio exposure was not materially different than previous quarters, and our multifamily exposure has declined slightly. Overall, the stability of our loan portfolio, combined with our team's discipline allows us to maintain strong performance as we navigate market fluctuations strategically. This blend of conservative credit underwriting and careful risk management not only propels our growth but also delivers long-term value to our stakeholders. With that, I'll turn the call back to Bart. Bart? Bart Caraway: Thank you, Audrey. Looking ahead, we are excited to capitalize on the positive momentum generated in the third quarter as we continue to implement strategic initiatives that will drive our company forward. As announced yesterday, Third Coast has entered into a definitive merger agreement with Keystone Bancshares, Inc. Once completed, the combined entity is expected to have a pro forma total assets in excess of $6 billion. We are targeting to close the transaction in the first quarter of 2026. Keystone Bank is headquartered in Austin, Texas. A region known for dynamic economic growth and a vibrant community, making it an ideal location for continued expansion. Keystone currently operates two branches within the Austin market alongside a branch in Ballinger, Texas; and a loan production office in Bastrop, Texas. This partnership presents a compelling opportunity to merge two culturally aligned community banks, allowing us to leverage our shared commitment to relationship banking and customer service. By combining our resources and expertise, Third Coast will significantly strengthen its position in that corner of the Texas Triangle. Turning to our outlook. Management expects the remainder of 2025 to be consistent with prior quarters. Our loan pipeline show even more demand over the robust figures of the third quarter, reinforcing our confidence in meeting our loan growth targets of $50 million to $100 million in the fourth quarter. This aligns with our annualized growth rate of approximately 8%, and as always, we remain disciplined in our underwriting and portfolio management practices to ensure high-quality growth. In closing, I'd like to restate how proud I am of the Third Coast team. We consistently exceed industry expectations, achieving growth rates that surpassed that of our peers. Thanks to the dedication of our bankers and the strategic positioning in Texas' most attractive markets, we have built a strong franchise characterized by desirable banking model, sustained growth and profitability, and long-term value creation for our shareholders. With that, I'd now like to turn the call back over to the operator to begin the question-and-answer session. Operator? Operator: [Operator Instructions] And our first question comes from Bernard Von Gizycki with Deutsche Bank. Bernard Von Gizycki: Just curious on the merger of Keystone, the deal closes, or expected to close by 1Q '26. Just any expectations of how long the integration process may take? I know you noted in the deck, it should be straightforward integration given some operational compatibility. Just any color you can share on similar systems. Anything you can break out there? Bart Caraway: Yes. Fortunately, we've coordinated very well with them. So we're looking at a very early second quarter core conversion with them. Fortunately, there are contracts tied to our benefit and expires at -- basically in May. Plus a lot of what they do business-wise is similar to us. So it's pretty easy to map over and their cultural aspects are very much aligned with ours. So we do expect the integration to be fairly straightforward. Bernard Von Gizycki: Understood. And then maybe just following up on the loan growth expected for 4Q. I know, John, you mentioned the $50 million already in October. And Bart, you mentioned the expectations are still the $50 million to $100 million. That seems to be maybe conservative. Just wondering any expectations that November, December might be maybe a little bit slower? Just any thoughts on the pipelines and color you can provide there? John McWhorter: Bernie, last quarter, I said basically the same thing that July loans were up $50 million when we had our earnings call. And they ended up going up as much as $150 million and then we had a bunch of big payoffs towards the end of the quarter. So we're still kind of comfortable with that $50 million to $100 million number. We certainly always want to outperform but we are up $50 million. I mean, that's going to be good for the averages for the quarter. But what happens later in the quarter as far as paydowns, it's just harder to predict. Bart Caraway: Yes, I echo the same thing. Again, I just try to keep the long vision as we're very consistent in year after year whenever you sum it all up at the end of the year, we kind of meet what our projections are. But the volatility gets very lumpy for us on it. So it's just hard to tell year-end. It can even make a difference whether some loans get pushed into this year versus next year. Just everything happening with the noise in the economy. It's just really hard to predict. But what I will say is I feel really good about the loan pipelines and the quality of customers that we're seeing, and a lot of disruption that's happening in our markets we're benefiting from. We're just able to start seeing some of these clients that are really good quality clients. We always talk about punching above our weight class that we're getting to see. And we remain a talent magnet. And so even these last few months, we've picked up a couple of bankers that are really people we're proud of. That we didn't think we'd be able to get. And they're going to also help with that funding part of it in the client acquisition. So I just think we're poised in a great position. I don't want to overpromise and over commit. There's going to be some surprises where sometimes we may be more than what we think on the quarter, but then there's some times where we're going to have some paydowns and be a little less. But overall, we feel like we're right on target with where we're trying to go. Operator: Our next question comes from Woody Lay with KBW. Wood Lay: Wanted to start on the expected EPS accretion of the deal. Is that based on consensus estimates or internal projections? Because I mean just based on the quarter, it would seem like consensus is a little low. John McWhorter: Yes. Woody it is based on consensus. I mean we've talked about that a lot internally. I mean, the hard thing is to know exactly what number to use. I mean, certainly, we think that number is going to change over the next week or so as people saw our current earnings, and that will reduce the accretion a little bit. But we don't think it's going to be material. Bart Caraway: And further, if I can add on to this. The reason why we feel like it's going to be more accretive than even what we announced is because we didn't include any synergies. We're being so conservative on this. There are a lot of things. Just to give you an example of a few where we think are going to fall to our benefit. For instance, we have one branch that overlaps with theirs. And eventually that -- one of those branches is going to get eliminated, and we're going to get some cost saves for that. They view us as a platform to where they can do more with what they have. So as John and I were talking about sending some e-mails around this morning is, we have more than our fair share of derivative income and they don't do derivatives at all. So we're giving them tools on the treasury side, on the loan side that we didn't bake in as far as synergies into this deal that are going to be pretty meaningful with us. So no matter what the numbers are, whenever we talk about the accretion side, there's a lot that we feel very comfortable of a buffer, or padding, that we have on the expense side, or the increase in revenue that we're going to be able to get from this transaction to where hands down, we think this is going to be very, very good for us. And not just because of that because we think the market is a very attractive market that's going to enhance our footprint and our value in the overall franchise. Wood Lay: All right. I appreciate the color there. Maybe just given you're going to be busy with the integration over the next couple of quarters. How do you think about the near-term securitization strategy? And then longer term, just with a bigger balance sheet, does this open the door for additional flexibility on the securitization front? John McWhorter: Yes, it does. Woody, good question. I checked with the team earlier this morning, and we are looking at a third securitization. It's probably not going to be a this year transaction and as always, these tend to be customer dependent. But we do think, at this point, it will be likely that we would do a similar securitization in the first quarter next year. Wood Lay: Got it. And then just last for me. You're now at -- pro forma, you'll be at $6 billion, but your continue to be a strong organic grower. Just with $10 billion, that threshold, do you see any expense investments that need to be made as you sort of approach the $10 billion mark? Bart Caraway: Well, to be honest with you, I think it's kind of already baked in. I mean, I think our -- the examiners know that we've grown fast and they are kind of -- expect us to incrementally build on all of our controls. And what we're trying to do is be smart about it and building a lot more systems and controls instead of just adding people as we continue to grow. I think we're a long way away from $10 billion, but the expectations are always is that you start putting that in place. And I think that's just normal management and normal processes for us to think about that and continue. And I think it's healthy for the bank to be in a position where we have strong controls and reporting in place, period. So I don't think it's going to be a factor where on the P&L that we're going to see some sort of impact as we continue to grow because I think we're doing it along the way. Operator: We'll go next to Michael Rose with Raymond James. Michael Rose: I wanted to just start on the fee side. Another really good quarter. You guys have had some really good momentum here, but the service charge line item up fairly meaningfully quarter-on-quarter. I assume some of it is seasonal, just given what we saw last third quarter. But would just love any updated thoughts on fee income and some of the ongoing efforts that you've talked about, Bart, over the past year or 2. John McWhorter: Yes. Fees have certainly been a bright spot. Remember, we converted to FIS back in, I guess, it was June. And there's better, bigger products. I mean, it gives us more opportunity to sell things that we weren't before. So we think on both the treasury side and the loan side that -- well, I know for this quarter, I mean that's where a lot of it came from. But going forward, I mean, we're not going to see the same kind of growth quarter-over-quarter. I mean this was a particularly good quarter, but we're pretty confident that our fee income initiatives will continue working out and better treasury products and happier customers and it's just all turning out well. Michael Rose: But probably safe to assume we see a little bit of a step down in the fourth quarter just given some of the seasonal aspects. Is that fair? John McWhorter: Correct. Flat to down a little bit, yes. Michael Rose: Okay. Perfect. And then as you guys have talked about the loan growth story continues to be very, very strong. What's the hiring effort look like at this point to kind of support that high single-digit growth aspect? It seems like every bank that I talked to out there is looking to hire folks. And just wanted to see what your guys' plans are and what the expense build could be kind of related to that? Bart Caraway: Yes. I think it's the same story we've talked about for -- like after we went public, obviously, we went on a hiring spree. And then I start talking about the fact that we're going to be very surgical. And once again, I mean, it's continuing down the same path where I think we have become a talent magnet, and that we get a look at a lot of the talent that's in the market that's out there. And certainly, disruptions in the market do help us. But we sort of have our pipeline of people that we want. And I think it's going to be, basically what I would call, almost one-offs or surgical that we get. And these people are going to be highly productive. They probably come with just a small support team, and they're going to generate a lot of productivity for us. And so that's probably from a -- what John and I talked about deploying resources and making sure we control the P&L. We're just getting the highest and best talent that's out there. So we get a return faster. And indeed, some of the people who come on board, I mean, they may be profitable after their first deal or two. So I feel real good about where we are. We're not on a massive hiring spree like we did in the past. But we are still hiring some bankers selectively. And they're just best-in-class folks. And me and Audrey both are like -- we want to make sure not only do they check bucket that are the box, that they are good quality, but they're going to bring the right kind of credits that we want. And so we vet them very, very thoroughly. And I mean, this year has been exceptional. We've made a couple of few hires that I've just -- in 2026, are going to make a big impact for us. Michael Rose: That's great to hear. And kudos to the success and ongoing momemtum as we move forward. Maybe just one final one for me. I didn't necessarily think that a deal was in the cards for you guys. I know the currency is a little bit depressed, but glad to see the transaction. Maybe now pro forma $6 billion, if you can describe kind of would additional deals at some point beyond this one makes sense? And specifically, what would you -- what would you kind of look for? I assume it looks something like this in terms of size, but would just love kind of a schematic of how we should think about M&A for you guys? Bart Caraway: Yes. I think it's the same thing we've been talking about. The first deal we did with Heritage, we called it the unicorn because it was just such a great thing for us. It put us over $1 billion. It certainly helped us scale and efficiencies. It helped us with our market presence. It doubled our branches. And the people that were there, a lot of them have become very valuable members for us in leadership roles. And I view the same thing that's going to happen with Keystone. And Jeff, my counterpart there, is a great banker. And they have -- they're loaded with talent at that bank. And quite frankly, they even surprised me, it's kind of the level of their customer base. I mean, in some ways, they're kind of punching above their weight class too. And because of the cultural fit with it, I think we're going to get a lot of positives, even more than what I think, out of this merger. And -- but it sets the bar very high, right? So it's got to be financially rewarding for us, but it also has to be a great cultural fit. It's got to be the right -- it's got to check a lot of boxes. And those deals are really hard to come by. So what I would say is the bar for another deal is going to be pretty high. It's got to make sense for us. And there's a lot of other things that has to happen. So we're going to continue to execute on the organic story that we've been telling you all about. And we're opportunists. We'll look at a lot of deals, and we'll see where we're at. I mean, John and I have talked about, we looked at the deal earlier this year. And we came in third out of three on a bid process with it. And we're okay with that. We're just going to be very, very disciplined about what we do next with stuff. And so I think it's just more of the same. Operator: [Operator Instructions] And we'll go next to Matt Olney with Stephens. Matt Olney: First question for John around the margin. You gave us the margin expectations for the fourth quarter. Any more details you can provide as far as kind of what's behind that? I just assume it's more of a normalized level of loan fees that you mentioned were elevated this quarter. Anything beyond that? And then just other assumptions behind that with respect to interest rates and additional Fed cuts? And just remind us where you are as far as your rate sensitivity? John McWhorter: Yes. If you look back at our margin over time, we were kind of in the 3.70% to 3.80% range and really jumped up when we did those securitizations. And those were onetime fees that we're obviously not forecasting going forward. This quarter, I mean, it wasn't directly tied to those securitizations, but kind of the same concept of loans paying off. We've booked a lot of loans this year that had a lot of fees that we capitalized. I think I said in my comments that our capitalized fees are now a record $19 million. So maybe I'm being a little conservative in saying 3.90% to 3.95%, but that's still a pretty big jump from where we were just back in the first quarter. Now when I look at the margin on a monthly basis, after the Fed cut rates, our margin did go up 1 basis point. So our Q is going to show that we're slightly asset sensitive. But I think we're going to outperform our assumptions. We pretty aggressively cut rates on all the deposit accounts that we could. And I think we have more to give, if that makes sense. Having a relatively low noninterest-bearing balance, means that we can cut rates on a higher percentage of our total deposits. That's certainly what happened when the Fed cut rates the first time. It's what happened when they cut rates last year, it's what I think will happen when they cut rates this next time. And we've probably become a little bit less asset sensitive just because of the securities that we've been purchasing. Our securities book is much bigger than it was a year ago, and I think that will help in the rates down that -- we had pretty good timing on our investment purchases and our yield on that portfolio is 6%. And I think it's going to throw off a lot of income next year. Matt Olney: Okay. That's helpful, John. And then you mentioned that securities portfolio. What -- remind us what portion of that is going to be variable that we should consider with down rates? John McWhorter: Yes. So I guess, it's close to $600 million, there's about $200 million of that that's variable. Now one thing that's maybe a little hard to predict is we have had a lot of securities called recently. But we don't expect big changes in the portfolio. But basically what we -- held to maturity, Matt. So the $206 million we have in held to maturity, that's all floating, right? And pretty much everything else is fixed. Matt Olney: Okay. And then you touched on some deposit pricing competition in your markets. Anything else to add there? And then same thing for loan pricing competition. Just to appreciate anything that you're still in the market more recently? John McWhorter: We are feeling more confident about deposit growth than we had in quite some time. And this is going to be good core deposit growth where I think we're going to be able to start paying down some of our brokered deposits and improve the cost of funds there a little bit. And we may not be talking about huge number, but saving 10 basis points on tens, or hundreds of millions of dollars. I mean, it can add up in a hurry. But that's kind of what I envision over the next couple of quarters. Remember in recent years, we have one particular seasonal customer. And it seems like every year, they send us more and more in deposits. And those funds, we're kind of already seeing them out there on the horizon, talking to the customer that those will be coming. And I think we'll let some of our brokers roll off and replace it with those. And again, they're not cheap deposits, but they'll be a little less expensive than what we currently have. So that will be a little bit of a tailwind to the margin. Operator: Moving next to Dave Storms with Stonegate. David Storms: Just wanted to kind of ask two maybe around the merger. Could you maybe talk a little bit more about your comfortability with your geographical footprint? And maybe getting back to that last question. Are there any MSAs that you would target to expand into now that you really shored up your presence in Austin? Bart Caraway: That's a really good question and something we think about as well. I think our primary goal is to continue to build around the Texas Triangle with that. And Austin, if you look at the market, if I'm correct, if you look at independent community banks, there was really only two independent community banks over $500 million in assets. So we talk about scarcity value a lot with it. And in Austin is a prime example of that. It's -- we're so lucky with Keystone to be able to get that because it gives us a foothold in that off the market and gives us some assets there, which I think the market that's growing, that is -- has a lot of opportunity for -- to go get some of these different customers from community to middle market side of it, especially as the other banks get bigger and there's more consolidation. So that was kind of a rare opportunity that worked. We would certainly look at our other markets. But we talked a little bit about being a talent magnet. And I think the market, and we have finally seen, that we're able to acquire bankers that are just exceptional. That are working for much larger banks. And being that talent magnet certainly affords us to be able to grow organically. But I kind of think we're almost like a platform magnet for some of these other banks now. We give certain banks the opportunity, if they want to take it to the next step, we have the infrastructure, the technology, now the systems in place that if they're looking for a partnership with it, we offer a platform for them to continue to do what they want to do and grow a certain market. So some of this is about cultural fit and about a partnership that would make a difference for us. And I hope we can continue in that Texas Triangle with all of it, but it could be adjacent to that. Or we're opportunists and look at things that add shareholder value. I mean, ultimately, the way we look at it is what are we going to do that's going to make this franchise more valuable. So I don't know if you were going there, Dave, with it. But it was a really good question that I think it's -- I think we're proving up that we can be a very good partner for other banks. And I'm not so sure that with the Keystone merger that that's not going to open up more phone calls to me about banks that are -- now have another avenue. David Storms: That's great color. One more for me, if I could. Just looking at some of the view of the Keystone credit profile. It looks like they do have really high-quality credit profile, strong asset quality. Is there anything that they're doing that you can see that they're doing now, kind of before you get your hands on it, that you think could be mapped over to Third Coast and improve your underwriting, improve your asset quality even further? Bart Caraway: Yes. So what I would tell you is we really have a good customer base there that we're happy with. And Audrey and I talked about, we wanted to -- we looked at the loans, we felt comfortable. But we also engaged Gateway to do a loan review. And it came out really well, right, Audrey? I mean... Audrey Duncan: Yes. Gateway looked at 80% of their commercial loan portfolio and the results were very, very favorable. But you're correct. They have very strong asset quality. Bart Caraway: So I think what it is, is, again, we layer the tools on top of what they're doing. And I think we can get more wallet share out of some of their large customers. Give them some more products to go out there and compete with some of the bigger banks now. So I'm pretty excited about to see what they're able to do with our additional tools. Operator: This now concludes our question-and-answer session. I would like to turn the floor back to Bart Caraway for closing comments. Bart Caraway: Thank you, Carrie. I appreciate that, and thanks, everybody, for your interest in Third Coast Bancshares, and we look forward to talking to you next quarter. Thank you. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Hello, and welcome to the FirstEnergy Corp. Third Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to Karen Sagot, Vice President of Investor Relations. Please go ahead, Karen. Karen Sagot: Thank you. Good morning, everyone, and welcome to FirstEnergy's Third Quarter 2025 Earnings Review. Our earnings release, presentation slides, and related financial information are available on our website at firstenergycorp.com/ir. Today's discussion will include the use of non-GAAP financial measures and forward-looking statements, which are subject to risks and uncertainties. Factors discussed in our earnings news release during today's conference call and in our SEC filings could cause our actual results to differ materially from these forward-looking statements. The appendix of today's presentation includes supplemental information, along with the reconciliation of non-GAAP financial measures. Please read our cautionary statement and discussion of non-GAAP financial measures on Slides 2 and 3 of the presentation. Our Chair, President and Chief Executive Officer, Brian Tierney, will lead our call today. He will be joined by Jon Taylor, our Senior Vice President and Chief Financial Officer. They will discuss the team's continued strong execution and performance on key financial metrics as well as our bright outlook and positive momentum as we close the year. Topics include raising our full year 2025 guidance midpoint and narrowing the range, increasing our 2025 capital plan, our expectations for incremental investment opportunities, and our progress and time frame on regulatory activities. Now it's my pleasure to turn the call over to Brian. Brian Tierney: Thank you, Karen. Good morning, everyone. Thank you for joining us today and for your interest in FirstEnergy. We are having a great year with strong results across all of our key financial metrics. Yesterday, we reported third quarter GAAP earnings of $0.76 per share compared to $0.73 in the third quarter last year. Core earnings were $0.83 per share for the quarter compared to $0.76 in the third quarter of 2024. For the year-to-date period, our core earnings were $2.02 per share compared to $1.76 in 2024, an increase of 15%. Our results benefited from strong execution of our customer-focused investment plan, Pennsylvania base rates that went into effect in January and strong financial discipline. Through the first 9 months of 2025, we invested $4 billion of capital in our regulated utilities. This is a 30% increase compared to last year. We are pleased to be in a position to put even more resources into system reliability and resiliency for our customers. Today, we are announcing a 10% increase to our 2025 capital investment program to $5.5 billion. With our strong year-to-date results, we are raising our 2025 guidance midpoint and narrowing our range to $2.50 to $2.56 per share. We remain positive about the opportunities ahead. We are reaffirming our core earnings compounded annual growth rate of 6% to 8%. And early next year, we expect to roll out a higher CapEx plan for the 2026 through 2030 planning period. Turning to Slide 6. Load growth from data centers continues to transform our industry. FirstEnergy service territory, expertise, and assets are ideally positioned to support the remarkable demand growth and economic opportunity within and adjacent to our footprint. Within our operational area, data center interest remains high. Our long-term pipeline of demand, which includes interconnection requests from serious and reputable customers has nearly doubled since our fourth quarter earnings call in February. Our contracted customer demand increased by over 30% during the same period. The impact of this demand will be tremendous. Based on data center customers who are contracted or in our pipeline, we expect FirstEnergy's system peak load to increase 15 gigawatts or nearly 50% from 33.5 gigawatts this year to 48.5 gigawatts in 2035. Across PJM, peak load projections are forecasted to increase by nearly 48 gigawatts by 2035 or 30% of the current peak load of 162 gigawatts. FirstEnergy is uniquely situated to support this growing demand through customer-focused investments, specifically in our transmission system. This system is located in the heart of PJM, interconnecting with a broad number of neighboring utilities and encompassing strategic high-voltage corridors that are a vital part of the transmission grid. Turning to Slide 7. Earlier this month, we submitted our integrated resource plan in West Virginia that lays out our recommendations to keep power affordable, accessible, and reliable over the next decade. The IRP indicates a capacity need in West Virginia beginning in 2027. Our preferred plan provides the flexibility to adapt to the rapidly changing energy landscape while delivering reliable and cost-effective energy to West Virginia homes and businesses. Key aspects of the plan include adding 70 megawatts of utility scale solar in 2028, adding 1.2 gigawatts of dispatchable gas combined cycle generation around 2031, keeping our Fort Martin and Harrison coal plants operational through the planning period and using short-term power purchases to bridge the gap until new resources are online. The proposed gas and solar investments are aligned with Governor Morrisey's 50 by 50 initiative, which aims to boost West Virginia's energy capacity to 50 gigawatts by 2050. We are pleased to pursue generation projects in a state with strong executive, legislative, and regulatory support. To provide the best outcomes for West Virginians, we plan to issue a build-to-own transfer RFP for up to the full 1.2 gigawatts of natural gas resources. We are also evaluating building a portion or the entirety of this generation on our own. In the first quarter of 2026, we plan to file with the Public Service Commission seeking approval of the new gas generation. The proposed assets represent a 35% increase to our current regulated generation portfolio. This is an exciting opportunity for FirstEnergy, and we are pleased to support customer needs and economic growth in West Virginia. Turning to Slide 8. As I mentioned earlier, our transmission system will require significant incremental investments to ensure reliable electric service. At our stand-alone transmission and integrated segments, we need to ensure our critical infrastructure is resilient and reliable, especially as demand is projected to increase in the region. This includes investments to replace aging infrastructure, improve system performance, and increase operational flexibility. We are also participating in regional network upgrades, which are the investments awarded through PJM's RTEP open window process. This includes required system upgrades and improvements to address reliability, security, and load demands of the bulk electric system. Over the last few years, we have been awarded $4 billion of capital investments through the PJM open window process. We recently submitted proposals of capital investments through the 2025 open window to support increasing demand in Ohio, Pennsylvania, and Virginia. These proposed investments include several new and upgraded substations and high-voltage lines needed to support the increasing customer demand. The PJM Board is expected to award transmission projects in this open window by the first quarter of 2026. Any projects awarded to FirstEnergy in this open window will be included in our new 5-year plan. We now expect transmission investments included in the 2026 to 2030 capital plan to increase by 30% versus our current 5-year plan. This includes increases from reliability enhancements and regulatory required investments to improve the overall health and performance of our most critical assets on the system and to address growing demand and changes in generation in the region. Our company-wide transmission assets are a terrific growth engine. Our investments are expected to result in a compound transmission rate base growth of up to 18% per year through 2030. This means total transmission rate base would more than double through the planning period. On the generation side, we have a significant incremental investment opportunity associated with adding the 1.2 gigawatts of natural gas generation in West Virginia by 2031. This project at an initial estimate of $2.5 billion will be included in our long-term plan after we receive regulatory approval. Moving to Slide 9. We're in a strong position to make all of these investments that benefit our customers while keeping affordability a top priority. Today, our bills are on average 2.5% of our customers' share of wallet and on average, are 19% below our in-state peers. Even with an increasing investment plan, we will be below our in-state peers for the foreseeable future. However, we recognize that affordability is top of mind for our customers and that, on average, electric bills have increased 11% for our customers in our four deregulated states over the last year. As we drill into this, the generation component of the bill is driving 85% of this increase. This type of increase is not sustainable and needs to be addressed with new dispatchable generation. In that regard, we are advocating on behalf of our customers and working with state leadership in our deregulated states on how they can take the lead to drive meaningful change and attract new generation. It's a different story in West Virginia, our one traditionally integrated state. Total customer bills remain flat from 2024 to 2025, and the state is taking proactive steps through its IRP process and 50 by 50 program to maintain and expand its generating capacity. We are also working to protect current customers as demand increases from data center developers. This includes utilizing volumetric commitments and customer credit support as needed. Our approach leverages the balance sheet of the data center developers to protect existing customers. Turning to Slide 10. We are on track to have a successful year and look forward to a strong finish. Our updated earnings guidance of $2.50 to $2.56 per share is in the upper half of our original range. We are reaffirming our 6% to 8% core earnings CAGR through 2029. We are on pace to execute our 2025 to 2029 capital investment plan. And looking ahead, we see significant increase in our next 5-year investment plan. Most of this growth will come from high-quality transmission investments backed by forward-looking rates with constructive ROEs. We're also excited about new opportunities to invest in generation in a state that is supportive of these efforts. Our value proposition remains strong, encompassing robust growth, consistent financial discipline, and attractive risk profile and a 10% to 12% total shareholder return opportunity with upside potential. We are on course, and we are committed to achieving our goals and realizing our bright future as a premier electric company. Now I'll turn the call over to Jon. Jon? K. Taylor: Thanks, Brian, and good morning, everyone. We had another strong quarter and continue to make excellent progress this year. We delivered on each of our key financial metrics, including core earnings, capital investments, base O&M and cash from operations. You can review more details about our results, including reconciliations for core earnings and business segment drivers in the strategic and financial highlights presentation posted to our IR website yesterday afternoon. We delivered third quarter core earnings of $0.83 per share, a 9% increase versus 2024. This improvement was largely a result of new distribution base rates in Pennsylvania that went into effect earlier this year and total transmission rate base growth of 11%, including 9% for our ownership in stand-alone transmission rate base and 16% in transmission rate base within our integrated business. Additionally, as a result of our strong performance this year, especially with our controllable operating expenses, we were able to move a modest amount of maintenance work into the third quarter from future years, which gives us flexibility within our plan. Through the first 9 months of the year, core earnings improved to $2.02 per share, a 15% increase from the first 9 months of 2024. Again, our strong year-to-date results largely reflect the execution of our regulated strategies, stronger customer demand, and transmission rate base growth. I want to take just a second to highlight the financial performance and growth in each of our regulated businesses. In our distribution business, the $0.20 improvement in year-to-date earnings is a result of the $225 million annual rate adjustment in Pennsylvania that supports the capital investments and operating expenses we are deploying back into that business as well as higher customer demand and lower operating expenses as we execute on continuous improvement initiatives. In our Integrated segment, earnings improved $0.05 per share or 7% for the year-to-date period, resulting primarily from formula rate investments in the transmission system in New Jersey, West Virginia, and Maryland and higher customer demand, partially offset by higher depreciation. And finally, in our stand-alone transmission business, earnings increased approximately 7%, resulting from our strong capital investment program, delivering owned rate base growth of 9%, which was partially offset by the impact of new debt at FET Holding Company and the full year dilution impact of the FET minority interest sale. As you can see, our performance year-to-date at our regulated businesses is a testament to the execution on our regulated strategies, the constructive rate designs we have in each of our businesses, our strong customer-focused investment programs and a focus on financial discipline. Through the first 9 months of 2025, sales were 1% higher than last year and essentially flat on a weather-adjusted basis. For our industrial class, based on ramp-up schedules of some of our data center customers, we expect to see more meaningful increases in industrial load beginning in Q4 and into next year. As Brian mentioned, through September, we deployed $4 billion of customer-focused investments, which is a 30% increase as compared to the same period of 2024. The majority of this increase was associated with transmission capital, both at our stand-alone transmission and integrated businesses, which in total was $1.9 billion of CapEx through the first 9 months of the year, representing a 35% increase as compared to 2024. For 2025, we are increasing our planned investments from $5 billion to $5.5 billion. Over half of the increase is in transmission CapEx with the remaining on the distribution system, largely reflecting reliability and storm restoration investments. The team continues to do a nice job ensuring that our capital investments are targeted at improving reliability and the customer experience. Additionally, even though our CapEx programs have increased significantly over the past few years, we have strong confidence in our ability to deliver, if not exceed these plans, given our capital planning process, which is based on known and specific projects with resiliency built into the portfolio and our broad and deep relationships with our vendors and suppliers. For O&M, we continue to track better than planned and largely in line with last year despite executing additional maintenance work this year that will enhance reliability and give us flexibility as we finish this year and look to 2026. Our financial performance resulted in a consolidated return on equity of 10.1% on a trailing 12-month basis, which is slightly above our targeted ROE of 9.5% to 10% and represents a 70 basis point improvement from our 2024 consolidated return of 9.4%. Through September 30, to support our capital investments of $4 billion, cash from operations was $2.6 billion, which is better than our internal plan and an increase of more than $700 million as compared to 2024. And we successfully completed our 2025 financing plan with eight subsidiary debt transactions totaling nearly $3.5 billion at an average coupon of 4.8%, including a $450 million transaction at FirstEnergy Transmission and a $1.35 billion financing at JCP&L in the third quarter. Including the successful $2.5 billion FE Corp. convertible debt offering in June, our 2025 capital markets program encompassed close to $6 billion of debt financing, all significantly oversubscribed at a weighted average rate of 4.4%, demonstrating the attractive credit profile of our utilities and business mix. And finally, to close out my updates, we do expect an order in the Ohio base rate case in November. As soon as practical after that, we plan to file a multiyear rate plan to ensure timely recovery of the important investments needed in the state. We are very pleased with our progress as we close out 2025. As I mentioned earlier, we are ahead of plan on all of our key financial metrics and look to carry this momentum in the final months of this year and as we begin 2026. In closing, the team is extremely focused on the value proposition that we offer to shareholders. We are focused on delivering enhanced customer experience through strong customer-focused investments, which in turn will allow us to provide solid risk-adjusted returns to our investors. The future is bright for FirstEnergy, whether it be industry-leading transmission investment opportunities significant reliability investments in the distribution system or the build-out of regulated generation in a supportive state like West Virginia, we have a strong business plan and the right team to execute. We are committed to continuing our positive momentum and delivering value for our shareholders. Thank you for your time. Now let's open the call to Q&A. Operator: [Operator Instructions] And our first question comes from the line of Nick Campanella with Barclays. Nicholas Campanella: I was just wondering on the West Virginia generation, you kind of talked about build and transfer versus self-build. Can you maybe kind of talk about how you've recovered the capital in either scenario and how we should kind of think about the impact to earnings '28 through 2031. And I guess if you're just kind of thinking about a build and transfer for 2031, is there really no earnings attribution until then? Or could there be milestone payments? Maybe you can kind of expand on that. Brian Tierney: Yes. So the build-own transfer, I think, is fairly straightforward. On the we build it side, we, of course, would file for CWIP during construction. And so we'd expect at least the recovery of that, if not the earnings component during the pendency of construction. But the real significant earnings component for that will come after the assets online. Nicholas Campanella: Yes. Okay. And then just maybe how you're thinking about rate case strategy for '26, mostly asking on Maryland, West Virginia, New Jersey, where the ROEs are trending a little lower than authorized? K. Taylor: Nick, it's Jon. Yes. So I think as we look to '26 and beyond, if you look back to the cadence that we went through, when we first started filing cases a few years ago, we started with Maryland, New Jersey, West Virginia. We'll start to look at that kind of cadence as we move into 2026. Obviously, it's going to be important for our utilities to earn close to their allowed returns. And so as they're deploying capital, we need to make sure that we get timely recovery through increases in base rates. Operator: The next question comes from the line of David Arcaro with Morgan Stanley. David Arcaro: I was wondering just any thoughts you could give on as you're talking about these increased CapEx opportunities from both transmission and potentially on West Virginia generation. How does that impact the earnings growth outlook and the range that you've got as you consider out closer to the end of the decade? Brian Tierney: Yes. David, we think of it as firming up the ability for us to be in that 6% to 8% earnings per share range over the planning period. People don't traditionally think of utilities as growth investments. But as we look at the opportunity to invest in our system, increasing CapEx over the period, it gives us real confidence that we'll solidly be in that 6% to 8% earnings per share growth range. David Arcaro: Okay. Got it. And then I guess looking at the data center pipeline, I was wondering if you could refresh us on just the activity seems to continue to be very strong. And as you see more gigawatts maybe come in and firm up, I guess, is there a way to give any rule of thumb for how much increased transmission CapEx you could see going forward, like on a per gigawatt basis? I think you've given that rule of thumb in the past, but the CapEx that you're adding to the plan here seems to be quite a bit stronger. So just wondering your current thoughts on as more and more data center activity continues to come to your service territory, what that could mean going forward? K. Taylor: Yes. David, it's Jon. So in total, right now, as we look at what's contracted and just our transmission CapEx program in total, I think you could say there's probably easily $1 billion of CapEx associated with transmission interconnection requests, whether that be direct connection projects or network upgrades to support large loads. So that's what we see now based on the contracted and active large load customers that we have. But I think that will vary as we move into the future. And we've seen a wide range of capital deployment based on interconnection request depending on the location and the size. Operator: The next question comes from the line of Carly Davenport with Goldman Sachs. Carly Davenport: Maybe just a quick follow-up on the transmission CapEx point. Just as you continue to raise sort of the upside opportunity there now at 30% this quarter. I guess, can you talk a little bit about kind of what's giving you the confidence to do that? And ultimately, if we should be thinking about that as a floor looking into the 4Q update or if there's potential for further upside there? Brian Tierney: Yes. I think the upside that we mentioned that 30% for the next 5-year plan is what we feel comfortable with at this point. And again, we're going to come out with that full CapEx plan early in '26, but I think that's what we would guide to be the number right now. As we think about that and where we're spending the transmission CapEx, about 60% of it is associated with reliability enhancements, upgrade health of system, replacing aging reliability type investments. And the 40% of it is what we call regulatory required. That's transmission interconnection requests and things like the PJM open windows. So we have some pretty good insight into where we're spending those dollars and what the increase will look like for the next 5-year plan. So I'd expect it to be very, very close to that number. Carly Davenport: Great. Okay. That's really helpful. And then maybe just on the data center pipeline. I appreciate all the updates on that front. I guess just as we think about that contracted bucket, are you able to share how much of what is contracted is under an ESA versus another type of contractual agreement? Brian Tierney: Yes. So that's a great question. Thank you, Carly. The ESA is usually the last thing that happens before power starts flowing. So that happens very late in the process traditionally. But making sure that they're contracted to either build the facilities that are needed to happen, that we put in place the credit support that they're going to need to make sure that they show up and take what we're spending. Those type of things happen earlier in the process. So we feel really confident once we have put them in that contracted category that they're going to show up even if we don't yet have an ESA signed. Operator: The next question comes from the line of Jeremy Tonet with JPMorgan. Jeremy Tonet: You touched on in your comments, I guess, the bill increases and the impact generation has had on that. And I was just wondering if you could expand a bit more there, I guess, on the appetite to build new generation elsewhere across PJM, if there is the proper underpinnings to it? And how do conversations look on that? And anything new to report there? Brian Tierney: Yes. So nothing new to report there, Jeremy. I mean, the place where we have a clear window, a supportive governor commission and legislature is in West Virginia. And so that's how we're able to move forward so quickly with those plans. The idea that we'd be building in any of the other states on a long-term basis would really just be speculative at this point. Jeremy Tonet: Got it. Understood. And turning to Ohio. I was just wondering if you could expand any more there on the backdrop and talking about filing as soon as practical there, what that could look like? Brian Tierney: Yes. So we expect the order on the base rate case during the fourth quarter. And we need to get that to see what the treatment of various aspects are in that base rate case. But given that we've been making investments in the state and want to continue making investments in that state since that test year, which ended in May of '24, we're going to have to go in right away given that we don't have trackers and riders in the state anymore. And so given the forward-looking nature of the multiyear rate plan, we think that's the perfect avenue to do it. And as soon as we know what our situation is coming out of that base rate case, we'll know what we need to file for, and we'll be going in right away. Operator: The next question comes from the line of Ryan Levine with Citi. Ryan Levine: Regarding the 30% CapEx upside in the prepared comments, what regions in PJM are you seeing the majority of the investment opportunity? And is there any cost inflation associated with the labor or equipment that is a component of that 30%? Brian Tierney: Yes. I'd say most of that 30% is really associated with incremental work rather than inflationary proceeds -- impacts. And it's across the system in terms of where we're investing. It's in all five of our states, and I'd say fairly evenly distributed in those five as well. So -- it's broad-based. It's that reliability type investment. It's the regulatory required. It's the new customer hookups. It's the open windows. It's really broad-based, but it's incremental work that's driving that 30% increase. Ryan Levine: Okay. And then in terms of the load forecast embedded in your planning, do you have a lot of confidence in the visibility of those forecasts in light of some of the FERC and other PUC recent commentary on that front? Brian Tierney: We do, Ryan. So as we're looking at the planning period, the next 5-year period. A lot of that is associated with what is contracted, not necessarily in the pipeline. So we have pretty good visibility into what the load forecast is going to be in that time frame. When you get out a little bit farther is when you're starting to look at the significant increases that we talked about with data center load and up to the 15 gigawatts. As we're looking at those load increases, we're looking at things, various criteria, like does the developer own and control the land? Do they have building permits? Do they have development plans? Do they publicly announced what the project is going to be, who the customer is, all those things. We look at those factors to get a comfort level in is the customer actually going to show up and does it make sense to put them in the pipeline? And it's that level of confidence that we have in that 15 gigawatts that we're talking about in the next 10 years. Operator: The next question comes from the line of Ross Fowler with Bank of America. Ross Fowler: Just maybe circling back to West Virginia. This is going to be a self-build. I think that's what you said on the call, if I caught it correctly. So as you file for CWIP and you go through that, how are you thinking about the supply chain connected to that 1.2 gigawatts? Do you have a turbine in the queue? Do you have a queue position? And kind of what are you seeing for pricing there? Because I know the turbine prices have increased over time. Brian Tierney: Yes. So that's all factored into what we've forecasted in the IRP, assuming it's going to be about $2.5 billion. And we haven't made a determination yet as to whether or not it's going to be build-own-transfer or self-build. We're going out with an RFP for the build-own transfer, and we'll see what that brings in. But we're also seeing things come in a little bit. So we're not seeing that 4- to 5-year that people have been talking about. We're seeing more of the 3- to 4-year lead time on major equipment. But the pricing remains pretty strong on that. We've not secured a space yet, but we think that we'll be able to do that given the regulatory framework that we have for getting approvals and getting the facility up and running in the 2031 time frame. Ross Fowler: And then -- and Jon, as you kind of talked about rate case cadence, you talked about sort of New Jersey. I mean, obviously, Ohio is coming very soon as soon as practicable, but New Jersey might be next in that cadence as you wind through it. How are you thinking about sort of the affordability pressures in that state? Obviously, it's been an issue in the governor's race. Is it well understood from your perspective in that state that most of that is coming from the generation portion of the bill or kind of contextualize that for us a little bit? Brian Tierney: We think that's well understood that generation is really what's driving so much of that increase. At the end of the day, as a political issue, though, that doesn't much matter. People see their bills going up and are concerned about that. And we're trying to do everything we can in our power to keep those bills as low as possible for the portions that we control. And so we're being very thoughtful about how we're spending our O&M. We're advocating on behalf of our customers to stop the madness that is these PJM capacity auctions right now, which are paying for new generation that's just not showing up, and we don't think it's appropriate that our customers bear that kind of burden. So we're doing everything we can to try and mitigate the impact of the higher generation costs, but we think it's well understood that that's where the increases in those rates are coming from. Operator: The next question comes from the line of Steven Fleishman with Wolfe Research. Steven Fleishman: Just a quick follow-up on the transmission upside, the 18% rate base growth. When we're going to get these open window outcomes and such over the next few months or start seeing them, should we assume those are embedded in there already? Or would those be upside to that? Or how should we think about as we see these announcements? Brian Tierney: Steve, we put a very modest amount in there, but it's our practice to not put things in the plan until we have the approvals that are needed from PJM. But in this case, we put a very modest amount in there. K. Taylor: Yes. And I would say, as I mentioned in my prepared remarks, the portfolio is what we call resilient. So we have hundreds and hundreds of projects that we can fill in as needed, all needed for reliability purposes. So depending on how things shake out with the open window, which, quite frankly, we feel really good about the solutions that we submitted in the open window process, our track record, where the congestion constraints are, and we feel really good about our prospects there. But to the extent that anything varies from our plan, we have a resilient portfolio. Steven Fleishman: Okay. And then just to clarify that answer because there's the plan right now, then there's the upside plan or the next plan we're going to get. So when you made your comments, Brian, is that relative to the next plan or the current plan, I guess. Brian Tierney: That makes sense. The 30% increase that we talked about, there is a very modest amount from the pending PJM open window that's in there. So if we get significant incremental awards from that, we'll be refreshing that plan. Operator: The next question comes from the line of Andrew Weisel with Scotiabank. Andrew Weisel: First, a question on the CapEx update, and this is sort of a high-level question, but you're talking about very meaningful upside to the transmission CapEx. The West Virginia IRP is calling for a lot of spending there, plus you have the Ohio rate case. My question is, when we look at the update coming in a few months, are you expecting to reallocate some spending away from the other segments and businesses? Or do you think the balance sheet and the labor force could handle what might be a pretty sizable increase for the plan overall? I don't know if the whole $28 billion plan is going to go up by 30%, maybe it will. But how do you think about limiting factors for the upcoming increase? Brian Tierney: Yes. We don't see taking from one jurisdiction at this point and giving to another. We see increases across the jurisdictions. But Andrew, we've already factored in the needs of the various jurisdictions, the opportunities in the various jurisdictions. And to be honest with you, they're all different. And that's why we put in place the management structure that we have with the presidents, five presidents overseeing those five properties that we own so that they're very thoughtful about what's going in. Do we need energy efficiency in one jurisdiction that we don't need in another. Just things like that so that our CapEx plan is very, very tightly tailored to each of the jurisdictions that we serve, and that's what goes into how we put our plan together. We're not -- we don't view the plans that we're talking about, the West Virginia and the incremental transmission is taking away from another jurisdiction, but we view that as all expansive across our five jurisdictions. Andrew Weisel: Okay. Great. And then I think on the industrial load, Jon, you made a comment about that accelerating in the fourth quarter and into next year. I think you said that was specific to some data center customers ramping up. Can you speak more broadly? I think I may have asked you this on prior calls as well, but it sounds like generally flattish for the industrial customers. Maybe you can talk about trends in the outlook outside of the specific data center ramping. K. Taylor: Yes. I think we -- yes, we are starting to see a little bit of rebound in fabricated metals and steel manufacturing. So that has been kind of a headwind for us over the past few quarters. We're starting to see that come back a little bit. But I think as we move into the fourth quarter and especially into next year, you'll start to see meaningful increases in industrial load, mainly from data centers. And I'm talking like mid-single digits by the time we get to maybe Q2 to maybe even higher than that, significantly higher than that by the time we get to the fourth quarter of next year. Operator: The next question comes from the line of Sophie Karp with KeyBanc Capital Markets. Sophie Karp: How do you envision a response on the state level from policymakers to these rising consumer energy costs? Brian Tierney: I think people are concerned about it, as are we, and that's why we're engaging with regulators, legislators, and others to both, a, point out what is causing the increase and, b, trying to work with them on mitigating those increases and what are things that we think makes sense for our customers. And so again, we are not advocates of continuing this madness of the PJM capacity auctions that are paying people for new capacity that they're not getting and look for other mechanisms like a 2-tiered structure, one that would pay existing capacity one price and have another structure that would attract incremental capacity and any other ways that we can attract new capacity and have customers actually get what it is they're paying for. But we're concerned about increases in customer bills and again, making sure that customers get what it is they're paying for and with the capacity auctions, that's not happening. Sophie Karp: And do you think there's enough, I guess, momentum behind these efforts now for them to come up in the next legislative sessions? Brian Tierney: Yes. I think there's certainly a lot of attention being paid to it across all of our unregulated jurisdictions. And so yes, I think we'll see people starting to take notice, have plans for mitigation and start enacting those in the near term. Operator: The next question comes from the line of Anthony Crowdell with Mizuho Securities. Anthony Crowdell: I just wanted to -- and I apologize, I just may have not understood it. A response to Carly's question and a response to Steve's question. On Carly's question, and when I think you were talking about CapEx, it seemed that you were more looking at these additional projects are going to strengthen and lengthen the current 6% to 8% plan. And again, I don't want to front-run your fourth quarter call. But then on Steve's question, I think you talked about your current plan is very modest with very little of this additional CapEx in there, leading that there's actually potential for a big change in that growth rate. I wonder if you could help me connect the two dots there. Brian Tierney: Yes. So thank you for the question, Anthony, if there was any confusion around this. This increase in CapEx that we're talking about gives us extreme confidence in the 6% to 8% earnings per share growth range. So we would like to be in the upper end of that, but we're not at a point today where we are going to change that growth rate. But it gives us considerably more confidence to be in the upper part of that range. So in response to Steve's question, the increase that we're talking about is in the 6% to 8% growth. The specific part that I was talking about with Steve was the PJM transmission open window component that's pending. We have a very modest amount for that, that we think that we will be awarded. If it's higher than that, that will be incremental to the plan. But in any event, we don't see us changing the earnings per share growth rate that we've guided to, but the CapEx plan that we talked about and the increase in it gives us confidence to be in that range and targeting the upper end of that range. Does that answer the question? Anthony Crowdell: Yes. So if you're better than your plan in the PJM open window, there's more of a bias towards the upper end of the range of the 6%. Is that fair? Brian Tierney: No, no, no. Let me -- again, I don't want you to put words in my mouth. The existing plan and the increase that we're talking about is in the plan and gives us the confidence to be in the upper end of that range. If we get something more than what we talked about in the open window, we'll factor that into the plan, and we don't expect us to take it out of the plan, but we're already expecting to be confidently in the 6% to 8% range, and we're targeting the upper half of it, regardless of what happens with the PJM open window. Anthony Crowdell: Great. Got it. And then just one housekeeping item. On large load tariffs, are you guys -- I just apologize, I'm not familiar with every state you're operating in. But are you guys applying for large load tariffs? Or are they all in place as this growth is hitting the PJM service territory? Brian Tierney: Yes. So we don't see the need for them the way our tariffs work. We think that we can enter into terms and conditions that make the data center developers responsible for the incremental investment that we're making and protect our existing customers. So we see others doing that, and they may not have the flexibility that we do in our existing tariffs and contract structures. And it's not something that we see the need for today. If that changes going forward, we'll evaluate that and make changes at the time. Operator: This concludes the Q&A session. I'd like to turn the call back over to Brian Tierney for closing remarks. Brian Tierney: Great. Thank you all for joining us today, and thank you for your interest in FirstEnergy. We look forward to seeing many of you at the EEI conference in a few weeks, and we hope you have a safe and enjoyable rest of your week. Take care. Operator: This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.
David Mulholland: Good morning, ladies and gentlemen. Welcome to Nokia's Third Quarter 2025 Results Call. I'm David Mulholland, Head of Nokia Investor Relations. And today with me is Justin Hotard, our President and CEO; along with Marco Wiren, our CFO. Before we get started, a quick disclaimer. During this call, we will be making forward-looking statements regarding our future business and financial performance, and these statements are predictions that involve risks and uncertainties. Actual results may therefore differ materially from the results we currently expect. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F which is available on our Investor Relations website. Within today's presentation, references to growth rates will mostly be on a constant currency and portfolio basis, and other financial items will be based on our comparable reporting. Please note that our Q3 report and the presentation that accompanies this call are published on our website. The report includes both reported and comparable financial results under reconciliation between the 2. In terms of the agenda for today, we will go -- Justin will go through our key messages from the quarter, and then Marco will go through our financial performance. We'll then move to Q&A. With that, let me hand over to Justin. Justin Hotard: Thank you, David. Overall, we delivered a solid performance in the third quarter, in line with our expectations. We grew net sales by 9% with all business groups growing. Order intake was again strong, particularly in optical networks and IP networks driven by AI and cloud customers. Our profitability in the quarter was as expected. Network Infrastructure gross margin improved sequentially, that was impacted slightly by product mix. Cloud and Network Services had a strong gross margin in the quarter. Product mix impacted the gross margin of mobile networks with a lower mix of software revenue. Our operating margin declined year-on-year due to a onetime benefit seen in the prior year from a loss provision reversal. Without which our operating margin would have been flat. The broader demand environment remains healthy as we move into the fourth quarter. We have seen some improvements in CSP expectations along with the strong order intake I mentioned in AI and cloud. In fact, entering the fourth quarter, our backlog coverage is stronger than in recent years. We're also pleased with our progress on the Infinera acquisition. We are ahead of schedule with the integration time line and with synergy expectations. The acquired business contributed strongly through both our net sales growth and order intake growth in Q3. So after a solid Q3 and continued strong order intake, we are well on track to achieve our full year outlook. We expect the fourth quarter with net sales growing sequentially and slightly above our historical seasonality of 22%. We are currently tracking towards the midpoint of our operating profit outlook range. Let me now share a few highlights across the business from the third quarter. For our network infrastructure business, and the key highlight has been our progress in the AI and cloud customer segment. In Q3, this segment accounted for 6% of our group net sales. Breaking it down, it was 14% of our network infrastructure business and more specifically, 29% of optical networks. In Optical, as mentioned, our 800-gig ZR, ZR+ coherent pluggables became available in the quarter and ships to our first hyperscale customer. Our pipeline in this space is growing as customer investments accelerate and data center architectures evolve. Q3 also saw us announce strategic partnerships with both end scale and Super Micro. With Endscale, we are now a preferred partner for advanced networking technologies across our NI portfolio. Super Micro is adopting our SR Linux network operating system for their 800 gig Ethernet switches, providing expanded footprint for our network operating system. Finally, we secured 2 new design wins for our switching platform in the quarter with hyperscalers. The market is growing rapidly. And while I'm pleased with these initial signs of progress in IP networks, clearly, we still have a lot of work ahead of us. In our fixed network business, we launched our new 50 gig PON offering. With our unique solution built on our Chilean chipset, operators can easily evolve from GPON to XGS, 25 gig and 50 gig PON on the same fiber. Ready with encryption for the post-quantum era, Nokia solution also provides enterprises with the bandwidth, security and reliability they require. Customers like Frontier Communications in the United States are already using our unique PON technology to seamlessly introduce 25 gig PON. Now I want to turn to our mobile businesses, starting with Cloud and Network Services. The team has delivered strong network -- net sales growth and operating profit growth as it continues to focus on autonomous cloud native architectures. In voice core, we became the market share leader in the first half of 2025 and as reported by Dell'Oro. Approximately 70% of 5G stand-alone core network deployments outside China use a portion of Nokia's 5G core stack. And network penetration is still less than 30% for 5G stand-alone core. In Mobile Networks, we continue to see the market stabilize. We recently announced a deal with Vodafone 3 that will see us enter their new combined network in the U.K. as a major RAN supplier with approximately 7,000 sites. We are focused on improving the returns in the business over time. delivering for our customers and differentiating through innovation. In Nokia Technologies, we secured several new agreements in the quarter. The team continues to be disciplined on productivity and operating leverage. While we are now entering the heightened investment phase for 6G standardization, we continue to see stability in our annual operating profit. In Q3, we completed a strategic review of our venture fund investments. We have decided to scale down our passive venture fund investments. Over time, we will substantially reduce the capital deployed in these areas. As a result, our venture fund investments are now reported within financial income and expenses. Going forward, we will consider targeted direct minority investments in companies that help us to accelerate our strategy. An example is the investment we made in Endscale alongside the strategic partnership that I referred to earlier. Because of this change, we are making a technical change to our operating profit guidance. increasing it by EUR 0.1 billion, which is related to the negative impact the venture funds had on our operating profit in the first half. However, operationally, our guidance is unchanged. After a solid Q3 and with recent order trends, we are well on track to achieve our full year outlook for operating profit. As I mentioned before, we expect fourth quarter net sales to grow sequentially at slightly above our historical seasonality of 22%. And we are tracking towards the midpoint of our operating profit range of EUR 1.7 billion to EUR 2.2 billion. At our Capital Markets Day in New York on November 19, we will share our strategy to unlock the full potential of our portfolio and the steps we are taking to focus the company to deliver ongoing growth and operating leverage. The AI super cycle is accelerating demand for providers of advanced and trusted connectivity. Nokia is uniquely positioned to be a leader in this market. With that, let me hand it over to Marco to discuss our financial performance. Marco Wiren: Thanks, Justin, and hello from my side as well. In quarter 3, we saw net sales increased by 9%, and we are pleased to see growth across all our business groups. Gross margin for the group declined 150 basis points year-on-year, and this was largely as we have expected. And this is because of the product mix within both network infrastructure and mobile networks. Operating margin was 9%, 220 basis points below the prior year, although this was mainly due to a onetime impact from the reversal of loss allowance for trade receivables in the prior year. Without this, the operating profit -- operating margin would have been flat year-on-year. And we generated EUR 429 million of free cash flow and ended the quarter with $3 billion of net cash. I would like to update you on our cost savings program, which we introduced in 2023. We expect to get about EUR 450 million savings in 2025. And going forward, we will focus on delivering operational leverage through continuous productivity improvement, IT simplification, digital instrumentation and organizational efficiency rather than using large restructuring programs. Ultimately, this means a cultural shift towards consistent cost discipline and efficiency to help us deliver our strategic calls. Turning to business group now, starting with net infrastructure, which had another strong quarter with 11% growth. Optical Networks was the standout performer with 19% sales growth and continue to see strong order trends with book-to-bill well above 1. IP Networks also saw a strong growth in orders in the quarter as we start to see and increased traction with AI and cloud, as Justin mentioned. IP Networks sales grew 4% and fixed networks grew 8% in the quarter. Gross margin was impacted by product mix and declined 190 basis points, although it did increase from the level we had in quarter 2. Operating margin declined because of lower gross margin along with the increased investments in R&D and the acquisition of Infinera. In the quarter, we see -- did see a small positive contribution to operating profit from Infinera as we start to see some initial benefit from synergies, along with the growth in the business. Cloud and Network Services sales grew by 13% in the quarter as we continue to see strong demand for our cloud-based core platforms. Gross margin increased 380 basis points as we improved cost of delivery, along with the operating leverage benefit of higher sales. Operating margin also increased by 250 basis points with some of the gross margin strength partially offset by higher R&D expenses. And mobile networks net sales increased by 4% year-on-year, driven by growth in Vietnam and Middle East and Africa. In quarter 2, we said we expect Quarter 3 gross margin to be lower than normal, reflecting a lower software contribution, and this was indeed the case. During year we saw a 370 basis point decline. With respect to operating margin, although operating expenses declined, the reversal of loss allowance in the prior year meant that operating margin declined. Without this, the operating margin would have only slightly declined despite this being a quarter with a low software contribution in the mix. Turning now to Nokia Technologies. Net sales grew by 14% in the quarter, and we signed several new deals in quarter 3. And our annual net sales run rate remains at approximately EUR 1.4 billion. Operating expenses in quarter 3 saw some timing benefits and therefore, will increase slightly in quarter 4. We continue to expect EUR 1.1 billion operating profit for the full year in Nokia Technologies. Now let's look at the net sales by region. In North America, we saw strong growth in network infrastructure and cloud and network services, while mobile networks declined slightly. In APAC, India sales grew in network infrastructure, driven by strong demand for fixed wireless, while mobile network sales returned to some modest growth. Outside of the benefit we saw from Nokia Technologies, Europe was stable in quarter 3. Now turning to our cash performance. We ended the quarter with a net cash position of EUR 3 billion. Free cash flow was positive EUR 49 million, consistent with our profit generation and well-managed working capital. We continue to target 50% to 80% free cash flow conversion from comparable operating profit for the full year. David Mulholland: Thank you, Justin and Marco. Before we turn to the Q&A session, you should really received an invitation to register for our Capital Markets Day, which as Justin mentioned, will be held in New York on the 19th of November. We hope as many of you as possible will be able to join us at the event. As usual, for the Q&A session, as a courtesy to whether is in the queue, can you please limit yourself to 1 question and a brief follow-up. Kelly, could you please give the instructions? Operator: [Operator Instructions] Yes. Let's go. I'll now hand back to David Mulholland. David Mulholland: We will take our first question today from Artem Beletski from SEB. Artem Beletski: So my question would be relating to IP Networks and switching business on that front. So how do you see the progress on that front in general. And you have also said to target 3 quarters ago, when it comes to year 2028. So are you well tracking on it? David Mulholland: One second, could you start your question again, please? We just got tech difficulty on our side. Artem Beletski: Yes, no worries. Can you hear me now? David Mulholland: Yes, we can hear you. Artem Beletski: Okay. Great. So I would like to ask a question relating to IP Networks and your initiatives what comes to data center and switching business. So you mentioned that you have some new design wins during the quarter. So how you're tracking against your target for 2028? And also, should we anticipate some contribution to revenues looking at upcoming quarters? Justin Hotard: Yes. So Artem, I think as I've said in a couple of forms, but maybe just to share here, I think when we talk about EUR 100 million incremental investment, the reality for me is that's a small portion of our overall capital. And so I don't think you'll see us focus on that metric going forward. What I will say about the business is, I was pleased with the wins I'm pleased on the book-to-bill in IP networks overall. The reality, as we all know, is that we're still a fairly small player in this space, well behind some of the market leaders. So we're at the start of a journey. But the announcements we've made, I think are positive. The metrics are positive. It's much more work to be done longer term. David Mulholland: Did you have a quick follow-up, Artem? Artem Beletski: Yes, absolutely. So maybe more general questions. So looking at your growth opportunities when it comes to AI and cloud. So it was sales in the quarter, so increased compared to Q2. But in general, looking at the next couple of years, where do you see the biggest growth opportunities looking at different customer segments. So as it's like hyperscalers, enterprise or super insight where you see the biggest opportunity for you? Justin Hotard: Yes. I think, first of all, the biggest opportunity is clearly it's clearly is in the hyperscalers and the neo cloud. So that's driving most of the demand. Obviously, the partnership with Endscale is a good example of our focus in this area. We've made other announcements in the past. And we also believe that sovereign clouds will present a significant opportunity for us over time. As we've talked about before, we're optimistic about the work that's being done in the EU as well as in other regions. So we think that these are all important growth segments for us. But clearly, the demand today is largely coming from the hyperscalers on some of the larger neo clouds. David Mulholland: We'll take our next question from Simon Leopold from Raymond James. Simon Leopold: Appreciate it. So nice to hear about the progress in the hyperscalers. I want to dig a little bit more deeply here in that more recently, we've heard about an application refer to a scale across for optics, which I think of as basically data center interconnect on steroids. Could you talk a little bit about what this means for Nokia in particular and how you see that as an opportunity. Justin Hotard: Yes, sure, Simon. And I think it's something that's been around obviously scale up or what's been talked about at scale across has been in networks for in data centers for a long time in certain parts of the market. So this isn't a new technology. But what is happening is as we push bandwidth demands, which obviously the AI data centers are driving it's creating new demand for innovation in that space. And I think this is where the assets we have, I think, are well positioned. It's not a place where I can tell you we can point to it and say, we've got material revenue today. It's still early days. But I do think if you look at our assets here, particularly what we're doing in Indian phosphide with the fab, the ability to build optical components down on the indium phosphide silicon and innovate and packaging in these areas. We think we've got technology that can be relevant here. But obviously, as bandwidth demands continue in networks, both scale across and scale out, which is what we typically call -- what we typically see in top-of-rack networking and IP switching, both of those create tremendous opportunity for us. And the way I would dimensionalize the opportunity in optical is we'll share more of this at CMD is that every time you get to the next unit, if you go from the long-haul networks to the metro networks to the data center or inside the data center, then inside the rack, each 1 of those has incremental opportunity at a volume level. Of course, there's a performance and cost delta you have to hit as well because what we build for long-haul networks is obviously going to be significantly more expensive than what you'd have to build to fit inside of a server inside of a rack. So there's a part of this that will require us to continue to innovate in this space. And you'll hear more about it in our discussions. David Mulholland: Did you have a follow-up, Simon? Simon Leopold: Sure. Yes, I presume we'll talk about the long-term strategy, of course, at the Capital Markets Day. But I'm wondering if you could provide us a few thoughts on how Nokia's plan is regarding 6G mobility investments. Have you started investing? Is that in the R&D today? Is it something that starts in 26 or is it something further out in time? I'm just really focused on modeling for the moment because I expect we'll hear some more at the Capital Markets Day next month. Justin Hotard: Yes. So on technology standardization, which is obviously very important relevant for tech, that work has already started and the investment is ongoing. And as I touched on in my comments, we're going to go through a bit of an investment. You go through a bit of an investment cycle in that space. So that ramp is happening, and we obviously reiterated confidence in the on the ongoing profit outlook for Nokia Technologies as a part of that. So I think that gives you some indication from a modeling standpoint. For MN, we are -- we've talked about this publicly. We're doing work on early on 6G -- I'd say pre-standard 6G radio technology. There's more work here. I think the thing for me in this space is. And Simon, I've talked about this a little bit in comments as well as I think there's a lot of focus on for obvious reasons on the G transition, the 3G, 4G, 5G, 6G. I actually think what's more important for us is what we've done in cloud and network services, which is the pivot to a cloud-native core. And then you look at the results and the performance on share capture and revenue growth. I think that's a good indicator for how we see the -- we're going to start to think about the opportunity in RAN, which is as we go into AI and in yes, there's going to be a new generation of radios in terms of hopefully, frequencies with spectrum approvals and, of course, 6 capabilities in terms of spectral efficiency. But there's a lot more to do in terms of radio capabilities and features. And we've got -- this is why we announced things like the AI ran Alliance. Previously, it's where we see opportunity with our work in Cloud RAN, for example. And I think that's where we'll continue to invest. What will impact for you is that these are things that we need to focus on and invest and innovate and of course, continue to work closely with customers. So we'll unpack that for you at CMD as well as how we're approaching that. But I wouldn't assume that we haven't -- it's a binary thing where we haven't started. It's a part of ongoing investment. David Mulholland: We'll take our next question from Alex Duval from Goldman Sachs. Alexander Duval: Yes. Thank you so much for the question. Firstly, just dovetailing off the last question, I'm very much looking forward to hearing more about the long-term tech strategy on wireless. Just in the short term, you talked about a measure of stabilization there. I wondered if you could give a bit more color as to the extent to which that's driven by the RAN market in your most important geographies versus progress you've made on your product? And then secondly, it was interesting to hear in your prepared remarks about how you will focus on cost control by ongoing steps like digitalization rather than large restructuring programs, wondered if at this point you could talk a bit more about what motivates that shift and the benefits this brings? Justin Hotard: Let me start with the second part, Marco, do you want to talk about that [indiscernible]? Marco Wiren: Yes, absolutely. And what comes to cost savings just like I mentioned in my introduction as well. So thinking is that operational leverage is extremely important for us and continues improvement is something that we want to get in our genes that every entity basically continuously in ways, how can we continuously improve and do things more efficiently and of course, here comes quite naturally in the new technologies, utilizing AI and other digitalization opportunities that you can find, and that's why IT simplification is extremely important in this and securing that we can actually get the benefit out of those different installations of AI that we have and continuously work on the process simplification and find ways how we can make the processes more efficient continuously. And it's not a one-off action. It's something that you have to do continuously. Justin Hotard: Yes. And then in terms of the market outlook, first of all, I think you're pretty clear from what we've been saying that if you think about the AI and cloud market growing rapidly, the CSP market broadly has been quite stable. So as we think about that, when I look at our results, I think stabilizing in MN in terms of our performance being predictable. There's always puts and takes. There's going to be ups and downs in the quarter and varies based on a given customer's volume in 1 quarter. So we'll see a little bit of that. But when you look at the longer-term trends, I think we're feeling better about a stabilizing environment. And then on Cloud and Network Services, as I touched on, we believe that we believe we're growing above market rates at this point. David Mulholland: Thanks, Alex. We'll take our next question from Sami Sarkamies from Danske Bank. Sami Sarkamies: Could you please elaborate on the factors that drove the positive surprise in the third quarter as you had anticipated similar sales and margins as in Q2. And when we think about Q4, you also mentioned a strong order book, but do you have still uncertainties related to timing of deliveries as you chose not to narrow the guidance range down? Marco Wiren: Yes. Thank you, Sami. And what comes to them, if you look at gross margin development and in different businesses, you can see that we had a very good development in Cloud and Network Services. And here, as you understand, this business has been frequently so that you get a big part of the profits in quarter 4. Now this year, we have been working actively to try to actually balance that distribution of profits more equal between the different quarters. But at the same time, you see also that we have increased our gross margins, and there's a few reasons for this. One is, of course, that we've seen a good traction on 5G stand-alone core implementations where we have been very successful in gaining market share. And then, of course, we've been working quite a long time in the CNS as well to clean up the portfolio. And this, of course, giving result as well. And the third point I would say as Wally is that also in our core business CNS has been working heavily to take cost out and make things more efficiently and by that, improving the margin levels. David Mulholland: Do you have a follow-up, Sami? Sami Sarkamies: Maybe a detail question on the 6% exposure to AAN Cloud in the third quarter. I think you mentioned 5% hyperscaler exposure after Q2. These are different metrics, right? Justin Hotard: These are comparable, Sami. So think of the 5% 6% as Q3. David Mulholland: We'll take our next question from Richard Kramer from Arete. Richard Kramer: Justin, when we look at your competitors into the various NI divisions, many of them are point solutions in 1 or another of the field of routing optics are fixed. In the current hyperscaler [indiscernible] are these areas being kept separate? Or do you think that the end-to-end promise we heard about so much from both of the prior CEOs at Nokia is finally being realized at least within NI? Justin Hotard: Well, I think a couple of things on this, Richard. So first of all, for me, clearly, fixed access is its own business and the technology and innovation there is coming out of a few markets. I mean, the largest 1 for us, obviously, is in the U.S., but there's other markets where we're seeing technology and innovation opportunities and so I think that's almost its own trend. And I shared -- obviously, I shared the discussion around the 50 gig PON but this capability that we have to allow you to add new technologies in line in your terminals, we think is a true differentiator. We hear that from customers. The customers using it, believe it gives them value because they can -- they don't have to invest in a complete infrastructure upgrade to overhaul. The key message there is we're competing on the technologies merits itself. And I think if you look at IP switching and certainly in optical networking, I would say the same. We've got a win on the technical merit themselves. I mean we've got very capable customers across our portfolio, AI and cloud as well as piece that want to buy best-of-breed technologies and enable their solutions and execute on their strategies and deliver value to their customers. And our focus has to be on doing the things that add value to them. and where I think there's leverage and synergy for us is being able to see what's happening across these markets and bring greater scale and innovation to them. But I think that for me, the term is an end to end. It's -- you've always got to have best-of-breed products, breast of breed technology, and then you've got to be able to leverage the ecosystem so that you're obviously, you're better together, but it's not something that we do that assume we could have a deficiency in 1 area. That's certainly not how we think about it. Marco Wiren: And just in just sense that, of course, the compatibility is very important. So that's a benefit that we can get compared to competition, which only go with 1 product. And when we come with several products and they are best of breed and customers want to buy those, that those actually work well together. David Mulholland: Did you have a follow-up, Richard? Richard Kramer: Yes. Quick 1, quickly for Marco. We saw a reduction in your forecast restructuring cash outflows from EUR 450 million to EUR 350 million. and an increase of EUR 50 million in gross cost savings. Is this Nokia finally transitioning from what's been a decade-long restructuring to maybe being able to focus more beyond '26 on just growth? Marco Wiren: Yes. I would say that the important thing is that we want to avoid this large-scale restructuring programs going forward and more get this into our DNA as continuous improvement and customer focus and secure that we continuously find ways how we can take out cost in our fixed cost basis and our operations and utilize all the digitalization opportunities that could bring instead of doing this large-scale cost-cutting programs. So that's our focus going forward. David Mulholland: We'll take our next question from Felix Henriksson from Nordea. Felix Henriksson: Good to see Infinera turning positive on operating profit contribution. And I wanted to ask about that, that in light of the progress that you made on integration, do you see the EUR 200 million in run rate operating profit synergies for 2027 as conservative? And are these savings something that you will have to reinvest in the growth in the optical business, kind of what you're doing in the IP side of things? Justin Hotard: Yes, multiple questions in there. So let me sort of answer. First of all, we'll provide a full update at CMD on our view. But I would say, certainly well on track on our commitments as we've talked about on the cost synergies, clearly, with the growth that we're seeing ahead of our expectations on top line synergies. And then I think in terms of investment, what I would say is we'll talk more about that talk more about that in CMD, but we're going to be very disciplined in capital allocation. Obviously, you saw 1 dimension of that with our decision on venture funds this quarter. But this is a place where if we see the opportunity to accelerate or enhance returns, we'll make continued investments. But right now, I think, again, pleased to be on track on the cost synergies and thrilled to be running ahead of expectations on revenue. David Mulholland: We'll take our next question from Rob Sanders from Deutsche Bank. Robert Sanders: I just had a question on mobile networks. This some speculation that the EU will apply pressure on some member countries to accelerate their swap out of Chinese vendors. So I'm just interested in that. And how you think about that given your recent public statements. And then, of course, I just want to talk a bit about OpEx, how you're thinking about OpEx into next year, given you clearly wanted to invest more in these growth areas. Justin Hotard: Yes. So Rob, thanks for that. First of all, I mean, obviously, we're -- we would love to see regulations in the that create the market opportunity you're talking about. And I think it's important from a high-risk vendor standpoint, it's also important from a -- just from a sovereignty perspective in terms of having the largest providers of networks in the West being European. I think that's important. We're optimistic that we would be able to obviously grow and that capture some portion of that market if it was available. Number two, in terms of the OpEx question was really just around operating leverage. I think our -- my push is really specific on this is I want to see us drive operating leverage, something Marco touched on in his comments, but the reason for that is because I want to be able to maximize returns in terms of capturing value from the business we have and then deploy capital in areas where we think we can win, things like incremental R&D if there's demand in the market, things like increasing factory capacity and optics to the extent that we see opportunities there. And it's important, we talk a lot about the fabrication facilities. These are far smaller than you think of a fabrication facility in silicon. And actually, the investment sizes are much smaller. And again, we'll impact more of that for you at CMD. But those are the kinds of things I want to be able to deploy capital into, obviously, incremental sales coverage where we're seeing growth in AI. But I would think of all of this as is driving enhanced returns, not something that's going to -- not going to dilute our performance, and that's key. David Mulholland: We'll take our next question from Andrew Gardiner from Citi. Andrew Gardiner: Thank you, David. I just had 1 on gross profitability, please, both I suppose on the positive side and what you've seen in CNS and then perhaps on the more negative side with mobile networks. We're seeing quite a lot of volatility quarter-to-quarter. CNS clearly driven nicely in 3Q by the mix towards 5G core. Is that mix sustainable? And so high 40s gross margin for CNS is what we should be anticipating? Yes, perhaps with some quarterly fluctuation, but perhaps not to the extent that we've been seeing, right? Can you sustain gross margins around that level? And then similarly, on the other side with mobile, 41% in the prior quarter, down to 35% in the current quarter. Yes, I understand again, software mix has changed, but quite dramatic moves. What do you think is sort of a more normalized level, given the revenue run rate that you're at in mobile? What's a more normalized level of gross margin for MN at this point? Marco Wiren: Yes. Thank you. If I start with the mobile network side, there is variability, and that's why we usually see that mobile networks would be better to look on an annual basis of 4 quarters because you have always some product mix fluctuations. The level of software has a big impact on gross margin and that you see also between quarter 2 and quarter 3, while we see this fluctuation between those quarters where you have more software in quarter 2 and less in quarter 3. And I would say that if you look on a longer-term or annual basis, then you can see the levels of mobile networks, gross margins and get an understanding of where it is and how we are tracking compared to previous year. And then when it comes to I mentioned already a few points there that are what about the reasons for the improved gross margins. And we definitely believe that it is sustainable. And this has been a multiyear journey to get the improvements here in up the portfolio, focus on cost out on the different products that we have. But also we see the market support here. It took for a while before the 5G stand-alone core started to get traction actually from our customer side on CSP side. Now we've seen in the past 18 months that it actually have been quite positive, and we have momentum there. And thanks to our cloud-based solution that we have, we have actually gained market share and been able to improve our market position. David Mulholland: We'll take our next question from Daniel Djurberg from Handelsbanken. Daniel Djurberg: Congrats to strong numbers. I actually would like to continue on that question, I heard the same, more or less. On the mobile networks, the software upgrades on stand-alone seems not to be in tandem, at least with the CNS on the 5D core. So should we expect to have a little bit of an upgrade in the baseband software radio unit software or ahead of us on back stand-alone core now being let down. Marco Wiren: Usually -- I can start and Justin, if you have anything you can add as well. What usually happens is in the new generation is that you first install the hardware basement and radios, and when you see that the demand increases on the customer side, then you actually implement the core as well when you see that actually you need those features that the new generation can offer. And this is exactly the same example here in 5G. In the beginning, the 4G core was still functional quite well and on the early 5G installations. And now when there's more opportunities to slice and done the network, you need actually a 5G stand-alone core to be able to capture those opportunities and offer those services to our customer base. Justin Hotard: I would just add a couple of things. I think we're -- we want to make sure we're clear on the Q2 to Q3 margin impact in is timing because of how we release software in this portfolio, which is we release an upgrade, we then recognize the revenue of those upgrades as they get deployed into customers and they largely customers take their release. And so that's the timing dimension between Q2 and Q3, but also realize that the MN baseband software, which is the majority of the software revenue we have in mobile networks today, is still largely in a legacy, what I would call more legacy appliance model. Cloud and Network Services or our core networks have moved to a cloud model. And that means you have much -- we have more subscription-based pricing. We have more ratable deployment. That means customers will be paying on a recurring revenue basis for an ongoing support and service. So whether it's a subscription-based models there. It's a very different. It's a different business model and that dynamic. Obviously, we think that's the long-term direction of travel in mobile, but that's not where the market is today. Today, our CloudRamp business is fairly small. David Mulholland: Did you have a quick follow-up, Daniel? Daniel Djurberg: Yes, please. Yes, just a question on -- a little bit on your work already in Q2, you commented to unify corporate functions, simplify work, et cetera, and more change culture, but to unlock the operating leverage. And then you've seen quite a large changes, especially when your CTO office. And my question is on the Nokia Bell Labs organization. Should we expect this to be more focusing on AI data center than on the mobile networks and radio access networks ahead given the departure of [indiscernible]? Justin Hotard: Yes. Look, I think for me, a couple of things. First of all, I talked about functional excellence, which was the purpose around the corporate functions. And I think having a leader that is the Chief Technology and AI officer that's focused on technology key areas of our platforms, AI, security, cloud, all of those elements that we're touching on or talking around on this call today is very important. And having someone who's excellent in that but also understands fixed -- our fixed network infrastructure business and mobile infrastructure. And if you look at Palabi's background, she has a career where she's done both across Juniper HPE and then also at Intel. And then the other thing was focused around corporate development, and that was not just out of the strategy organization, but also bringing together some of the corporate development folks we had within the business groups and also within the finance organization. So for me, this is all about around functional excellence and aligning accountability and having cleaner and simple functions. And then obviously, we also moved the digital office or the IT organization into finance, which really ties back to the focus that Mark touched on in his comments around driving ongoing improvement, ongoing productivity and enabling that through digitization, through AI, through simplification around processes. And obviously, IT is an important part of how you both simplify and standardize and realize those benefits. And so we felt like that was a natural alignment. So I think that's the way I would think about it. I think it's important. We have 2 compelling assets in both our network infrastructure business and our mobile portfolios. And we had a CTO that can look across all of that and also make sure that we're thinking about the right long-term investments in Nokia Bell Labs, whether it's from a research or from a near-term innovation standpoint. David Mulholland: We'll take our next question from Emil Immonen from DNB Carnegie. Emil Immonen: Hi, can you hear me? David Mulholland: Yes, we can hear you now. Emil Immonen: So I wanted to maybe ask a little bit on the demand in Europe in general. So on the revenue decline on some parts in NI and also mobile networks in Europe. Do you see that this is more, let's say, structural or would you say that this is temporary in the way that Europe is just not investing right now. How do you see this developing going forward? Justin Hotard: I think in terms of CSPs, I think that I would say telcos, it's stabilizing demand, and we think that's a good thing. Obviously, we talked about the potential of upside in Europe over time if there's regulation that addresses high-risk vendor status. But I think overall, that feels pretty good. And then Look, we're excited about the potential of AI and data center business in Europe. We're certainly excited about the opportunity we -- the partnership we have with Endscale and the opportunity for other companies to invest in Europe. And so we like the trends of what we're seeing. But the reality is the majority of the investment today is happening in the U.S. And so as you look at our revenues and you look at our profile, the demand is coming from the U.S., and I think that's important. So that's how I would net it out. David Mulholland: Did you have a quick follow-up, Emil? Emil Immonen: Yes. Maybe quickly touching on the private wireless side. The customer numbers grow nicely, but you haven't really discussed it at all in terms of revenue or anything. Could you say how is that part of the business going. Marco Wiren: Yes. Just like you said, we've seen a nice increase in number of customers. But remember, we are still in a very early phase of this journey. And even if growth rates are pretty good, but it will take some time before this will be a meaningful business. So it's worth focusing more about that. Justin Hotard: Yes. And I would just add, I think if you look at where we are today, I think Marco has summarized it well. I would tell you that where I see our biggest opportunity is in focused vertical markets vertical market use cases. And so there's some examples in railways, for example, and utilities is the other, right? So if you look at those, those are the places where we've got opportunity. But again, this goes back to that message of focus. David Mulholland: Our next question from Sébastien Sztabowicz from Kepler Cheuvreux. Sébastien Sztabowicz: Coming back to mobile networks. Your business is going back to moderate organic growth in the third quarter, but to remain close to breakeven rather those days. How do you plan to return to more decent margins in the coming years, maybe not double digit, but maybe high single digit, is it more cost cutting? Is it more to support your revenue with more growth opportunity? And the second question is also linked to mobile. We have heard some comment that the Chinese government could be looking to push the network vendors in Europe outside the Chinese market? Is this something that you already see in your order intake in China? Or is this not something that you see already in your business? Justin Hotard: Yes. Absolutely. I mean, I addressed this a little bit in my comments. I mean, I think on mobile networks, we're absolutely -- 1 of my priorities right now is on improving the returns. And I think we do that in a couple of ways. Continued tight focus and tight engagement with customers. It ties a little bit to the second question you asked, which I'll address in a minute, but tight focused engagement with customers, particularly those customers that want to co-innovate and collaborate with us. because I think differentiation for us longer term comes through innovation and technology leadership. That was historically where the market was. I would say that obviously, if you go back 5 years, the business -- the company's business was in dire straits because we weren't in that case. We've now stabilized the portfolio. But as an industry, and I think certainly as a player in this industry, we need to continue to innovate. So that's as much of a preview as I'll give you to CBD, but I'd encourage you to attend. But I think absolutely, that's the line of where we're headed. And then in terms of China, this is 1 of the places where we were largely not exposed. The revenue in China has come down massively over the last few years. So I -- the reality is it's a fraction of our revenue today, and our market share is fractional in mobile networks in China. It's not a core market for us. So the communications from the government, obviously, we follow those closely. We respect and support their decisions. And the reality for us is we're going to focus on markets where we believe there's significant opportunity and customers where we believe we can collaborate and innovate. And I think there's more opportunity ahead for us. David Mulholland: We'll take our last question from Didier Scemama from Bank of America. Didier Scemama: Thanks, David, a question for Justin really. You've been in the job now for a few months. I just wondered if you could share your thoughts about the direction of the business strategically, especially when it comes to the mobile networks the core activities and also IPR, which are vastly different, I guess, from your day-to-day activities, which presumably are focused on getting those AI and cloud contracts. So that was my first question, and I've got a quick follow-up. Justin Hotard: Sure. So Didier, look, I think probably nothing I haven't shared in my comments. I think we have 2 businesses: network infrastructure, and mobile businesses in the portfolio. I mean, obviously, if you look at the comps, there's 4 major providers of mobile infrastructure. They all have 3 things. They have core networks, they have the radio networks, which was what we call MN and they have IP licensing, which is what we call tech. So I think we've got a pretty clear -- it's pretty clear you need the full portfolio. If you look at the players that have not had the full portfolio they've all struggled to innovate or sustain a foothold. And so I think that's for me, number one. In terms of the difference, look, as I've said before, I think connectivity is going to be an area where performance, reliable and trusted providers are going to be very valuable. And the reality is we have a portfolio that plays across all of those core elements of connectivity. What we're seeing today with AI, and I think the thing that, candidly, we weren't capturing a historical Nokia prior to the Infinera acquisition as much as we could have, was the fact that in our optical and IP businesses, the market -- the technology investment or the technology leadership has shifted to cloud and now AI and cloud. So now we're starting to capture some of that. Like I said, I'm pleased with the progress there. And I think that same -- I think you're going to see those same trends happen and roll into mobile over time. Because ultimately, if you think about some of the compelling uses of AI, autonomous vehicles, robotics, smart glasses, virtual reality, augmented reality. They all need mobile connectivity and I think that will be favorable. But I don't know if the answer I think -- I don't think the answer is going to be doing the same thing we've always done. I think we have to continue to innovate. And that's why I like what we've done in cloud and network services with setting up an autonomous cloud native core stack, and I think there's more opportunity for us ahead in mobile networks. Again, it's going to require the things I talked about: focus, collaboration and co-innovation with customers and an emphasis on best-of-breed technology and strong partnerships. David Mulholland: Did you have a quick follow-up, Didier? Didier Scemama: Yes, completely unrelated on the Nokia Technology side. So I mean, Nokia sold their phone business to Microsoft, what 10 years ago or so. So I just wondered how is the innovation pipeline in the IPR business for the nonstandard essential patents? Is there a risk of a cliff at some point as you're not in the phone business? Or are you confident that you can continue to monetize the SCP and non-SEPs at least at the current level? Justin Hotard: Yes, absolutely. I mean I think this is a good question. So just back to the comment I just made. Again, every player of scale in mobile infrastructure has to -- has a strong IP business, what we call tech with the changes, I didn't touch on this in my earlier comments, but with the changes we made in the CTO office, we've also now really tightly aligned the Standards team into tech. But we see -- one, we see very good , stable revenue in the business. We are -- we've said already, we're starting to invest in 16 gene monetization. That's important for us. And we see other -- we also see other emerging revenue streams in other segments. So I think the business is very healthy. The team is doing an excellent job. They're also doing, I think, probably the best job of any of the businesses right now. And in pushing on operating leverage so that they can continue to deliver the performance they need to. And you'll hear a little more about that in CMD. So that's the last plug I'll make for CMD. But we'll talk about some of that as well there. David Mulholland: Thanks, Justin, Marco, for the comments. Ladies and gentlemen, this concludes today's call. I would like to remind you that during the call today, we have made a number of forward-looking statements that involve risks and uncertainties. Actual results may, therefore, differ materially from the results currently expected. Factors that could cause such differences can be both external as well as internal operating factors. We have identified such risks in the Risk Factors section of our annual report on Form 20-F, which is available on our Investor Relations website. Thank you for joining us. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Alexander Bergendorf: Good morning, everyone. This is Alexander Bergendorf, Head of Investor Relations at Axfood, and welcome to the Axfood Third Quarter 2025 Telephone Conference. So with me today, I have Simone Margulies, President and CEO; and Anders Lexmon, CFO. In the Investors section of our website, you will find the presentation materials for today's call, and we encourage you to have that presentation at hand as you listen to our prepared commentary. After the presentation, we will be taking questions. And a recording of this call will be made available after the end on our website. So with that, I will now hand over the words to Simone. So please go to Page #2. Simone Margulies: Thank you, Alex, and good morning, everyone. Axfood summarizes another strong quarter with high customer traffic, volume growth and increased market share. With increased loyalty and growth in our store chains as well as improved efficiency and solid cost control, earnings increased in all operating segments. In addition, we continue to invest in strategically important areas to become even more efficient and further improve our competitiveness. In recent year, our logistics structure has been developed to enable continued profitable growth. And during the quarter, we announced plans to establish a new highly automated logistics center in Kungsbacka in Southern Sweden. In sustainability, we presented the Food 2030 report, our proposal for a more sustainable food strategy for Sweden. We also continued to phase out fossil fuels in all our transports, had our new solar park in full operations and launched innovative new products focused on sustainability and health. Following that introduction, let us now turn to Page 3 and the agenda for today's presentation. I will start with a brief market overview, and then I will give you a review of our third quarter performance and some of our strategic priorities. Following that, Anders will take you through the financials. And lastly, the outlook for the full year and a brief summary to conclude for me before we open up for questions. Turning to Page 4, but let's go straight to Page 5 and take a look at the quarterly development. As in previous quarters, market conditions in Swedish food retail during the third quarter continued to be characterized by intense competition and high price awareness among consumers. Overall market growth amounted to 5.4% and Statistics Sweden reported that the annualized rate for food price inflation was 4.4%. This was somewhat lower than in the second quarter this year. However, in absolute terms, compared to the second quarter, the price development was relatively stable. Axfood is successfully navigating a changing end market dynamic by leveraging the strength of our business model of strong and distinctive concepts working in collaboration. Thanks to affordable and attractive offerings, more and more consumers are choosing to shop with us. Having maintained our momentum, we delivered a strong performance in the quarter. Growth in our retail sales amounted to almost 20%. Excluding City Gross, which was acquired in November last year, growth amounted to just over 6%. As such, our growth again was above the market rate, both including and excluding City Gross. Volume growth from increased loyalty, customer traffic and new store establishment was the main driver behind this development. In e-commerce, we grew 11%, which compared to the market growth of 8%. Excluding City Gross and the discontinued business Middagsfrid, sales were up 6%. Turning to Page 6. Consolidated net sales for Axfood grew almost 7% in the quarter, driven by continued strong momentum in Willys, Hemköp and Snabbgross. We also saw a positive trend for City Gross. In all, City Gross net sales amounted to just over SEK 2 billion. However, on a group net sales basis, the contribution from City Gross was SEK 345 million due to internal eliminations in Dagab. Please go to the next page, #7. Group operating profit increased to just over SEK 1 billion, and the operating margin was stable at 4.8%. Operating profit included items affecting comparability of minus SEK 39 million related to City Gross. Adjusted operating profit, which excludes these items, also increased to SEK 1.1 billion, and adjusted operating margin was higher at 4.9%. In all, the absolute growth in group operating profit was driven by Willys and Dagab. However, Hemköp and Snabbgross also reported increased profits year-on-year with strong growth in percentage terms. So the earnings performance was once again very well balanced this quarter across our operating segments. City Gross had a negative impact on the group's profit development, however, to a less extent than in the previous quarters. Let's now go deeper into the development in each operating segment, starting with Willys on Page 8. Willys continued to outperform the market in the third quarter with a growth of 6%. Growth primarily came from higher volumes as a result of an increased number of customer visits and new store establishments. A higher average ticket value also had a positive impact on the sales development. Willys is Sweden's most recommended food retail chain and has a unique position on the market. The rate of increase of new members in the Willys Plus loyalty program continued to be on a high level. And in addition, loyalty among existing members remained strong. Earnings grew and amounted to SEK 587 million, which corresponds to a stable operating margin of 4.9%. The increase in operating profit was primarily driven by the increased sales volumes, a stable gross margin development and good cost control. Leveraging its position as Sweden's leading discount grocery chain as well as its liking among households, Willys is continuing to develop its offering. Among many initiatives, stores are continuously being upgraded to a new Willys 5.0 store concept. Willys 5.0 entails a significant improvement to the customer experience through a substantial upgrade of store layout and design. The assortment is key, and here, the focus is really on enhancing the offering of fresh products. Willys 5.0 is a scalable concept, which gives flexibility and opportunities to establish more stores. Because establishing new stores, this is exactly what Willys wants to do as the store chain is currently accelerating its expansion pace to reach even more consumers. In October, Willys reached a significant milestone when it opened store number 250 in RosengÃ¥ard in Malmö. Over the past 10 years, Willys had expanded store base with more than 50 stores on a net basis. And now the aim is to open at least 10 new stores each year in the coming years. Moving on to Hemköp and Page 10. Hemköp's retail sales growth of 6% in the quarter exceeded that of the market and like-for-like growth was also strong at almost 5%. Hemköp demonstrated volume growth driven by customer traffic, a higher average ticket value also impacted the sales development positively. Total net sales for Hemköp increased 7%. Operating profit was higher at SEK 103 million and operating margin was 5.1%. The increase in operating profit was mainly driven by the increased sales, a stable gross margin and good cost control. Turning to Page 11. I just talked about Willys modernizing its store base, and Hemköp is also modernizing stores at a rapid rate in order to enhance the customer meeting. In addition, its offering is continuously being developed with a focus on price value, fresh products and meal solutions. Hemköp's performance in the third quarter was strong, representing a continuation of its momentum for some time now. This development is despite them operating in traditional grocery, which is a segment that while being the largest on the market, has seen its share of the market decline in recent years. It's important to take this into account when analyzing Hemköp. And it is quite clear when you look at the customer data such as development in penetration, in loyalty and purchases, that Hemköp is clearly outperforming their main peers. We are now on Page 12. We acquired City Gross nearly a year ago to create new growth opportunities for our group. The organization is working according to a clear plan and has a comprehensive development agenda in place to reverse the chain's weak performance in recent years. This year is a transitional year, and we are today reiterating that we expect to reach profitability at some point in the second half of 2026. While total growth for City Gross in the third quarter was impacted by store closures, like-for-like growth amounted to slightly more than 3%. City Gross reported on an operating loss on an adjusted basis of minus SEK 4 million. The loss was less negative than in previous quarters with positive effects from like-for-like growth. In addition, structural measures and efforts to streamline operations also contributed to the development. On a reported basis, operating profit amounted to minus SEK 43 million, which corresponds to an operating margin of minus 2%. This included items affecting comparability of minus SEK 39 million pertaining to structural measures, including discontinuation costs for the store in Kungens Kurva in Stockholm, organizational changes and sales currents within the nonfood assortment. In August, the new communication concept and the improved more affordable customer offering was further developed. Also, the City Gross store in Borlänge was closed ahead of concept change to Willys. Turning to Page 13. The 3% growth in like-for-like sales for City Gross represent a positive trend. The chart on this slide shows comparable sales on a rolling 12-month basis, each quarter from the third quarter 2022. As you can see in the chart, after a couple of years with declining sales, City Gross is now back to growth, which, of course, is encouraging. That said, we are still in early days on our journey with City Gross and maintain a high activity level to enable the chain to become a competitive player on the market once again. City Gross has excellent potential as a pure-play hypermarket operator, an attractive segment that is continuing to account for a growing share of the market. With a long-term perspective, we are leveraging our knowledge and experience to develop and strengthen the chain for the future. Moving to Slide 14. Our restaurant wholesaler, Snabbgross, delivered growth of 6% in the quarter on both a total and like-for-like basis. Higher volumes through increased customer traffic had a positive impact on sales in addition to a higher average ticket value. Operating profit was higher than in the prior year and amounted to SEK 101 million, corresponding to a higher operating margin of 6.3%. The increase was mainly driven by higher sales, a stable gross margin and good cost control. Next Page #15 and Dagab. Dagab's quarterly net sales increased by 5%, driven by sales to Willys, Hemköp and Snabbgross. Operating profit increased to SEK 341 million, and the operating margin was higher at 1.7%. The performance was primarily due to the sales growth and a lower cost level with increased productivity in logistics. Operating profit was, however, negatively impacted by a lower gross margin. Dagab is continuing its effort to optimize the flow of goods and streamline the group's new logistics structure. The logistics center in BÃ¥lsta, the fruit and vegetable warehouse in Landskrona and the recently expanded and automated highway warehouse in Backa, Gothenburg are all contributing to the group's capacity and efficiency. In addition, and we are now on Page 16, work on establishing a new highly automated logistics center for Southern Sweden has been initiated to ensure increased capacity and efficiency. As previously communicated during the third quarter, letters of intent were signed with our automation partner, Witron and with Kungsbacka Municipality. The logistics center, which will span approximately 90,000 square meters and be environmentally certified, will handle picking and deliveries of goods in all temperature zones to grocery stores. Total capacity is expected to increase at least 20% compared to current volumes in the Southern Sweden. The facility is expected to be put into operation starting in 2030. Turning to Page 17. Now it's time for Anders to take you through the financials. So please go to the next page, Page #18. And Anders, please go ahead. Anders Lexmon: Thank you, Simone. During the first 9 months, net sales for the group increased by 6.6% to approximately SEK 66 billion. Including City Gross, retail sales increased by 19.3% and excluding City Gross, the increase was 6%, which was more than the food retail market in total, where growth amounted to 4.5%. Operating profit, excluding items affecting comparability, increased 5.8% to just over SEK 2.8 billion. The operating margin, excluding items affecting comparability, slightly decreased from 4.3% to 4.2%, where the City Gross acquisition impacted the margin with minus 0.3 percentage points. Next, Page #19. During the third quarter, the cash flow was minus SEK 40 million, which was SEK 380 million higher compared to last year. We saw a strong underlying operating cash flow, both for the third quarter and the 9-month period, mainly due to a less negative contribution from net working capital compared to last year. The negative calendar effect was higher last year. The negative cash flow from investment activities of SEK 421 million in Q3 was somewhat higher compared to last year, but in line with previous quarters. We have a higher pace in our investments in our retail operations and a lower pace in automation investments compared to last year since we now are through with our investment in the fulfillment center in BÃ¥lsta. By the end of the third quarter, Axfood utilized approximately SEK 3.1 billion of the group's credit facilities compared to SEK 2.5 billion by the end of Q2 and SEK 3.2 billion at the end of Q1. The increased utilization compared to Q2 was due to the dividend paid out in September. And then please turn to Page #20. Net debt has increased since the acquisition of City Gross in Q4 last year. In addition to the loans raised for the acquisition, net debt also has increased with the City Gross leasehold debt of approximately SEK 2 billion. As we communicated in the Q2 report, Axfood has successfully refinanced the existing revolving credit facility in the beginning of Q3. The new RCF amounts to SEK 4 billion, where SEK 1 billion have a tenure of 3 years and SEK 3 billion have a tenure of 5 years. And the conditions in the new agreement are in all essentials unchanged compared with the old facility. The equity ratio amounted to 20.4%, which was lower than December 2024, but above the actual year-end target of 20%. The lower equity ratio compared to Q3 last year was also a result of the City Gross acquisition. Total investments, excluding leasehold and acquisitions for the first 9 months amounted to SEK 1.3 billion. Year-to-date, we have established 7 new group-owned stores, the same number as in the prior year. We have, however, increased our store modernization rate compared to last year. And then please turn to Page #21. When we look at the capital efficiency, we have a negative development of our rolling 12-month net working capital as a percentage of sales. As I have mentioned before, the impact of City Gross acquisition is expected to increase this KPI with approximately 0.3 percentage points on a rolling 12 months' basis. Capital employed has increased over the last years, mainly due to both the acquisition of Bergendahls Food and City Gross as well as the investments in BÃ¥lsta. The level of capital employed increased slightly during the first 9 months, mainly as a result of increased leasehold debt and utilization of credit facility. Due to the increase in capital employed, return on capital employed decreased somewhat compared to last year to 16.4%. And thereby, I have come to the end of my presentation, and I hand over to you again, Simone. Simone Margulies: Thank you, Anders. We are now on Page 22, but let's go straight to Page 23. While we maintain our full year outlook for capital expenditures, our store expansion plan is slightly revised. Due to a slight delay, the number of new group-owned stores opened during the year will amount to 9. In addition, the store network is expanded with 3 retailer-owned stores joining the network from competing retail chains. As for items affecting comparability, structural costs in City Gross are now estimated to amount to SEK 150 million. As a reminder, the outlook for next year 2026 will be presented in conjunction with the release of our year-end report. Please now turn to Page 24. So let me summarize. We are summarizing a strong third quarter with higher growth than the market and improved earnings in all operating segments. Just over a month ago, we held a Capital Markets Day at which we discussed how our business model and structure create opportunities. We also laid out our main competitive advantages, and I would like to mention them here again. First, with our brands, both in-store concepts and private labels and a high-quality affordable assortment, we are well positioned to meet consumers' diverse and evolving needs. Second, we have attractive store locations and a significant potential to expand. Third, our integrated value chain provides the right conditions to quickly adapt when customer behaviors or market conditions change, and it also gives us efficiency. Fourth, to us, the key to drive long-term growth and profitability is based on customer traffic, loyalty and volume growth. We have seen a strong development in all these areas over a long period. And with our scale, we can further strengthen our competitiveness. Our performance in the third quarter really shows how we drive growth in all segments on the market, both organically and through expansion and how our integrated value chain gives us efficiency. The strength of our business idea enable us to continue to challenge and grow. We are maintaining a high rate of development, and I am convinced that we are poised to strengthen our market position in the years ahead. That was all for today. Now please turn to Page 25, and I hand over to the operator to open up the line for questions. Thank you. Operator: [Operator Instructions] The next question comes from Fredrik Ivarsson from ABG. Fredrik Ivarsson: I have 2 questions. First, if we could dig into the margin profile in Willys a little bit. So I guess Q3 tends to be quite a bit stronger than the other quarters, especially Q1 and Q2, but now it's been almost in line with the previous 2 quarters for 2 consecutive years. And I know you took some price investments last year. But in addition to that, I guess, has the market been -- has it been even more campaign-driven during the summer months? Or do you see anything else that sort of explains why the normal margin uptick that we usually see in Q3 didn't really materialize this year? Simone Margulies: Yes. Thank you for your question. As you said, there are some seasonal effects and also the mix effect also have an impact on the margin on Willys. But I would say, to start with Willys had a stable margin development, even though there's a really high competition in the market. And we have a customer that is pretty much in the same behavior as we've seen in the last year with a strong focus on price and with a high price activity level in the market. So by that, we still have -- we continue to have a stable margin development in Willys, which we are really happy to see. And one thing that is also affecting a little bit on the bottom line for Willys is that we have a high expansion rate in Willys. This year until September, we have opened up 7 new stores for Willys compared to 4 last year. And by that, we see some -- the margin gets some -- it dilutes in the margin because we get higher personnel costs when we open stores. And then it usually evens out after a couple of months. But when we open many stores, we have some more personnel costs -- staff cost for staff during the first -- until you get up in a growth rate in the stores. Fredrik Ivarsson: Okay. That makes sense. And second one on City Gross. You have been talking about your earnings getting back to black figures during the second half of 2026, and now you sort of reiterated that statement. But you were almost there already in Q3 this year, although on an adjusted basis. Has the progression in City Gross been stronger than you expected before? Or was this more or less according to plan, so to say? Simone Margulies: I would say we are working according a comprehensive plan to turn around City Gross, both to create growth since it all starts with a growth in like-for-like sales. So I would say we're pretty much following our agenda for City Gross. There are some seasonal effects also in the hypermarket segments during Q3. So I would say, since we are -- this is a journey, and we see something, it will go up and it will go down. We are here in the long run to create a really strong format in the hypermarket segment. So I would say we are not ahead of our plan. We are following our plan. So we reiterate our guidance for the second half of 2026. However, we are really happy to see these positive signs, primarily on the like-for-like sales, I would say, because that's where it all starts. And then, of course, that we see the result of the initiatives that were made to decrease the cost level. It's -- of course, we're really happy to see that we see these positive signs. But we are according to plan, I would say. Fredrik Ivarsson: Okay. And maybe a short follow-up on the like-for-like growth in City Gross. I recall you did some price value investments. Would you care to give sort of a ballpark figure on the volume growth in the quarter? Simone Margulies: I would say we have a comprehensive agenda regarding the growth, and it's all about developing the offering, both the assortment, but as you said, also to strengthen the price position. It's also about how we do the marketing, the campaigns, it's about operations in store. And I would say that it's a mix of growth and price. But as you said, we are strengthening the price position in City Gross. And by that, the majority is driven by volume. Operator: The next question comes from Gustav Hagéus from SEB. Gustav Sandström: I'll take over from that last statement of yours that you had primarily volume growth in City Gross in the quarter. And if I read correctly, that was the case also for Willys and Hemköp, which is a bit contradictory to the market growth, which appears to have been 4 out of 5 percentage points in the quarter and the market was inflation. And you say that you've primarily driven your growth through volume, given that you're 25% or so of the market then, it appears then that you've price invested compared to the market quite a bit here in Q3? Or are we talking different numbers that don't really add up here? Simone Margulies: Yes. I understand it's difficult for you to see because what you can see is the SCB figures on inflation, and that consists of a basket that is set once a year and it's not -- I would say it's not changes over the year. So they set the basket once a year and then they could, I would say, differentiate the volumes. However, when we look in the price factor internal figures, it's a gap between those figures. And I will not be able to say our figures, but there -- and that has been the issue for all times that we don't really see the same internal figures on pricing than SCB's reporting. Gustav Sandström: Okay. But then on a general topic question then, given that the margin seems a bit under pressure and also your comments on much price action in the market and price competition, is your view that you've lowered prices in the quarter and more so than competitors regardless of what the SCB figure is? Simone Margulies: No, I would say -- I mean, I normally don't go into details about our price strategy. But for us, it's always about securing our price positions in the market where Willys, of course, is the cheapest on the market. And also Hemköp, it's important to be really price attractive, and we see really good, how you say, development in the -- that's what I wanted to show you also, the customer figures about Hemköp really taking notice of the price position that they have changed during the years. So the only way, of course, it's about for us always to be competitive in the market, but within City Gross, we made the price investment that we talked about, both in August and in April. So for the other formats, it's all about always to be competitive in the market. So I would say the margin for both Hemköp and Willys has been stable during this year. Gustav Sandström: Sure. But turning then to Dagab, just help us understand what the underlying development is here. If I recall correctly, you called out SEK 11 million extraordinary costs for Middagsfrid and another SEK 20 million or so for ramp-up costs of the new facility last Q3. Just to understand, when looking at Dagab's development here, EBIT year-over-year, if you were to add back those figures to the comparable, EBIT is flat or actually a little bit down year-over-year. And you have called or guided the market for up to SEK 300 million in savings on a yearly basis once fully ramped up in Dagab. I understand you're not there, but it would be very helpful if you can help us understand, first of all, if that base is correct, so that operating earnings are basically flat to slightly down for Dagab? And secondly, if you have, how far you've come on that journey towards SEK 200 million to SEK 300 million savings on an annual basis for Dagab and where that money went. We note that margins in City Gross, for instance, are quite much better than consensus here today. Simone Margulies: Yes. Thank you. For Dagab, we are realizing the efficiency gains, both in BÃ¥lsta and also in Landskrona, our fruit and vegetable warehouse. So we see that the productivity is increasing, and we are realizing the efficiency gains. So we early communicated the spend from SEK 200 million to SEK 300 million on a yearly basis, and we are in the lower spend, i.e., SEK 200 million. However, we both have a negative margin development in Dagab due to mix effects, the gross margin, I mean, gross margin development in Dagab due to mix effects. And that is because Dagab is supporting the chains in the role in the market. And also, we have some product mix that is affecting the gross margin negatively for Dagab. So we see the positive effect in Dagab in realizing the efficiency gains and the productivity, and then we have a negative effect on the gross margin. Gustav Sandström: But is the mix effect explaining then the SEK 50 million negative underlying development for Dagab? You have volume growth, right? So it should be some type of uplift? Or is that going into some of the other retail concepts like City Gross? It would be, I think, very helpful since you have that breakeven target on City Gross, I think it would be helpful to understand how much of that is actually just transferral from Dagab and how much is sort of underlying improvement for City Gross? Simone Margulies: So the gross margin development in Dagab consists of different part, as I explained. First, the mix effect, which is a negative because we had deflation in fruit and vegetable that is affecting the gross margin in Dagab negatively. Dagab is also supporting the chains, and that is what we see on the negative side. We're realizing the efficiency gains in Dagab, both in BÃ¥lsta and the fruit and vegetable warehousing up till now. Gustav Sandström: Okay. So last one, sorry to dwell on this, but I think it's quite important since you have the target to go breakeven in City Gross and you have guided for up to SEK 300 million savings in Dagab. Do you expect Dagab to showcase any of those savings into Q4 next year? Or is that going to go into the other concepts? And how do you distribute them then between you think Dagab and City Gross and Willys, just to get a feel of what's going on underlying. Simone Margulies: For us, it's about leveraging our business model, and that's about growing as a group in a whole. And we do that by having strong store concepts, growing like-for-like and total sales. That gives us volume in the behind and then we become more efficient. So for us, it's really important to do the long-term investments we do in our logistics structure so we can be competitive over time. The efficiency gains, you don't -- maybe we don't see them in Dagab as well. You have to look at us as a group and a whole. So for us, it's really important to grow like-for-like sales in City Gross and then to have growth in all our segments. And this quarter, we show growth in all segments. We show increased operating margin in all our segments, which is really positive, and that make us summarize a really strong quarter. So for us, it's about leveraging our business model and also playing the game where our competitive edge is. And that I think that this quarter shows really that we're doing. Operator: The next question comes from Magnus RÃ¥man from SB1 Markets. Magnus Råman: I'd just like to ask on the price and inflation topic again because now you state that you see a bit different numbers internally. But if we just relate to the SCB stats, we had a food price inflation that rose in the early spring this year, an index level that came up and thereby also year-on-year inflation. However, this index level and the inflation rate has come down sequentially in the recent 2 months. And if we look ahead and if we just assume an unchanged index level, we will, of course, then come to very low inflation rates entering next year, and then we have the halving of the VAT in April. But from this perspective of food prices, I'd like to ask, firstly, if you see -- I mean, those price changes can be driven both from changes in your procurement cost and also from competitive pressure. Do you view that the decrease in prices that we've seen in recent months have been driven by reduced sourcing costs? Or is it an increased price pressure that you see in the market? Simone Margulies: I would say that the inflation -- even though we don't see the same figures at SCB, we see the same trends within our internal figures. I'd just like to clarify that. But the trends that we see is driven by the, how to say, the sourcing, the price fluctuations that we see in our sourcing. So as you said, we have a shortage in the market on red meat, also in dairy, and that increased the prices in the beginning of the year and continue during the year. And then we have deflation in fruit and vegetable that has come down because of the sourcing prices. And I would say that it's pretty much what you see in the market changes in the pricing. And then if you look into the VAT, as you asked, of course, we see positive on the VAT because we have a consumer that has been under pressure for many years. So by reducing the VAT in Sweden, we create a consumption spend for the consumer. And of course, that will be positive. How that will affect us volume-wise, it's really, really difficult to make any forecast on. So we better come back to that when we implement the new VAT level in April next year. Magnus Råman: Right. But there was a question also previously about underlying volume. And I guess that maybe it's good to clarify that underlying volume growth could not only be driven by sort of an increase in the number of units, it could be a mix shift when people trade up if they buy more meat sort of more -- yes, higher quality type of meat, then you get an implied volume growth, but it could mean that it's not more calories consumed, it's a higher sort of -- it's a shift up in mix towards the premium end. And I mean, with the halving of the VAT, I guess it's fair to assume that we would see some type of mix shift that could contribute to your end margin and profitability. Yes. Simone Margulies: It's difficult to make forecast about that. But I would just say that when we talk volume, we talk volume and when we talk mix or price, it's a different thing. So when I say volume, I don't talk about mix. I would just clarify that. But of course, we're hoping, as we see that the volume goes up within fruit and vegetables when the prices comes down, we are hoping to see a little bit more -- I would say, the share of the more sustainable food to increase, we hope for that, but it's very difficult to make any forecast about it. It's really positive for the consumers to have a larger consumption share. Magnus Råman: Right. But so to conclude, the overall gross margin improvement that we see clearly on the group level, both in year-on-year terms in Q3 and in year-on-year terms on the 9-month rolling or 9 months-to-date basis is, in your opinion, predominantly driven by a relief in the sourcing costs rather than a relief in the price pressure in the market. Simone Margulies: Now you said the development of the margin, that was not -- you asked about the price. So to start with the -- Anders, sorry. Anders Lexmon: Yes, sorry. Magnus, the gross margin that you see in our report is not the same as the gross margin that we see in our chains and in our stores because it's how to -- we disclose and report the COGS. It's a different way. Yes, I know that we have to wait for the annual report to get the product margin. But yes, what I'm trying to get at is that there should be -- if you look at the overall sourcing costs from an [ SAO ] index perspective, for example, we see that we should not expect an increasing pressure, rather a relief in the sort of pressure. And with the items that you mentioned that goes into the gross margin, for example, diesel prices and for transportation and so on, that is also points to a relief rather than an increased pressure. Magnus Råman: But this leasing pressure also obviously affects the prices in the stores. I mean they follow the way out in the stores. Anders Lexmon: Yes, exactly. And I mean the indexation of rent should be flat, if anything, entering '26, I guess, with the inflation rates we have now. Magnus Råman: Yes. What happens in '26, we have to come back to... Anders Lexmon: Right. Okay. I'm happy with that. Operator: [Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Simone Margulies: So I would like to thank you all for joining us today, and I hope to see you in next quarter.
Operator: Thank you for standing by, and welcome to the Regis Resources quarterly briefing. [Operator Instructions] I would now like to hand the conference over to Mr. Jim Beyer, Managing Director and CEO. Please go ahead. Jim Beyer: Thanks, Darcy. Good morning, everyone, and thanks for joining us this morning for the Regis Resources September quarter results. Joining me today is our Chief Financial Officer, Anthony Rechichi, and our Chief Operating Officer, Michael Holmes; and our Head of Investor Relations, Jeff Sansom. As usual, we will refer to some figures in the quarterly report released earlier this morning. So please, it might be helpful just to keep it handy as we step through the results. So firstly, starting with safety, as we always do. Through the quarter on a 12-month moving average basis, our lost time injury frequency rate actually got down to 0. However, unfortunately, towards the end of the quarter, we saw a single LTI occur, which pushed out LTIFR, lost time injury frequency rate, to 0.36, which was in line basically with our performance last quarter. Now while still below the industry average, as always, we should never be satisfied with any injury. And the team, I know, is driving hard as we are diligent and continue to build a strong disciplined safety culture for our teams across all our operations. Now on to production performance. The September quarter marked another period of consistent operational delivery and a resultant strong cash generation. Group production totaled 90,400 ounces at an all-in sustaining cost of AUD 2,861 an ounce. And I note that this also includes a noncash charge of just under $200 an ounce, and that relates to drawdown on historic stockpile inventories. Now we are comfortable with the performance in our first quarter, and we're well positioned to deliver within our FY '26 guidance ranges. From a financial perspective, this quarter has seen another period of unprecedented gold price movements. Spot gold during the quarter increased over 15% from just over $5,000 an ounce to just under $5,800 an ounce during the quarter. And during that time, we sold at an average price of $5,405 an ounce. Of course, since the end of the quarter, gold has risen another $500 an ounce, will actually rose more than that, and we have seen this slight correction in the last couple of days, but the fundamentals are still there, and it is a great time to be producing gold. This meant that we grew our cash and bullion position by $158 million for a balance at the end of the quarter of $675 million. That's another record for Regis and highlights the ongoing strength of the business and really continues to demonstrate the significant cash-generating capacity. We remain debt-free with significant balance sheet flexibility. From a growth perspective, we saw first ore from our underground development projects at Duketon, and these both remain on target. Now with that, I'll hand over to Michael for more detail on the operational rundown, followed by Anthony, who will cover more on the financials. Over to you, Michael. Michael Harvy Holmes: Thanks, Jim, and good morning, everyone. As Jim mentioned, it was disappointing that we had 1 lost time injury in the quarter, which continued our 12-month moving average frequency rate of 0.36. We are working on numerous initiatives within our operations to reduce the occurrences of safety incidents and injuries. Operationally, the quarter was steady across both sites with results consistent and in line with plan. At Duketon, we produced 58,400 ounces at an all-in sustaining cost of $2,832 per ounce, which includes a noncash charge of $238 per ounce. This is a few hundred dollars lower than the previous quarter on stronger production and reduced total material movement with lower open pit waste movement. During the quarter, open pit mining commenced at King of Creation, recommenced at Gloster and continued at Ben Hur open pits. Our open pits contributed 14,400 ounces at a grade of 0.92 grams per tonne. Underground mining at Garden Well and Rosemont delivered 31,800 ounces at 1.9 grams per tonne with development totaling 3,990 meters for the quarter. Milling throughput was 2.08 million tonnes at 0.99 grams per tonne with an 88.3% recovery. Importantly, as Jim mentioned, during the quarter, first ore was mined from stopes at both the Garden Well Main and the Rosemont Stage 3. The first ore contributed to the increased underground ore tonnages compared to the previous quarter. These 2 underground developments are key contributors to our long-term growth strategy, and Garden Well Main is progressing well towards commercial production in H2 of this financial year, so we should see growth capital from the development roll off towards the end of the year. In light of the ongoing strong gold price environment, the team continues to identify and evaluate options for organic growth across Duketon. At Tropicana, production was 31,900 ounces at an all-in sustaining cost of $2,821 per ounce, which includes a noncash charge of $198 per ounce, reflecting solid delivery and grade improvement. Open pit mining delivered 16,100 ounces at 1.6 grams per tonne, with material movement and grade in line with expectations. Total material movement was elevated related to the previous quarter related to the planned waste mining in the Havana open pit. Over the coming quarters, waste stripping in the Havana pit will ease, and we expect the strip ratio will moderate, and this will be particularly apparent in the second half of FY '26. Our share of what Tropicana underground delivered was 15,200 ounces at 3.12 grams per tonne and 983 meters of development with a recovery steady at 89.7%. Growth capital was moderate at $3 million with development of Havana underground progressing to plan. With that, I'll now pass to Anthony for the financials Thanks, Michael. Anthony Rechichi: We're continuing on from a really impressive financial performance that we reported for the full year ended 30 June 2025, with a great start in the first quarter of FY '26. We sold just under 83,000 ounces in the quarter at an average realized gold price of $5,405 an ounce, generating $447 million in revenue. Operating cash flow was $290 million, including $186 million from Duketon and $104 million from Tropicana. As an aside, when we were selling the gold in and around that $5,500 an ounce mark, the team was ecstatic. But as Jim mentioned, what a difference of a few weeks makes, noting that while those gold prices were impressive, the recent few weeks of gold sales have been in the $6,000, which is just incredible. It's an amazing time to be in gold really. Moving on to capital expenditure. We spent $114 million, including $70 million at Duketon, $19 million at Tropicana, and we spent $20 million on exploration. Within the capital spend amount, $66 million of that was growth capital, with $63 million at Duketon and $3 million at Tropicana. The majority of this spend was related to the underground growth projects. At Duketon, Garden Well Main is expected to commence commercial production later in the financial year. And therefore, the capital spend in that area from then on will report to sustaining capital, not growth capital anymore. With this in mind, in the absence of any new organic growth we create along the way, we expect to see the growth capital spend rate reduce as the year goes on. But again, that's on the basis that we don't find anything extra across Duketon that's worth pursuing. So for cash and bullion, in the end, we closed the quarter with $675 million, which is another record for Regis and the $300 million revolving credit facility remains undrawn. I'll just circle back now to all-in sustaining costs, and Michael mentioned the noncash charges across Duketon and Tropicana, and I want to talk some more about that. At Duketon, there was a noncash charge of $238 an ounce related to stockpile inventory movements. And at Tropicana, we had a charge of $125 an ounce for the same reasons. At a group level, that's a charge of $198 an ounce for the quarter. Focusing in on Tropicana, this quarter's all-in sustaining cost per ounce was higher than last quarter. If you cast your mind back, in the June quarter, Tropicana reported a significant noncash credit related to stockpile survey adjustments. If we net off the noncash stockpile movement impacts for Tropicana, then the all-in sustaining cost per ounce becomes similar across the 2 periods. On another topic, and as you now know, with the business high profitability and impressive cash generation, the directors declared a final fully franked dividend of $0.05 per share, totaling $38 million off the back of the FY '25 results, and we paid that earlier in this month of October. And as I've mentioned before, due to that strong profitability, Regis will return to a cash tax payment position and is expected to pay approximately $100 million in the third quarter of this FY '26. So that's all for me. Thank you all, and back to you, Jim. Jim Beyer: Thanks, Anthony, and thanks, Michael. At McPhillamys, we're progressing the dual-track strategy to return the project to an approvable status. And I want to very quickly go over some of the details of the project and remind or highlight why we continue to pursue this line. Look, we released the DFS at McPhillamys back in the middle of last year, and that highlighted a resource of 2.7 million and reserves of 1.9 million At the time we released the DFS, as I said, the reserves were about 1.9 million, which, of course, isn't a reserve anymore, thanks to the Section 10, but the key fact is it's still in the ground and quite valuable at the moment. As expected, it was to have a mine life of around 10 years, so an average production of 185,000 ounces per annum, at a capital cost of $1 billion and a life of mine average all-in sustaining of something like $1,600 an ounce. Now I do have to say that as a result of the Section 10 declaration, of course, the project is no longer viable in its current form, and we were through the DFS. However, if you benchmark the project on those metrics I just mentioned and look at the spot gold price today where it's sitting around $6,300, that gives nearly 3/4 or gives well over $2 million a day, $3.5 billion in pretax cash flow each year on average. Now that's the value to our shareholders. But there is also other stakeholder value in addition to this such as the value that it represents in New South Wales. And this would be significant. It takes the form of 300 steady-state jobs over -- well over now with this price $366 million in royalties along with millions in local rates and taxes. The list of benefits goes on as it always does when we have a grown-up conversation about the real contribution mine makes to our Australian economy and the quality of life, but that's a topic for another time. So with these multiple value benefits for many stakeholders, we are committed in our drive towards a positive outcome for the McPhillamys Gold project. And to that end, we continue to prepare the legal challenge of the Section 10 declaration, and we expect that to be in mid-December. And in parallel, we're also investigating alternative waste disposal options and concepts. This dual-track approach aims to put Regis in a position where we could conceivably return the project to an approvable status and positioned to proceed under either outcome, albeit with probably different time lines. Now back to our current operations. As Michael and Anthony have discussed, the quarter was in line with expectations. And as we sit here today, we are very comfortable with our FY '26 guidance range and see no changes required there. We'll maintain capital discipline focused on generating strong margins for our core assets while positioning the business for future growth. As also noted by Michael and Anthony, we continue to seek out organic opportunities that make good economic sense in this new gold price environment. Our exploration team continues with their focus on conversion and extensional drilling to build long-term optionality. And I haven't said anything -- I won't say anything more on that, but I do note that we will be providing a midyear exploration update later on this quarter. So to summarize, our team has delivered another quarter of consistent performance that has enabled us to capitalize on the exceptional gold price. Cash and bullion is up $158 million to a record $675 million. First ore mine from Garden Well Main and also Rosemont Stage 3, and we continue to ramp up both of these underground projects. Ongoing development at Havana Underground. We continue to seek out and evaluate organic growth opportunities within Duketon. McPhillamys is progressing through both legal and technical pathways. And finally, but very importantly, our FY '26 guidance is reaffirmed. So thanks for this morning. I'll now open the floor up to questions and back to you, Darcy. Operator: [Operator Instructions] Your first question comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: Obviously, as you said, a great time to be in gold. Just first one for me, just a clarification on the McPhillamys project. Just with the hearing in mid-December, do you have a rough time line for when you'd expect an outcome after that hearing? Jim Beyer: Yes, sometime after that hearing. I mean, unfortunately, these -- as we know, the courts run to their own beat. We would like to think that we would get a result back sometime in the first quarter of next year, but that's not certain. Remembering and understanding the legal process here, it's not actually an overturning of the decision. It's a process of going through and convincing the judge that there were elements of the process that we felt we were significantly disadvantaged over. And as a result, of that, the judge sort of says, well, the decision is set aside. The minister, who is a new minister now, of course, presumably asked the department to correct the injustices, for want of a better description, or the correct the flaws in the process. And then the minister will make a new determination. How long that takes, there is no time line to that? It could easily be out to the end of next year. Hugo Nicolaci: Got it. That's helpful color. And then just the second one for me just at Tropicana, just observing that your partner there had put in and then recently got an environmental approvals for a power plant expansion and a new pace plant there to support the Boston Shaker. Could you just provide a little bit of color around the need for the paste plant? Has there been a change in geological conditions what you expected? Or was it more around cost and greater ore recovery that you're putting that in? And then just any comments around sort of timing and cost benefits there? Jim Beyer: No. I mean the power thing is pretty obvious. We'll need more power. And the paste fill is really, it's a trial at the moment, and it's driven by the potential to improve overall economics by increasing ore extraction ratios. Hugo Nicolaci: And in terms of timing of having that trial up and running? Jim Beyer: I mean there's a trial in the first instance and then there will be -- have to be a decision, and that's on the -- on when it would -- a full approach will be implemented, and there's no timing on that, but I would consider that to be a least a year. Operator: Your next question comes from Levi Spry from UBS. Levi Spry: Just exploring a little bit more of the returns piece of the big cash pile you built and building in the context of these growth options. So how are you thinking about it? Is there a scope to formalize some sort of returns policy? Or do we really need to wait for McPhillamys or potentially something from inorganic [indiscernible]? Jim Beyer: Yes. Look, I mean, it's -- you're the first person who asked that question lately. Look, the first thing -- and I guess, historically, what we've done is we've pointed to the fact that the company and the Board has always had a strong view on returning returns to shareholders via dividends. And it's great and very pleasing to see that as we've moved our way through all the recapitalization and the hedge books over the years that we've been able to return and the debt, of course, for Tropicana, we've been able to return to a position to be able to pay dividends. And our view has always been where we've got the capacity to do it and it makes sense, we will look at that ongoing process very favorably. But as you pointed out, we don't have a policy. That is something that we are under consideration at the moment. And I would imagine as we work our way through that, we'll make some decision on that over the coming months. The next key time for us to make any another decision on whether a dividend is payable or not. And obviously, it's a pretty favorable environment at the moment, but I wouldn't want to preempt anything, but the next time to be making any decision would be the half year results because we look at it on a half year and full year basis. So yes, no, we don't have a policy. We've always said that where we've got the money and the -- it's an important part of our reason for being is to return -- make a return to our investors via dividends as well as regular growth. So -- and that's what we plan to continue to do. We just don't have a locked-in policy at this stage. Operator: Your next question comes from Andrew Bowler from Macquarie. Andrew Bowler: Just a question on the McPhillamys study just looking at the dry stack tailing options. Just wondering on the timing of those studies? And will that be affected by the judicial review? So for example, if it falls in your favor, are we likely to see that study a bit sooner maybe as you sort of -- or should I say, if it falls in your favor, we likely never to see that study? Or if it falls against you, are you like to see it a little bit sooner as you try and get it out to market as quickly as possible? Jim Beyer: Look, our intention is, as I said, we're running a dual track. I think our preferred scenario because it's probably a little bit more timely and requires less additional approvals is -- and test work is to return to the original DFS concept, i.e., what I'm saying there is we much prefer to win the -- we much prefer to be successful in the challenge of the Section 10 and then follow that through with an appropriate decision by the minister after his review. That's the way we prefer it to go. But we don't want to sit around in hope, so we've also planned to find and prove up this alternative method. Probably the reality of that is that it's going to take, at this stage, it could take considerably longer for us to work that through. But the initial test work that we've done is encouraging. It's really a timing issue and making sure that we understand all the risks that this now introduces that we didn't have before and have we got everything in place. So the short answer to your question is we prefer the Section 10 to be successful, but we'll continue to pursue the other one. And if the Section 10 is successful and that's great because it means we've probably got a better time line as well. Andrew Bowler: Yes. Sorry I was on mute. Yes. No, sorry, I was on mute. And just a follow-up. I mean I know you're working through the study, and it's very early stage, but is it the intention for these dry stack tailings studies to retain the relative scope and scale of the old plan at McPhillamys? Or are you -- or is there some tinkering to be done with the dry stack tailings studies that might see a [ biggering ] of the project or a bit of a trimming as well? Or is it roughly the same with the dry stack scenario [ bolted ] on the back end? Jim Beyer: In terms of footprint, it's probably a little smaller. So it's not actually -- the concept that we're working on is not so much a dry stack. It's an integrated waste landform. So we -- there's -- obviously, in terms of what can move as much as I'd like to, we can't move the ore body. The process plant probably stay roughly where it is. There's a big waste rock dump that's already there. It's already part of the approval. But obviously, if we co-mingle the tails in that, then whatever we don't put in the tailings because we won't be able to which has to go under the waste rock dump. And that's why it's sort of, that's why it's called an integrated waste landform. And that would need to be bigger. And so there's a few things that we have to go through and get, work on to see whether that requires extensive changes or reasonably modest modifications. And so that's all part of the work that's kicking off at the moment. Andrew Bowler: Apologies. I wasn't very clear. I mean as in sort of, I guess, the processing capacity scale. So the project itself would be on a similar scale. Jim Beyer: Yes. No, it'd be a similar scale. I mean basically, the concept is you put -- it's not unusual. It's reasonably common certainly in South America, where water is exceptionally at altitude where it's scarce. And there's a couple of operations here in Australia, one over here in WA that uses a form of it. So it's not uncommon, but it is something that involves more equipment. But our plan would be to maintain the scale of the operation as it currently isn't just changed the back end of it. Andrew Bowler: No worries. That's very clear. Operator: Your next question comes from David Coates from Bell Potter Securities. David Coates: Just more on observation. I suppose it sounds like McPhillamys, understandably, is getting quite a bit of attention from you guys. Is that because sort of [indiscernible] the inorganic opportunities that are a bit sort of thinner on the ground and I guess, sort of harder to find value in the current market and McPhillamys obviously has those really compelling metrics that you mentioned -- referenced before? Jim Beyer: Yes. Good question, David. Look, I don't think what -- I guess the question don't misinterpret the fact that we only talk about McPhillamys as we're only inwardly focused. We do talk about it because I do genuinely think that the market doesn't recognize the value that's there. I mean, basically, what we're saying is one way or another, this thing is going to be developed. It's really just a question of when. And if you're sitting down and trying to work out what the value is -- in this new price environment that we see gold in, and frankly, this is not a flash in the pan. This is, you can see that there are global fundamentals that have driven us to this new level from where we were 18 months or 2 years ago. So it reminds us that we need to -- our team needs to keep pushing on and make sure that, that becomes approved in one form or another, and then we can develop it. The thing is the time line. So that could be a couple of years out. And so that we put our effort into it and you can see we're spending not an insignificant amount at the moment on an annual basis on that works under the McPhillamys guidance that we've given, but that doesn't mean that we're not looking for near-term opportunities to sit between now and then either, which is definitely on our agenda and probably everybody's at the moment, but then we're no different. David Coates: Cool. And then just sort of sticking with the organic opportunities. You mentioned with this price that everyone's out sort of looking hard and reviewing the at Duketon in particular. Can you give us a bit more detail on some of the opportunities that might be emerging up there? Jim Beyer: Look, we've -- at the moment, the exploration side of things is pretty interesting and getting exciting again for us, but we haven't really got anything material to sort of hang our head on there yet, although, I guess, we'll keep an eye for whatever it is those time. And -- but if you look at what else and what Michael and Anthony were talking about is where there's no doubt about it that this at this new price environment, we can go back to some of our old pits, be they big or small. And sometimes it's a small ones that are actually the opportunity or back to -- even back to some of our old oxide stomping grounds. We look and go, well, hang on at $5,000 or $6,000 an ounce. This stuff is actually quite viable. And so they are the things that we're looking at. I don't really not in a position, really, I don't really want to go through the nuts and bolts of the individual items. But when we get something that is material, we will certainly update the market on that so that what you can add to our model and add to your valuation work. So we are doing plenty of it at the moment. We're just not in a position yet to strike it into a gold bar. Operator: There are no further questions at this time. I'll now hand back to Mr. Beyer for any closing remarks. Jim Beyer: Thanks, Darcy. And thanks, everyone. Thanks, especially for the folks that asked questions. Thanks for joining us and enjoy the rest of your day. Take care. Operator: Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
Operator: Welcome to the conference call. [Operator Instructions] Now I will hand the conference over to the speakers. Please go ahead. Jonas Gustafsson: Good morning, everyone, and a warm welcome to this 2025 Q3 release call for Hemnet Group. My name is Jonas Gustafsson, and I'm the Group CEO of Hemnet. With me here on my side today at our headquarters in Stockholm, I have our Chief Financial Officer, Anders Omulf; and our Head of Investor Relations, Ludvig Segelmark. As usual, we will go through the presentation that was published on our website this morning during today's session. I will kick it off with a summary of the main highlights during the third quarter and a few exciting updates regarding strategic initiatives and planned product launches soon to come. Thereafter, Anders Omulf will cover the financial details before I will come back in the end to wrap up this session. As always, there will be opportunities to ask questions at the end of the presentation. Today's session will be moderated by our operator, so please follow the operator's instructions to ask questions through the provided dial-in details. So with that, let's get started, and let's move on to the next slide, please. Despite a continued challenging property market, Hemnet demonstrated strong ARPL growth and resilience in the third quarter. Net sales decreased by minus 1.5% on the back of low Q3 listing volumes. ARPL, average revenue per listing grew by 21% in the third quarter, driven by a continued increasing demand for Hemnet's value-added services, where conversion towards Hemnet premium continues to be the main driver. Paid published listings were down with minus 19.2% in Q3, reflecting a challenging Swedish property market with continued high supply levels, extended sales cycles and continued pressure on the housing prices. Around 4 percentage points of the volume decline was attributed to a new business rule introduced in Q1 2025, allowing sellers to change agents without buying a new listing that is impacting the year-on-year comparison negatively. EBITDA declined by minus 5.9% to SEK 195.4 million as the low listing volumes lead to lower net sales and lower fixed cost leverage. Today, we announced new strategic product initiatives to strengthen Hemnet's role throughout the sales process. The aim with these new initiatives, which include a new commercial proposition where you pay only when you sell is to help sellers and agents to fully realize the value of Hemnet, which we think leads to a better chance of a successful property transaction. I will come back to these initiatives later on in the presentation. Now let's turn to Page 3 for a quick look at the financial performance. Net sales amounted to SEK 367 million, down with minus 1.5% compared to the same period last year, driven by a significant decline in listing volumes during the quarter. EBITDA decreased by minus 5.9% to SEK 195 million. The decrease was driven by the lower listing volumes, which drove lower net sales and reduced fixed cost leverage. The EBITDA margin amounted to 53.3%. We are pleased that we're able to deliver a high margin despite low volumes. Anders will break down these profitability dynamics in more details as we move on in the presentation. Now let's turn to Page 4 for a look at the property market and the listing volumes. On the left-hand side on this slide, you see a combined chart showing published listings per quarter and yearly as well as the year-on-year change between quarters. Published listings decreased 19% year-on-year in the third quarter, reflecting a property market with high supply, longer sales cycles and continued price pressure, leaving many customers hesitant to enter the market. The most recent buyer barometer from Hemnet gives further support to the sentiment, indicating that more consumers now expect prices to fall compared with last month. At the same time, lower interest rates, stabilizing inflation and the easing of mortgage regulations planned for April ‘26 could gradually help increase activity. Listing duration, the average time it took for a property to sell on Hemnet during the last 12 months increased by 18% to 52 days compared to 44 days in Q3 last year. Anders will break down the financial effect of the longer listing duration later on in the presentation. Around 4 percentage points of the volume decline was attributed to a new business rule introduced by 1st February 2025. This new business rule allows sellers to change agents without buying a new listing. It's important to remember that our published listing number follows a specific definition and differs from general market numbers. The negative listing development is challenging, but it's more important to remember that property market can be volatile, and we've been through the similar development in the past years. Just look at 2023. Let's move on to the next slide and provide some additional color on the supply situation and how that impacts the current state of the market. We do get a lot of questions on the state of the property market and how new published listings relate to transactions and total supply. Therefore, I wanted to take this opportunity to provide some color on what we are seeing and visualize it in a few graphs to eliminate some misunderstandings. We continue to see a high supply on Hemnet, but the growth rate has started to come down during the past few months. In September, in 2025, our supply grew by 2% year-on-year compared to 22% the same month last year. With that said, we're still at aggregated supply levels on the platform that is 50% higher compared to 3 years ago. The supply of Hemnet and how it moves is a function of a number of different factors. The supply increases with new listings as new listings are down the last 12 months compared to the previous year, that has a negative effect on the supply. The supply decreases with transactions as transactions are up during the same time period, that also has a negative effect on the supply. The supply follows the sales duration as average days on the platform increases, so does total supply. Average listing days on a last 12 months basis in Q3 were 18% higher compared to last year, which obviously has a significant impact. In addition to these fairly straightforward effects, there are other factors like renewals, like relistings and where we are in the new property development cycles that also impacts the overall supply levels. Now let's look a bit on how this has looked over time on the next slide. The number of new listings have exceeded the number of market transactions on Hemnet since 2022, which has built up a large supply of unsold properties during this time, which is visible on the top graph. As you also can tell clearly from the same graph, that trend has started to reverse during 2025. This is a natural correction after a few years of increasing supply. Looking at the history, we've seen the same similar patterns historically. You can also see from the bottom graph that listings and transactions over time follow the same seasonal patterns, but that the relationship between the 2 can differ quite a lot in the short term. To summarize, supply coming down from aggregated levels is positive for the property market. Lower supply signals a more healthy market where more transactions are taking place, while it is also supportive for the price development. Now turning to Page 7 to look at the ARPL development in the third quarter. ARPL grew by 21% in the third quarter. The ARPL growth was mostly driven by a strong demand for our value-added services. The conversion rate to higher tier packages continued to increase during the quarter and 3 out of 4 sellers on Hemnet now shows either Hemnet Plus, Hemnet Premium or Hemnet Max. This highlights the strength of our offering and that our customers see clear value in investing for increased visibility and impact. Our newest package, Hemnet Max, introduced earlier this year is a natural step for sellers seeking maximum exposure. The product is showing strong performance per seller. So let's look a bit on the performance on Hemnet Max. So please move to Slide 8. As mentioned, Hemnet Max continued to show strong product performance, while adoption is still at low levels. In Stockholm County, for example, homes advertised with Hemnet Max that were sold between April and August received more than 70% traffic compared to homes advertised with Hemnet Premium. Moreover, the Hemnet Max homes also got more engagement on the listing and on the average generated a much higher bid premium. We have launched a number of key initiatives to drive Max adoption going forward, including further enhancement of product features and scaling up the marketing of Hemnet Max towards agents and property sellers. We continue to work with the product, and we look forward to it being an important growth driver for Hemnet in the coming quarters and years. Now turning to Page 9 for some other exciting news. Today, we are very happy to be able to announce a set of new strategic product initiatives to help sellers and agents to fully leverage Hemnet's potential. Looking at property transactions in Sweden, we have a large opportunity as Hemnet to increase the value of the Hemnet investment for agents and sellers. We know that ensuring visibility throughout the entire home selling journey is an important part of achieving the best possible outcome. For example, data shows that listings visible on Hemnet from the start of the sales process have a higher chance of a successful sale with homes published as upcoming on Hemnet on average, selling 5 days faster than those listed as directly for sale. To help sellers and agents fully leverage Hemnet's potential, we're announcing 2 strategic initiatives today. First of all, a new success-based product offering. Since 1st of October, we have had a live pilot where we are testing a new commercial model where sellers pay only when a property is sold. Second to that, we're also announcing new strategic partnership with franchisers and brand owners that want to recommend Hemnet as part throughout the entire sales process. Now let's move to Slide 10 to talk a bit more about the ongoing pilot. So we're announcing a new commercial model to further lower the threshold for sellers to list on Hemnet. We launched a pilot test for a new commercial model on 1, October, where sellers pay only when the property is sold. The new model aims to lower the barrier for sellers to advertise on Hemnet from the start and will be a part of our strategic partnerships, and I'll elaborate a bit more on those on the next slide. This is a highly demanded model from both sellers and agents as it becomes a risk-free for the seller and easier for the broker to recommend the most suitable package for the client. We share the risk with the seller to maximize the chances of a successful sale. And we do this because we know that Hemnet works. It is still early, but the initial response and the initial feedback and collected data from the pilot has been very supportive and very strong. with sellers showing increased willingness to list on Hemnet with the new model. We plan to roll out the new model as part of the strategic partnerships during 2026. Now let's move on to Slide 11 to elaborate a bit more on the strategic partnerships. The second exciting announcement that we have to make today is our new strategic partnerships. Hemnet will offer all franchises and brand owners that want to recommend Hemnet as partner throughout the entire sales process, the opportunity to enter into a strategic partnership agreement. The aim of the strategic partnership is to help home sellers and agents to fully realize the value of Hemnet to enhance the chance of a successful property transaction. It is also a way for Hemnet to strengthen the relationship on an HQ level, meaning headquarters. The new commercial model will form a part of this strategic partnership, along with increased visibility, increased brand exposure, increased traffic and increased lead generation and new product features. We very much look forward to being able to speak more about these news and what they will mean for Hemnet and our partners as they are being rolled out over the coming months. Moving on to Slide 12 for some additional launches and product news. We continue to accelerate the pace of our product innovation. Within short, we're launching Hemnet Insights, a new AI-powered analytic tool providing agents with valuable market data as part of their Hemnet business subscription. We're confident that this will be a very useful tool, and extremely appreciated tool for agents across the country, and we're excited about the launch. During the quarter, we improved our CRM functionality, which makes it possible for us to strengthen communication and add more value to both homebuyers and home sellers on the platform. Moreover, by the beginning of next year, we will also launch a new enhanced offering for property developers that is better suited to their needs. We have also launched a marketing partnership with hitta.se, where both our listings and valuation tools are now being integrated. Lastly, our increased marketing investment during the year have begun to show results. We are seeing positive development in key brand metrics with spontaneous brand awareness increasing 11 percentage points year-on-year in Q3. And according to Orvesto survey data covering May to August 2025, Hemnet remains Sweden's third largest commercial website, reaching close to 2 million unique visitors per week with a slight year-on-year increase of 0.4% compared to last year. This is particularly encouraging given the weaker market conditions. All in all, we continue to accelerate product innovation, invest in marketing and build for the future, and it's yielding results. With that, I will hand over to Anders for the financial update, starting with Page 13. Anders, please take it away. Anders Ornulf: Thank you, Jonas. Let's turn to Page 14 directly and the financial summary. Let me begin with an overview of the third quarter of 2025. Net sales for the third quarter were SEK 367 million, a decrease of 1.5% year-over-year. This demonstrates strong resilience. We managed to maintain revenues despite published listings dropping by almost 20% in the quarter. It's a testament to our business model holding up across market conditions, much like we saw in the first half of the year 2023 before bouncing back the second half year. Key driver, of course, sustaining revenue was ARPL growing 21% year-over-year. This was supported by continued strong demand for our value-added services for home sellers, Hemnet Plus, Premium and Max. This underlines the value our platform delivers to home sellers also in a challenging housing market. In addition, our B2B segment had a strong quarter with a growth of 1.5%. We will discuss the B2B segment in more details on the next slide. Another noteworthy point is the average listing time, which on a rolling 12-month basis increased from 44 days in Q3 2024 to 48 days in Q2 2025 and now 52 days in Q3 2025. The year-on-year effect of a longer listing time is negative SEK 9 million in revenue and the sequential effect of 4 additional days from Q2 to Q3 is also SEK 9 million. To smooth out seasonal variations, we recommend tracking ARPL growth on a rolling 12-month basis as shown on Page 4 of the presentation. Turning to profitability. EBITDA came in at SEK 195 million, down 5.9% development in more detail later on. The EBITDA margin for the quarter was 53.3%, which is 2.5 percentage points lower than the margin in Q3 2024. This decline is mainly due to fixed costs that cannot be fully adjusted to offset the 9% drop in listing volumes. One important component in the margin development is compensation to real estate agents. When expressed as a percentage of property seller revenue, this ratio increases quarter-on-quarter from 30.1% in Q2 to 30.9% in Q3, driven by further improvement in both recommendation rates and actual conversion to value-added products. Looking at the effective commission compared to Q3 2024, it rises from 29.4% to 30.9%, higher commission reflecting a substantially stronger underlying improvement of our [ VAS ] products. And as always, the effective commission is a variable component and tends to fluctuate somewhat between quarters, making it more suitable to measure over longer periods. Free cash flow last 12 months was SEK 808 million, a 36% increase year-over-year. This robust cash generation underscores both the scalability of our business model and our strong profitability even in a very soft housing market. Our operations continue to convert a high portion of revenues into cash, highlighting the quality of the earnings. We continue to uphold a strong financial position. Net debt leverage ended the quarter at 0.5, an improvement from 0.6 in Q3 last year. This low leverage provides us with flexibility going forward. The reduction is particularly encouraging given our active capital allocation strategy. As you know by now, we expanded our share buyback program from SEK 450 million to SEK 600 million this year following the mandate approved at the AGM. We have been returning capital to shareholders while still maintaining a conservative balance sheet. At first glance, the headcount increase of 13 may appear notable. However, it is important to take into account the technical nuance that helps explain the development. A higher number of employees were on parental leave during Q3 '25 compared with the same period in 2024. In addition, the organization has been selectively strengthened primarily within product and tech. With that overview, let's turn to the revenues by segment and take a closer look at the Q3 figures. Moving into Slide 15, which breaks down the revenues by customer group. Since we focus the seller -- very much on our seller revenue so far, let's turn the attention to our B2B segment, which grew by 1.5% despite the continued challenging and cautious market environment. Revenues from real estate agents increased by 2% to SEK 26 million and property developers contributed SEK 13 million, up 14% year-on-year. These gains reflect strong engagement for our prioritized customer segment, and it's particularly encouraging to see both an increase in listings and an uptake in VOS products for property developers, leading to a double-digit growth. However, advertising revenues from other advertisers declined by 8% to SEK 16 million, reflecting a softer display advertising market. This was again driven by broader macroeconomic headwinds and lower impressions as a result of reduced listings volumes on the platform. Overall, an uplift for the B2B segment, marking it the strongest quarter this year. With that, let's move to the EBITDA bridge to dive deeper into the Q3 figures. On Slide 16, we show the year-on-year development of EBITDA. We have already covered what has driven the top line for the quarter, so let's turn to costs. As mentioned, EBITDA declined by 5.9% compared to the third quarter of 2024. Agent compensation increased in absolute terms, driven by strong recommendation and commercial levels despite net sales declining by 1.5%. And again, remember, ARPL grew 21% in the quarter. Looking at costs, expenses were higher than last year, mainly driven by increased marketing investments. We continue to raise our ambition in external brand building activities, and we have also increased tactical digital marketing efforts. In addition, higher pace in product development resulted in higher consulting costs. In total, fixed OpEx, excluding personnel costs increased by SEK 9 million. Personnel expenses increased somewhat, reflecting wage inflation and larger headcount. However, this quarter was -- we also benefited from a reversal of a bonus provision, which explains why personnel costs as a total were slightly lower compared to last year. The other cost category remained fairly stable, although slightly higher capitalized development costs reflect the higher product development activity. Overall, the minus SEK 19 million listing effect naturally mirrors our revenue and profit development and puts pressure on the margin. That said, taking a step back, it's encouraging to see the resilience of the underlying earnings capacity. We're not afraid to continue investing in marketing and product development, even though the total cost increase remained relatively modest at around 9%. In total, this adds up to an absolute EBITDA decline of minus SEK 12 million year-on-year. Moving on to Page 17 and some spotlight on the cash flow. Starting on the left-hand side, our rolling 12-month free cash flow continued its upward trend and exceeded SEK 800 million. Cash conversion remains strong, supporting both reinvestments in the business and capital returns to shareholders. In the middle, you can see the development of our share buybacks. During the third quarter, we repurchased shares worth approximately SEK 149 million. In volume terms, we acquired 560,000 shares, reflecting the lower share price during the period. This is part again of the SEK 600 million mandate approved in May. And finally, on the right-hand side, our net debt stood at SEK 427 million, corresponding to 0.5 leverage, well below our target of 2x. In summary, continue to accelerate investments in marketing, product development while delivering strong cash flow, gives us the flexibility to keep executing on our strategic priorities and maintain attractive shareholder returns. With that, I want to hand over to Jonas for a summary on Page 18. Jonas Gustafsson: Thank you, Anders. Let's move to the summary slide on Slide #19. To summarize the third quarter and the news that we announced today. First of all, we saw continued pressure on new published listings in Q3. The weak volumes negatively impacted both net sales and EBITDA. Second to that, we had a strong ARPL growth of 21%, and we continue to show resilience in a difficult property market. Thirdly, we announced 2 new strategic product initiatives that will aim to help sellers and agents to fully leverage Hemnet's potential, and I'm extremely excited about the impact this will have on our business in 2026 and onwards. All in all, we continue to act decisively. We're working faster. We're working smarter, and we're working with a continued focus on innovation. By doing so, we're strengthening Hemnet's position for the benefit of buyers, sellers and agents alike. With that, let's open up for the Q&A. Operator: [Operator Instructions] The next question comes from Will Packer from BNP Exane. William Packer: Three from me, please. Firstly, could you help us think through the strategic rationale of pivoting your revenue model now? You had a very strong track record over the last 5 years. Paying a bit later does bring in new risks such as arguably low inventory quality and revenue recognition headwinds. Can you just help us understand why now? Secondly, thanks for the initial details on the agent partnerships. Would you consider listing exclusivity as a part of that partnership? Or do you think the regulator wouldn't allow it? And then finally, as has been well flagged, inventory is down significantly in the quarter, 19%. Could you help us understand what cyclical market dynamics versus inventory share loss? So for example, Boneo claimed Q3 listings and the market were down high single digit for Q3. What do you think market listings are down? Jonas Gustafsson: So we'll take them one by one. And on the split ship in, and I'll start. So with the sort of the new model from a commercial perspective that we now are piloting, I think this is, to a large extent, based on discussions and feedback that we've had with agents that we've had with sellers. And it's especially sort of important, the reason for testing this out right now is the fact that we have a -- the market dynamics have changed, and we've seen them gradually changing driven by a few different factors. I mean one is related to the high competitive situation that you see on supply. Number two is driven by the fact that you have longer sales periods that we also spoke about. And I think it's one dynamic that is important and that has changed over the last 5 years is that you now see a pattern where a seller of a property typically sell before you buy. That is creating a different market dynamics. What we want to achieve is to ensure that you use the full value of Hemnet. And a way of ensuring this is that we're now testing this new model, and it's conditional to the fact that you would list directly on Hemnet. We know that we have a model that works. We know that we have an extremely efficient platform. We're the market leader. But at the same time, we need to adopt to the changing market conditions. And I think this is something that will be highly appreciated. It will help us to drive volumes. It will help us to strengthen the relationship with the agent industry that is so extremely important. So that's number one. Number two, related to the agent partnerships. We elaborated a bit on the different components as part of these strategic partnerships. And as it goes, by definition, this is a partnership. So obvious when you go into a partnership is that you want to find mutually beneficial wins. So this is a win-win partnership where we see an upside, but we're also going to help our friends out there who wants to be a part of this agreement to help them to sell more properties and help them to gain market share. And when it comes to exclusive listings, I think having exclusive listings totally depends on how you would do it, but it's obviously something where you would need to look at the regulatory dimensions very closely. And that's something that we will explore going forward. Thirdly, when it comes to volumes, so I think -- the sort of -- if you start with the minus 19%, which is our starting point, I think we clearly laid out both in the CEO letter in the presentation that we conducted earlier that parts of this 4% is driven by a business rule change that is impacting the year-on-year figures from a Hemnet perspective negatively in Q3. And it's important to remember that the numbers that was published by Boneo without knowing them in detail, I think if you look at the market and how it defines sort of the volume development, it is not like-for-like compared to Hemnet. The business rule change, I'm pretty sure that the numbers from a market perspective would not capture the relistings and the effect that the 4% had on our numbers. So that is also explaining it. Then I think there's a number of different factors, right? And it is the low demand in general. It is the duration of the sales cycles that is impacting. And also, the way I understand those numbers is not taking into consideration impact from new property developments. So there's a lot of different factors. And the most important thing for Hemnet is to ensure that we remain as the #1 player in Sweden. We want to ensure that the listings end up on Hemnet. And eventually, they do. We've seen that in 2024, and you know the numbers that we published in July, we had 89% market share in 2024. That has moved up and down. In 2023, it was 90%. In '22 and '21, it was 86%. In '20, it was 90%. So market shares tend to move with the market dynamics. So it's difficult to make a full assessment, and there are so many different type of market shares that you could define, whether it's content market share, whether it's new published listing market share, whether it's sold market share. For us, it's most important to ensure that the properties end up [ atonement ] eventually. Anders Ornulf: I can just -- maybe it was a good overview, Jonas. Maybe I can just add that of course, when it comes to our dominant position that we will -- we take that into a very deep consideration before signing any contracts. So as we have always said around that question, it's a very important question it has to be with the position we have. Operator: The next question comes from Yulia Kazakovtseva from UBS. Yulia Kazakovtseva: This is Julia Kazakovtseva from UBS. I have 2 questions, if that's okay. So my first question would be about volumes. So you said that 4 percentage points of the 19% decrease in Q3 was driven by the change in the business terms. Could you please give us the estimate of this impact for Q2? And my second question would be about the new pilot scheme where sellers only pay once the property is sold. So just thinking about the process and the mechanics of this. So if a seller lists their property, but it remains unsold after, let's say, a few months, and they decide to eventually remove it from Hemnet, will they still be required to pay for this listing? And then in this situation, if this happens and then eventually if the property is transacted somewhere outside of Hemnet after this, what's your position here? Would they still need to pay for this or not? Jonas Gustafsson: I'll start off and then Anders, please fill in. So when it comes to the volumes, you're absolutely right, Julia. 4% is connected with the change in terms of the business rule. The 4% that we saw in Q3, if you look at Q2, that number was also 4%. So you should sort of consider the same levels in Q2 as in Q3. So hopefully, that covers the first question. Second to that, when it looks -- when we look at the new product proposition, First of all, we're testing right now. So we don't know the exact scope, the exact terms and conditions of this pilot. We're extremely satisfied with the initial results that we've seen, the reception that we've had from both sellers and especially from agents, it's been very, very positive. When it comes to the specific case that you asked for, obviously, something that we need to detail out. But the current hypothesis and that hypothesis is very strong, is that if you take one listing as an example, you would use this new business opportunity, meaning that, first of all, you would list directly on Hemnet with this new proposition and just play with the thought that it would not be sold for 3 months or whatever period you decide, and it would be taken down. If it's then selling on off Hemnet, if the property has been taken down, you would still need to pay for it. So we will track individual properties and ensure that we get the money for it. The terms and conditions would be that you have used and you have leveraged the marketing power of Hemnet being the most or the leading and the strongest property platform in Sweden. So therefore, you should pay for it. So that's the hypothesis. With that said, it's one of the things that we're testing. But I think otherwise, it would be a way too large risk, and we don't want to cannibalize on our core business. That is a key component in deciding this new proposition. Operator: The next question comes from Georg Attling from Pareto Securities. Georg Attling: I have a couple. So just starting with this new initiative with success-based product offering, how is that going to work with the other product that you have, which is pay when listing is removed because that doesn't seem to make much sense anymore if you go live fully with this. Jonas Gustafsson: Obviously, just repeating the same message that we said before, this is a pilot we're testing. And as part of this pilot and making the full assessment of this new product proposition, we would also look at the totality and the full scope of our portfolio. Current hypothesis is that the pay later if removed, that product would remain. However, and I'm sure there will be questions going forward around this as well, is obviously what price point we would price this new proposition at. And that's something that we're testing and you could expect potentially a differentiation from PL when it comes to the new product. Hopefully, that's helpful, Georg. Georg Attling: Yes, it is. And just second question on the ARPL slowdown here. It's 14 percentage points lower than Q2. if you could just help with the components to this. I mean the price effect should be similar, if not higher than Q2. So I guess mix is really the main reason for the delta helpful for -- with any details would be helpful. Jonas Gustafsson: Please take it. Anders Ornulf: The main explanation is actually tougher comps. So last year, 1st of July, we launched a new compensation model. So a very high uptick to [indiscernible] and now we are lapping and meeting those. So remember, ARPL growth is a growth figure year-on-year, right? So -- and we called out on the call that [indiscernible] is actually growing, continue to grow. So even though we continue to grow, the ARPL growth actually slowed down, as you called out here. So the main reason to answer your question is actually tougher comps. Georg Attling: Yes. And then tougher comps in terms of mix, right, because of the steep increase in premium in Q3 last year. Anders Ornulf: So the uptake between Q2 and Q3 last year was a lot higher than Q2 and Q3 this year. Operator: The next question comes from Giles Thorne from Jefferies. Giles Thorne: The first question was back on the PO sale new commercial model. And the elephant in the room for Hemnet for the past 6 months, maybe 12 months has been buy in the free-to-list model. So it'd be interesting, Jonas, to hear you talk on how the pay on the new commercial model will directly deal with that competitive threat. The second question was a bigger picture question, and it's on agent compensation. And I suppose, Jonas, it'd be useful to hear your case with this new partnership model as to why that amount of capital being allocated to the agency base is still the best thing for Hemnet's long-term interest. I appreciate that's a much bigger, harder question to answer, but it's certainly something on a lot of people's minds. And then the final question was on the open letter that we all saw over the summer from one of your largest shareholders, which called out many things, but in particular, how you're allocating capital your shareholder remuneration. So maybe Anders, some comments on any changes you intend to make on the back of that pressure. Jonas Gustafsson: Thanks, Giles. I'll start, and we'll take them one by one. And Anders, please help me, and I think you are the best one to ask the last question, but let's take it off. So when it comes to this pay on sale, I think the most important reason for us elaborating and testing this pilot now as we speak is that there are -- the market dynamics have changed. And I think I've been repeating this message over the last months since I've had the privilege to be the CEO of this company is that there's a few market dynamics right now where you have an all-time high supply where competition in the supply segment and in the own sales segment is tougher than it's ever been before. Second to that, it takes much longer time to sell a property today than it used to do 3 years ago. If you just look at the average sales duration, that was hovering around 25 days 3 years ago. Now on the last 12-month basis, it is 52 days. That has changed the sales process, the way the agents work and the way the sellers think. Thirdly, which is important is the fact that you now sell before you buy. So what we see right now with the data is that roughly 70% of all property transaction happens in sort of in a way where you sell before you buy. That used to be the opposite. So that used to be 30%. So the market dynamics have changed. This means that we want to ensure that we adopt our product proposition towards the market rather than the competitive situation to ensure that we become relevant, we remain relevant throughout the entire sales process. We know that we have a platform that works. We know that if you list on Hemnet from the beginning, the likelihood of a successful transaction and successful transaction covers everything from finding the right buyers, ensuring that you get reduced sales cycles and maximizing the bidding premium. Those 3 factors are improved when you use Hemnet the entire way. So that is a way -- and that's our hypothesis of using this. And given sort of the market situation, we want to lower the entry barriers for the sellers. We want to help the agents from the beginning. And we think that this product is going to make the difference here. We think it's a very strong proposition that will get listings earlier on Hemnet, more listings and it will help sellers to make better transactions. I think that should cover the first question. When it comes to the second question, it was a bit difficult for me to hear. But I think the question is around agent compensation and how that is related to the new strategic partnerships. But please clarify if I misunderstood it. Giles Thorne: Yes. It was -- it's at heart, a very simple question, albeit probably quite a difficult answer, which is you pay away a lot of your value to this large pool of important stakeholders. And for a very long time, that served you very, very well. But now there are open questions about whether that is the best use of your capital. So it was a question for you, Jonas, to make the case of why this is still the best use of your capital and perhaps use the new strategic partnership as a way of illuminating that case. Hope that's clear. Jonas Gustafsson: Yes. Perfect. So I think when it comes to the agent compensation, I think that has served us well. I think it continues to serve us well. It's strengthening the relationship with our most important ambassadors in the market, and that's individual agents. I think it's fair. And I think I fully understand where you come from, it's a substantial part of our P&L on the cost side that is related to compensation, but it's also helping us to build very strong relationship and mutual beneficial opportunity for both Hemnet and for the agents. When it comes to the way you understand this, Giles, but I think -- I mean, the agent compensation and the compensation model, that is a contractual and transactional relationship between Hemnet and the franchise owners. We see large opportunities of also strengthening our relationship with the HQs, the ones that has a central role and in many cases, a very important influence. And creating opportunities also on HQ level is important. And what we haven't spoken too much today about is also the individual agents. I think Hemnet in the past has been very strong with the franchise owners. We need to remain strong there, but we should also strengthen the relationship with HQs, and we should become better friends and become more supportive to the individual agents. So it's the full slate that we're thinking about. Then thirdly, the open letter from GCQ. Anders, would you like to elaborate around our view when it comes to the capital allocation? Anders Ornulf: Sure. Of course, we saw the letter and the shareholders' input is very important for us. It's one very important piece of the puzzle. But we stick to the current capital allocation strategy that we will continue to distribute excess cash through buybacks on an arm's length basis via Carnegie. On a personal view, I think not, I think it's a good success story for Hemnet since the IPO to be consistent with the buybacks and not taking bets on share price from time to another. So that's the answer. Giles Thorne: So Anders, you won't change the cadence or the pace of buybacks depending on share price moves? Anders Ornulf: No. Operator: The next question comes from Thomas Nilsson from Nordea. Thomas Nilsson: What development do you expect for staff costs and other costs at Hemnet in 2026 and 2027? Jonas Gustafsson: Anders, would you like to take that? Anders Ornulf: Sure. We don't know since we haven't decided, but what we said in the beginning of the year is that we will continue to grow this company. We will invest in marketing and talent and the product, and we will continue with that. Last year, we had a fixed OpEx growth of 30%. We said then that you will not see that this year. And now after 9 months, we are at around 15%. So all else being equal, you should expect us to continue that. But to be fair, the details has not been decided and the best way to look at it is to look at the current run rates. Jonas Gustafsson: And I think just to kick in an open door, we like operational leverage, and that's what we're going to plan for also for the next year and after that. Thomas Nilsson: Okay. And one second final question, if I may. Looking at your growth targets of 15% to 20%, how much do you think this will come from structural price raises and how much will come from promoting higher-priced packages? Jonas Gustafsson: We remain committed, and we think that the growth ambition of 15% to 20% is important. I think what we've said is that in the past, I think the largest price hikes days for Hemnet, those days are over, and we need to work on value-based pricing. And when I talk about value-based pricing, we need to ensure that we deliver products that the customers are willing to pay for. And I think this quarter, Q3, but also what we saw in Q2 and Q1 is a testimony of that. We do see that the product mix and the BOS penetration is the main driver. It is not prices. Operator: The next question comes from Ed Young from Morgan Stanley. Edward Young: Two questions, please. First of all, you've mentioned about further enhancements of Max. Should we read that as small sort of iterative additions to the Max package or perhaps a bit more of a rebalancing of the relative benefits across the package structure, so potentially including elements like free renewals? And then you've also talked about increased Max marketing. How receptive do you think agents have been able to be to these messages about the value of Max in a sort of difficult market backdrop? Or do you think their interest and ability to upsell packages will also be reliant on picking up when the macro also picks up? Jonas Gustafsson: So on the first one, I think when it comes to the enhancement of Max, I mean, Max is still a baby. It's been around for 6 months. So it's still young. We are continuously testing new features. We're elaborating with the price point. We've been running different campaigns. There are campaigns live now in the larger cities to just learn. So we're still in data collection mode. I think we need to look at a few maybe potentially bigger things as well going forward. And per your point, classifieds. So it's all a relative game comparing the features of Max also towards premium and others. But I think -- I mean, I don't think that you should continue to decrease the proposition of premium and Plus. This is all about ensuring that you improve features when it comes to Max. So that's something that we continuously work on. Anders Then I think, would you like to take the second one? Anders Ornulf: I didn't get that to be fair. Jonas Gustafsson: Sorry, can you take it again, Ed? Edward Young: Sure. I was just saying you're talking about increased marketing behind Max. I was just wondering, do you think that agents have been receptive to those messages? Or do you think ultimately that in sort of in the difficult macro backdrop? Or do you think that you need macro to pick up for them to sort of have more space if they're under pressure? Is it really a priority for them to push that? Is the macro impact an important part of the backdrop there? Jonas Gustafsson: Thanks, Ed. I can take it, Anders, and then you can fill in sorry. So I think -- I mean, it's a very good question, Ed. I mean, I think if you look at the actual product performance, and we showed a few highlights with 70% more traffic, 50% higher premiums, 50% more lift, things and engagement up. So I think those are fantastic results. I think that when it comes to Max, obviously, it is priced at a 50% premium versus Hemnet premium. And I think that has been part of the challenge in getting a quick adoption given these current market conditions. The key -- the sort of -- the way this business works to a large extent, is the fact that conversion follows recommendations. So it's all about ensuring that the individual agents recommend Max to a larger extent. That's really the main lever that we have to pull. And I think these marketing investments that we refer to is to a very large extent, B2B marketing, so investing in communication, investing in roadshows, investing in getting the message out there. But I think the sort of the Max adoption to some extent, is held back given the current market conditions. Operator: The next question comes from Eirik Rifdahl from DNB Carnegie. Eirik Rafdal: I got a few at the end here. Just to start on the strategic partnership. Are you configuring or looking to configure the commission model as well to kind of drive more agents to push this offer with pay when sold? Jonas Gustafsson: Simple answer is no. We're not looking to adjust the compensation model. Obviously, kicking an open door, everything, you would understand this. But obviously, I mean, we would pay a commission towards the agent if the property is sold and only so. So that's the part of it. But that's also one thing that we're obviously testing. Eirik Rafdal: That's very clear. And Jonas also you stated that the initial feedback and data from the pilot has been supportive and sellers showing increased willingness to list on Hemnet with the new payment option. Have you also seen increased willingness to jump on Max on the back of this? Jonas Gustafsson: What we've seen is that I wouldn't comment on Max specifically because the numbers are still quite low, but we see that there is a willingness to recommend higher tier products and higher than we have today. So that has been part of the reason why we see a very positive response. Perfect. Eirik Rafdal: And just a final question for me, which is a bit more big picture. What's your overall thoughts right now on AI risk, particularly on the back of the Silo ChatGPT integration announced a couple of weeks back? Jonas Gustafsson: I mean if you look at AI, and I'll take the big picture answer. I mean we're actively looking at how to best integrate AI into our operations to enhance user experience and internal efficiency. Up until today, our efforts internally, we focused a lot on our valuation pool. But obviously, we follow and see what is happening. And I think the -- so and the ChatGPT integration last week are very relevant and interesting. So we continue to look at that, and that's something that the team is looking at it, and we're exploring those opportunities. We want to be part of this when this takes off and when it gets to Europe. Operator: The next question comes from Annabel Hames from Deutsche Bank. Annabel Hames: Just one from me. Can you give more color on why the Max package uptake hasn't accelerated given the data that you have on product performance and investment? Is it purely just a lack of understanding from sellers? Or is it something you eventually consider having part of the commission model for agents to help uplift that uptake? Jonas Gustafsson: I think I mean taking a step back, Hemnet Max is something that would help us in '26, '27 and '28 and will be an important component to continue to drive ARPL growth. We're still in the learning phase. Please remember the last time the Hemnet launched a new product was back in 2019. So this is not something that we do on a sort of on a quarterly basis. And I think -- I mean, sitting here today and being a part of this earnings call, the key driver of what is actually driving ARPL growth in Q3 2025 is Premium and Plus, and that was introduced in 2019. So this is a long-term bet. I think when it comes to why the adoption has not picked up faster, I think parts of it is sort of related to what Ed asked about before. There is tough market conditions right now that I think has been holding back the MAX penetration. That's just a fact. And second to that, I think the awareness, this is the numbers that we show to you guys today are very, very strong. Now it's -- we have a lot of things to be done at our communication department. We need to be out there and spread the dos. Operator: The next question comes from Nicola Kalanoski from ABG Sundal Collier. Nikola Kalanoski: So firstly, interesting news regarding the new model. I appreciate that this is just in pilot mode so far, of course. But just to understand the mechanics of this. Will the cost of the listing ad be automatically deducted during the settlement with the banks when a home transaction closes? Or will the seller have to pay as they've done previously, that is just paying a regular invoice to Hemnet? Jonas Gustafsson: So the simple answer is that what we're testing right now is that the payment method and the payment flow would be very similar to our current products, meaning that would be a separate bill. However, I mean, if you look ahead, and that's a question about product development and integration towards our partners, I think sort of having the Hemnet cost being deducted in the overall settlement, that's also an interesting opportunity. But what we're piloting right now is the first stage. Nikola Kalanoski: Yes, that's crystal clear. And just another thing to clarify. I believe you mentioned earlier during this conference call, some changed market dynamics, which I'm sure we're all familiar with. But I reacted a little bit to you saying that competition in the supply segment and -- or sorry, competition in the on sale segment is tougher than it's ever been before. I just want to make sure, does this refer to there being competition among home sellers trying to sell their home or competition between Hemnet and other marketplaces, right? Jonas Gustafsson: Thanks for allowing me to clarify that if that was unclear. What I meant and clearly meant is that if you look at the on sale segment, supply levels are at record high levels, meaning that if you're a home seller, the competition to sell your property is very, very high. So it's a question about supply/demand to put it simple. Do you follow me, Nikola? Nikola Kalanoski: Yes, absolutely. I was just looking for a clarifying Operator: The next question comes from Julia Kazakovtseva from UBS. Yulia Kazakovtseva: Just one small follow-up for me. What's the current penetration of the pay later feature at the moment? I mean, the number of new listings. Anders Ornulf: It tends to fluctuate a bit, and we've commented before that it's been around 40% to 50% since launch, and it might be -- I haven't looked at it today, but it might be a little bit lower today. Jonas Gustafsson: Hovering around 40% but it goes with seasonality. So around 40% to 50%. Operator: The next question comes from Eirik Rifahl from DNB Carnegie. Eirik Rafdal: It's Eirik again. Just a quick follow-up question because we've been kind of discussing the perception of the max value and the perception of the value you guys create overall. And one thing is the perception that the agents kind of know of your value. But do you have a feeling that they understand the relative value between you and for instance, [indiscernible], I mean, on the numbers we're tracking and looking at, you guys are reporting all-time high time on site today of 52 days, but [indiscernible], at least on our numbers, is north of 120 days, so more than 2x what you guys can deliver. Do you feel that the agents kind of understand this in this market that it doesn't really help them to go there and kind of try to avoid going on Hemnet? I mean I think obviously, it's a mix. I think we have we have more work to be done and continue to educate the market around that. And you're absolutely right. I mean Hemnet is a much more efficient and much stronger property portal when it comes to ensuring that you sell your property quickly and fastly. With that said, I think this is something that we're continuously work on. And I think I've been talking a bit about how we invest in our sales force. The main reason for investing in our sales force is that we need boots on the ground to be out there, help the individual agent to understand the fantastic value that Hemnet is delivering. And also what we did in Q3 was to lift up Marcus to become my management team. And I think becoming closer to the agent, becoming closer to the industry is it's a strong rationale of why we're doing that and not only because Marcus is a fantastic salesperson. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Jonas Gustafsson: Thank you, everyone, for joining the call today and for a lot of good questions. We ran slightly over time. But with that said, we'll conclude today's session, and I wish you a fantastic day. Thanks.
Operator: Good day, ladies and gentlemen, and welcome to the Medpace Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this call is being recorded. I would now like to introduce your host for today's conference call, Lauren Morris, Medpace's Director of Investor Relations. You may begin. Lauren Morris: Good morning, and thank you for joining Medpace's Third Quarter 2025 Earnings Conference Call. Also on the call today are our CEO, August Troendle; our President, Jesse Geiger; and our CFO, Kevin Brady. Before we begin, I would like to remind you that our remarks and responses to your questions during this teleconference may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements involve inherent assumptions with known and unknown risks and uncertainties as well as other important factors that could cause actual results to differ materially from our current expectations. These factors are discussed in our Form 10-K and other filings with the SEC. Please note that we assume no obligation to update forward-looking statements even if estimates change. Accordingly, you should not rely on any of today's forward-looking statements as representing our views as of any date after today. During this call, we will also be referring to certain non-GAAP financial measures. These non-GAAP measures are not superior to or replacement for the comparable GAAP measures, but we believe these measures help investors gain a more complete understanding of results. A reconciliation of such non-GAAP financial measures to the most directly comparable GAAP measures is available in the earnings press release and earnings call presentation slides provided in connection with today's call. The slides are available in the Investor Relations section of our website at investor.medpace.com. With that, I would now like to turn the call over to August Troendle. August Troendle: Good day, everyone. Cancellations were well behaved in Q3, permitting record net bookings and a net book-to-bill of 1.20. RFP quality remains solid with decisions progressing on a usual tempo. Initial award notifications were strong and our total dollar value of awarded work not yet recognized in the backlog was up approximately 30% in Q3 on a year-over-year basis. We are making good progress toward refilling our pipeline of opportunities. We will provide 2026 guidance when we report full year 2025 results in February. However, I will provide a brief preliminary view in an attempt to avoid significant divergence between our view and analyst models. We anticipate 2026 revenue to grow in a low double-digit range off our updated 2025 full year guidance. We expect EBITDA to grow at a high single-digit pace or greater. We believe pass-through costs will remain high compared to historical levels and represent between 41% and 42% of revenue. Jesse will now provide comments on the Q. Jesse? Jesse Geiger: Thank you, August. Good morning, everyone. Revenue in the third quarter of 2025 was $659.9 million, which represents a year-over-year increase of 23.7%. Net new business awards entering backlog in the third quarter increased 47.9% from the prior year to $789.6 million, resulting in a 1.20 net book-to-bill. Ending backlog as of September 30, 2025, was approximately $3 billion, an increase of 2.5% from the prior year. We project that approximately $1.84 billion of backlog will convert to revenue in the next 12 months, and our backlog conversion in the third quarter was 23% of beginning backlog. With that, I'll turn the call over to Kevin to review our financial performance in more detail as well as our guidance expectations for the balance of 2025. Kevin? Kevin Brady: Thank you, Jesse, and good morning to everyone listening in. As Jesse mentioned, revenue was $659.9 million in the third quarter of 2025. This represented a year-over-year increase of 23.7%. Revenue for the 9 months ended September 30, 2025, was $1.82 billion and increased 15.9%. As expected, revenue for the quarter was favorably impacted by higher reimbursable cost activity, particularly investigator sites, driven by a therapeutic mix shift to faster burning studies in areas which have a higher concentration of reimbursable costs. EBITDA of $148.4 million increased 24.9% compared to $118.8 million in the third quarter of 2024. Year-to-date EBITDA was $397.5 million and increased 14.7% from the comparable prior year period. EBITDA margin for the third quarter was 22.5% compared to 22.3% in the prior year period. Year-to-date EBITDA margin was 21.8% compared to 22% in the prior year period. EBITDA margins benefited from productivity and lower employee-related costs, offset by higher reimbursable costs. In the third quarter of 2025, net income of $111.1 million increased 15.3% compared to net income of $96.4 million in the prior year period. Net income growth below EBITDA growth was primarily driven by a higher effective tax rate and lower interest income compared to the prior year period. Net income per diluted share for the quarter was $3.86 compared to $3.01 in the prior year period. Regarding customer concentration, our top 5 and top 10 customers represent roughly 23% and 33%, respectively, of our year-to-date revenue. In the third quarter, we generated $246.2 million in cash flow from operating activities, and our net days sales outstanding was negative 64.3 days. During the quarter, we repurchased approximately 14,649 shares for $4.5 million. Year-to-date, we repurchased 2.96 million shares or $912.9 million. As of September 30, 2025, we had $821.7 million remaining under our share repurchase authorization program. Moving now to our updated guidance for 2025. Full year 2025 total revenue is now expected in the range of $2.48 billion to $2.53 billion, representing growth of 17.6% to 20% over 2024 total revenue of $2.11 billion. Our 2025 EBITDA is now expected in the range of $545 million to $555 million, representing growth of 13.5% to 15.6% compared to EBITDA of $480.2 million in 2024. We forecast 2025 net income in the range of $431 million to $439 million. This guidance assumes a full year 2025 effective tax rate of 18.25% to 18.75%, interest income of $12.2 million and $29.5 million diluted weighted average shares outstanding. There are no additional share repurchases in our guidance. Earnings per diluted share is now expected to be in the range of $14.60 to $14.86. Guidance is based on foreign exchange rates as of September 30, 2025. With that, I will turn the call back over to the operator so we can take your questions. Operator: [Operator Instructions] Our first question comes from the line of Charles Rhyee with TD Cowen. Charles Rhyee: Obviously, congrats on the quarter here. When we think about sort of the kind of ranges that you've given for next year, how should we think about the pass-throughs in relation to maybe the increase in metabolic work? Obviously, we saw another increase here as a percent of total revenue to 30% in the third quarter from 25% in the first half. But you're still calling out for pass-throughs to remain stable in '26 at that sort of 41% to 42% range. When we think out of your current bookings, are you seeing less metabolic trials compared to your current burn? Or should we expect to see some kind of leveling off in terms of the higher metabolic mix? August Troendle: Yes. I think over the course of '26, it will level off some and might even come down a little bit. But -- and it isn't just the shift to metabolic studies. That is the largest driver, which we've talked about, of course. But timing of projects and having a lot of late-stage projects in what we're burning as we're going to start ramping up new studies, new studies are -- even if they have the same mix of pass-through costs, there's greater direct costs incurred earlier in a trial. I mean pass-through costs are late in the trial. A trial starts and -- some trials, you can get halfway through the trial in terms of direct fees, and we've earned half of our -- half of the revenue from our activities, and we haven't paid sites anything hardly. It's start-up, if it's a very short trial and start-up is a big part of it. So the pass-through parts of a trial are backloaded. So if you have a back-loaded portfolio stuff you're burning, you're going to have more pass-throughs as a -- pass-through expenses at that time. So there's a number of things driving it. But yes, we do expect pass-through to maybe peak in Q4 or so and come down over '26. Operator: And our next question comes from the line of Ann Hynes with Mizuho. Ann Hynes: Thanks for the 2026 guidance. Typically, your EBITDA grows above your -- initial thoughts, okay -- yes. But typically, your EBITDA grows above revenue and it's growing lower. Is that just because of the pass-through dynamic? Or is there something else going on? And within that, if you can just talk about the pricing environment, that would be great. August Troendle: Yes. I think the driver there is the pass-throughs. I mean, look, there's a number of challenges to EBITDA, and that includes exchange rates and a number of factors. But the biggest factor, I think, is the pass-through that challenges that a little bit. But pricing, look, we've talked and everyone's talked about pricing environment as things have slowed in the industry over the last couple of years, there has been a bigger focus on pricing. Pure pricing is more an area for large pharma to get really aggressive at and has the cloud to do it. It is an area of -- it's always a competitive environment. It's always top of mind, but -- and there has been a greater focus. And some clients just can't get the cash to make it work. And so you're looking for ways to help them get there. But I do not think pricing is going to drive a meaningful change in margins at all. Operator: Our next question is going to come from the line of Michael Cherny with Leerink Partners. Michael Cherny: Maybe if I can go back to your comment, August, on some of the pre-backlog filling, encouraging to see, especially given your customer base. As you think about what you're positioning with relative to your preliminary views on FY '26, how do you think about the conversion rate of those -- of the pre-backlog, your win rate and how that should factor in relative to what you've seen over the last couple of years? August Troendle: Yes. I mean, the conversion of how much of it's going to anticipated pull into revenue versus backlog, I really don't have that breakout. I provided the number to -- there has been some concern that our burn rate has gone up quite a bit. Our backlog hasn't grown much this year. It's a single -- low single digit, a couple of percent up over the past year. But I wanted to let people know that the overall pipeline of awarded studies, I mean I'm not just talking about pipeline of opportunities, of awarded studies, we got a fixed scope of work -- we've negotiated the price on it. They've given us written award of that. And it just hasn't gotten to first patient in yet. So we may be working on it, et cetera. And it just hasn't gotten to first patient enrolled. And that's in our -- this bucket pre-backlog. And that is up 30%. And this pre-backlog bucket of awarded -- firm award work is larger than our backlog itself and is up 30% over the year. So I think that puts us in a good position for refilling our backlog over the next year and not having what a number of people have described as some sort of air gap in our revenue growth and things will stall, we run at a backlog kind of. So we really are improving our opportunities for backlog conversion in '26 and revenue generation. Operator: Our next question will come from the line of David Windley with Jefferies. David Windley: So that's good timing. I'll come in right behind that. So -- so August in '23, '24, a lot of your peers saw their activity levels, which would be more akin to your kind of initial award timing moderate decline begin to feel the impact of lower funding. And then for you, that materialized for Medpace, I should say, that materialized in the weaker book-to-bills more in the mid '24 timeframe as you saw some of that pre-backlog cancel out and not move forward, et cetera. So kind of the same timing dynamic sets up for what was a pretty weak funding environment in the first half of '25. So your last answer may have been pointing at me specifically, I'll take that. Why is this time difference -- why is this time different? August Troendle: I don't know. The difference -- a big difference is this has been driven by cancellations, not weak business. There are many challenged clients, and that does affect the business environment. And there's been a really a highly unusual series of cancellations that we went through. But the business environment underlying it has always been pretty okay. And maybe you're saying, well, I'm not real strong compared to what it had been a few years ago, but it's pretty good. And despite all these huge cancellations out of this pre-backlog awarded study bucket, despite all of those, we still grew that bucket by 30% over the last year. It would have grown much faster, and we'd have a much bigger backlog at this point if we hadn't had those cancellations. But the difference is this has been driven by cancellations, not really weak funding environment causing lack of opportunities. David Windley: Got it. And so then from kind of a metric cycling standpoint, you and I, after the last quarter talked about your burn rate kind of naturally increasing in at least some large part because you hadn't been adding a lot of early new-to-start studies into the, call it, the early part of the backlog. And so now you're getting into a period where it feels like that is probably going to happen, get healthier, more added to the backlog. And so I appreciate also the '26 commentary. If I were to kind of interpret, you would expect backlog to grow faster, burn rate to come down and then your need to -- and this is -- my next question is your need to hire to support that growth is probably going to accelerate. Is that the right way to think about how the business is going to evolve? August Troendle: Yes. I think that's a reasonable scenario. David Windley: And on the hiring, where -- we haven't talked about your beginnings of your offshoring activity that I think you started in 2024. How is that progressing? And where is your hiring happening? And that would be my last question. August Troendle: Sure. So hiring in year-to-date and in the last quarter, the largest region of growth was North America and all that really United States. Second largest would be Asia Pac. The kind of two outlying areas that we've not really grown staff at all are Europe and China. And throughout Asia Pac -- it's throughout Asia Pac, although our largest hiring area in Asia Pac as a single country, it was India. Over the last few years, starting, as you say, a couple of years back, we started hiring in India, and that has added a substantial number of staff over time, not compared to our overall numbers, but that's been a focus area in Asia Pac. So I think that it's pretty balanced and most of the hiring recently has been U.S., and that's kind of a transition in the market. There's been more U.S.-focused work lately and a lot of that metabolic stuff is more U.S. focused. So that's been a very strong area of growth. Operator: Our next question comes from the line of Max Smock with William Blair. Max Smock: August, maybe one on the just expectations for book-to-bill here moving forward. You talked about initial awards being up 30% year-over-year. But based on kind of the midpoint of the guide here, I think you need to do 55% growth in bookings in 4Q to put up a 1.2 book-to-bill in the quarter. Can you help us bridge that gap? And maybe just elaborate on your booking expectations for 4Q and what you've embedded in your guide for bookings in 2026? August Troendle: Yes. We're not giving a guide to '26, I don't know where the bookings are going to come out. So I'm not going to get into trying to set them. We did say that -- second half of '25, we did think that we could get to 1.15. We thought a reasonable chance of getting there, and that's kind of where we're looking at towards Q4 is sort of the target. And I think that looks reasonable, but I'm not going to get into next year yet. Max Smock: Maybe just following up on that point. I mean 1.15 still kind of implies 45% plus bookings growth in 4Q. Is that disconnect from the 30% growth in initial awards to that 45%, give or take, on net new business awards in 4Q. Is that disconnect? Is that typically there in a quarter? Like what's your visibility into that bookings in 4Q, given the initial awards up 30%? August Troendle: Well, look, as I said, that bucket is a little bit bigger, and it's 30% growth, not 30% increase in awards. I'm talking about the total bucket is up 30%. Awards -- new awards were up sequentially a bit, but that -- it's the total bucket. And how much of that has to -- is needed to drive a given booking number, I don't know. Max Smock: Yes. Okay. That makes sense. Maybe just as a quick follow-up here. You gave some color on decisions progressing at a usual tempo. Just wondering how those decision-making time lines have changed more recently and what you're hearing from customers around their confidence in the funding environment moving forward? August Troendle: Yes. No, I think things are moving along -- Q1, we had a sort of -- things were held up. We weren't getting our sort of pending RFPs, total dollar pending decisions had kind of spiked and there was a lot of slowdown in things. And that's then improved quite a bit. And it's been now -- I wouldn't say there's still challenged -- funding challenges for clients. And so some are delayed, et cetera. But I think overall, things are going on a pretty reasonable pace. And certainly, it's somewhat normalized. I don't -- there isn't a big -- a large jump in sort of that pending work and people not making decisions and holding things up. So I think they're moving along -- things are moving along pretty well. And that's what we hear in terms of feedback. People are getting funding. I think things are moving along and there's a parallel group that are stalled and having trouble, but we have the flexibility to jump where we need to be. Operator: Our next question will come from the line of Jailendra Singh with Truist Securities. Jailendra Singh: First, a quick clarification on your preliminary 2026 growth expectations or numbers. Just to clarify, that underlying assumption there is, the environment looks similar to what you are seeing in Q3 in terms of bookings, flow and pipeline, right? That's the underlying assumption. I want to make sure that. August Troendle: Yes. We kind of always push forward the environment. But a lot of '26 is already kind of -- cancellations are the biggest sort of wild card. But yes, you're right, the business environment, there still are things that -- to be newly awarded now that will affect next year. But kind of most of the pipeline is there and the big question mark is cancellation rate. And what we're assuming is actually, it could be a little bit higher than where it has been this quarter and last quarter in Q3 and in Q2. But it doesn't jump up again to like levels of Q1 and Q4 and things like that. Jailendra Singh: Okay. And then a quick follow-up on the margin trends. So thanks for the color on the growth number for next year. But outside of pass-through, as you think about the margins on the core direct service revenue business, can you talk about the leverage on gross margin and SG&A? You had a nice kind of improvement this quarter. Just trying to understand the trends there. And I mean, do you think that you are pretty much at the peak on those margin on the -- again, outside of pass-through impact? Kevin Brady: Yes, Jailendra, as August mentioned, we provided some color on both revenue and EBITDA for 2026. And the margin for the most part, is expected to remain in a very good spot. And so we're continuing to see improved productivity from our existing employee base. Some of that is just driven by improved attrition rates. They remain very low. Great utilization levels and studies are progressing at a very good pace. As we said in the third quarter, we are seeing improved funding and with the fewer cancellations, things are progressing in a very good way. So we do expect margins to remain in a good spot in 2026, and it's really driven by just continued productivity of the business. Operator: Our next question is going to come from the line of Dan Leonard with UBS. Daniel Leonard: I'm curious how you would describe the breadth of outperformance in Q3. Would you attribute the upside to a narrow set of 1 to 2 customers? Or was it broader than that? August Troendle: In terms of what, revenue? Daniel Leonard: Yes, exactly. Just looking at the revenue in Q3 compared to Q2, it looks like the growth came in top 5, it came in metabolic. I'm just looking for color on breadth versus what otherwise might suggest that there was just a big trial that landed in the quarter? August Troendle: Kevin, do you want to... Kevin Brady: Yes, Dan, I'd say it's pretty broad-based. I mean, certainly, some of that was just influenced by the pass-throughs. I mean pass-throughs continue to increase. I think for the quarter, we were right around 42%. So that certainly had an influence. But then also just the carryover of the improvements that we saw coming out of our conversation in Q2, where we saw improved funding in those studies progressing forward, the fewer cancellations in the second quarter and that translating further into the third quarter. So it's pretty broad-based. I wouldn't say it's isolated to a handful of studies. Daniel Leonard: Okay. Appreciate that. And then just a quick follow-up. Do you need to accelerate headcount growth further to service your sales forecast for next year? Or is that low single-digit growth rate in headcount growth the right number? Jesse Geiger: Yes. We expect headcount acceleration as we head into next year. Operator: Our next question will come from the line of Luke Sergott with Barclays. Luke Sergott: Great. I'm also one of those that thought that there would be an air pocket. I just want to talk about the competitive win rate that you guys are seeing. We're hearing from some of the larger CROs that typically haven't played in that part of -- in your part of the market that they're going to start competing or entering or bidding on some of this business. So are you guys starting to see the likes of them show up? Or just any color around that? August Troendle: Yes. They've always been there. I don't know about the additional effort or attention there. Certainly, there's a lot of talk about it, but we see the same players, and it is the large providers that we're often competing against. Our win rate has been okay. I mentioned last quarter, it was actually down a little bit. Awards were actually good because the total decisions were elevated. Our win rate did come back up this quarter and some fewer number of decisions, but again, good awards. Look, we don't see a trend towards greater competition causing our win rate to deteriorate. There has been some movement over the last year or so to bring more providers to an opportunity. So instead of what you often see was 3, maybe 4 CROs now is -- often it's 6 or even more. And so that obviously reduces the win rate a little bit for everybody. But I think you correct for those situations. And I think our competitive position is very strong. Luke Sergott: Great. And then I guess a follow-up here, not to be a dead horse, but on the burn rate and kind of how you're thinking about that through next year, where do you think that like -- not even through the end of next year, but where do you think that this kind of settles out as we think about kind of the out years? Could it be more elevated versus what you had in, let's say, before it started ramping up in like the high teens? Kevin Brady: Yes. I mean, I don't think we can answer that question in terms of long term. It's a lot dependent on our mix of programs, where they are in their life cycle. It depends on future bookings. If you go back to a couple of years coming out of COVID when our bookings were very strong, our burn rate came down quite a bit. So it is influenced by how things are progressing from award notifications into programs in the backlog. So it's hard to say. Our range has been quite wide. Operator: Our next question comes from the line of Justin Bowers with DB. Justin Bowers: All right. So I just want to follow up on Luke's comment and your remarks on the win rate, August. You said fewer decisions, but good awards and the win rate was up. So are we to infer that your average award size was larger or more than substantial this quarter? So that's part one. And then part two is just, can you give us a sense of how your conversion or retention or win rates have been trending, call it, over the last couple of years of programs that progress from Phase II to Phase III? August Troendle: Yes. I don't think there's been any change in that. We -- it's kind of all over the map. But usually, we can progress from Phase II to III, but there's -- there is a -- I think there's a lot of times that products in our clientele are sold or moved to someone else. And sometimes we also just don't win the Phase III. We're considered not strong enough in a particular market or something. So I don't know that that's changed at all. Justin Bowers: Okay. And then in terms of the award size in the quarter? August Troendle: Yes, I'm sorry. I don't actually have that. Anybody on the line have that? Kevin Brady: I mean, it's pretty normal, I would say, Justin. There's been -- there were no significant decisions. And remember, decisions where we're notified of an award. Those don't go in the backlog, right? Just fit into that kind of pre-backlog bucket. But I wouldn't say there was anything out of the ordinary in the quarter from a decision standpoint. Justin Bowers: Okay. And then in terms of the pre-backlog, how does that -- how does the therapeutic mix of that compare to the revenue that you're showing right now? So just sort of frame things a little bit, like oncology is 30% -- was 30% in 3Q and like metabolic was 27%. When you look at the pre-backlog, is it over-indexed or under-indexed relative to those 2 therapeutic areas? August Troendle: It's over-indexed in metabolic, as you might expect. Not massively, but there's a -- it's a higher proportion. And that, again, fits in with what we're currently seeing and burning. Operator: Our next question will come from the line of Eric Coldwell with Baird. Eric Coldwell: I have maybe 3. First, on the preliminary views of 2026, talking about the revenue outlook. If we run various inputs on what the fourth quarter service revenue might look like and then also what does low double-digit growth mean and 41% to 42% pass-throughs, you can run various scenarios. They all lead to service revenue implied growth or preliminary view growth of being somewhere in the upper mid-single digits to low double digits growth. Is that your interpretation as well? Or am I missing something? August Troendle: I believe your math. All right, Kevin, do you want to comment on that? Kevin Brady: Eric, could you say that again, upper mid -- upper mid double digit... August Troendle: Upper single... Eric Coldwell: Yes, no, no, I don't know if you're going to do $400 million of -- sorry, go ahead. August Troendle: No, no, go ahead. Say it again. Eric Coldwell: Yes. Look, I mean, it's going to be annoying on the call here, but I don't know if you're going to do $400 million of service revenue in Q4 or $410 million. I don't know what that number is. So there's various bases from which we have to grow. But if I model low double-digit revenue growth and I take it all the way up to 12.5%, which is my view of the low end of low double -- or the high end of low double digit, and then I say pass-throughs at the low end of mix, 41%, even using various inputs like that, I'm coming up with service revenue growth somewhere in the mid- to upper single digits on the low end of the range up to low double digits on the high end of the range. And the only reason I'm focusing on that -- yes. August Troendle: TThat's fair, that sounds reasonable. Kevin Brady: Yes, that's fair. Eric Coldwell: Yes. So I thought -- and maybe I'm still taking too many crazy pills here, but I thought last quarter, we came off thinking it was going to be more like 15% service revenue growth. And I -- maybe I misinterpreted comments last quarter, but admittedly, I was a bit higher on my service revenue outlook for next year. August Troendle: Yes. I don't think we made any comments about next year's growth at all, let alone service revenue. Eric Coldwell: Yes, yes, I might have misinterpreted something. On the pre-backlog, the 3 to 6 -- or I'm sorry, you said pre-backlog, you kind of again confirmed that it's above backlog. So it's above $3 billion. I think there's a range out there of where it might be, obviously, more than $3 billion, but less than X, so I was hoping you could give us a little more specificity because I still think there's a lot of confusion on the Street about these quarterly net new awards. There are really not things that are happening in the quarter. It's the amalgamation of everything you've built up in the past that's moving into revenue generation phase. So having a sense on that bucket, is it $4 billion, $5 billion, $6 billion, having a sense on that bucket could help -- maybe help people think about what magnitude of that pre-backlog actually needs to convert to revenue generation phase, whereby it then goes into your reported backlog? August Troendle: I mean, look, it's part of an overall pipeline. And they are firm awards at that point, but it is part of an overall pipeline. And we do tend to see -- we have seen some very large cancellations there. So we don't treat it like backlog because until the study is actually running and gets patients in, there is a higher risk. But look, I don't want to get into putting numbers on that and then tracking just the size of it and size of what other buckets, et cetera. I think we provide adequate information on the overall parameters that we look at and measure and pay attention to give trends. But yes, the bucket is somewhere under $4 billion, right? Eric Coldwell: Okay. That's super helpful, actually. And then last one, thank you for allowing my time here. You made a comment earlier about this total bucket of awarded work that isn't in backlog being up 30% year-over-year. And then in that same vein of commentary, you said something about haven't gotten the first patient in. So then I got thinking, are you basically telling us that you don't put an award here until you actually have the first patient in the study? Because I used to think that the parameter was that you needed to be within 30 days of revenue generation. But maybe the real parameter is you actually are live in the study generating revenue before you put something into backlog -- street-facing backlog. August Troendle: That's correct. It could be that there's revenue prior to -- and even sometimes a chunk of revenue prior to reaching backlog... Eric Coldwell: So this is how the revenue started growing before the headcount did. I'm just -- I'm trying to get a sense like things started -- the work sped up maybe a bit faster than you were thinking 6 months ago when you had some cancels and market uncertainty. The work sped up sometime between April and July, the tone and the messaging clearly shifted. It just feels like maybe this work really picked up pace and you were sitting right there, not quite in backlog, but suddenly, the stuff is in backlog and now we get the big revenue spike. I'm just trying to get a sense on what really are these dynamics between reported backlog, the pre-backlog and then the notion that your revenue actually accelerated pretty quickly before your headcount growth did and that... August Troendle: So yes, and there's a couple of components to that. One is, yes, you're right, we put it in very late. Generally, a patient doesn't -- but patients got to be kind of -- we think a patient is going to go in, in a very short near term, right? So it's right about when you get the first patients in. But there's other reasons why there might be some concern on that. There's studies where we have a manufacturing problem. And actually, that was an issue recently. And in terms of -- it's right up to a lot of work being done, and we haven't got the patient, but there's uncertainty around drug availability. There may be some other regular -- they need some decision at some regulatory authority to move forward with this. So those kind of things we don't put in backlog. So there's a number of gates. But yes, things can be very close to large-scale revenue generation when they go into backlog. Operator: And we have a follow-up question from the line of David Windley with Jefferies. David Windley: Eric asked one of the two I was going to follow up on. The other one is on your metabolic indexing. So a lot of the inbound questions I get on this particular topic assume GLP-1. I wondered if, August, you'd be willing to provide some color on the breadth or lack of your participation in metabolic. My sense is that it is broader than just GLP-1 and maybe mostly non-GLP-1, but I wondered if you'd be willing to comment on that just so we'd have a better perspective of what your -- what the drivers are of that fast-growing part of your revenue and backlog. August Troendle: Yes. So GLP-1 is probably 2/3 of our obesity, so it is a big chunk -- we can call the GLP class kind of is a large portion of the overall obesity, but it's not all of it. There's still a fair amount of other. David Windley: And is that spread across multiple clients, I would presume? August Troendle: Oh, yes. Operator: And I'm showing no further questions. And I would like to hand the conference back over to Lauren Morris for closing remarks. Lauren Morris: Thank you for joining us on today's call and for your interest in Medpace. We look forward to speaking with you again on our fourth quarter 2025 earnings call. Operator: This concludes today's conference call. Thank you for participating, and you may now disconnect. Everyone, have a great day.
Natalia Valtasaari: Good morning, everyone, and welcome to KONE's Third Quarter Results Webcast. My name is Natalia Valtasaari. I head up the IR function here at KONE, and I'm very pleased to be joined by our President and CEO, Philippe Delorme... Philippe Delorme: Good morning, everyone. Natalia Valtasaari: And our CFO, Ilkka Hara. As usual, we'll start by walking you through the financial highlights of the quarter, what we're seeing in the business and what we're seeing in the markets, then we'll move on to your questions. [Operator Instructions] but with that, over to you, Philippe. Philippe Delorme: Thank you. Thank you, Natalia, and good morning, everyone. I'm very pleased to be presenting our third quarter results today. And let me start by saying that Q3 was, in many ways, a strong quarter. Order development was, of course, a key highlight. Nearly 8% growth is an excellent achievement, and I'm happy that growth was broad-based. We delivered again on our target to consistently improve profitability towards our midterm margin corridor. Not only did we grow earnings, but we also had healthy cash conversion in the quarter. For me, a key point worth emphasizing is that over 60% of our sales is today coming from service and modernization. This shows that our pivot towards a more resilient business model is proving successful. And last but not least, we continue to drive our strategy forward with precision and speed. I will share a few concrete examples of strategy progress, but let's first take a look at our financial performance in more detail. So as just mentioned, order growth was strong this quarter. We saw over 10% growth in all areas except China. The biggest driver was modernization, where orders were up double digits. And I'm also pleased that our efforts to strengthen competitiveness in the residential segment paid off. This supported good momentum in New Building Solutions, especially in Europe and in the Americas. Sales grew by 3.9% at comparable currencies. Modernization delivered another excellent quarter with sales up 15.5%. Our Service business also performed well outside China, while in China, development was more stable. Adjusted EBIT margin expanded by 75 basis points from a low base. And the main driver was the growth in our largest profit pools, service and modernization. And finally, cash generation was strong with operating cash flow increasing by roughly EUR 100 million year-over-year. Let me now share some highlights from the quarter. The first one, and you see the smile on my face, is a very exciting milestone where we secured the contract to equip the Jeddah Tower in Saudi Arabia, rising to over 1,000 meters. This will be the world's tallest building once completed. It will be equipped with solutions from KONE next-generation high-rise offering, including our superlight UltraRope hoisting technology. I'm very proud of this win. It showcases not only our unique innovations, but also our capacity to deliver highly complex projects in a reliable way. With this win, 5 of the world's 10 tallest building will feature KONE technology. I see this as an excellent recognition of the work we've done to reinforce our leadership in the high-rise segment. As you know, our strategy focuses on making KONE an even more resilient business with service and modernization as the key drivers of growth. And I'm pleased with the progress we've made in accelerating this shift during the year. Let's start with services. We began the year with roughly 35% of our maintenance base connected, and we are now approaching 40%. At the same time, our field service technicians are leveraging productivity tools in 41 countries, and we're enabling remote service in 35. These advancements are critical to deliver greater transparency, improved predictability and more efficient service for our customers. Let's now turn to modernization, where customer response to our partial modernization offering has been very positive. This is the fastest-growing segment within modernization and accounts for the largest share of modernized units. For KONE, partial modernization provides scalable growth and enable us to address market opportunities more broadly. For customers, it offers easier installation and improved energy efficiency at a more attractive cost. I see this as a true win-win. Let's now move on to sustainability, where we have lots of good news to share. Let me highlight a few components of our sustainability index, where we've made particularly strong progress. First, we have continued to scale our solution to drive energy efficiency. A good example is the growth of our partial modernization business and the fact that regenerative drives are now included in more than 60% of our deliveries. We have also improved our [indiscernible] rating, which is how we measure progress in cybersecurity, a key priority for us. We're actually now in the top 10 percentile of the engineering peer group. On the people side, I'm proud to share that KONE was recognized for the 6 years in a row on Forbes and Statista's list in the World's Best Employer. This is a fantastic acknowledgment of our commitment to being the #1 choice for employees, fully aligned with our strategic ambition. Finally, we announced a partnership with UNIDO. Together, we will conduct training programs for our suppliers to promote sustainable practices and human rights across the supply chain. Now let me hand over to Ilkka, who will go through the market development and financial in more details. The floor is yours. Ilkka Hara: Thank you, Philippe. And also a warm welcome on my behalf to this third quarter result webcast. As usual, let me start talking about how we are seeing the markets developing in the different regions over the past 3 months. Overall, the trends were broadly similar to what we've seen earlier this year. In terms of New Building Solutions, as I'm sure you are well aware, market conditions continue to be difficult in China. In all other areas, we actually saw increasing market activity. If we move East to West, demand continued to be strong in Asia Pacific, Middle East and Africa. In Europe, activity picked up from Q2, growing slightly compared to last year, and we also saw some growth year-on-year in North America, despite trade policy-related uncertainty. Then looking at Service and Modernization, we continue to see healthy growth in all regions. Next, let's go through our financial development in the quarter in more detail. As usual, I'm starting with orders received, which, as Philippe mentioned, was a highlight of this quarter. 7.8% growth at the comparable currencies is a great achievement. Interestingly, China New Building Solutions was the only soft spot. Modernization continued to grow strongly in all areas, and we had a good quarter also in New Building Solutions outside of China, both in volume business as in the major projects as well. Order margins were stable overall with China still under pressure and more stable development in other areas. Turning into the sales, which grew 3.9% at the comparable currencies in the quarter. Looking at the development by business, it was great to once again see the strong order book rotation in modernization. Sales increased by 15.5% overall. And more importantly, all areas contributed with double-digit growth. In New Building Solutions, continued low delivery volumes in China was the main driver behind the 5% decline. In Service, we grew by 7.3%. Outside of China, growth was very much in line with our targets. In China, we have taken deliberate actions to prioritize margin and cash flow over volume in all of our businesses, including service. This means being selective and sometimes walking away from contracts that are not meeting our performance criteria. Pricing and revenue uplift from digital services solutions continued to contribute positively to service growth. The repair business also performed well in the quarter. This is actually a great example of the benefits of accelerating digital. As Philippe said, connectivity enables productivity. And when we perform service more efficiently, we release time that we can use, for instance, more proactively drive repair sales. Then moving to adjusted EBIT and profitability. Margin expansion in the quarter was 75 basis points year-on-year, which is a good outcome despite the lower -- low comparison point. This took adjusted EBIT to EUR 341 million. Looking into the details, we saw again some negative impact from higher investments into R&D and our strategic growth areas. That said, the main headwind continued to be the new equipment market in China, more than offsetting was the positive mix impact of services and modernization growth. So overall, good delivery of our 11th consecutive quarter of profitability improvement and especially good to see also sequential improvement, which is not always the case for Q3. Then turning to cash flow, one of my favorite metrics. Cash generation was strong in the quarter, supported by growth in operating income and by changes in working capital. Cash flow from operations increased to EUR 364 million, bringing year-to-date cash flow to EUR 1.3 billion. The contribution from working capital came mainly from advances received, which, of course, related to a strong growth in orders. And although not a big contributor this quarter, our focus on collections continues and it's progressing well. Then looking at the whole year '25. First, we have made a small update on our market outlook. We now expect the New Building Solutions market in North America to grow slightly, as activity continued to trend upward in Q3. Of course, the business environment in the U.S., in particular, remains fluid. Our view on other areas is unchanged. China continues to be the main challenge. In Europe, we expect some growth. And in Asia Pacific, Middle East and Africa, we expect clear growth. For Services and Modernization, our outlook continues to be positive with growth opportunities in all areas. Then to our business outlook. With 3 months left in the year, we have specified our guidance slightly. We now expect sales to grow 3% to 5% at the comparable exchange rates and the adjusted EBIT margin to be in the range of 11.9% to 12.3% this year. FX is expected to be a headwind. If it remains at the October levels, we estimate a roughly EUR 30 million negative impact to EBIT. China continues to be burden to both volumes and margin. We also expect some small impact from tariffs. But as we discussed already previously, most of the impact is recoverable in our view. We have already made good progress in mitigation actions. In terms then on tailwinds, service and modernization growth is the main positive. We also expect some support from the ramp-up of performance initiatives. Then Finally, let's look at how we're currently thinking about year '26, starting with challenges. China construction market is not yet showing any signs of leveling out. So this will continue to be a burden, less than in '25 as our exposure continues to come down. We also expect similar inflationary pressure on wages, as we have seen this year. On the positive side, we continue to see opportunities to grow our service and modernization business, which will contribute positively to the earnings mix. We also expect meaningful contribution from our performance improvement measures. And we have made it very -- and we have made very good progress in our product cost reductions this year, which will also be supportive. So those are our initial thoughts. And of course, we will provide more color when we report the Q4. Let me now hand back to Philippe to close the presentation before going to the Q&A. Philippe Delorme: Thank you, Ilkka. So to wrap it up, let's make -- sorry, changing slides. So let me first take the opportunity to thank all the KONE teams for their great achievements and for delivering a strong Q3. We had yet another quarter of good momentum in service and modernization, which shows that the transformation we are driving is well underway. I'm also very happy with the progress we are making in executing our Rise strategy, and we continue to move full steam ahead. And finally, our performance this quarter shows that we are on track to delivering on expectations for 2025 and building solid momentum towards reaching our midterm financial targets. Thank you all for your attention, and I suggest now we move on to your questions. Operator: [Operator Instructions] The first question comes from the line of Andre Kukhnin from UBS. Andre Kukhnin: Maybe actually, I'll start with a quick follow-up on what you mentioned on China exposure coming down during this year. Maybe could you help us to calibrate that a little bit? I think we talked about China New Equipment margin being clearly below group average in 2024. Is it fair to assume that it has come down substantially further in 2025 in sort of more mid- to low single-digit range? Ilkka Hara: It's always difficult with these objectives substantially, like you said, but what I would say that our margins in China in New Building Solutions have come down in '25 further. Andre Kukhnin: Got it. And the main question really for me is on the performance improvement initiatives that you talked about and we've been kind of tracking and talking about since the Capital Markets Day last year. Can you just walk us through what has been done during 2025 and what will be delivering those kind of meaningful contribution, as you mentioned, in 2026? And is there any way we can start sort of quantifying that already for 2026? Ilkka Hara: Well, if I start, I think you're quite passionate about this, Philippe, yourself. So what we outlined in Capital Markets Day is that we see an opportunity for us to improve our profitability by 150 basis points by year '27. And then, of course, we need to make a decision that we invest some of that back to growing the business further. In that progress, we have started to now execute those programs. The largest ones which are contributing to the profitability are focus on our procurement, how we source both at the factories as well as in the local operations and as well as how we perform at the regional level or the lowest level where the KONE teams come together, and we call it sales and operational excellence. On sourcing, I'm very happy how we've been able to drive our product cost down this year. We have yet another record in terms of product cost reductions as a result. We have more work to be done on the local sourcing part, and that's because it's touching more teams, and we need to then just lower to get that executed. So good progress in where it's more centralized, more work to be done and good opportunities in there. And then sales and operational excellence, we are seeing that the teams are really now able to drive better and better outcomes, and we have more and more consistent execution. But also there, we have plenty of work to be done on that one. Maybe you want to comment? Philippe Delorme: Yes. I mean those things take time. I'm rather impatient as a person, but you -- I mean, you don't -- the company is not a light switch. So when you drive things at a branch level with much stronger sense of execution, timely, weekly, tactical and things like this, it takes some time to spread within the company. I think we've said during the Capital Market Day that we would start to see the impact of most of these actions by the end of 2025. Nothing has changed on that front. The only thing I can say that we've been extremely diligent in '25 to ramp up our actions, be extremely systematic. And I feel much better about, let's say, the level of detail and scrutiny and capacity to execute we have on this work. And I would say on procurement, the arrival of Michelle Wen, who came with a very strong automotive background, and she just came in actually in August. So it's not yesterday, but it's a few weeks away, is giving me confidence that we can actually intensify the work we want to do on the procurement side. Operator: The next question comes from the line of James Moore calling from Rothschild. James Moore: I wondered if I could talk about your service growth. Would it be possible just to give us a flavor for the speed of the unit growth in maintenance base versus the price behind that and other topics is the first question. Just to understand whether the speed of maintenance base growth is broadly stable or accelerating or slowing for any reason and whether price is broadly the same behind that? Ilkka Hara: Yes. So overall, on the LIS growth, and I guess I commented that already during the presentation. So the LIS component of that is growing in Q3 a bit less than we've seen as a trend line. And the main reason for that is 2 things. One, which is that in China, we clearly focused more on lining up the business to focus on cash flow and profitability. And in some cases, also in the service business, we've actually decided to let go some of the customer contracts, as they're not meeting our performance criteria. And then it's more of a quarter-by-quarter, there's fluctuations. So it happened to be that in Q3, we had a bit less acquisitions than we've seen in the recent quarters as a result. The good thing is that both pricing including digital as well as repair sales are actually progressing quite well. So in that sense, we are making very good progress on that front. And then lastly, I think it's also that given what I said, so we had very close to the targeted level of 10% growth or close to 10% growth in services in 3 of the areas, whereas really the slowdown in sales was more related to China actions we've taken. Philippe Delorme: Which is a clear choice. And actually, I'm very happy to see the result, which is our cash generation in China and our profit improvement in China on that front is according to plan. So I would say we are executing what we want to execute. And it's a bit of 2 way of doing things, which is China on one side, where we've always said cash margin and moving to more service and modernization versus elsewhere where clearly our -- the way we are executing is different because the markets are different. James Moore: Could I just follow up on that? I mean, over time, I felt that the maintenance base grows with a lag after the first service period from the unit deliveries, but also your win-loss ratio and your conversion ratios. And you always had a very high U.S., European conversion ratio, 80%, 90% and a more muted 50%, 60% conversion ratio in China. I'm just trying to understand, is it that the conversion ratios are broadly staying the same across the 3 regions and that it's the active choice on the win-loss ratio to effectively proactively lose? And is the intensity of this change, which slows your maintenance base growth at the moment? Is that something that's going to intensify yet further going into '26, if you like, with more proactive contract management? Ilkka Hara: No, I don't think that's something which will continue going forward. It's been more of a targeted efforts right now. And it's good to note, so first, your comments on conversions as well as retention. So they are quite stable. And for example, in Europe, where the NBS market has been now for a few years, been down, we've been able to actually quite nicely grow the services business, as I've noted in previous quarters. So we've been able to mitigate with good retention, win-loss ratios improving and some acquisitions as well to drive growth in a market where there's less conversions. Philippe Delorme: And talking about our service business, we -- you've probably noticed that we talk quite a bit about our repair business. Actually, we've done quite some work to make sure that we would optimize that part of the business. It's actually significant in our service figures, both top line and profit. And when trying to understand how the service business work, I would encourage you to really look at, yes, the pricing and the service base but also the repair business, which for us, at least is very important. Ilkka Hara: And actually, the repair business grew really nicely, almost double the speed of our service business in the quarter. Philippe Delorme: Yes, absolutely. Operator: The next question comes from the line of Daniela Costa calling from Goldman Sachs. Daniela Costa: I'll ask just one and it's regarding modernization, obviously, very strong 10% organic order growth there. Can you give us some light on how sort of your installed base age has evolved? I know you talked about the mono elevators being very important for that modernization. So can we see this 10% plus as sustainable going forward when you look at sort of how the curve of age of installed base is? Any light there would be helpful. Ilkka Hara: Well, I guess, first, good to note that the modernization growth was actually on a quite close to the 15% target that we talked about in the quarter. So very good numbers. Then on this aging of the portfolio, so I think there's 2 topics I would highlight. So first, there are so many elevators in the world that need to be modernized that we're not yet making a dent onto the aging as a whole. And most of the elevators that are old are actually outside of our own LIS base. So for us, the growth opportunity, we've been working and targeting previously our own service base. But really, the big blue ocean is the elevators that are not in KONE maintenance. And there, I think we're increasingly making good progress in identifying those and having the right go-to-market to really get to those customers. So at this rate, we're still -- the elevator base is aging more than we're able to modernize as an industry and also, I guess, for KONE as well. Philippe Delorme: Maybe to illustrate a bit more, Daniela, the topic, and I'm going to quote some figures that I think I have listed in the Capital Market Day, but there is 25 million elevators in front of us, of which 10 million are more than 15-year-old total in the world. This 10 million will become 13 million by 2030. So whatever happens every year, whatever happens to real estate market in China, outside of China, there is growth because elevators are aging, whether our elevators or the elevators of competition. With that in mind, today, when I look at our figures -- and we are happy with our figures, and we'll try to do our best to sustain that growth. We are actually modernizing tens of thousands of units versus 10 million units in front of us. So we've said it many times, but we'll repeat and we'll repeat and will repeat, this market is growing structurally because elevators are aging. And today, we have good figures, but we are not -- I mean, there is still a lot more that could be done with innovation, with better execution and so on. So we are confident in our capacity to drive scalable growth in that field. Operator: The next question comes from the line of John Kim calling from Deutsche Bank. John-B Kim: Could we just go back to wage inflation for a second. Can you give us a sense of quantum of growth there as a growth rate and how that compares to what you maybe were seeing earlier in the year? And how should we think about the cadence of the price ups that are in the contracts versus this inflation? Ilkka Hara: So twofold. We are seeing -- I guess, I've said also earlier that our wage inflation this year is around about 5% on average for KONE as a whole. And yes, our escalation in contract prices for services have actually been quite close to the inflation level. So we've been able to continuously now drive not only the CPI level inflation, which is continuously coming down, but actually representing the inflation we are seeing and then we have the productivity as a separate item. So pricing, yes, we can escalate service contracts. But of course, then also we see broadly outside of the service operatives, also the wage inflation impacting our cost base as such. John-B Kim: Super helpful. One follow-on, if I may. Can you give us any color on how you're driving better penetration of connectivity? Ilkka Hara: I think that's for you. Philippe Delorme: Discipline. Discipline and it looks like -- it's not easy. I mean, in every, let's say, original industrial company, I think it takes some time to make sure that our people understand the value of connectivity. And on the few things that I'm really happy with, when I look at the step-up that has happened in the company for every one of us to understand, especially in our service business that service will have to be digital. I think we've been good at discipline. And we'll be even better at discipline. And we've been -- I've been very clear to the people in KONE. We want by 2030, 100% of our installed base to be connected. And we're going to be very disciplined and focused on driving that goal and it makes sense for customers. And actually, I've been on the road for 3 weeks in North America, meeting many, many customers. The great news is -- the feedback from our customers is we execute well. They see the value of our connectivity around transparency, around predictive capabilities, around from time to time remote services, and they really like it. And the feedback we get is we seem to be executing pretty well on that front. So we'll keep doing that. Operator: We are now going to take a question coming from Martin Flueckiger calling from Kepler Cheuvreux. Martin Flueckiger: Two questions. The first one is on China and particularly the property market there, where July, August data seemed to suggest that there was a steepening of the decline. And yet when I look at your data on the Chinese property market, it looks like NBS orders were relatively -- in real terms were relatively stable in terms of dynamics. So just wondering, is that because of rounding? Or -- what do you see on the ground in the field? Was there a worsening in the NBS market actually maybe towards the end of Q3? That would be my first question. The second question, if I just may add on, is on the financial income that you've reported for Q3. If I saw this correctly, you've posted a negative financial income for Q3. If you could just elaborate on the reasons for that, that would be helpful. Ilkka Hara: Okay. I'll take them in reverse order. So the financial income is related to hedging. And if you look at the 9 months year-to-date, that gives you a better picture. So Q2, Q3, you see the opposite direction there. So in 9 months, you see the real underlying performance there. Then on China, so I think as I've said during the last few years that a lot of the KPIs fluctuate somewhat. And whether it's better or worse around that volatility, our view of the market has not changed. So we are seeing the market to decline this year in units and value double digit and more in value than in units. And I would say that during Q2 Q1, Q2, there was a bit some signals that were better, but I would not say that the Q3 has been something where we've seen a big change overall. And it's important for us to also note that, yes, we want to be a meaningful player in China and want to go after the service and modernization opportunity. But as Philippe already said, and I said, I guess, as well that we are optimizing the business to cash flow, profitability and the pivot to services and modernization. So we'll take the business that we see supporting those priorities in NBS then in the market. But I don't see that the market has dramatically -- or there's been a bigger shift during the Q3. Philippe Delorme: And the repeat on the China market, maybe it's clear for everyone, but I will repeat. The market today is 50 NBS, 50 modernization and service. So if there is any change, that is that over multiple years, what was NBS-dominated market, now it's coming 50-50. I'm not having any crystal ball, but it's pretty obvious that, that trend will continue, meaning the share of modernization and service will likely keep increasing if we see what's happening because the country is aging. We see growth and actually pretty healthy growth in modernization. We are driving our service mix first with cash and margin, but there are still opportunity in service. And we are clearly adapting our forces in NBS to take into account that market reality. And I would say on that front, I want to compliment the team for reducing their cost very aggressively, both product cost and the fixed cost we have to adapt ourselves to a market reality, which indeed is going down, on NBS. Operator: The next question comes from the line of Vlad Sergievskii calling from Barclays. Vladimir Sergievskiy: Two questions from me. Can I please start with the follow-up on modernization growth opportunity ahead? To what extent it is driven by the market growing? Or it is actually KONE creating the market for itself by addressing installed base, perhaps in a more proactive way or opening new market niches for themselves? Because I hear your comment that fleet -- the installed base is aging, but it probably has been aging for forever. And KONE modernization growth was almost never as impressive as it is today. Philippe Delorme: I think it's a mix of both. The market is growing, and you have the data on our assumption of the market, but the market growth is good. And we believe that we are gaining market share in that space because we are focused and because we try to drive the right innovation and be customer-centric, which is when you have an elevator in your premise, the last thing you want is having any OEMs coming and say, okay, for months, your elevator is not going to work. So what we are doing is we are listening to our customers and say, you know what, we are going to make it shorter, simpler so that actually we do what's strictly necessary to start with, which very often is electrification upgrade. And then we'll go in a life cycle discussion with you to make that improvement over multiple years with smaller chunk that will be less risky. That's not -- I'm not reinventing the wheel here, but we are executing in a very focused manner, trying to have modular offers in front of this, and it's working very well. So we are gaining share in that regard, and we're really trying to push our team to be very customer-centric on a growing market. And the result is a double-digit growth, which is very consistent, which is driving value for the company, and we are very happy with that. Vladimir Sergievskiy: That's great. And a quick housekeeping question, if I may, to Ilkka. Interest income line was negative about EUR 15 million this quarter, which I think is almost the first time ever when this line was actually negative. Is there something to do with hedging practices? Has any hedging practices changed to drive this change? And where in the P&L, there could be an offset to this line if there is one? Ilkka Hara: So actually, the previous question was on the same one. I said, yes, it's on hedging. And the year-to-date picture gives a better picture of the real underlying income and expenses. So between Q2 and Q3, we had an opposite development on there. Operator: The next question comes from the line of Panu Laitinmäki calling from Danske Bank. Panu Laitinmaki: I have 2 questions. Firstly, on China NBS, just on the margin. So was it still positive in Q3? And going forward, do you expect to kind of protect the margin with the actions you mentioned reducing fixed costs and so on. So that is why you gave the comment that it's a smaller headwind going into '26. Ilkka Hara: Well, yes, on both of the questions. And I guess I was also in the smaller headwind, meaning that the size of the business relative to the size of the rest of the business is smaller. Panu Laitinmaki: Okay. That's clear. Then the second question is on modernization. So how much is parcel modernization out of orders and sales roughly? And then how has the margin of modernization developed? I mean, a year ago, you said at the CMD that it's close to the group average. So is it still there? Or has there been changed so far? Ilkka Hara: We see on the parcel modernization, it continues to be a bigger and bigger part of the modernization. I don't think we've been very clear on exactly how big part of that is. And on modernization, we continue to see, as it has been during the last years that the profitability continues to be improving as we are scaling up the business on modernization. Panu Laitinmaki: Okay. And is it fair to assume that the parcel modernization is more profitable for you than the kind of traditional modernization? Ilkka Hara: Yes, it is. It is focused on the most important components of the elevator and there's less construction work related to that as well. Philippe Delorme: That's what we call the benefit of being modular and standardizing work, which actually for the customer is better value for money. And for us, it's better execution, less time lost in the field. So it's a win-win for everybody. Operator: The next question is from Ben Heelan calling from Bank of America. Benjamin Heelan: I just had one, which was on M&A. Now you've obviously said in the past that you want to be a consolidator of the industry. I just wondered if you -- is that still where your minds in terms of the future of the business? You see consolidation as a focus? And when we think about leverage ratios, is there any sort of framework that you can give us in terms of the leverage that KONE would be willing to go up to? And any framework there? Is it based on credit rating, et cetera? Ilkka Hara: I don't think the comment on the consolidation making sense in the industry has changed. We've said it for a very, very long time. Lately, actually, we've been doing consolidation more on the smaller maintenance companies on an increasing speed. So that's also then that we want to be a driver of the consolidation. Then on leverage, so I guess we don't -- we're net debt negative right now. So it's not been an issue. But I've said previously that we want to continue to be an investment-grade -- strong investment-grade company going forward. Operator: The next question is from Rizk Maidi calling from Jefferies. Rizk Maidi: Just to follow up on M&A and more specifically transformational M&A. Can we maybe just chat around whether you would be considering issuing equity, if you were to pursue a larger acquisition? And then maybe geographically, what are the regions where you feel you have a little or perhaps where we would like to add sort of more exposure? I'll start there. Ilkka Hara: Well, I guess on the first one, so I wake up every morning, and I guess, Philippe as well as somebody who sees that there are bigger companies in the industry. So we're a challenger. We want to grow faster to be the leader in the industry. So that's clear. I don't think it's one geography per se. I think it's a general statement where we want to grow faster than our competitors to make that happen. And as such, then on other things on capital structure, capital raising, I don't think it makes much sense to speculate on that. Rizk Maidi: Okay. And then the second one that I had is just covering the industry for quite some time, and this question is specifically on China maintenance. I think we've seen historically that whenever new equipment business being weak for an extended period of time, we saw that basically spread to the maintenance side of things. I'm just wondering why this should not be applicable. I mean I remember this happening to Europe back in 2013, '14 after the European debt crisis. Just wondering why you think this should not happen in China, whether it's -- you compete with different players, structure of the market different and whether the slowdown in maintenance has anything to do with this? Ilkka Hara: Well, first on China maintenance, I don't think I've ever said it's easy or something where there's not a competition. It is like we see it it's -- half of the market is service and modernization. So of course, everybody knows the same thing. And among the world's fragmented, so i.e. most competitive market in service is China by far. So I think that's a starting point. And then when you have less new elevators enter into the market, then, of course, it makes it tougher. What I'm very happy about is that how our team has been able to address it. And now I call it out because we made conscious decisions now in Q3 that impact the outcomes. And it's not a market-wide comment. It's rather our focus on profitability and cash flow. Philippe Delorme: And maybe to build on your point on China market. When we benchmark across the world, clearly, the China market is more fragmented. And we see at the lower part of the market, companies that are doing the very minimum of what they should do in terms of safety. We see on the other side, the China government being conscious that safety standards should move up, also seeing an opportunity with digital. So my point is not about next quarter, but when I look at a longer time period, I would expect some further concentration because on one side, the lower part of the market would have a hard time to survive with a standard that I would expect would increase with more digital technology that would make it less accessible for, let's say, lower cost, low-value player to deliver a value, which is more and more essential in a country that's being more and more modern and more and more asking for top safety standards. And we have work to do as an industry to help the industry move to a higher level of digital safety and so on. So this is upside. How fast it will materialize, we'll see. We have our role to play here. We are very active on digital to be a digital driver in China. It's taking some time. Rizk Maidi: Perfect. And I promise the very last one, so apologies if this was tackled before because I joined late. Section 232 and its extension to more than 400 products in August, maybe how you're thinking about the direct, but also more importantly, the indirect impact on the business. Ilkka Hara: It is first question on tariffs, and I think there is a reason for it because we don't see that meaningfully impacting our results. We are, number one, of course, working with our own supply chain on what we produce in U.S. and what do we ship to U.S. And actually, the export -- sorry, import to U.S. is less -- about 10% of our business. So it's actually quite small. And then secondly, we're protected by our contracts. So we are actually moving the cost of tariffs largely to our customers. And then, of course, we need to continue to drive product cost actions and efficiency in our supply chain going forward. Operator: Moving on to our next question from John Kim calling from Deutsche Bank. John-B Kim: He just took my question. Someone was strong. Ilkka Hara: Okay. That's good efficiency in action. Operator: And the next question is from Vivek Midha calling from Citi. Vivek Midha: Hope you can hear me. I just have one follow-up really on the questions around service growth with one eye on the quite ambitious aims for midterm growth here and the building blocks there. Is there also any material contribution at all from the strong modernization growth that you've been seeing in adding to the service installed base? Is there expected to be some over the midterm, helping you achieve your targets there? Ilkka Hara: You're seeing me smiling because that's actually a really important topic. And I was talking about the modernization. So the focus and the volume of the opportunities outside of our own maintenance space. And indeed, once we partially modernize an elevator, it becomes a digital modern elevator for us to maintain. So increasingly, that will be a driver for unit growth. And of course, already now with this modernization growth, we're starting to see increasing impact coming from that. And the more mature the markets are the bigger driver for unit growth is modernization in the long run. Philippe Delorme: And those, as you call, modernized connected elevators, actually, we are more efficient in delivering the right output with our customers because we use all our capabilities. So it's playing very positively in the mix. But that's a great point. Vivek Midha: Understood. Just a quick follow-up -- as a quick follow-up on that -- I don't know if you have data, but in terms of the conversion rate of, say, one of these partial mods, for example, compared to NBS, I mean, how does it compare in terms of driving the service there? Ilkka Hara: Well, twofold. So the relative conversion rate is quite high. So it's a very good level. Then still on the absolute volumes, it's still a smaller contributor. So we need to scale up the business, but it's a very good way to increase our LIS base. Operator: There is a follow-up question from Andre Kukhnin from UBS. Andre Kukhnin: So firstly, on the service adjustment in China that where you decided to let go some customer contracts, can you just confirm that, that's a one-off? Or should we think about that for Q4 and then maybe into 2026 as well? Ilkka Hara: I guess I already said it's not a long-term action. But of course, we continue to monitor the business. So let's see now how Q4 develops, but it's not something we expect to continue for years. The priorities don't change, but I think it's more of a discrete focus on this. Andre Kukhnin: Got it. And if I were to think about it, I'd probably think about it being more margin focused than cash as such, as probably some of these units are in fairly sort of spot locations, not really helping density. Is that the right sort of avenue? Or is it cash driven as well? Philippe Delorme: I think it's both, but it's driven by margin, but we've been really very clear with our China team, cash, margin rebalance the business. And there -- I mean, China is seeing some cash tension across the board. So how much is margin and cash? Usually, the 2 are related actually, but it's a bit of both. Andre Kukhnin: And if I may, just one more on China... Ilkka Hara: A follow-up on follow-up. Andre Kukhnin: Yes. Triple follow-up. Is modernization still the highest margin business for you in China? And is there -- well, I think there is scope, but are you also implementing a kind of modular approach there given that you've got a substantial and sort of broader universal installed base there? Ilkka Hara: Yes. So we plan to drive this more modular approach in China as well. And if you think about the size of the buildings, the time to execute the modernization is even more critical for the customers. And we have actually progressed really well be, I guess, fastest in the world in China in terms of driving modernization, is a fair statement. So kudos to the team on that one. And yes, modernization continues to be a good margin business for us in China. Operator: There is another follow-up question coming from James Moore from Rothschild. James Moore: I just wanted to follow up on service and NBS margins at a global level. You mentioned that China's margin is now in a loss in NBS in new equipment. Is that such a loss that the whole global NBS profitability is now a negative one? And the second question is on service margins. Are we at an all-time high in terms of service profitability? And if not, could you say when that was and how many bps or percentage we are below the all-time high? Ilkka Hara: On the first comment, I absolutely did not say that we are making a loss in China in NBS, neither did I say that we're making a loss in NBS globally. So it is clearly a lower-margin business compared to the other 2, but I have not said that we're making a loss. Then second, on services, I'm sure that in the history of 115 years, we've had margins that are peaking due to many reasons in services as well. But I would say that directionally, we continue to see margins improving in services, as we're digitalizing the business and driving productivity and the actions we talked about in pricing and more repair work. So it's directionally continuing to develop quite positively. Operator: Well, ladies and gentlemen, there are no further questions so I will hand you back to your host to conclude today's conference. Thank you. Natalia Valtasaari: Thank you, and thank you, Philippe and Ilkka, for the answers. Thanks, everyone, online for the plentiful questions, lots of varied ones. Really good to have active dialogue. Thanks for everyone who just listened in as well. I know it's a busy results today, so we appreciate the time. And as usual, if you do have any follow-ups, please reach out to me or the team. We're here for you. With that, have a great day. Philippe Delorme: Have a great day. Thank you so much. Ilkka Hara: Thank you.
Operator: Good morning. Thank you for standing by, and welcome to the Sodexo Fiscal Year 2025 Results Call. If you -- I advise you that this conference is being recorded today, Thursday, October 23, 2025. I would like to hand the conference over to the Sodexo team. Please go ahead. Juliette Klein: Good morning, everyone. Welcome to our fiscal 2025 results call. I'm here with Sophie Bellon and Sebastien De Tramasure. They'll go through the presentation and then take your questions. [Operator Instructions] The slides and the press release are available on sodexo.com, and you'll be able to access this webcast on our website for the next 12 months. Please get back to the IR team if you have any further questions after the call. I remind you that our Q1 fiscal 2026 revenues announcement will be on Thursday, January 8. With that, I now hand over to Sophie. Sophie Bellon: Good morning, everyone, and thank you for joining us today. We spoke to you a couple of weeks ago regarding our governance changes. And today, we are going to cover our fiscal year '25 results and our priorities and outlook for 2026. Just on the slide here, a brief summary of what we're going to cover today. When I became CEO in 2022, our priorities were clear: reposition Sodexo as a pure-play food and services company and simplify the organization. Over the past 3 years, we've made solid progress, streamlining the portfolio, refocusing on food, accelerating key investments and strengthening client relationships. These were essential steps to build a strong foundation for sustainable growth. In financial year '25, results came in line with revised guidance, reflecting both operational and commercial challenges. We are actively addressing these with targeted action plan in commercial and in U.S. universities. We're also continuing to strengthen our foundation. With this in mind, fiscal year '26 will be a year of transition and the start of a new phase for the group. Thierry Delaporte will soon take over as CEO, bringing the right experience and profile to drive operational execution, accelerate commercial momentum and lead the group forward. But let's now first take a backward perspective on our key achievements from the last 3 years and 2026 priorities before Sebastien walk you through the fiscal year '25 results and the resulting fiscal year '26 guidance. Turning to the next slide. While I won't go into every detail here, this timeline of recent years shows the major steps of our shift to a pure-play food and services company. We have simplified our structure through geography reorganization and the sale of Sofinsod. We have actively managed the portfolio by spinning off Pluxee and making other non-core disposals, while pursuing targeted acquisitions to accelerate in food. So if we look now at the impact of this refocus on core activities, you can see that there has been real progress in the numbers. Let me pick out some highlights. Food now covers more than 2/3 of our portfolio, up from 62% in fiscal year '22. We have modernized the offer based on data-driven insights across culinary, digital and sustainability. Digital engagement has surged almost 6 million active consumers, up from just over 1 million, showing how we're expanding our reach and creating new growth avenues. Our branded food offer now represents over 50% of revenues versus less than 20% 3 years ago, improving client experience, standardization and operational efficiency. Entegra has more than doubled in size, boosting procurement benefits, and we have also advanced catalog compliance, both strengthening our competitive edge. On sustainability, we are hitting the targets we set on workplace safety, carbon and food waste, thanks to close collaboration with our clients and partners, and we are leading by far the industry on those aspects. And all of this is creating tangible value. Our underlying earnings per share has grown at 14% compound annual growth rate, and we have seen a marked improvement in our return on capital employed. Moving on to commercial performance. We have made a solid improvement in retention and development compared to the pre-COVID period. Over the last 3 years, our average retention is 94.5% versus 93.5% between 2017 and 2019. Likewise, on development, we signed around EUR 1.7 billion of new contracts per year, including cross-selling compared with EUR 1.4 billion before the pandemic. This is a result of our ongoing focus on processes, team culture and competence, but also client relationship. However, this does not reflect our full potential with fiscal year '25 presenting some commercial challenges. In fiscal year '25, retention came in at 94% due to the negative impact from the loss of a global account and softer performance in North America, in particular, in Education. Performance is uneven across the business. For example, U.S. Healthcare. In U.S. Healthcare, we delivered retention above 97%. And in France and Australia, we were above 96%. On development, H1 was strong, especially in Europe and Rest of the World, but H2 softened and total new business landed at EUR 1.7 billion. North America, which remains our largest market, is where we need to improve. We have clear actions underway. We are addressing near-term priorities in U.S. Higher Education, and we are strengthening our U.S. sales team through expansion and training. We are also investing and reorganizing to make sure we capture the market's potential. I will now walk you through in more detail how we are addressing the challenges in U.S. Higher Education. We clearly had some performance gap over the past couple of years in this segment, and it's translated into market share losses. Since February, together with Michael Svagdis and his team, we have carried out a comprehensive diagnostic process to fully understand the root causes behind this lack. A few key issues stood out. First, our footprint is still too concentrated in small and midsized institutions. Second, we have not focused enough on mid-plan renegotiation. And third, we've had some resource misalignment. The remedial action plan is already well underway. Michael has put in place a new organization with culinary and digital now reporting directly to him, and he has reenergized the team to drive best practice and greater standardization. Our sales function was clearly subscale, so we have expanded the team by 50% with the newly hired sales executives already in place and operational. We are also targeting more large universities and athletics, working more closely with Sodexo Live!. To strengthen existing relationship, we are growing our account management team and refreshing our broader teams, bringing in new talent where needed to ensure the right capabilities are in place. Execution is a big focus. We are currently renegotiating 75 meal plans for implementation in fall 2026, and we have rebuilt the meal plan team, which had been disbanded during the COVID period. Now we are harnessing data and tech to methodically track what's selling, where and to whom. We are deploying digital platforms like Everyday and Grubhub, and strengthening our own retail brands to streamline the offer. This plan is clear, but it won't be executed overnight. Some levers will take time. And given the timing of the selling season, fiscal year '26 is largely set already. The goal is, therefore, to restore growth momentum and capture new market opportunities progressively from fiscal year '27 onward. Michael and his teams are laser-focused. Michael has visited more than 20 campuses in the last 3 weeks. The feedback is very consistent. Universities are under financial pressure. They are becoming more business-driven, and they are open to change. That creates challenges, but also a lot of opportunities, and we are now in a much better position to seize it. So as you can see, we have set focused priorities in the U.S. for this year, short term very execution-driven, to put us back on a stronger trajectory. With that in mind, fiscal year will very much mark itself as a year of transition. It will still reflect some of the commercial challenges we have just discussed, but also the investments we are making to strengthen our foundation to drive efficiency, accelerate digital and prepare for long-term growth. Sebastien will get back to that. We have a strong foundation to build on, with a solid balance sheet and the flexibility to invest where it matters most. We are the #2 player globally with a balanced portfolio across regions and segments. We have the scale to leverage procurement, technology and operational excellence across the group. Our culture remains a key driver of sustainable performance, purpose-driven, people-focused and deeply engaged with our clients. Retention in our industry drive resilience, and our teams are proud to deliver on our mission every day. And of course, we operate in a large and attractive market, still 50% in-sourced with significant outsourcing opportunities ahead of us. Looking ahead, I'm also very confident in the next phase for Sodexo. On November 10, Thierry Delaporte will join us as Group CEO. He brings over a decade of leadership experience in the U.S., strong digital and AI expertise and proven track record in leading large people-intensive organization. He's operational and execution focused and deeply aligned with our values. He is the right fit to take Sodexo into its next stage of development. And with that, I'll now hand over to Sebastien to take you through the fiscal year '25 financial and fiscal year '26 guidance in more detail. Sebastien De Tramasure: Thank you, Sophie. Turning now to our fiscal '25 performance. Overall, our performance was in line with our revised guidance. Organic growth came in at 3.3%, slightly higher at 3.7%, excluding the base effect from the major sports events and the leap year in fiscal 2024. Underlying operating margin was 4.7%, up 10 basis points at constant currencies, while on a reported basis, it was broadly flat due to the FX headwinds. Free cash flow was EUR 459 million, including the exceptional cash out of circa EUR 160 million related to the finalization of the tax reassessment in France. And excluding that, our cash generation remained robust with an underlying cash conversion of 91%. Underlying EPS reached EUR 5.37, representing a rise of plus 3.7% at constant currencies. And the Board will propose a dividend of EUR 2.7 per share, up 1.9% versus last year and in line with our 50% payout policy. So now let's have a look at our performance by geography. Breaking down our results further, all regions contributed positively to our performance. Our largest region, North America, delivered 2.8% organic growth, reflecting strong results in Sodexo Live! and Business & Administrations, along with solid underlying momentum in Healthcare despite timing impact and partly offset by contract losses in Education. In Europe, organic growth was plus 1.7%, or 2.7%, excluding the base effects from the Olympics and the Rugby World Cup with steady progress across segments, notably in Healthcare & Seniors and Sodexo Live!. Rest of the World delivered strong organic growth of 7.5%, which was mainly driven by strong performance in India, in Australia and Brazil, which remain key countries where we are strengthening our positioning and consolidating our market share. And overall, close to 86% of our revenue in this segment are generated by Business & Administrations services. On margins, North America was stable at constant currencies, while Europe and Rest of the World improved 20 basis points, lifting the overall margin for the group of 10 basis points, to 4.7%. And the margin also reflects procurement efficiencies and benefit from our Global Business Services Program. So now let me guide you through the full P&L picture. Fiscal '25 consolidated revenue reached EUR 24.1 billion, up 1.2% year-over-year. As already mentioned, we faced currency headwinds this year, mainly from the U.S. dollar and several Latin America currencies, which had a minus 1.8% negative impact on revenue. And we also saw a small net impact from acquisition and disposal of minus 0.3%. Underlying operating margin, as we discussed, was stable on the reported basis and improved 10 basis points at constant currencies. Other operating income and expenses reached minus EUR 154 million with minus EUR 97 million of this related to restructuring and efficiency initiatives covering our global business service program, ERP implementation and other organizational optimization. Operating profit came in at close to EUR 1 billion compared with EUR 1.1 billion last year. Net financial expenses were EUR 88 million, lower than expectation due to some one-off gains. The new USD bond issuance had little impact this year as higher coupons were largely offset by cash interest income and gains from tendering existing bonds. However, net financial expense will increase next year as a result. The tax charge was EUR 198 million with an effective rate of 22.2%, reflecting updates on the tax credit and use of previously unrecognized tax losses in France. And looking ahead, our normative tax rate is expected to be around 27%. As a result, group net profit reached EUR 695 million, translating into EUR 785 million of underlying net profit, which was up 3.7% at constant currencies. So let's now turn to cash generation, which remains a key strength for the group. Free cash flow in fiscal '25 was EUR 459 million, compared with EUR 661 million last year. The change in operating cash flow mainly reflects the exceptional tax outflow for around EUR 160 million related to the finalization of the tax audit in France. Working capital remained well contained and net capital expenditure increased by 3%, translating into a CapEx to sales ratio of 2%, broadly in line with last year. Acquisition net of disposal amount to an outflow of EUR 93 million following the acquisition of CRH Catering in the United States and Agap'pro, a GPO in France. Both acquisitions fully aligned with our strategy to strengthen our convenience business in the U.S. and our procurement capabilities. Overall, our free cash flow remains solid, supporting both reinvestment in the business and shareholder returns. Then at the end of the financial year, net debt stood at EUR 2.7 billion, which was slightly higher than last year, while EBITDA increased by 2% over the same period. So this translated into a net debt-to-EBITDA ratio at 1.8x, within our target range of 1 to 2x. During the year, we repaid the EUR 700 million bond maturing in April 2025 and successfully issued a USD 1.1 billion bond. And part of the proceeds was used to repurchase some of our 2026 bonds. Overall, the balance sheet remains solid and give us the flexibility to invest in growth. So now that we have looked at the performance and the financials for the year just ended, I'd like to take a step back and talk about how we are accelerating our investment in foundations that will drive our long-term efficiency and profitable growth. This is really a strategic phase for the group as we are making significant investment into our HR, finance and supply system and our food and FM platform. In short term, this will put some pressure on margin, but it is essential that we position ourselves for improved efficiency and stronger profitable organic growth. We will continue to invest in sales and marketing, especially in North America to ensure more consistent net new business, as Sophie stated earlier. An important part of our investment program is supply chain management with a strong focus on the U.S., where we are optimizing processes, systems and ways of working to improve both cost and agility. The idea is really to bring more sites into a single unified purchasing system, giving us much better visibility on spend and allowing us to track compliance in real time. We are also standardizing our menus and recipes, so that they automatically link to order guides and purchasing system. And that means simpler execution for our site manager, stronger compliance and more leverage from our volume, including greater pooling between our on-site operations and Entegra. All of this is about making compliance and efficiency happen at the site level, and we are now incentivizing our unit manager directly on compliance. Another key area is our digital and IT foundations. Our global ERP rollout is a perfect example. It allows us to standardize end-to-end processes, secure our infrastructure, which is instrumental in all aspects of our operation, obviously, for data and performance management, but also to strengthen client account management by giving teams better visibility and faster insights. We are also investing to enhance our analytics and AI capabilities to support better decision-making, sharper performance tracking and faster execution across the organization. Finally, Global Business Services is another major focus. We are transforming support function into a shared service model with center in Porto, Mumbai and Bogota, now employing over 900 people. And these teams are centralizing finance, HR, other functions like supply and legal. And by doing this, we are driving efficiency, standardization and innovation while also creating talent hubs for the future. And we are already seeing some early benefits. For example, in the U.S., more than 90 positions were moved over to the Bogota center during the summer, improving competitiveness, process harmonization and supporting employee administration, recruitment and tender preparation. So this is really the second leg of our near-term priorities. The first being the U.S. turnaround that Sophie discussed before. And this investment position us to capture growth more effectively in the future and over time, and the margin improvements will follow. It's also about building the right platform today to deliver stronger performance tomorrow. Now moving to the outlook for fiscal year 2026. As we mentioned previously, fiscal 2026 will mark a year of transition as we proactively address the commercial challenges faced in 2025, especially in North America. And at the same time, we are accelerating the investment in our foundation, as just mentioned, to build a stronger platform for future efficiency and profitable growth. With that in mind, our guidance for fiscal year '26 is as follows: We expect organic growth between 1.5% and 2.5%. This includes a minimum plus 2% contribution from pricing, neutral to moderate contribution from both like-for-like volume and net new business and a one-off reclassification triggered by the renewal of a large contract. And this last point relates to a large NorAm contract currently being renegotiated. And under the new terms, we will act as an agent rather than the principal, meaning that revenue will be recognized on a net basis. And this will mechanically reduce reported organic growth by around 70 basis in fiscal year '26 with the new terms of the contract taking effect during the second quarter of the year. And our underlying operating margin should be slightly lower than fiscal year 2025, reflecting mix and timing of growth driver and the targeted investments we are making. In terms of quarterly phasing, we expect a relatively soft start with growth gradually improving over the year. This will be mainly driven by North America, where the impact of last year's Education losses will be most visible early on. And in addition, several contracts existed last year will annualize in the second half. Now I would like to conclude with you on our capital allocation priorities. We remain focused on disciplined execution, and that also applies to how we allocate capital. On capital allocation, framework remains balanced and consistent, designed to support both near-term execution and long-term value creation. First, we continue to focus on organic growth, with acceleration of our investment and CapEx objectives remaining unchanged at 2.5% of revenue. We remain selective on M&A, targeting midsized bolt-on acquisitions that are accretive and aligned with our strategy. On average, we expect to allocate about EUR 300 million per year to M&A, mainly focused on convenience, GPO and food services in our key existing markets. And recent acquisitions fit perfectly within the framework and the closing of the acquisition of Grupo Mediterránea expected to happen by the end of the calendar year. It's also part of the objective to strengthen our food services position in our key markets. And this acquisition will allow us to double our footprint in Spain. Furthermore, we are committed to optimizing returns to shareholders. Our dividend payout ratio is unchanged at 50% of underlying net income, ensuring an attractive and balanced remuneration for shareholders. And finally, we keep a close eye on liquidity and balance sheet strength, with a leverage ratio maintained between 1x and 2x and a commitment to preserving our strong investment-grade ratings. Overall, this framework supports our near-term priorities while providing the flexibility to adapt. With that, we are very happy to take your questions. Operator: [Operator Instructions] First question is from Jamie Rollo, Morgan Stanley. Jamie Rollo: Two questions then. First, could you please quantify the margin guidance? What is slightly lower, please? And also, is that pressure in all the regions? Or is that going to be concentrated in North America? And the second question is, you're describing '26 as a transition year, but you said the other day that the new CEO probably wouldn't announce their review until maybe early summer, which could that not mean that 2027 then is another transition year if there were further changes to be made? Or are you going to be doing all of the implementation in 2026? Sebastien De Tramasure: Thank you, Jamie. So I will take this first question about the guidance. So as I said, the objective is to have an operating margin to be slightly lower than fiscal year '25, reflecting really the mix phasing of our growth driver and also the phasing of the targeted investment we have to do. Then, the reason we did not give a range is that because there are a lot of moving parts. Again, at this stage, we do expect margin to be slightly below fiscal year '25. There are different drivers. Again, the low organic growth with small optimization in terms of volume increase. And then there is a timing of the investment. And also, we do expect also some headwinds from the -- from the exchange rate that will also impact our margin. So a lot of moving parts, the reason why we decided not to quantify this guidance. Sophie Bellon: So thank you, Jamie, for your question. I will take the second question on the transition. So 2026 will be a year of transition in several ways. First and foremost, it's a year marked by a change in leadership with the upcoming arrival of Thierry as the CEO next month, on November 10. It's also a year of investment to continue to lay the foundation for sustainable future growth. We are investing heavily in our HR, in our finance, in our procurement system, in tech and data as well as in our food and FM platform. And in the short term, this weigh on our margin, but I think it is essential to prepare for the future to be more efficient, more agile and to support sustainable growth. So for example, in the supply chain, particularly in the U.S., where we are improving our processes and system to better manage our expenses. And also, we want to increase our compliance in real time. We're also investing in data and analytics and artificial intelligence to better track the performance and execute faster. And -- does it mean another year of transition in '27? No, we are not standing still. We have our near-term priorities, U.S. Education, as an example, the investment in the commercial, and our underlying organic growth is between 2.2% and 3.2%. So we are moving forward, and we are in the actions. Jamie Rollo: If I can -- can I just come back on the margin answer? I appreciate you can't give guidance. There are lots of moving parts. But obviously, with a margin of under 5%, every 10 basis points is quite a big impact. I mean, is slightly lower nearer to 10 basis points or nearer to 30? Sebastien De Tramasure: Again, as I said, Jamie, we are not quantifying the guidance at this stage. We are talking about a slight decrease in terms of margin. And to also answer your question, the pressure on margin will be mostly in the U.S. because, again, as I said, our focus on accelerating investment in sales and marketing and all the supply initiatives will be also focused on strengthening our position in North America. Operator: Next question is from Estelle Weingrod, JPMorgan. Estelle Weingrod: I've got three, please. I mean the first one on U.S. Education and Higher Education more specifically. Could you give us some initial colors on the full-term enrollments? Then on North America, again, you elaborated on the action plan underway in the U.S. When you talked about targeted investment to enhance foundations for profitable growth, is it mostly investment in U.S. Higher Education? And within this, is it mostly about expanding sales higher? You mentioned 50% expansion of sales teams. And last question is just on your -- on modeling details. You've got that slide in the PowerPoint. On other income and expense, you guide for EUR 160 million, which is broadly flat year-on-year despite the step-up in investment this year, being an investment and transition year. So I was a bit surprised there's not more of an increase there. Sophie Bellon: So thank you, Estelle. I will take the first question on U.S. Education and Sebastien can answer on the other two questions. So first, you asked on the enrollment. The early indication from our boarding data show that we are about 0.7% below last year in our comparable base, and it really varies from countries to another. Some are growing, others are slightly down. Geographically, we're seeing softer trends in the Midwest and Northeast, while the Southwest and Southeast are showing increases. And these figures are still preliminary, and we'll have a more definitive year-on-year view once final enrollment numbers are confirmed over the next few weeks. But obviously, we are not standing still looking at that. Let me remind you the measures we are taking, and I told you, to boost volumes, retail and of course, to win new clients in the next selling season. And I explained that earlier in the presentation. Also, if we go specifically on international students, enrollment for the fall 2025 is expected to drop due to visa delay, denial, revocation, post-graduation restriction. So it will mostly be graduate program and will be most affected. We could reduce demand for housing, dining and other campus services. And undergrad services like mandatory meal plans are less affected. And also, what we see is that universities are adapting with, for example, mid-semester starts, which may mitigate some of that decline. And of course, we will monitor those trends closely and be ready to adjust our offering, our financial planning and the support to respond to the potential changes in the campus demand. And also, as I said on the slide, we are really investing in our sales force. We expanded our sales team by 50%. So I think it's -- and also investing in our account management team. So we are in the action. Sebastien De Tramasure: So on the second question regarding the investment and the acceleration of the investment in North America. So we have specific investment as described by Sophie for the Education segment. But we are really targeting investment across the organization. We want to strengthen the sales and marketing organization, not only for Education, but for all the segments. And all the investment regarding supply is not only for Education, it's, again, for all our businesses. And on your third question. So we are guiding other income and expenses at EUR 160 million, flat versus fiscal year '25. But the combination of the different restructuring program is slightly different. We had many regional restructuring program to optimize the structure at the regional level in fiscal year '25. We will have less than in fiscal year '26, and we will increase our investment again in our GBS program. The restructuring costs related to the GBS will increase in fiscal year '26. But if we combine both, yes, it's flat between fiscal year '25 and '26. Operator: Next question is from Jaafar Mestari, BNP Paribas. Jaafar Mestari: I have three questions, if that's okay. First one is in terms of your operating models and services. You mentioned some of the qualitative targets that you've achieved this year: branded offers, more than 50% of revenue; Entegra, more than doubled; carbon emissions, minus 34%; food waste, you didn't quite get to minus 50%, but not far. There was another one on digital and new services, 10% of revenue, you haven't said, but I assume you're not that far. My question is, you've achieved most of your soft qualitative targets and yet the overall financial performance was disappointing. What is your assessment here? Did you take targets that were not the right ones, and they need a complete rework under new management? Or was the delivery not deep enough? I guess you can get to 50% branded by changing a logo on the site. So have the teams delivered on these targets the right way, a way that benefits the business? Or have they delivered sometimes in a cosmetic way that has not really helped cross-sell or cross-fertilize the business? Second question, shorter, just on business development. You said yourself, your average signings pre-pandemic were EUR 1.4 billion each year. In H2 '25, this is where you are, EUR 700 million. What have you seen? Is it the industry? Is outsourcing less dynamic? Or would you say it's entirely market share issues on your side? And lastly, on full year '26, net new business, if I look at the forward-looking retention and signings, it looks like you could be a plus 1%, but you never quite get there. And I think that was one of the issues last year where you had 1.6% forward-looking, but you don't quite get there because you lose more staff, because the contracts take time to ramp up. So in terms of net new, could you help us a little bit more in terms of your assumptions in the guidance? Sophie Bellon: Okay. Thank you, Jaafar, for your question. So first -- on the first question, yes, we have delivered. I think when you talk about the offer and the branded offers and the fact that we have reached our target, I think it's a first step. No, it's not just a logo on -- it's not just a logo in a restaurant saying that we are implementing a new offer. It is much more than a logo. It's a menu. It's a number of SKUs that are linked to that menu, and it's more compliance. So I think it's a first phase. And I agree with you that it's not driving gross profit enough yet. And we are fully aware of that and especially in the U.S. where our compliance, at the site level, is not sufficient. And that's why starting in September, all our managers are incentives, from the site manager and upwards are incentives on the compliance. It's a new -- it is for every member in the organization. I think also when you have -- so it takes more time than just sending the offer. You need to also go -- we need to go deeper now. Second, when we talk about the, for example, the digitalization and the fact that now we have 6 million of people that can have access through -- digital access, it will also drive the revenue because we have seen that. And it will also drive the margin because we will be able to answer better what people want on a daily basis. So on your third question, I will let Sebastien answer, and then I will get back to you on the net development. Sebastien De Tramasure: Yes. So on the net new, you're right. I mean, the net impact, if we take the looking forward KPI, 1.4%, and then the in-year impact expected for '26 will depend obviously of the net new from '26 as well and the in-year impact. It depends on the phasing of the development, phasing of the retention. And it's the reason why we took this year a more cautious approach, I would say, baked into the guidance, as we said that the net new impact in-year expected for fiscal year '26 should be between neutral to moderate contribution. And again, the phasing development retention is explaining this cautious guidance in terms of net new impact for fiscal year '26. Sophie Bellon: And in terms of the -- the last question was about the development, right, and the EUR 1.7 billion. Clearly, this year, as I said it in my introduction, financial year '25 has been a challenging year and on new development, especially in the second half, we had a first -- a good start in H1. And what we see -- and the second half was very disappointed. What we see is that, for example, in the U.S. our hit rate with big contract is not sufficient. I think we are doing well in Healthcare, and we had a good net development. We had, as I said, a good retention in Healthcare in the U.S. this year, but we also had a good development. So a net development above 2% in Healthcare in the U.S. We have invested for a while in those teams. We have teams that are capable of addressing and winning a large contract. And we are in the process also of building and strengthening those teams in the U.S. in the other segment. But that being said, there are countries or geography where -- like France or like Australia, where we are winning market share and where we have a good net development rate. So we need to make it happen everywhere. Jaafar Mestari: And that last qualitative target that you didn't explicitly say, the 10% of revenue from digital and new services. Did you achieve that in '25? Sophie Bellon: I'm not sure I understand your question. Jaafar Mestari: I think in your qualitative target, you had doubling Entegra, and you had reaching 50% branded offers, but you also had a target to reach 10% of group revenue from vending and digital and new services. So I just wanted to check if that one was on track as well. Sebastien De Tramasure: On that one, we are slightly below this 10% objective we defined at the beginning of the... Sophie Bellon: 8%. Sebastien De Tramasure: Yes, we are around 8% in terms of covering of -- from advanced food model. Operator: Next question is from Simon LeChipre, Jefferies. Simon LeChipre: I've got three, please. First of all, on organic growth for next year. Could you clarify the timing of the demobilization of the global accounts and also the timing of the -- impact of the reclassification of the contract? I don't quite get why organic growth should drop from 4% underlying in Q4 to kind of 1.5% in Q1, and then how you would then accelerate in subsequent quarters. Secondly, on this contract reclassification, could you clarify if there is any impact on profit and on margin in percentage terms? And lastly, in terms of the organization, I mean, I noticed that Michael is managing Government Services on top of universities. What is the rationale for this? And does that mean you do not necessarily believe in a strategy focused on sectorization similar to what your closest competitor is doing? Sebastien De Tramasure: I will take the first one. So regarding the timing of demobilization of the global account, if you look at the one we lost in fiscal year '24 and the one we lost in fiscal year '25, basically, the overall impact for fiscal year '26 is minus 50 basis points. And it's -- combining both, it's similar impact between H1 and H2. Regarding the reclassification of a large contract in North America. So here, we are talking about a preemptive renegotiation and to extend, the duration of this contract. As I said, we -- given the new term of the contract, we moved from gross revenue to net revenue. And overall, we are renegotiating the economics of the contract, and we are not expecting any significant impact in terms of margin, in terms of [ UOP ] margin. Sophie Bellon: And on the third question on organization, it -- why is it together? Because it has been historical. The person that used to be in charge of Government then extended his role to University. Yes, of course, we are doing market sectorization. It's the only exception. I want to remind you that for us, Government is not a priority. It only represents 4% of our revenue and with a huge contract that you know, U.S. Marine Corps. And so it has been part of that portfolio. And I don't think it's -- it doesn't affect the bandwidth of -- that Michael has to put on universities. And just for the U.S. Marine Corps, because it's the biggest part of that Government business, it still runs for another 18 months. And we are working proactively to -- we expect the client to launch an RFP , but we are fully engaged in the process and also -- yes, fully engaged in the process. Sebastien De Tramasure: And I will go back to your question -- sorry, I'll go back to your question about Q4 underlying versus the guidance in terms of organic growth. We have to keep in mind that Q4, the mix and the weight of Education is lower. So it means that this had a positive impact in our Q4 organic growth. It will not be the same for the full year '26. And also, we had a very strong Q4 fiscal year '25 in Sodexo Live!, with a more than double-digit organic growth in the U.S. with some specific events. And this will not obviously reproduce the full year '26. We will not have 10%, double-digit organic growth in Sodexo Live! during the full year '26. Simon LeChipre: Okay. Just on this impact of contract reclassification, I mean, can you quantify it? And is it going to impact you as soon as Q1? Or does the impact start later on in the year? Sebastien De Tramasure: Okay. So we are currently, again, under renegotiation of this contract. Again, it's a preemptive extension of the contract. Today, we are expecting to sign the renewal of the contract in Q2. So the impact will start in Q2 fiscal year '26, and it will impact negatively the organic growth by 70 basis points for fiscal year '26. Simon LeChipre: So it means that you need to accelerate organic growth after Q1 to offset this impact on top of the rest, right? Sebastien De Tramasure: Yes. And that is the plan, again, with some ramp-up of development. And again, this phasing of Sodexo Live! will be quite different between fiscal year '25 and fiscal year '26. Operator: Next question is from Leo Carrington, Citi. Leo Carrington: If I could ask just two questions. Firstly, I appreciate he doesn't officially start for 3 weeks, but did Thierry Delaporte have any input into setting this guidance? And then secondly, just on the margin outlook again. In terms of the factors pushing margins down mix phasing investments, is it correct to say these are all headwinds? And in terms of the relative importance of all three of them, is one more important than the other? The investment sounded significant, but I wonder if you can quantify that. Sophie Bellon: So thank you, Leo, for your questions. I will take the first one. So regarding the involvement of Thierry, of course, we had a few preliminary discussions with him. But I remind you that he's only starting on November 10. And however, the financial year '26 guidance reflects the work of the current team. It's also the result of a bottom-up approach based on the visibility we have for the year. Sebastien De Tramasure: Okay. And on the investments, so we are not providing any specific quantification at this stage of each investment. We'll do it in another time, I would say. And again, there are moving parts on this timing of the investment. It's the reason why we said that, again, it will have [ this ] negative impact in terms of margin for next year. Operator: Next question is from Kate Xiao, Bank of America. Kate Xiao: I have a couple. The first one is a follow-up on the previous question on branded offer. You mentioned, Sophie, that now the first step is done, and you need to go deeper now. I wonder if you could elaborate what that means? Do you mean a further, I guess, change of the organization, change of the team so that it's more brand focused, more sectorized? And would this be a big task for the new CEO? That's my first question. And the second question also on just investment. I think, Sophie, you mentioned before for fiscal year 2024, you spent more than EUR 600 million on IT, data, digital. I wonder what that number is for '25? And do you see a step-up in '26? If you could just -- obviously, I appreciate you cannot give us exact numbers, but the level of step-up would be really helpful. And then just number three, specifically on retention. I think you mentioned that you're doing preemptive renegotiations with big contracts. I guess, any progress there? Are you doing more in terms of preemptive retention -- preemptive efforts to help really with retention? If you could elaborate on the efforts there? Sophie Bellon: Okay. So I will take the first question on the branded offers. I think it's a work, as I said, that started a couple of years ago. And when I mean go deeper, it's that -- for example, we are implementing in Education a brand that -- are -- one and all brand, it's close to EUR 1 billion of revenue, thanks to the active conversion of the sites during summer break. Now it's our largest brand globally and regionally. So it means that now the team have adopted the brand, but then we need to make sure that the implementation is happening right, that the right recipes are implemented, that the right menu, the right products. And it's by -- when I mean go deeper, it's making sure that operationally, it happened on each and every site the way it should happen. That's why I explained that, for example, in the U.S., where -- when you implement a brand, like I just said for University, it implies a lot of people. We have also added for every single manager the compliance because that's what will improve the margin and the profitability on those sites. And then about Thierry, of course, he will make his assessment of the situation. But definitely implementing the brands and not just putting names but an offer with -- that matches the client and also especially the consumer needs with price points, more standardization, less SKUs, better leverage on our purchasing powers simplifying the bid process. All that takes time, but it will definitely help us make progress. Maybe, Sebastien, you want to answer the second question? Sebastien De Tramasure: On the investment in IT and digital, based on all the ongoing program, we have been increasing our investment if you take OpEx and CapEx in fiscal year '25 compared to fiscal year '24. And again, with this acceleration of our transformation with the ERP, with the finance supply platform, the food platform as well, AI and data, again, this amount will continue to increase for fiscal year '26. Sophie Bellon: And in terms of retention, as we said, we have made progress, and there are areas or countries where we are fully aligned with our targets, to be above 95% and at some point, in midterm, at 96%. And on the preemptive bid, yes, we are pushing. I don't have the exact number with me today, but we can get back to you. And we are definitely pushing, and it's something that we want to make happen, as I said, not just in some geography, but all geography and all segments, especially in the U.S. Operator: Next question is from Sabrina Blanc, Bernstein. Sabrina Blanc: I have three questions from my part. The first one is regarding the branded offer. I would like to have more idea of how it has been organized. I mean, who has designed the brand, who is in charge of the leadership of the brand? My second question is regarding -- you have mentioned the hiring of commercials. I would like to understand in which areas specifically, if it's regarding the GPO for new commercial? Or is it commercial dedicated to the retention? And are they incentivized in these three key segments? And lastly is regarding the M&A. You have mentioned bolt-on acquisition, but we would like to understand in which areas you are focusing and what are your KPIs? Sophie Bellon: Okay. Thank you, Sabrina. So for the branded offers, for example, I just discussed, all in one, in the Education market in the U.S. This brand has been designed one and all -- sorry, in the U.S. in the University business. It has been designed by the team in Universities and getting some support from the North American marketing team. There are some brands like Modern Recipe where we have -- that we have implemented in different countries, in the U.S., but also in Europe. And there, we have a center of expertise at the group level, so we can accelerate the share of best practice between countries. And -- but it's the countries that are responsible for growing the brand at the local level by segment because, of course, those offers are different what we propose, an indication is different from what we propose with a Modern Recipe or Good Eating Company in corporate services, even though sometimes Good Eating Company, if there is a need, could also be proposed on a campus. But the brands belong where most of the revenue happen with that brand. On the second -- your second question about commercial: in which area specifically? Well, in all areas. Now we hired a number of salespeople with -- in the GPO and in our Entegra business and especially in the U.S. But we also hired -- as I said, we want to increase our sales team. And we have increased our sales team, I think, in the U.S. by 30% this year. And how are they incentivized? We have changed the incentive for our sales team. And we have revamped our sales incentive structure. Previously, it varied by region and wasn't always linked to the individual performance or profitability. Now we have a global commission that based system with a consistent rule across the region. It includes clear threshold and accelerators for over-performance and staggered payouts to ensure quality and overs. And we also -- we have also added specific incentives for renewals, cross-selling and strategic priorities. So in terms of sales incentive, we have worked a lot. And now it's really rolling out, and it's really implemented for fiscal year '26, but we have really worked a lot on making sure that we have the right incentive and also the right teams. We have changed a number of people in our sales team. Sebastien De Tramasure: And to the third question regarding M&A. So we have a very clear strategy regarding M&A. We want to invest in food. We want to invest in our existing markets. And then we have done investment in GPO, especially in Europe over the past year and especially in France in fiscal year '25. We are also investing, and we have been investing since 2022 in convenience in the U.S. So here again, we are talking about small, midsized bolt-on acquisition, very important to get the scale and the efficiency with the supply. And then we want to invest in also a key market on food, again, market share in the U.S., in Europe, also in the Rest of the World, but again, focusing on our key existing markets. A good example is the acquisition, the signing of Grupo Mediterránea in Spain. It will allow us to double our footprint in the Spanish market. And also, we can also do some small acquisitions to gain capabilities in advanced food models. It can be also linked to commissary and central kitchen capabilities. And in terms of indicators, [ LGO ] payback, we look at the [ LGO ] payback below 10 years. And we looked at the ROCE and the objective is to have a ROCE above 15%. Operator: Next question is from Andre Juillard, Deutsche Bank. Andre Juillard: Just a follow-up on investments in general. Could you give us some more color about what you plan to do in terms of IT and reporting software? Do you still have some significant investment to do on that side? And could you give us some quantification on that? And regarding CapEx, you remain relatively low with 2% compared to your main competitor. Do we need to anticipate a significant improvement on that side or not? Sebastien De Tramasure: So I will start with the CapEx. So you are right. Today, our CapEx level is around 2%, fiscal year '24 and fiscal year '25. The objective is really to reach 2.5% with, I would say, two main components. The first one is supporting retention and development. So we need CapEx to sign large deals. And as we said before, this is one of our priority. And then we need also CapEx for the -- our investment in IS&T and digital, especially for our ERP program. So this is really the reason for the targeted increase in terms of CapEx. Sophie Bellon: And just to add to what Sebastien just said, in terms of CapEx, as I said -- and as I said also earlier, we want to sign more large deals, and we want to improve our hit rates on large deals. So the way that happens, the large deals are the one where we spend more money. And the fact that our hit rate has not been as good as expected explain also the fact that our CapEx today is closer to 2% than 2.5%. So hopefully, when our hit rate with those big targets improve, it will have an impact also, and it will automatically increase the percentage of our CapEx, and we will get closer to 2.5%. Andre Juillard: But you still consider that 2.5% is the right number? Sophie Bellon: Yes. Well, we have been talking about 2.5% and still staying at -- so far now, we really want to reach 2.5%. And if you know, some specific deals that sometimes it happens in Sodexo Live! or in Universities in the U.S., if we need to go beyond, we will go beyond but not systematically. Operator: Next question is from Johanna Jourdain, ODDO BHF. Johanna Jourdain: Two questions from me. First one, could you please remind us the level of renewals in large contracts to come in '26? And can you update us on where you stand there on those renewals? And second question, can you update us on the ramp-up of the Healthcare contracts that were delayed in '25 or late to start and in particular, the captive contract in North America? Sophie Bellon: So thank you, Johanna, for your question. So the level of renewal for the large contract, I think you're talking about the GSA contract because last year, we had -- in fiscal year '24 and '25, we had a big number of those GSA contracts in renewal. And today, this fiscal year, we don't have any. So there will not be any renewal of those large contracts and a very small number also for fiscal year '27. The contract that we discussed earlier is not -- it's not a global account. And so that's for a clarification on those large contracts. And then for captive, first, last year, we talked about the ramping up of Healthcare and especially that contract. We have had two big contracts in Healthcare, ProMedica and University of Cincinnati that started in June and July. So there, we are on track. And as I said, we had a very good net development for Healthcare during the fiscal year '25. For captive, during the first year, as I remind you, it was a very innovative contract. And the first year, we spent more time and focus than anticipated in evaluating the existing client for the transition into the captive program. And this led, as you know, to a slower-than-anticipated ramp-up of new business. We signed the very first contract with captive members at the end of financial '25. Currently, we are negotiating with a significant number of clients. The pipeline is well advanced and robust. And our objective remains unchanged to sign over EUR 100 million in contracts within the first 2 years of the program. But since the launch was shifted to the end of fiscal year '25 instead of the beginning of '25, our target is now to reach EUR 100 million in signed contracts across '26 and '27. Operator: We have no further questions registered at this time. Back to Sodexo for any closing remarks. Sophie Bellon: Well, thank you very much for your question. And as this is my last call as CEO, I would like to sincerely thank you for all your -- for your engagement and your constructive dialogue over the years. I remain deeply confident in Sodexo's strength, and I look forward to continuing to support the company as Chairwoman. Thank you very much, and take care. Operator: Ladies and gentlemen, thank you for joining. The conference is now over. You may disconnect your telephones.
Operator: Ladies and gentlemen, welcome to the STMicroelectronics Third Quarter 2025 Earnings Release Conference Call and Live Webcast. I am Myra, 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 Jerome Ramel, EVP, Corporate Development and Integrated External Communications. Please go ahead. Jerome Ramel: Thank you, Myra. Thank you, everyone, for joining our third quarter 2025 financial result call. Hosting the call today is Jean-Marc Chery, ST President and Chief Executive Officer. Joining Jean-Marc on the call today are Lorenzo Grandi, Creditor and CFO; and Marco Cassis, President, Analog, Power & Discrete, MEMS and Sensor Group and Head of ST Microelectronics Strategy, System Research and Application and Innovation Office. This live webcast and presentation materials can be accessed on ST Investor Relations website. A replay will be available shortly after the conclusion of this call. This call will include forward-looking statements that involve risk factors that could cause ST result to differ materially from management expectations and plans. We encourage you to review the safe harbor statement contained in the press release that was issued with the results this morning and also in ST's most recent regulatory filings for a full description of these risk factors. Also to ensure all participants have an opportunity to ask questions during the Q&A session, please limit yourself to 1 question and a brief follow-up. Now I'd like to turn the call over to Jean-Marc Chery, ST's President and CEO. Jean-Marc Chery: Thank you, Jerome. Good morning, everyone. And thank you for joining ST for our Q3 2025 earnings conference call. I will start with an overview of the third quarter including business dynamics. I will then hand over to Lorenzo for the detailed financial overview, and we'll then comment on the outlook and conclude before answering your questions. So starting with Q3. We delivered revenues at $3.19 billion $17 million above the midpoint of our business outlook range with higher revenues in Personal Electronics while Automotive and Industrial performed as anticipated, and CCP was broadly in line with expectations. All end markets, but Automotive are now back to year-on-year growth. Gross margin of 33.2% was slightly below the midpoint of our business outlook range, reflecting product mix within Automotive and within Industrial. Excluding impairments, gross recurring charges and other related phase on costs, diluted earnings per share was $0.29. During the quarter, we managed to work down inventories, both in our balance sheet and in distribution and we generated a positive $130 million free cash flow. Let's now discuss our business dynamics during Q3. In Automotive, during the quarter, we grew revenues about 10% sequentially, in line with expectations, driven by all regions, except Americas. Our book-to-bill came above 1. We expect to grow mid-single digits in the fourth quarter compared to the third quarter, which would be the third consecutive quarter of second During the quarter, we continued to execute our strategy for car electrification. We had with both silicon and silicon carbide devices for electrical vehicle applications, such as traction inverter and onboard charger designs. On new application where we see silicon carbide being used is investors for full active suspension. Here, we have a design win with a module solution for our key Chinese electrical vehicle maker. Another key event is a switch to electronic fuses to support the land and domain architectures, both in 12 volts and 48 volts. Here, we added to our pipeline of designs for our IFUs controller with leading electrical vehicle makers and qualified our products for volume ramp up. Other wins in the quarter included microcontrollers for DC/DC management in electrical vehicle powertrain, body control modules and HVAC systems across multiple vehicle models. In car digitalization, we are executing our micro color product road map with a strong lineup of new solutions across both our Airbus Stellar and STM32 product families. Design-in activity continues globally with engagement from both large-scale automotive OEMs and Tier 1 suppliers. In legacy application, we have several significant wins based on our smart power technologies in application where we lead such as airbags, Steele and braking solutions. With our automotive brake sensors, we continue to see strong designing momentum and growing opportunities. Wins in the quarter included MEMS sensors for road noise constellation and door control and both MEMS and imaging sensors for in-cabin monitoring. Shortly after our results announcement in July, we announced that we entered in a definitive transaction agreement for the acquisition of NXP's MEMS sensor business, for a purchase price of up to $950 million in cash, complementing and expanding our current leading MEMS sensor technology and product portfolio. The transaction remains subject to customary closing conditions, including regulatory approvals and is on track to close in H1 2026. In Industrial, revenues were in line with expectations, showing increase of 8% sequentially and 13% year-over-year, back to year-on-year growth for the first time since the third quarter of 2023. Importantly, inventories in distribution further decreased. In Q4, we expect to grow value low single digits sequentially, as we continue to decrease inventories in distribution. During the quarter, we saw strong designing activity for our Power and Analog portfolio across a range of applications. These included factory automation over system medical equipment, motor control, white goods, solar inverters and metering. We also continue to expand the use of our industrial sensors in robotics, including robots and cobots and robots, an area where we see demand for significant number of sensors. We also had wins in medical devices like insulin pumps and full detectors. In Embedded Processing, we continue to win designs with our STM32 microcontrollers for a wide range of industrial applications with products from all parts of the portfolio from high end to wireless to specialized functions. This included power supply and optical modules for AI servers, industry automation and robotics, energy storage, metering and goods. We have a full pipeline of new products and software coming to market in the next quarters, and you will hear more about this during our STM32 summit in November. For general purpose microcontroller, we grew revenues both sequentially and year-on-year and we are on the right trajectory to return to our historical market share of about 20% -- 23%, sorry. For Personal Electronics, third quarter revenues were above our expectations, up 40% sequentially, reflecting the seasonality of our engaged customer programs, but also increased silicon campaigns, which also translated into year-over-year growth. Further strengthening of our unique position as a sensor supplier with both MEMS and optical sensing solutions, we signed a new license agreement with This new agreement broadens our capability to produce advanced meter leveraging ST's 300-millimeter semiconductor and optics manufacturing capabilities. This opened up new opportunities from smartphone application like biometrics, LiDAR and camera acids, robotic, jester recognition and object detection. Revenues for communication equipment and computer peripherals were broadly in line with expectations and up 4% sequentially. For AI data centers, we had multiple wins with silicon and silicon carbide devices for high-power solution. Although last quarter, we announced that we are working closely with NVIDIA, a new architecture for 800-volt DC AI data center, leveraging our power By combining silicon care, guided nitride and silicon-based technologies with advanced custom design at both chip and package level. I am pleased to underline that we recently completed the full power testing on a prototype social successfully demonstrating over 98% efficiency. Silicon photonics is another key technology for future data center and AI factories. ST now has the collaborative R&D programs across the full value chain with key suppliers and customers to develop high-speed optical solutions for data center, AI, telecommunication and automotive, from the substrate to the final product. During Q3, we have seen an increased demand for photonics IC prototypes to be launched in the next quarter and beyond in our 300-millimeter wafer fab. This confirms that photonic ICs will be a revenue growth driver for ST in the detail. In low earth orbit satellites. We have further strengthened our leadership position in the rapidly growing low broadband market by beginning shipment to a second global customer, leveraging our combination of biosimilars technology for front-end modules and paddle level packaging for user terminals. Our business in this segment is well positioned for steady growth delivered by several satellite constellations. Now over to Lorenzo, who will present our key financial figures. Lorenzo Grandi: Thank you, Jean-Marc, and good morning, everyone. Let's start with a detailed review of the third quarter, starting with the revenues on a year-over-year basis. By reportable segment, Analog Products, MEMS and Sensors was up 7.0%, mainly due to imaging. Power & Discrete products decreased 34.3%. Embedded Processing revenues grew 8.7%, mainly due to general Marconi. RF and optical communication declined 3.4%. By end market, Industrial increased by about 13%; Personal Electronic by about 11%; Communication Equipment and Computer Peripheral by about 7%. Automotive was still decreasing by about 70% and by showing some improvement in respect to the 24% decline recorded in the second quarter. Year-over-year sales to OEMs decreased 5.1% while revenues from distribution increased 7.6% back to year-over-year growth for the first time since the third quarter 2023. On a sequential basis, Power & Discrete was the only segment to decrease by 4.3%. All the other segment grew led by analog products, MEMS and sensor up 26.6% with Embedded Processing up 15.3% and RF and Optical Communication, up 2.4%. All our end markets grew, led by Personal Electronics, up by about 40%, followed by Automotive, up by about 10%. With Industrial and Communication Equipment and Computer and Peripheral up, respectively, by about 8% and 4%. Turning now on profitability. Gross profit in the third quarter was $1.06 billion, decreasing 13.7% on a year-over-year basis. Gross margin was 33.2%, decreasing 460 basis points on a year-over-year, mainly due to lower manufacturing efficiencies, negative currency effect lower level of capacity reservation fees and to a lesser extent, the combination of sales price and product mix. Total net operating expenses excluding restructuring, amounted to $842 million in the third quarter, broadly stable on a year-over-year. They were better than expected. Preferably, notably our continued cost discipline with the first benefits of the resizing of our global cost base. For the fourth quarter of 2025, we expect to stand at about $950 million, increasing quarter-on-quarter due notably to calendar base effect. This will lead the net OpEx for the full year 2025 to decline by 2.5% compared to 2024 despite unfavorable currency effect. As a reminder, these amounts are net of other income and expenses and exclude restructuring. In the third quarter, we reported $180 million operating income, which included $37 million for impairment restructuring charges and other related phase-out costs. This reflects impairment of assets and the restructuring charges predominantly associated with the previously announced company-wide program to reshape our manufacturing footprint and resize our global cost base. Excluding this not recurring item, which is partially not cash, Q3, non-U.S. GAAP operating margin was 6.8%, with Analog Products, MEMS and Sensor at 15.4%. Power & Discrete at minus 15.6%. Embedded Processing at 16.5%, and the RF Optical Communication at 16.6%. This quarter, to 2025, the net income was $237 million compared to $351 million in the year ago quarter. Diluted earnings per share were $0.26 compared to $0.37. Excluding the previously mentioned nonrecurring items, non-U.S. GAAP net income and diluted earnings per share were respectively, $267 million and $0.29. Net cash from operating activity decreased 24.1% on a year-over-year basis in the third quarter to $549 million. Third quarter net CapEx was $401 million compared to the $565 million in Q3 2024. Free cash flow was a positive $130 million in the third quarter compared to the $136 million in the year ago quarter. Inventory, at the end of the third quarter, was $3.17 billion, a reduction of about $100 million compared to the end of the second quarter. These sales of inventory at the quarter end were 135 days, slightly better than our expectation and compared to 166 days for the previous quarter and 130 days in the year ago quarter. Cash dividends paid to stockholders in the third quarter totaled $81 million. In addition, ST executed share buybacks of $91 million. ST maintained its financial strength with a net financial position that remained solid at $2.61 billion as of the end of September 2025, reflecting total liquidity of $4.78 billion and total financial debt of $2.17 billion. It is worth to mention that in the course of the third quarter, we repaid fully in cash, $750 million for the first tranche of our 2020 convertible bond. Now back to Jean-Marc, who will comment on our outlook. Jean-Marc Chery: Thank you, Lorenzo. Let's move to our business outlook for Q4 2025. So we are expecting revenues at $3.28 billion, an increase of 2.9% sequentially, plus or minus 350 basis points. We expect our gross margin to be about 35%, plus or minus 200 basis points, including about 290 basis points of unused capacity charges. This business outlook does not include any impact for potential further changes to global trade tariffs compared to the current situation. The midpoint of this outlook translates in full year 2025 revenues of about $11.75 million. This represents a 22.4% growth in the second half compared to the first half, confirming signs of market recovery. Gross margin for the full year is expected to be about 33.8%. Finally, to optimize our investments in the current market conditions, we have reduced our net CapEx plan, now slightly below $2 billion for full year 2025 compared to a range of $2 billion to $2.3 billion previously. To conclude, in the fourth quarter, we expect to report further sequential revenue improvement. With revenues now broadly stabilized on a year-over-year basis as well as an increased gross margin while continuing to decrease inventories in distribution. We are on the right path to improve our gross margin in the medium term through the reduction of unused capacity charges, the reshaping of our manufacturing footprint and definitively our product mix improvement. In a context marked by signs of market recovery, our strategic priorities remain clear, accelerating innovation executing our copay program to reshape our manufacturing footprint and resize of our global cost base, which remain on schedule to deliver the targeted savings, and strengthening free cash flow generation. Thank you, and we are now ready to answer your questions. Operator: [Operator Instructions] The first question comes from the line of Francois Bouvignies from UBS. Francois-Xavier Bouvignies: My first question is on the top line. I mean, you guided plus 3% quarter-on-quarter, 2.9% to be precise. It seems to be below your seasonal at plus 7% quarter-on-quarter, if I'm not wrong. I mean you can remind us maybe the seasonality. Can you explain us as to why you are a bit below seasonal in Q4 for the top line and the drivers? And then secondly, on the gross margin, I mean, it's nice to see this improvement of 180 basis points quarter-on-quarter, how sustainable it is this gross margin? I mean, if you have any seasonality, product mix, should we extrapolate this dynamic of 35% into the first half of '26? Just trying to understand the work you have done on gross margin, how sustainable it is at least in the first half of '26 would be great. Jean-Marc Chery: So we'll take the revenue seasonality and Lorenzo, the gross margin. No, on the revenue seasonality of Q4, basically, there is 2 effects. The first effect is on automotive. Because in automotive, even if we will grow on a quarter-over-quarter, but year-on-year, it is still minus 12%. And why? Because, okay, 80% of this performance gap is explained by 2 reasons. It is a decrease of our capacity reservation fees compared to last year. And you know it is overall volume of one important customer of ST in the field of electrical vehicle. So this is what is explaining why in Q4, we are below the seasonality. The second explanation to be below the seasonality in Q4 is because in Industrial, we continue to decrease inventory in distribution. So our POP revenue recognition is significantly below the POS. However, on the other, let's say, verticals like Personal Electronics, Communication Equipment, Computer Peripheral and other legacy on Automotive or Industrial in the field of power, energy; basically, okay, we are at the seasonality we expect. Lorenzo Grandi: About gross margin. In Q4, the gross margin, the main positive driver, let's say, when we look at the sequential increase of our gross margin moving from the result of Q3 and the expectation of Q4 is clearly improved manufacturing efficiency. That is -- if you remember, let's say, in the first half and also in Q3, we were impacted by a significant negative impact on the efficiency -- manufacturing efficiencies that was due to the very low level of production that we have, especially in the first half of the year. There is also some improvement in terms of new charges. When we look, let's say, to how we will move moving in the first half of next year, but we have to remind that clearly, there are negative effect that we will impact moving forward. One effect is related to the fact that there will be some reduction entering 2026 of capacity reservation fees. And definitely, you know that in the first half of the year, there is some seasonality in terms of our revenues, let's say, in respect to the second part of the year. And then don't forget that there is also the negotiation of the pricing that will impact even if we see to a significant drop. We think that it will be something in the range of low single digit, mid-single-digit decline. On the positive side, we will have, let's say, still continued positive impact on manufacturing and reduce -- continue to reduce level of saturation. At this stage, it's a little bit to difficult to size, let's say, the level of gross margin because it will depend also on the level of the revenues. But this is directionally the trend that we will have moving -- entering in the next year. Operator: The next question comes from the line of Joshua Buchalter from TD Cowen. Joshua Buchalter: Maybe to follow up on that last one. Could you maybe spend a couple of minutes talking about how you're thinking about managing utilization rates right now? It seems like you're taking things back up. Are you at the point where you feel comfortable building a little bit of inventory downstream and/or on your balance sheet given the comments. You mentioned you're going into some negative seasonality into 1Q, but it sounds like utilization rates are going to be up in the fourth quarter and the first quarter. Could you maybe just spend a couple of minutes talking about what you're seeing there? Lorenzo Grandi: Now for the inventory, clearly, let's say, as you have seen, we try to keep control on the level of inventory in the current quarter, we think to stay substantially stable in number of days. This is our expectation in respect to Q3. But the positive point is that entering in the next year, clearly, let's say, as I said, there is our seasonality, the normal seasonality that means that, in general, the inventory in the first half of the year is a little bit higher also in number of days in respect to the second part of the year. Then you have to consider that entering next year, let's say, we start to have some decrease in terms of overall capacity, linked to the fact that we started to have some benefit coming from our reshaping of the manufacturing infrastructure. This will somehow mitigate the level of unused moving in 2026. This is, let's say, one of the drivers that we see in terms of progressively improve in terms of the utilization rate, together, of course, with some growth in Joshua Buchalter: I was hoping to ask about the Industrial segment. So it looks like book-to-bill went back to parity. Anything major going on there? Any geographies that are better or worse? And maybe how would you categorize the health of the general purpose microcontroller business underneath there? Basically, should we assume sort of shipping back to normal now? Jean-Marc Chery: No. In industrial, we see a different dynamic when we grow on some segments. We see a growth and dynamic more pronounced for power energy, basically all subsegments, okay, of this one are growing. And it is growing more definitively than the smart industrial, it means the factory automation. We can say that robotics is so far good, but overall, the factory automation is really, really soft. More than all the industrial, which are volume-driven, means consumer-driven, the hub cycle is pretty soft. So the takeaway we can have on the Industrial is what is related power energy infrastructure and robotics is now upcycle pretty solid. What is related volume and consumer is a very soft upcycle. It looks like inventory are digested, but the visibility is pretty short, it's pretty low. So that's the reason why the customers are still putting order on short term. But here, our decision is to continue to manage the distribution very closely and continue to adjust our POP below their POS forecast to continue to decrease inventory. Inventory and general purpose microcontroller came back what we classified normal, means a level of months of inventory that enable short-term business. Well, we have still some pockets of other inventory on some specific products like Power & Discrete or sometimes general purpose microcontroller, but we are going in the right direction. So this is a dynamic, okay, we are seeing on the industrial market. Operator: The next question comes from Tristan Gerra from Baird.. Tristan Gerra: I wanted to see how linear is the reduction in capacity reservation fees that you expect in '26 from the $150 million, $200 million reduction that you're looking at for this year. Is there a big drop in Q1? Or is it going to be pretty linear throughout all of next year? Lorenzo Grandi: In terms of capacity reservation fees, it works in this way, let's say, substantially, the capacity reservation fees that are ruled by contract with the carmakers quite constant over year the in term of million dollars. But yes, you can have a little bit higher, a little bit lower during the various quarter of the year, but they are not linearly going down. Let's say, they are substantially quite flattish, I would say, quarter after quarter. Clearly, when the contract expires, that is, at the end, for instance, of 2025, many of these contracts are expiring. But then, yes, you have a decline. And then the decline remains the level that you get in the first quarter will remain substantially similar all over the other quarters. So this is the way that it works. So what we will see in Q1 will be this reduction? And then that after that, we will stay stable, more or less stable during the course of 2026 at the level of capacity reservation. Tristan Gerra: Just a quick follow-up. Of course, it's going to depend on end demand, but any sense of -- or when you think POP can get back in line with point of sales in Industrial next year? Jean-Marc Chery: Globally, POP will be aligned with the POS each time our product line reach the target of inventory, we didn't want to exceed. This is okay, a lesson we learned from the past. And now, we are really disciplined on this point. So you cannot see the POP overall. We have to look the POP in detail by product line. And I repeat our microcontroller is pretty well aligned. So our POP is really driven by the end demand POS and by region, I have to say. While China, APAC, America are pretty okay, but Europe is still soft. And for the other product line, okay, we are still in a mode where the POP is below the POS; however, we expect to go back normal in H1 2026, most likely Q2. Operator: Next question comes from Stephane Houri from ODDO BHF. Stephane Houri: Yes. I have a first question about the CapEx budget because you're adjusting downward the CapEx for the end of this year. I guess this is in the course of managing your capacity by the end of the year and so an expectation of 2026. But what are you reducing at the moment? And how do you look at 2026 in terms of CapEx at the moment where you're transforming your tool from 200-millimeter to 300-millimeter? Jean-Marc Chery: We reduced the CapEx. In fact, there is 2 dynamics. There is a dynamic driven by where you know we want to close the 200-millimeter, so And of course, okay, we need to put the CapEx to increase the capacity at the right level in 300 and in coal 200. But here, we have not especially limited the dynamic because the demand is pretty solid. But then the other main important action is the CapEx for 200-millimeter conversion on silicon carbide because we will close the 150-millimeter. But here, we have limited the CapEx delivered by the demand, which is below what was -- we expected 1 year ago. So the main impact of the capacity limitation is on, let's say, silicon carbide. But then after it's more spread across test assembly, where we clearly adjust the capacity of what we need and no more. And generally speaking, is more adaptation to mix rather than volume increase. Stephane Houri: Just to ask you, with the Nexperia situation, you do receive phone calls or kind of rush orders from your customer? Or you see nothing for the moment? Jean-Marc Chery: No, I mean, we are sure that the carmaker and the Tier 1 of the automotive industry have clearly taken the lesson of the previous shorter period, and they have enabled many source to prevent such issues. And of course, okay, as the other semiconductor player, STMicro is part of this process. More than that, I have no comment. Operator: Next question comes from Didier Scemama from Bank of America. Didier Scemama: I have first question maybe on your inventory and related to that. on what you're thinking about in terms of factory loadings for the first half, I think, one of your U.S. peer already announced last week or earlier this week that they would reduce factory loadings to reduce inventory, especially in the context of a shallow recovery? So I think it looks like your inventory are tracking about 30, 40, 50 days above where they used to be. So are you thinking about taking down further factory utilization in the first half, I guess. Lorenzo Grandi: In terms of inventory, I would say that, yes, you're right, it's a little bit higher in respect to what was our historical ending of the year, that is a little bit higher. But at the end, I think that when we look next year, I think the dynamic of our -- we will continue to keep under controlling that. The dynamic of the inventory will, let's say, be, as usual, a little bit increasing during the first half of the year to go back and to decrease in the second part of the year. In terms of that, let's say, unloading factory utilization I think that moving in 2026, there will be an improvement. Notwithstanding, we will continue to keep the control our inventory. This improvement that I was saying before is due to the fact that we do expect some, let's say, increase in terms of our revenues, so looking at the evolution of the market. And the other element is that we start to, let's say, reduce capacity in some of our fabs. The one that we aim, let's say, to progressively close in the course of the -- by the end of 2027. So we will start, of course, to move out some equipment, and this will reduce the capacity, and this will reduce the level of unused then. Didier Scemama: Got it. And then I think last quarter, you said that the gross margins were impacted by, if I remember correctly, roughly 70 basis points of the 140, at 70 basis points of FX headwinds on and 70 basis points of related basically the manufacturing transition from 6 to 8 and 8 to 12. Is there any of that in Q4? Lorenzo Grandi: No, no. Let's say, moving from Q2 to Q3, let's say, the FX was overall an impact of 140 basis points. Q2, Q3, let's say, related to the combination of these 2 effects, but very different. Let's say, something in the range of 120 basis points was the FX and around 20 basis points was the impact of these extra costs, let's say, related to our programs. Now, let's say, in this quarter, clearly, the FX is a minor impact. This is quite stable. It's a little bit negative because we moved from 114 to 115 is ranging in the range of 20 basis points negative impact. It's not so material, while these extra costs related to the activity to reduce the capacity and to start to move products from one side to the other is impacting our gross margin expected for Q4 between 30 to 40 basis points. This is -- so the turnkey impacted by something ranging between 30 to 40 basis points of extra cost. Didier Scemama: Understood. And just a clarification, because it wasn't clear, your OpEx guide for Q4 is 915, right? It's not 950? Lorenzo Grandi: No, no. It's 915. And this is driven by the fact that we have a negative calendar days impact for 2 reasons. The calendar is longer. And the vacation in Europe is, let's say, less than what we benefit in the course of the previous quarter. On the other side, we will continue with our, let's say program to reduce account in expenses, and this will bring us some benefit. Operator: The next question comes from Sandeep Deshpande from JPMorgan. Sandeep Deshpande: My question is regarding the trends into the first quarter. I mean, you normally have a weaker first quarter. And thus would you expect the utilization rate to go down? And given all the other factors you've talked about in the earlier factors, which are there, there is a downtick associated with the capacity reservation fees. Should we expect that your gross margin in the first half of the year to be weaker than where it is at the moment? And I have a quick follow-up after that. Lorenzo Grandi: Yes. In terms of gross margin, it's true that in the first half, the seasonality is not favorable. And yes, there are the lower capacity reservation fees. On the other side, in respect to where we stand today, our expectation is that the level of a new budget will decrease. The decrease is not due to the fact that we aim to increase our inventory. There is some seasonality in our inventory, but the decrease, as I was trying to explain before, it's mainly driven by the fact that we start to reduce the capacity. So it means that we will start to some transfer of equipment. And this or, let's say, not utilization of equipment due to the fact that we progressively in some fab, we started to reduce the capacity aimed, at the end, let's say, to move to close the spec. So we will start, and this will progressively impact our capacity and, for some extent, our unused capacity. Sandeep Deshpande: I mean, a follow-up to that essentially -- quickly on that would be, is the number of days in Q1 [Technical Difficulty] you have any new engaged programs with your customers, which will improve revenue significantly either in first half or into the second half, particularly? Lorenzo Grandi: No, I confirm, Sandeep, that in Q1, Q1 will be shorter in terms of number of days, than Q4, Q4 is longer in terms of days than normal 91. And the calendar next year, Q1 will be shorter than the normal 91. It's a little bit the same trend that we have seen this year, let's say, in terms of calendar. So yes, I confirm that there is a shorter calendar in Q1. Jean-Marc Chery: Well, first of all, okay, about next year 2026, Q1. With the current visibility, we have for the loading of the backlog we have seen in Q3 and we are seeing today. But we don't see a specific reason why we will not be at the usual seasonality of Q1 revenue versus Q4. This is generally speaking, really slightly above minus 10%. Well, then moving forward, of course, we will -- but it's depends on the market dynamic. But I would like to say that for 2026 Well, first of all, okay, in the second half, we will clearly see the normalization of inventory everywhere. We really expect that in H2 2026, we will have no other inventory, point number one. Point number two, next year compared to 2025, the silicon carbide will be a year of growth because 2025 is a year of transition where basically, okay, we have cumulative headwinds related to one specific customer, some program not going at the expected speed in Europe. And you know we are not specially still present in China. But next year will be a -- but then after we have our exposure to fast-growing segment. Clearly, that already give us a sign of growth like ADAS with our main customers that already provided some let's classify upside and MEMS as well. And definitively, one point is our increasing content in terms of value and silicon in our main customer. So all in all, we do believe that Q1, we have no sign that the seasonality will be impacted by other factors that we do not control. And in H2, we will be as well as the usual seasonality of growth H2 versus H1. Do we grow more like here because this year, we grow at 23% and the usual seasonality, 15% H2 versus H1. Well, here, we need to have a little bit more booking in Q1 and in Q2 to confirm. So my takeaway is, yes, we will have, let's say, idiosyncratic growth driver on top of the, let's say, up cycle of the market that we are seeing today even if this up-cycle market of automotive and industrial should be classified at this stage, soft, okay? And with subsegment pretty dynamic like the one related to infrastructure. Operator: The next question comes from the line of Janardan Menon from Jefferies. Janardan Menon: I just wanted to go back -- go to the Power & Discrete business where your margins are still very weak at minus 15% in the third quarter. So what can be the drivers to improve that? You talked about silicon carbide improving in Q3 -- I'm sorry, in 2026. But would that revenue come mainly from your Sanan JV to Chinese customers? And will that help your overall profitability given low utilizations in Europe? And do you need to take any further action to try and improve the profitability there Power & Discrete, given the kind of competitive environment in that industry? And then my follow-up is just a small clarification on a previous answer. Your 30 to 40 basis points of manufacturing inefficiency from the conversion and shutting down, et cetera, does that continue until you reach the end of that journey, which is when you fully close down your 200-millimeter transition to 300 millimeter? Or does that drop off before that? Jean-Marc Chery: So Lorenzo will comment about the improvement driver on Power & Discrete profitability. While Marco will comment on the dynamic of Power & Discrete revenue because as I have already anticipated, in my last answer, clearly, silicon carbide for us in '25 is a transition period. And Lorenzo, on Lorenzo Grandi: Yes, I can take it. Clearly, well, I will let Marco to explain what are the drivers. But at the end, let's say, clearly next year, we do expect a recovery in terms of the top line that is this year, we were impacted by a significant inefficiency in our manufacturing environment for the Power & Discrete in general and for the silicon carbide, in particular, due to the fact that we were working a very old level of saturation for these steps. Clearly, there are the following drivers that we expect to recover in term of profitability. Having a higher level of revenues clearly will help to better load our infrastructure. Then don't forget that silicon carbide, it will be the first to move, let's say, in the course of next year from the 6-inch to the 200-millimeter to the 8-inch, and this will bring clearly, let's say, some positive in the medium term in terms of profitability. Moving up in terms of revenues will improve significantly our expense to sales ratio that today clearly has been impacted by the fact that revenue are quite depressed. So at the end, these are the main drivers that we see together with the fact that we are improving, and we are moving to the next generation of silicon carbide that give also some benefit in terms of performance for what concerns, let's say, the profitability. Before to give the -- to pass to Marco, I just clarify the point of this extra 30 basis points on gross margin. Yes, this is mainly related to the duplication of mask related to the, let's say, qualification of processes. But this will continue, the amount will be more or less this range over, for sure, the next part of 2026 and probably also in the second part because we will continue with this program. This will be probably peaking in the first half 2026 then it will go down. But yes, this is something that we need to expect to have -- as we have this activity, let's say, to migrate our products from one fab that is going to be close to another fab. Marco Cassis: Okay. So we take on the dynamics. So we'll have basically 2 dynamics in 2026 that will help to start to grow. First of all, well, as Jean-Marc said, during the first half of 2026, we will keep reducing and will be clean in terms of inventory in Power & Discrete; here, speaking mainly about the noncedarbide portion. And this will allow the market dynamics next year to restart having year-over-year growth. Specifically, on season carbide as Jean-Marc has already anticipated, 2025 is a transition year, meaning is that we are experiencing lower volumes and inventory collection from our main customers. I would like to underline, this is happening while we still are maintaining stable our commercial contractual level of market share. This is happening since the beginning of 2025. And during 2025, we are -- this dynamic is not yet offset by Europe and China. So there is yet no strong contribution from the rectification programs in Europe and China. During the next year, we will start seeing growth in these 2 regions that will help the 2026 overall growth of the silicon carbide versus 2025. I hope that this answers your question. Jerome Ramel: Thank you, everyone. This is ending our call for this quarter. So thank you for being us today, and we remain here at your disposal should you need any follow-up questions. Sorry for the one that you don't have time to ask a question there. Thank you very much. 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.
Operator: Good morning, and welcome to Nexans' 9 Months 2025 Financial Information Conference Call. My name is Laura, and I will be your coordinator on today's event. [Operator Instructions] And now I'd like to hand the call over to Mr. Julien Hueber, Nexans' CEO. Please go ahead, sir. Julien Hueber: So good morning, everyone, and thank you for joining us today on the Nexans conference call. It's a special moment for me to be speaking with you for the first time as the CEO of Nexans. With me today, I have [ Christine Preolevi ], our Interim CFO; and Audrey Bourgeois, our VP, Investor Relations. I would like to begin by thanking the Board of Directors for their confidence. It's an honor to take this role and to lead a strong, high-performing company with a clear vision for the future. I also want to express my appreciation to Christopher Guerin for his leadership and the remarkable transformation he has led, a transformation I was proud to help drive as part of the Executive Committee. Chris leaves behind a strong company built on solid foundation that we will keep strengthening. I spent more than 2 decades at Nexans always close to operations and transformation. From my early years in manufacturing to leading our activities in China, South Korea or globally for the Industry & Solutions project, I've seen how performance is built on operational excellence, flawless execution and a deep understanding of our customers. As a member of the Executive Committee since 2018, I helped shape the group strategy on the capital markets road map. Leading our EUR 2.6 billion of PWR-Grid and Connect in Europe business reinforce my conviction that agility, execution and industrial excellence are the levers that will be key to Nexans's next chapter. Our strategy remains unchanged, and the megatrends behind it never been so strong. Electrification is accelerating and the need for secure, modern infrastructure keeps growing. These dynamics reinforce Nexans' positioning and long-term strategy. As a new CEO, I want to be very clear, we will continue to execute the road map presented at the last Capital Market Day, and we confirm our 2025 guidance and 2028 objective as well. The direction is right and the foundation are solid and all megatrends are continuing. The environment, however, has grown more complex since our last Capital Market Day, from geopolitics, supply chains disruption or shifting policy environment around energy and renewable. This makes one thing clear. It is the right time to make Nexans even stronger, stronger in execution, stronger in competitiveness and stronger in agility. I will continue to fuel our model of value creation that delivers results, combining our SHIFT program, complexity reduction, innovation deployment and vertical development. But building on that, I will also move forward and I will emphasize even more on the further complexity reduction of the organization, efficiency optimization of our industrial operations, both in terms of productivity and cost competitiveness, further mutualization of our industrial footprint and of course, keeping absolute discipline on cost and cash. All these priorities will further enhance the resilience of Nexans model. Our ambition is clear, to consolidate Nexans' competitiveness while amplifying selective profitable growth in Electrification, powered by digital acceleration and the smart use of new technologies and artificial intelligence. Nexans is entering this new phase from a position of real strength. We have a clear road map, robust financial foundations and teams that are talented, dedicated and united and proud of what we do. Together, we will deliver with strong discipline and focus, the long-term value creation for all our stakeholders. So after this introduction, let me now turn to the group's performance in Q3 on the first 9 months of 2025 on Page 4. In the third quarter, the group delivered a plus 7.7% organic growth, including a strong 12.6% in Electrification. Over the first 9 months of 2025, the group standard sales reached EUR 5.3 billion, representing a plus 5.8% organic growth compared to last year. Over the same period, Electrification, which remains the core of Nexans growth, recorded a plus 9.4% organic growth, confirming our disciplined execution across our 3 segments, which are Transmission, Grid and Connect. Our Transmission adjusted backlog reached EUR 7.9 billion at the end of September, providing for Nexans a strong visibility for the coming years. And no later than today, I am pleased to announce the acquisition of Electro Cables in Canada that will be reinforcing Nexans' position in PWR-Connect in a highly dynamic market and with approximately EUR 125 million current sales on a yearly basis. And I will come back on that on the next slide. In short, the first 9 months confirm the solid and disciplined growth of our Electrification businesses. This performance reflects our sharp focus on high added value solution and our selective approach to capture the strong underlying trends in Electrification. So before we move to our segment in details, I wanted to highlight something that is important to me. So I will move to Slide 5. Our Innovation Summit in Toronto that took place 2 weeks ago was a great platform for exchange with our platinum customers, our technology experts and our partners. Nexans becoming a pure player of Electrification. So I believe that our role is to bring together the key stakeholders of the electrification ecosystem to imagine and to build collectively the next level of electrification that is critical to our societies from powering homes and hospitals to supporting education and many other essential services. The choice of holding this event in Canada reflects our strong interest in North America. Canada is a powerful growth platform for Nexans, both for the Grid and the robustness of this construction industry in our Connect segment. So talking about Canada, I will now move to Page 6, where I will present the acquisition of Electro Cables that was signed today, this morning, in fact. Electro Cables is a Canadian player in low-voltage cable system, delivering a high performance and service-focused solution. This company represents a strong strategic complement to Nexans Canadian portfolio, offering an attractive growth perspective and a robust profitability profile. This acquisition also allows Nexans to further strengthen and complement its portfolio in Canada, enhancing its position in a very dynamic market while optimizing local supply chain efficiency. It also paves the way for valuable synergies driven by Nexans' expanded local presence and the rollout of its proven proprietary SHIFT program while enhancing innovation. This acquisition will be fully financed in cash, leveraging Nexans' strong balance sheet and is expected to be EPS accretive from day 1 and from year 1. Now moving to Page 7. Let me now comment the overall group performance over the first 9 months of 2025. Standard sales reached EUR 5.3 billion, representing a plus 5.8% of organic growth, confirming a solid trajectory for the group. The growth continues to be driven by Electrification business, which make up the core of Nexans strategy. It delivered a plus 9.4% organic growth over the period. Let me remind you that this is well above our Capital Market Day organic growth that we have announced last November of a CAGR between plus 3% and plus 5%. This performance reflects the disciplined execution in Transmission and in Grid as well as the recovery in Connect during this third quarter. Other Activities, mainly Metallurgy, a strategic segment for Nexans, posted a plus 4.1% organic growth over the first 9 months of this year. And as you know, we observed unusually high level of external sales in H1 that was driven by customer bringing forward orders ahead of the U.S. tariff. As expected, this overstocking subsequently led to correction in Q3 2025. The Non-electrification activity declined by minus 6% as expected, given the challenging automotive market. We remain very active to make this disposal of autoelectric, the last remaining activity to finalize our portfolio rotation. So overall, the group growth is at a high level and fueled by healthy growth drivers in Electrification, which remains our main engine of value creation. So let's now take a closer look at our different segments, starting with Transmission on Page 8. Performance was particularly strong over the first 9 months of 2025 with standard sales above EUR 1 billion, which is up by 25% organically versus last year and with a very strong Q3, up by 33%. This strong performance reflects solid execution, a favorable production mix and a more installation campaign carried out in Q3 compared with last year. Now regarding GSI projects, let me confirm once again that we keep working hand-in-hand with our customers. We have a very collaborative approach with them on this ongoing project that is on track as per schedule and milestones. Last but not least, Transmission pipeline of activity remained robust, supported by sustained demand for interconnection and offshore projects across our key markets. Our adjusted backlog stands at EUR 7.9 billion, which is up by 27% compared to last year, providing a strong visibility until 2028. So in short, the PWR-Transmission segment continues to deliver, thanks to the quality of the execution. I will now move to Page 9 on the following slide regarding PWR-Grid. So PWR-Grid sales reached EUR 989 million, which represents a plus 6.7% organic growth for the first 9 months, which also represents a plus 9% in Q3. This reflects solid structural trends coming from replacement of offset grids and the connection of renewables to the Grid, coming from Electrification needs in verticals such as electrical mobility and data center. And it also comes from the high development of our low carbon offers, and I will be able to comment or answer any of the questions regarding this element. Also, our Accessories business continued to be very well oriented over the period. Overall, projects in Europe and North America ramp up under the new frame agreements with major utilities. So now turning to our PWR-Connect business on Page 10. The net sales of the Connect amounted to EUR 1.7 billion for the first 9 months of 2025 compared to EUR 1.5 billion in the same period last year, representing a plus 1.4% organic growth. You know how contrasted is this segment. We have indeed some strong performing regions with a double-digit organic growth. It's the case for Canada, South America, Middle East and Africa. And so here again, our acquisition of today in Canada will further leverage on wind trend. We continue also to actively grow our tech product as fire safety product with sales growth progressions, which are higher than the market average. That was a key element that we communicated during our last Capital Market Day last year in November. In contrast, and as you know, some region remains more challenging. That's the case of Nordics in Europe or Asia Pacific, specifically Oceania in Australia, specifically on the residential market. Countries like France, Italy and Spain were quite resilient. And let me deep dive on Italy, where, as you know, we have started our SHIFT complexity reduction program on the new LTC business that we acquired last year. This SHIFT complexity program is completely part of the integration process. So we are currently exiting from low-margin products and low-margin market as per schedule. And I can tell you that the integration process of LTC is going very well. Moving on now to Page 11. And before we move to the Q&A, let me confirm our full year 2025 guidance, which was upgraded in July. We continue to execute with discipline and focus and remain on track to deliver an adjusted EBITDA between EUR 810 million and EUR 860 million, and a free cash flow between EUR 275 million and EUR 375 million. Let me remind you that this annual guidance upgraded in July is confirmed and does include only 6 months of Lynxeo. Now entering the final quarter of 2025, we look ahead with confidence. Electrification keeps powering the group performance and Nexans is well positioned to capture this growth with resilience, efficiency and focus. Also, I would like to thank all our teams in Nexans for their commitment and hard work. They are the driving force behind our success on the journey that lies ahead. I am now happy to take on the questions. Operator: [Operator Instructions] We will now take our first question from Daniela Costa of Goldman Sachs. Daniela Costa: I want to ask one sort of like more medium term and one a bit more shorter term. So I'll do them one at a time. But given the deal you've just done now in Canada, and I think in your commentary remarks on the press release, you're mentioning that you're moving from -- or Nexans moving from execution to expansion. Can you talk a little bit about how you view the balance sheet? What's an ideal positioning? Should we see this deal has sort of more of a start of a wave of deals in Electrification perhaps? And then I'll ask the second one. Julien Hueber: Okay. Thank you, Daniela. So clearly, the capital allocation is not changing. My priority will remain the same. I will focus and accelerate the M&A as per -- based on the same logic as in terms of thesis, basically, which is prioritizing M&As in countries where we are already located in order to reinforce our positions and in order to scale our innovations. And also second thesis is to focus on M&As in countries where we are not. So basically, we'll be looking for bigger acquisitions in these countries. And then the third thesis is also to grow in adjacent to cable, could be around Accessories or any other elements. Daniela Costa: And then just -- it sounded like in Q2 that the commentary was very strong regarding the outlook for 3Q on Connect. And I think sort of the market in general had interpreted that maybe more like high single digits or maybe above that, and you ended up with some growth, but relatively modest. Was it something in those countries that were weaker that deteriorated further? Or maybe people just got overexcited with the growth rates after the Q2 call? Sort of what's your interpretation of the deviation there? Julien Hueber: Yes, of course. So first of all, Connect is a very contrasted market. We have indeed meet the double-digit growth in South America, Canada, Middle East. That was completely in line with our expectation. For Europe, we were expecting a recovery in the Nordic part that did not happen. So what we have been doing is to accelerate the launch of innovation products. We are launching our more than 10 innovations both in Norway, in Finland and Sweden in order to compensate this. So we will not have any impact in terms of profitability in this area of Europe. On the rest of Europe, we start to see some -- in Q3, we started to see some signals of recovery, specifically in France, Belgium, Italy and Spain. Daniela Costa: But -- so it was as strong as you expected at the same dynamics you expected at Q2 or... Julien Hueber: So basically, you see the recovery in Q3 in Connect, it's a plus 3.6% compared to -- it's better, it's an improvement compared to Q2. And I expect that Q4 will be on the similar trend in Connect. Operator: And we'll now take our next question from Lucas Ferhani of Jefferies. Lucas Ferhani: I just wanted to have a bit more information on the North America business. So you said it's about 20% of group revenues. Can you say how much it is in Connect and Grid specifically? And also, do we still have that same split between kind of Canada versus the U.S.? And how would you characterize the EBITDA margins there? Would you say that they're higher kind of than group average? And the last point on that North America business, do you see any risk related to copper tariff in the U.S. that might redirect some volumes towards Canada? Julien Hueber: Thank you, Lucas, for this question. So I just want to remind that when we talk about North America, we are not in the U.S., we are in Canada. We are well positioned in Canada, and this acquisition will strengthen our position there. The split between Connect and Grid, it's mostly a Connect business, and we are in both, of course, markets, but it's mostly Connect business. And this Connect business in Canada is very accretive to the group. We have an extremely high level of first growth, but as well as profitability, hence, our choice to accelerate this M&A in Canada. Regarding -- sorry, your last part of the question, the copper tariff. We -- basically, we see that there is no impact for us in terms of copper tariff because we are our own brand in Canada, delivering the market in Canada. So we have no impact for that. on the H1 and the H2 will be as expected. So there will be no specific impact there in this part of the world for the tariff. Operator: And we'll now move on to our next question from Chris Leonard of UBS. Christopher Leonard: So maybe 2, if I can. And focusing on the Transmission business, obviously, a very good quarter in Q3. Can you update us on the contracts that you're still looking at in terms of the pipeline and saying that there's good growth potential here? Is there anything we should expect for 2025 so that you can reach that book-to-bill level of 1x? And within that, could you also help to give us some color on the U.K. National Grid contract again and just give us a flavor for why I believe you decided not to bid and move into the tender on those contracts. Because so far, the pricing looks very strong on those contracts for Prysmian and as a preferred supplier and NKT, it would be helpful to get any color there. And then a second follow-up question would be on your comments for GSI saying that the contract with IPTO is going well, very collaborative and on track with schedules and milestones. Is there anything more you can give on visibility of a plan B that you spoke to or your previous management team, I suppose, spoke to at first half results? That would be super helpful. Julien Hueber: Okay. Thank you for your questions. I will start and then I will hand over to Vincent Dessale, who is with me in the room today. So basically, indeed, you've seen this strong performance Transmission in Q3 and year-to-date as well. In terms of backlog, you have noticed that we are a book-to-bill of 1 in Q3, and we expect to have a similar approach during the year-end. We are active in terms of -- in the quotation at this moment. We are -- of course, I cannot disclose the number of projects, but we are quite active, and we are positive to do some quotation in Q3, hopefully, with some award in H1 next year. So that's basically the situation. And regarding the GSI project. As I said, the project is ongoing, extremely good relationship and collative work with IPTO, our customer. And for us, there is no plan B. There is only one plan A, which is keep going and working with our customers to deliver this project. And I will not -- leave Vincent to continue. Vincent Dessale: Yes. Maybe to give some color and to complement Julien answer regarding the backlog, indeed, we have a great improvement compared to last year, plus 27%. You know it. It has been mentioned with some press release, typically the award of the RTE frame agreement in March and more recently, the Malta-Sicily Project. The pipeline remains active. We have indeed -- and just to give an example because it's public recently this week, Terna has announced a new tender for a major interconnection in Italy. So it just gives an example of the robustness of the pipeline. And indeed, we are quite active on what I would call medium-sized projects and large projects, which are going to be awarded in the next 12 months. So quite active backlog and quite active pipeline in the coming months. Christopher Leonard: And is there any comment on the National Grid contracts that you guys weren't a part of? Vincent Dessale: Yes. Sorry, I forgot this point. I will answer to it, of course. But the story for Nexans has not changed. We are -- we have the SHIFT approach in the project, which means that we are very selective in the way we choose the project that we want to target. We have commented this in the past. It's a mix of technical fit, terms and condition fit, how it fits with the other projects that we have already in the backlog. And indeed, when we look at this frame agreement, it was not answering from our perspective to the different criteria. And as I said, we have other opportunity in the pipeline that we consider from our perspective, more interesting for Nexans. Operator: And we'll now take our next question from Jean-Francois Granjon of ODDO BHF. Jean-Francois Granjon: Yes. Two questions from my side. The first one concerns the acquisition of Electro Cables. Could you give us some more details regarding the current profitability of this company compared to the profit of the Connect division? And what do you expect? You mentioned an accretive impact, but could you give us some more details? And can you give us the EV and the multiple for the transaction? And the second question, I will come back on the GSI project. So you confirm the continue of the operations. Could you give us the contribution expected from GSI this year in 2025? And when do you expect next year? And I understood that probably there will ramp-up, and we expect a higher contribution in '26 compared to 2025. Could you give us some more color about that? Julien Hueber: Okay. So first question regarding the new acquisition, Electro Cables. So this is -- this business is relative to Nexans. It's on Canada for us as well. So both our business in Canada and as well as this Electro Cables is in the upper range of the -- above 20% of EBITDA. So it's extremely relative to Nexans. This business is extremely well positioned in market segments which are for us priorities and fully in line with our Capital Market Day. So the -- for example, the data center elements, the infrastructures, gigafactories and so on. So it's completely aligned with what we want to do. We also see some very interesting synergies from a supply chain standpoint between Nexans Canada and Electro Cables. So basically, that's why we decided to move on and to finalize this deal. So that's element -- first positive element. Regarding GSI, your second question. Well, you know that we have received EUR 250 million of payments the past months in different parts. So this year, we will do approximately EUR 150 million as part of the -- that was what we have communicated. So we will stay on this type of ratio. And maybe, Vincent, you want to comment for... Vincent Dessale: Yes. I think Jean-Francois, I think we will not comment in details, of course, the coming revenue for GSI. But as a matter of fact, this is -- you know the amount of this project is EUR 1.4 billion, basically. We have started in '23, so a smooth ramp-up. And after you can consider that you have a kind of linear activity in the first year and with a kind of acceleration in the last 2 years of the project, '28 and '29 due to the installation, which is usually compact in terms of activity versus the production, which is split basically during 5 years. So that's basically the profile of what you can expect in terms of activity. Jean-Francois Granjon: Okay. And just the additional question regarding that, you expect you confirm an improvement for the EBIT margin for the Transmission division next year compared to 2025? Julien Hueber: I think, yes, we will come back on you on this when we'll publish our results in February with a new guidance. But what I can tell you is that we are extremely satisfied with the execution of this -- of the different project ongoing and very proud of what the team is doing at this moment in this Transmission stream. Operator: And we'll now move on to our next question from Scott Humphreys of Berenberg. Scott Humphreys: I just have 2. The first is a very quick follow-up on the tariff topic. So one of your peers has been speaking recently about kind of increasing their purchases of scrap in the U.S. or in North America. From a kind of European perspective, has the reduction in the amount of scrap that China is importing from kind of North America. Is that having any impact on the cost of your scrap in Europe? Or was the Chinese buyer not as significant in Europe in the first place? So that's the first question. But I can -- carry on, please. Julien Hueber: No. So very clear here. So no impact at all in our scrap recycling activities in Europe, no incidents, nothing. Scott Humphreys: Okay. And the second one, just kind of a broader one on medium voltage. If you could maybe kind of remind us where you are in terms of the process of adding capacity in the medium voltage business in terms of, I guess, Morocco and then you mentioned briefly the low carbon production in France as well. So kind of how are you seeing that the level of capacity in medium voltage given how strong the Grid segment continues to be? And how does that kind of tie in with this additional layer of kind of a focus on production efficiency that you've talked about in addition to the CMD strategy? Julien Hueber: So thank you. This is a very interesting and important question. So you can imagine when we grow your business by 9% year-on-year, of course, it has an impact on manufacturing. So here, first of all, I want to remind you that what the job we have done in the past year was to increase the capacity because we anticipate this large increase in the Grid to come. I just want to remind you the acquisition we did in Reka, Finland 2 years ago with 2 civil lines, the announcement of the additional CapEx in Bourg-en-Bresse, an additional civil lines as well as the [ Safi ], which is Morocco new plant that is going to come. So in terms of capacity increase, I mean, we are completely in line with our plans to sustain this growth. Now regarding the existing footprint as well, we are -- and that's -- and you've seen in terms of communication that we have done in the past last week, basically, that in order to basically deliver our commitments and objective for 2028, industrial excellence will be key. And that's why we are really accelerating today, the efficiency, the productivity and as well as the competitiveness of our plant in Grid. So we have a full program on that, and that's extremely important to continue on this. And maybe one word because Grid is, of course, cable, but as well Accessories, and I will let Elyette to comment on the Accessories as well. Elyette Roux: Thank you, Julien. So what we can say is that we are accelerating even further away in Accessories. And indeed, as presented in our CMD, we mentioned that we had anticipated the investment in the plants with automation and robotization. So we are basically delivering at the scale that we announced in the CMD. Operator: And we'll now move on to our next question from Nabil Najeeb of Deutsche Bank. Nabil Najeeb: The first one is on GSI. I think you guys said -- you just said you had received EUR 250 million of cash for GSI so far, and that's the same amount as what you indicated at the H1 stage, which you said should keep you going until early September on GSI execution. So I'm just wondering if you have received any more cash recently? Or are you executing on GSI while waiting for a payment? And then the second question, given, Julien, you've been in charge of the Grid and Connect business for Europe, I was hoping to get your thoughts on how you see the margin potential for these 2 divisions. I think previously, your predecessor alluded to a longer-term range of around 15% to 16.5% for Grid. Is that a view you share? And what about for Connect? Julien Hueber: Okay. So I will start, of course, by the GSI. So indeed, you know the amount of cash we received, EUR 250 million. We have been completely transparent on this. Once again, what I can tell you is that we are working very closely with IPTO in a very, let's say, collaborative way. And we are in discussion at this moment in terms of the next steps of this project on the milestone and payment is part of it. So I cannot disclose anything, but that's, of course, as you can imagine, a part of our discussion. There's also ongoing discussion on political as well regarding the GSI. But on the cash payments, we are close discussion with IPTO on the -- and that's where we stand today. Now regarding your second question, indeed, the European business, there are 2 streams, Grid and Connect. So Grid, you are right with more than 15% EBITDA in terms of profitability. Here, you need to understand that in Grid, there is basically 3 parts, 3 elements. First one being the long-term agreement with utilities. And here, we are extremely satisfied with relationship with platinum customers that we're having. We have signed long-term agreement with them. In the past, it used to be 2 years contract agreement. Today, we are talking about 4, 5, 6 years contract. So we give us a very good visibility about the long term. The second part is project base of Grid, which are renewable solar or wind. Here, it's more, let's say, a project for a few months. And this business is extremely dynamic as well in Europe. I mean, Italy is one of them, Greece, or the other parts of the countries. Here, the profitability of this project are also at the right level of what we are looking for and what is in line with our Capital Market Day. And then you have the third activity, which is Accessories managed by Elyette, which is -- and we have communicated that a few times that is extremely lucrative as a business growing very fast because you know that the accessories part is, let's say, the critical element of the Grid. And our customers, platinum customers are replacing that regularly due to the climate change. And that's also giving us the reason why this business of accessories is growing even faster than the cable. So that's basically for the Grid part. Now talking about Connect. So Connect contrasted, as I said, businesses. The -- let's say, the profitability in Europe is around 13% EBITDA. And we will be growing this step by step with -- because we have growth patterns in our strategy where we will be growing in the sectors in the verticals for us, which matter the most, data center, critical building, injecting new technology of products, injecting new innovation of products. On that point, I think just for you to understand, we are -- in the past 2 months, we have launched Klaro, new innovation in Italy market with LTC. We are launching in September, ULTIMO innovations in Benelux, MOBIWAY in Norway. All these innovations are comforting the profitability of this business and are providing us also some resiliency because we try to avoid being too much exposed to residential and much more, let's say, focused to the market segments, which are going better. Vincent Dessale: And maybe to add on Julien's comment, just to remind that we have improved significantly over the last year, the performance of the Connect business, thanks exactly to what Julien comment, the SHIFT program deployment plus innovation, which are really the 2 pillars. And if you remember in the last call, we have not given any guidance on the percentage of EBITDA for Connect for very simple reason is that we have an ambition in terms of acquisition and the acquisitions that we do usually are slightly below the average of Nexans. And we have after the deployment of our integration program in order to bring them at least to the average and sometimes above the average. And indeed, we have -- we know that in the coming years, we'll continue to do this acquisition. So this is basically why we -- how we drive the evolution of the performance of Connect. But as mentioned by Julien, we are confident. Julien Hueber: And one more comment, I think what is very important to understand, in the Connect, you can grow very fast and you can take any type of business. But remember, the strategy of Nexans is to be selective. And for instance, in the Nordic in Q3, I asked the team to be extremely selective in the type of project because we don't want to consume cash for projects which are not accretive to our EBITDA. So we took always the decision to select the type of project and choose the one that really bring both cash and profitability to Nexans. Operator: And we'll now take our next question from Akash Gupta of JPMorgan. Akash Gupta: My first one is on outlook. So when you raised full year guidance in July, you were guiding double-digit growth in Grid and Connect in Q3, but we saw Grid growth in Q3 was slightly below double digit and Connect was not below double-digit level. And then we also saw some losing momentum in Metallurgy business, which was pretty strong in first half. So my question is that today, you are reiterating the guidance. But when we look at this guidance corridor and giving consensus is towards the bottom end of the range, where do you expect to end up in the year? Like how much confidence do you have in the midpoint? And how much confidence do you have on the upper end of the range? So that's the first one. Julien Hueber: Okay. Thank you, Akash, for your question. So basically, the Metallurgy tariff impact was none at the moment where we upgraded the guidance. So I think this one is -- there's no, let's say, negative impact whatsoever in terms of the guidance for the year-end 2025. Regarding the Grid and Connect, so our strategy is not always to go for volume. It's also to go for profitable growth. And typically, as I mentioned, for Connect parts, even though, as you say, the volume has been slightly below the expectation of the market. I can tell you that the quality of the growth of the 3.6% based on innovation we are doing, secure our guidance for the year-end. So I can tell you, that's why we will be securing our guidance by year-end. And I will not now comment where we'll be landing because we are still working on it. Of course, you can imagine. But the quality of the growth we have both in Grid and Connect secure our guidance. Akash Gupta: And my follow-up question is on Transmission growth. So when we look at the comps in absolute term, I think you will have a toughest comp in Q4. So maybe if you can comment about what sort of growth rates do we expect in Q4? And then when we move from '26 to '25, again, is there any unutilized capacity where utilization can be driver for growth? Or will the growth in 2026 will be mostly coming from project mix? Julien Hueber: Okay. So in Transmission growth, you have seen that -- so basically, we will be -- so you may have some spike from one quarter to another. You see a very strong Q3 numbers, 33%. I would say that our growth for the year-end will be first very well oriented and in line with the average of what we have announced in H1, this type of growth level. Now regarding the vision for 2026, maybe Vincent, you want to comment on this one? Vincent Dessale: Yes. Akash, Vincent speaking. I think you know the story very well. I mean the significant increase of this year is the result of our decision some years ago to make several investments in terms of manufacturing, testing and installation. So it's a kind of expected, I wouldn't say mechanic, but at least expected growth. Now we have a backlog, as mentioned by Julien before, for the next 4 years. So we will be in line in terms of volume with this year because now all the capacity that we have added over the last 3 years are now running and they are fully loaded for the next 4 years. So that's basically the profile of activity for the next 4 years. And as mentioned by Julien, depending on the different, I would say, planning of the execution, you can have from one quarter to another one, some differences in terms of volumes because you will have more installation, less installation. You know that we do more installation during summertime than during winter time, the usual approach of this business. Operator: And we'll now take our next question from Uma Samlin of Bank of America. Uma Samlin: So my first question is on -- a follow-up on GSI. I was wondering if you could help us -- how should we think about the progress of GSI so far in relation to your full year guidance? I think in the previous calls, you had mentioned that even if the project does not go ahead, the EUR 250 million that you have received so far would still contribute enough for the guidance to be hit in the mid-range of the guidance. Just wondering if you can confirm if that still is the case. My second question is on the PWR-Grid market. I guess we've seen a fair share of capacity expansion there. How should we think about pricing versus capacity expansion in PWR-Grid going forward? Julien Hueber: Okay. So GSI, I think I will repeat what I just explained. So basically, yes, indeed, when we -- when the guidance has been raised last July and confirmed today, we completely integrate the GSI elements of the milestone we have with customers. So having no change for that, I can [ contain ] this point. Now regarding the PWR-Grid, your second question. So it is also a very interesting question. So the growth is there. We demonstrated 9%. The capacity in Nexans -- manufacturing capacity in Nexans is also ready to sustain the growth. And we do not see any change, any pressure on price. Why? Because, first of all, we are -- we have launching low carbon innovations, which are extremely let's say, in line with the expectation of our customers, platinum customers that -- because you may know that the type of medium voltage low carbon offer that we are providing and selling to the market today, they are reducing by 50% the CO2 emission. So you can imagine the importance it has for our customer utilities. That's why we are able to differentiate from our competitors that are not offering the same thing. And as well as the strong, let's say, no pressure on price in Grid is also linked to the growth we are making in Accessories. Here again, I think you have seen last communication where we are launching innovations on new type of accessories, new joints that are also accelerating the installation phase from our electricians on the field. Operator: And we'll now take our next question from Miguel Borrega of BNP Paribas Exane. Miguel Nabeiro Ensinas Serra Borrega: Sorry to come back to GSI, which you say is on track, and there is no plan B. But it seems you're now more at risk than where you were in the first half. If the project is really canceled, what are the remedies? How can you replace the production reserves for next year? And do you think there are other projects out there with such a margin? I'm just trying to understand if the previous 17% margin for Transmission as a whole is still possible without GSI. Julien Hueber: Okay. So first of all, the project is not canceled. We are still working on it. They are extremely close discussion on relationship with our customers. There are ongoing discussion on the political side and supported by the European Commission. So I mean this is -- we do not see that as a risk. And we'll come back on that, of course, when we'll have some more, let's say, information to share. But this project is not canceled so far. Regarding now the -- we have enough pipeline of projects ongoing. Some of them already secured. Some of them are also under quotation. So here, we have so far -- we have no -- let's say, we don't forecast any problem for next year on this part. So basically, on -- maybe Vincent, if you want to add. Vincent Dessale: Yes, maybe to give you some color, I mean, just keep in mind that this project is what we call a mass impregnated project with deepwater installation. And let's be clear, on the previous projects with this type of technological content, we have been only 2 players to be qualified. So you don't have so many players able to deliver so far this technology. And basically, when you look to all the coming projects in Med Sea, for example, they will all request this type of activity. And today, both players are fully loaded for the next 4 years. So you can imagine that the other projects coming in the pipe are just waiting the available capacity. So as mentioned by Julien, there is no plan B. Today, we are working with our customers in very good collaboration. And we are already working with some potential projects after GSI, which will be '28, '29, basically. Miguel Nabeiro Ensinas Serra Borrega: Okay. And then just a high-level question as you were previously Head of PWR-Connect and Grid, what can you tell us about recent performance in terms of growth and profitability? And maybe some insights on what will be the #1 priority from here on? Is it accelerating top line growth? Is it continuing to expand margins or accelerate M&A? And then if I just can squeeze one more on Industry & Solutions. I think there's only Auto-harnesses left to be disposed. Is that still the plan? And do you see other areas potentially up for sale? Julien Hueber: Okay. So I will start by your last comment with autoelectric. So the answer is yes, it is -- there are still ongoing discussions with potential buyers. And this discussion are progressing. So that we will be able to come back to you as soon as something is a bit more concrete on that. But that's something that is part of our strategy to dispose and to become 100% electrical pure play electrification. Now regarding the -- you like, let's say, what would be the priorities. But basically, capital allocation is clear because we want to accelerate the M&A. That's really my objectives. I think the announcement of today for Canada can demonstrate it. And we have -- the team, M&A teams of Nexans is also very active with different pipeline. So we will review that very quickly to move on these elements. Growth, yes, but profitable growth, selective growth like we have demonstrated since several years. I think we will continue to do this. And also, we will be extremely -- and we explained that in the Capital Market Day in terms of innovations. We have a pipeline of innovations. There was recently a big event with one of our customers, platinum customers in France. We have seen a lot of electricians understand talking about innovation. There's a big appetite for innovations. And last but not least is the SHIFT and SHIFT AI that maybe we can also explain to you. That's one of our priority. We really want to grow in this segment. And I will give the floor here of Guillaume in charge of strategy and AI for Nexans that maybe can give some color on that. Guillaume Eymery: Thank you, Julien. Indeed, SHIFT AI is a hot topic for us. Basically, it's the platform from which we develop the Nexans AI solutions. And the choice we made is to amplify and accelerate the SHIFT program that has been very successful for Nexans. We focus on 4 axis: costing, complexity reduction, dynamic pricing, client advanced segmentation. And basically, the idea of SHIFT AI is that when a normal manager uses 5% of the data available, we moved to 20% with SHIFT. And with SHIFT AI, we will move to 90%. So at the moment, we are really in the topic of building up this platform, and we will tell you more in '26. Julien Hueber: And maybe just to finish on your question, maybe one of my other priorities, which is for me extremely important, is to work on the industrial excellence, generate mutualization of industrial footprints, both in Grid and Connect because we have here a room of improvement, productivity and competitiveness. So that will be also a key element of my priorities in the coming weeks with the team. Operator: And we'll now take our next question from Eric Lemarie of CIC. Eric Lemarié: I've got 2, the first one on GSI. I appreciate your various comments on this project, but could you confirm maybe that you're on time with the initial schedule on GSI and that the project has not been somewhat delayed as it is sometimes mentioned by the press? And could you maybe say when you expect to receive the final notice to proceed for GSI? And I got a second question on the backlog. The backlog on Transmission is flattish, is up year-on-year. I can see that, but it's flattish sequentially this year, around EUR 8 billion. Could you perhaps remind us your strategy here? Is it to properly execute and renew the backlog in good condition? Or is it more to expand the backlog to make it grow further? Julien Hueber: Thank you for your question. Maybe, Vincent, you want to comment? Vincent Dessale: Yes. I can take the backlog, if you wish, Julien. I think what we must have in mind, you have to take a kind of step back, I think. Why the backlog has increased significantly is that, if you remember, in '23, there has been this big move on the market with the Tenet frame agreement, which was basically the largest award of the history of the subsea business, which has basically catch a big part of the capacity on the market. And as a consequence of this major move from Tenet, you have seen plenty of other players placing their tender in order also to avoid a lack of capacity on the market. So '23 was indeed a peak of order intake. So I think now we are more in a normal process because basically, all the key players, we have 4 to 6 years of backlog. So it's quite logical, I will say, that you have a lower activity of tender right now, even if, as we say, it's still very active and very robust. You have the different players have announced award around this year. But if you follow my logic, you should expect potentially a new peak of order when there will be much more free capacity, which means basically probably more in '27 or '28. And that's why we have said previously that we think that the book-to-bill will be around 1 this year and probably next year due to this -- not due to us, but due to the cycle of the business. So we are focusing to answer to your question to 2 points. First, to execute properly the backlog because we have a good backlog to execute. And indeed, we are looking to the pipeline in order to on time, prepare the next generation of order, which will start basically from '29 onwards. And this means probably, as usual in this business, tendering 2 years in advance before the available capacity. Julien Hueber: And just -- thank you, Vincent. Just to answer your first question regarding GSI, yes, I do confirm we are in time with initial schedule, and we are in close discussion with our customers about the next steps. And so that's where we are standing today. Operator: And we'll now take our next question from Xin Wang of Barclays. Xin Wang: A quick follow-up on GSI, given we can't see your financial statements. Can you confirm for the volumes produced since September, are these sitting as contract assets or trade receivables on your balance sheet, please? Vincent Dessale: Just maybe a clarification because you speak a lot about the production. And I think just as a reminder, a project is not only production. I will not give you in details the detail of the scheduling of the project. But when we -- all what we have done since the beginning of this project is, of course, engineering, testing, production and so on. So when we say that we are on track, as mentioned by Julien, it means that we are on track not only with manufacturing, but also with jointing activities, with testing activities, with engineering activities, and this is basically what we are doing. So we have produced, I think, probably around 240 kilometers more or less. And indeed, we are continuing with both production and jointing and testing. That's the normal life of a project from a pure -- to give some color on the -- what does it mean from an operational perspective. It's not only production. If not, the project will not progress as planned. Xin Wang: Okay. I think my question was more on for the work you did since September, are you able to invoice them? Julien Hueber: So yes, we have been -- of course, we have been invoicing the customer as per normal, as per the ongoing project as per the milestone. So -- but that's nothing exceptional to report as usual, yes. Unknown Executive: [indiscernible] is limited so far. Xin Wang: Sorry, I didn't quite get the last bit. Julien Hueber: So it's Christine, our interim CFO, which was saying that our exposure is completely aligned with -- there's nothing special to report yet. Xin Wang: Okay. Great. And then my second one is, do you think there is a temporary regional oversupply in Canada since the introduction of U.S. tariffs? Because in H1, it was very obvious that you were exporting a lot more copper to the U.S., which was reflected in very high other activity numbers as you also commented in Q3, this was negative 6.3% year-on-year. Julien Hueber: So I don't think so for Canada. We have a very strong growth in Canada, close to 20% growth year-on-year, extremely dynamic. You know that we have 2 type of business, Grid and Connect. The Grid, it's fueled by long-term projects, long-term agreement with customers, utilities. So here, we are very well secured on the visibility. And in terms of Connect, we are -- what the team is doing is to really focus the activity on the specific verticals, data center, critical buildings. And here, again, there is no -- we don't see any specific additional competition from outside the Canada or from any other country. So basically, we are very well secured in this market, very dynamic with very long capability to grow in terms of construction infrastructure. Xin Wang: Okay. Good to know. And then final one, is the 9% Grid growth margin diluting? Because I think previously, management commented on sensitivity table between organic growth and margin. Is there a shift on how you think about the market? Julien Hueber: I can tell you that it's not diluted. This Grid business is extremely profitable. And so no dilution at all. It's -- we are completely aligned. Once again, we are aligned with the target we have communicated in Capital Market Day, both in terms of profitability and in terms of growth. Operator: Thank you. There are no further questions in queue. I will now hand it back to Julien for final remarks. Julien Hueber: So thank you, operator. So let me just finish by saying that I believe the solid performance delivered in our trading update today confirm the robustness of Nexans model and discipline with which we execute it. Now we enter into a final quarter with confidence, and we reiterate you have seen and you understood today our 2025 guidance. I'm very pleased to go now on the roadshows and to meet investors in the coming weeks. Thank you again for joining today. Operator: Thank you. This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Good morning, and welcome to World Acceptance Corporation's Second Quarter 2026 Earnings Conference Call. This call is being recorded. [Operator Instructions]. Before we begin, the corporation has requested that I make the following announcement. The comments made during this conference call may contain certain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 that represent the corporation's expectations and beliefs concerning future events. Such forward-looking statements are about matters that are inherently subject to risks and uncertainties. Statements other than those of historical fact as well as those identified by the words anticipate, estimate, intend, plan, expect, believe, may, will and should or any variation of the foregoing insular expressions are forward-looking statements. Additional information regarding forward-looking statements and any factors that could cause actual results or performance to differ from the expectations expressed or implied in such forward-looking statements are included in the paragraph discussing forward-looking statements in today's earnings press release and in the Risk Factors section of the corporation's most recent Form 10-K for the fiscal year ended March 31, 2025, and subsequent reports filed with or furnished to the SEC from time to time. The corporation does not undertake any obligation to update any forward-looking statements it makes. At this time, it is my pleasure to turn the floor over to your host, Chad Prashad, President and Chief Executive Officer. Chad Prashad: Good morning, and thank you for joining our fiscal '26 second quarter earnings call. There are a lot of great things to report in the portfolio. But before I get into those, I want to spend some time discussing a few unusual and one-off events that impacted this quarter, and then we'll open up to any questions you have. First, we had a $3.7 million onetime expense from the early redemption of our bonds. This is approximately a $0.57 earnings per share impact after tax within the quarter. Second, even though we discontinued and disposed of our Mexico operation years ago, we had a $1.3 million discrete tax-related expense this quarter. There are no additional items related to our prior Mexico operations that we expect to impact any future business or financials. But this $1.3 million expense represents approximately $0.26 per share after tax this quarter. We had the most new customer growth in the last 4 years this quarter, and this growth primarily in new customers, which are our riskiest customer segment, resulted in a new customer portfolio at the end of Q2 that is 35% larger year-over-year. This marginal increase in provision is solely due to the increased new customer base is approximately $5 million, solely due to new customers in the portfolio at the end of the second quarter. This represents approximately $0.78 per share after tax. These 3 unusual events in this quarter have a total impact of around $1.61 per share after tax on the quarter. Additionally, our long-term incentive comp changes make for year-over-year comparisons rather difficult. Last year, we reversed around $18.1 million in long-term comp from a prior plan, which benefited that quarter. Conversely, this quarter, we expensed around $5.8 million of long-term comp plan, which is about a $23.9 million net increase in our long-term incentive comp expenses when you're comparing year-over-year quarters. As you think about future quarters, the long-term incentive expense is front-loaded and will remain around $5.8 million for the third quarter before reducing by around $2 million in the fourth quarter and the following 2 quarters before reducing further. All right. That covers the major one-off and unique impacts within the second quarter. Now turning to the portfolio. Our new customer origination volume is up around 40% year-over-year at the end of the second quarter. Year-to-date, our new customer origination volume is up 35% and back to pre-COVID levels, actually in line with the first half of both fiscal year 2019 and 2020. This is a remarkable feat given the last few years of shrinking reduced growth. Additionally, the first pay default rate, slow file or delinquency rate of these new originations are in line with our fiscal 2019 and 2020, new bar originations. We're very grateful for all of the hard work by so many folks within our teams and very pleased with these results. They are able to return to healthy growth with good credit quality, maintain low first payment default rates while also increasing our portfolio yield by over 130 basis points year-over-year. When we include our returning former customers and look at all non-refinance originations, originations increased 15% year-over-year in the second quarter, making it the highest volume second quarter on record with the exception of fiscal year 2020 -- 2022. Year-to-date, the first half of the fiscal year had 14% higher loan volume than last year. Again, the highest volume on record for the first half of the fiscal year with the exception of fiscal year 2022. This is especially important for our portfolio of health as our repeat customers are lower credit risk, have a lower cost of acquisition and servicing and help with overall retention, yield and lower delinquency. All of this has helped us grow the portfolio nominally by 5.5% more this year relative to last year. We ended the second quarter with our portfolio up 1.5% year-over-year, compared to a starting position of being down 4% at beginning of the year on April 1 year-over-year. Other great improvements to our capital position include, as we previously mentioned, this quarter, we repurchased and canceled the remaining $170 million of our bonds and stood up a $175 million warehouse facility. Also in the quarter, we completed a new credit agreement, increasing commitments to $640 million and allowing for stock repurchases of up to 100% of net income which is an increase from 50% of net income in our prior agreement, and an additional $100 million of upfront repurchase allowance in addition to the 100% of net income, which begins January 1, 2025. For that repurchase potential, we've already repurchased 9.1% of our shares so far year-to-date, which is around $80 million, with additional capacity repurchased another $77 million this year, or approximately 8.6% of outstanding shares at yesterday's price for a total potential repurchase of around 17.7% of outstanding shares, again at yesterday's share price. We're excited about the current portfolio and this trajectory, which includes substantial customer base expansion, strong loan growth, improved loan approval rates while maintaining credit quality, stable and improving delinquency, lower cost of acquisition, improving yields, declining share count and ultimately returning enhanced value to our shareholders through strong EPS growth. At this time, Johnny Calmes, our Chief Financial and Strategy Officer, and I would like to open up to any questions you may have. Operator: [Operator Instruction]. And your first question comes from John Rowan with Janney. John Rowan: My apologies, the phone broke up -- my phone broke up a little bit when you were talking about the 3 discrete items, I got into $0.26 from Mexico, but what were the other 2 to get to the $1.61? Chad Prashad: Yes. So we had $0.26 in Mexico. We had $0.57 due to the $3.7 million early redemption of our bonds and approximately 78% -- or $0.78 EPS impact from around right at $5 million increase in our provision solely due to more new customer growth this second quarter than last second quarter. John Rowan: Okay. So I just want to make sure I understand a little bit more about the -- some of your operating expenses going forward. So you had $25 million, an increase of $25.4 million in personnel expense because of the grants, right? But I'm assuming that that's up $25 million versus the $18.5 million reversal last year. So is it safe to assume that there's like $6.9 million, the net difference of that in personnel expense this year -- this quarter, going down to $5.8 million next quarter and then down to $3.8 million a quarter, for that $1.8 million a quarter after that. Does that sound correct? Chad Prashad: Yes. Sounds good. John Rowan: Okay. And then kind of 1 last housekeeping question. So obviously, you had a GAAP loss for the quarter. I'm assuming the diluted share count is just the basic share count. Can you tell me what the -- but the period end diluted share count was? Or the period end share count and then what the dilution is, we can maybe get an idea of what the diluted share count is with positive earnings? Chad Prashad: Yes. So the quarter ending share count is up $4.8 million. And the dilution usually runs in the 100,000, 200,000 shares, depending on obviously where the share prices and other factors. Operator: Your next question comes from Kyle Joseph with Stephens. Go ahead. Kyle Joseph: Just want to get your sense for the health of the underlying consumer and kind of any changes since the last time we talked. Obviously, there's been a lot of headlines, primarily in the auto space and concerns about the consumer. And I recognize you guys have some portfolio mix shift going on. But just stepping back and talking about the health of the underlying consumer and how that's impacting both demand and credit? Chad Prashad: Yes, it's a great question. So we do track how our consumer is performing on other loans. And yes, we have seen the same sort of weakness that you're reading about the papers, especially in the auto loans. However, for us, we haven't seen any major signs of weakness. We have proactively tightened our credit box for new customers multiple times so far this fiscal year, very marginal tightening typically on the very low end. Nothing really substantial in terms of overall approval volumes. But in terms of performance, we haven't seen anything major that would impact the portfolio today. Kyle Joseph: Got it. And then you guys talked about originations growth and new customers and just kind of want to get an update on marketing efforts that have been driving that and where you guys have been having success in kind of an update on the competitive environment as well. Chad Prashad: Yes. So on the marketing side, we've done a number of things that have, I think, been very successful. We are very much a test-and-learn sort of environment. We have brought some modeling in-house on the -- for solicitation models, propensity to respond and couple those with overall performance expectations. We have a couple of very successful tests this past quarter that have dramatically reduced our cost of acquisition for pre-approval campaigns, primarily new customers. This fiscal year, we have made some substantial changes to the way that we market to our former customers in order to increase our repeat business. We've seen substantial reductions in overall cost of acquisition here as well. Now with that being said, we haven't anticipated returning back to the $20 million-plus sort of marketing budget that we used to have in marketing. We're, for now, looking to aim for modest growth, somewhere in the mid to low single digits on the portfolio side, which is mid to high single digits on the customer base side. So all that is kind of tailwinds in terms of growth, but we're still maintaining sort of smaller budgets on the marketing front. We are seeing increased demand and sort of increased application volume from customers in general. So maybe that's also helping to fuel our lower cost of acquisition. Kyle Joseph: Got it. Very helpful. Thanks for taking my questions. Operator: There are no further questions at this time. This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Prashad for any closing remarks. Chad Prashad: In closing, I want to thank our absolutely amazing team across the country as well as those here in Greenville. I'm very grateful for their commitment to their customers and to our team members every day. They are helping our customers to establish and rebuild credit while meeting their immediate financial needs. Thank you for taking time to join us today. This concludes the second quarter earnings call for World Acceptance Corporation. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the First Bank earnings conference call third quarter 2025. [Operator Instructions] I would now like to turn the call over to Patrick Ryan, President and CEO. Please go ahead. Patrick Ryan: Thank you, Kate. I'd like to welcome everyone today to First Bank's Third Quarter 2025 Earnings Conference Call. I am joined by Andrew Hibshman, our Chief Financial Officer; Darleen Gillespie, our Chief Retail Banking Officer; and Peter Cahill, our Chief Lending Officer. Before we begin, Andrew will read the safe harbor statement. Andrew Hibshman: The following discussion may contain forward-looking statements concerning the financial condition, results of operations and business of First Bank. We caution that such statements are subject to a number of uncertainties, and actual results could differ materially, and therefore, you should not place undue reliance on any forward-looking statements we make. We may not update any forward-looking statements we make today for future events or developments. Information about risks and uncertainties are described under Item 1A Risk Factors in our annual report on Form 10-K for the year ended December 31, 2024, filed with the FDIC. Pat, back to you. Patrick Ryan: Thanks, Andrew. I'll hit on a couple of the high-level points from the quarter and then turn it over to the team to provide some of the details. In the third quarter, we saw a nice increase in net interest income, thanks to continued loan and deposit growth, coupled with net interest margin expansion. Our net interest income was up $1.5 million compared to the second quarter and up $5 million compared to a year ago. Our margin was up 6 basis points linked quarter and was up 23 basis points compared to a year ago. And the pre-provision net revenue number increased to 1.81% from 1.65% in the prior quarter. So all nice positive movements upward in terms of our overall revenue and margin. That strong revenue growth, coupled with expense control, drove continued improved profitability -- our net income was up $3.5 million or 43% compared to Q3 of 2024. Our return on average assets improved 28 basis points to 1.16% compared to 0.88% in the third quarter of last year. Our earnings per share improved to $0.47 in the third quarter, a 46% increase compared to Q3 a year ago, and our return on tangible common equity came in at 12.35%. We did see continued loan portfolio diversification within the quarter. Our investor commercial real estate to capital ratio came down to 370% from a high of 430% after we closed the Malvern acquisition. Our specialized lending groups now make up 16% of total loans, but within that broader category of specialized lending, no niche makes up more than 5% of total loans. Overall, credit quality seems to be holding up with the exception of some softness we saw in the small business segment, specifically companies with revenues under $1 million. Our NPAs in our nonperforming loans did decline during the quarter, and our allowance coverage ratio to nonperformers increased to 2.93%. Charge-offs were elevated but remain very manageable. Third quarter results also included 2 months of "extra sub debt expense" as we did not pay off the old sub debt until September 1 of this year. And during the quarter, we bought back almost 120,000 shares at an average price of $14.91. In summary, the core operating trends look good, and they're improving. The economic outlook remains uncertain, but we're well positioned for whatever rate environment may emerge. And obviously, we're keeping a close eye on the overall level of economic activity and what that might mean for credit quality going forward. I'll turn it over now to Andrew Hibshman, our CFO, to give you a little more detail on the financial results. Andrew? Andrew Hibshman: Thanks, Pat. For the 3 months ended September 30, 2025, we recorded net income of $11.7 million or $0.47 per diluted share and a 1.16% return on average assets. We saw another quarter of solid loan growth, however, down from the first and second quarter as we continue to prioritize relationships and profitability over volume. Loans were up $47 million for the second quarter or 5.6% annualized. Over the last 12 months, loans have grown $286 million or over 9% with our core areas of focus leading the way. C&I grew $194 million and owner-occupied commercial real estate loans grew $40 million. Our evolution into a middle market commercial bank can be seen in our loan mix shift over the past 12 months. C&I and owner-occupied commercial real estate are now a combined 42.2% of loans compared to 40% of loans at September 30, 2024. And our investor commercial real estate loans, which includes multifamily and construction and development, are now 49.8%, down from almost 53% 1 year ago. Growth was also solid again on the deposit side. Balances were up over $55 million during the quarter or an annualized 7% as we continue to execute on adding and maintaining profitable relationships. The growth primarily came with time deposits, along with some interest-bearing demand deposit growth. Darleen will expand on this, but we saw a strong response to promotional campaigns in markets around our new branches. We also utilized some brokered CDs to help reduce FHLB advances by $25 million during the quarter. I'll highlight that our deposit growth occurred even as our average cost of deposits declined 3 basis points to 2.69% for the quarter. Net interest income increased $1.5 million compared to the second quarter, primarily due to margin expansion on a growing balance sheet. Our net interest margin grew 6 basis points to 3.71% in the third quarter despite increased costs on our subordinated debt. We carried sub debt totaling $65 million from June 18, 2025, through September 1, which is the date we redeemed $30 million of outstanding debt. This carry resulted in about $486,000 in additional interest for the third quarter. Looking ahead, we continue to manage a well-balanced asset and liability position, which should result in continued strong net interest income generation. We will benefit from lower sub debt interest costs. However, we expect the immediate impact of Fed rate cuts to be slightly negative as it takes longer to move deposit costs lower compared to the immediate impact of rates moving lower on our variable rate assets. We also continue to expect a larger decline in our acquisition accounting accretion over the next several quarters. Overall, we expect our margin to remain relatively stable as we continue efforts to push deposit costs lower and replace the runoff of lower-yielding assets with higher-yielding loans. Our asset quality metrics at September 30 continue to be strong. NPAs to total assets declined to 36 basis points compared to 40 basis points at June 30 and 47 basis points 1 year ago. The linked quarter decline reflects a decrease of $1.6 million in nonperforming loans. Our allowance for credit losses to total loans increased slightly to 1.25% at September 30 from 1.23% at June 30. We recorded $1.7 million in net charge-offs during the quarter compared to $796,000 for the second quarter and $15,000 in net recoveries in the first quarter. Year-to-date charge-offs are almost exclusively in our small business portfolio. We continue to value this business for the sticky deposit relationships it generates, its impact on improving our community presence and brand loyalty, and it builds a pipeline of future middle market commercial customers. Pat summarized our credit outlook, and Peter will discuss it further in his comments. Noninterest income totaled $2.4 million in the third quarter of 2025 compared to $2.7 million in Q2. The decrease reflects lower swap fees, loan swap fees as well as $397,000 gain on the sale of a corporate facility that occurred in the second quarter. Noninterest expenses were $19.7 million for the third quarter compared to $20.9 million in Q2. Recall that Q2 expenses included $863,000 in onetime executive severance payments. Additional declines in other line items reflect efficiency initiatives as the bank continues to prioritize effective expense management. Darleen will expand on this in her remarks, but we have some new branch openings that will drive costs slightly higher, but we also have an offsetting branch closure in process and other cost mitigation initiatives in place that should help to minimize cost increases. Tax expense totaled $3.6 million for the third quarter with an effective tax rate of 23.4%. This compares to an effective tax rate of 22.9% in Q2. We anticipate our effective tax rate going forward will be relatively stable. Our efficiency ratio improved to 52% and remained below 60% for the 25th consecutive quarter. We also continued to expand our tangible book value per share, which grew $0.46 during the quarter to $15.33. We continue to be pleased with our earnings momentum and our progress in executing our strategy to evolve into a middle-market commercial bank. Our capital ratios remain strong, allowing for capital flexibility. This affords us the opportunity to further drive shareholder value through ongoing investment in the franchise and technology, a stable cash dividend and share buybacks as applicable over time. At this time, I'll turn it over to Darleen Gillespie, our Chief Retail Banking Officer, for her remarks. Darleen? Darleen Gillespie: Thanks, Andrew, and good morning, everyone. As Pat and Andrew noted, we experienced solid deposit growth in the third quarter with balances up $55 million or 7% annualized from Q2. This reflects increased business development activities by our sales teams and the success of targeted promotions, which we were -- which were implemented to drive engagement with our newly opened branch locations. While at a higher cost, promotional campaigns tend to generate strong relationship deposits and have proven successful as part of our branch network optimization efforts. We also saw growth from some CD promotions implemented to strategically onboard funding in support of our strong loan growth. But we're not only growing high-cost deposits. The point-in-time balance sheet hides an important success that I'd like to highlight. Our average noninterest-bearing deposits grew by $21 million during the quarter and by $52 million year-to-date, reflecting strong relationships that provide critical interest-free funding. During the third quarter, our average cost of interest-bearing deposits declined by 2 basis points to 3.27% and our overall cost of deposits declined by 3 basis points to 2.69%. This occurred despite growth coming from higher cost promotional campaigns and some brokered funding to support our loan growth. It reflects our bankers' outstanding success in executing their dual mandate to both maintain deep customer relationships and lower funding costs. The initiatives and banker incentives we have in place to support these goals continue to be effective. Similarly, what's also hiding in our net growth is our continued success in managing out some higher cost balances over the past few quarters. If you look at the first 9 months of 2025, our average money market deposits grew by about $25.1 million or 2.4% over the same period of 2024, but the average cost declined by 61 basis points, lowering the overall interest expense on these deposits by $4.1 million compared to the year-to-date period. And I do not believe we have fully realized the benefit of the Fed's September rate cut yet, but we have made solid progress lowering our pricing and managing interest expense through the first 3 quarters. Now I'll talk a little bit about our branch strategy, which has always been aimed at supporting engagement in our current markets and opportunistic expansion into adjacent markets. We opened a de novo branch in the Fort Monmouth section of Ocean Port, New Jersey, extending our footprint into Monmouth County and increasing our New Jersey footprint to 10 counties. We also completed the relocation of our Palm Beach branch to Wellington, Florida, still in Palm Beach County. This location was part of our Malvern Bank acquisition and was originally in a small office suite. We now have a full-service branch in a more convenient and accessible location to better serve our customers. We also officially closed our limited-service Morristown office in August and transferred those relationships and deposits to our nearby Denville branch. In line with our strategy to operate efficiently, we made the decision to close our Coventry, Pennsylvania branch in December of this year and transferred those deposits and relationships to our nearby Lionville branch. This decision allows us to better leverage our resources while continuing to provide high-quality service across our footprint. Needless to say, it's been a busy year for us with branch -- with several branch openings and consolidations. We've focused on aligning our branch footprint with customer demand and growth opportunities. By year-end, these efforts will result in a net increase of 1 branch in our network. I'll finish up with a note on rates and pricing. We've been very proactive in moving rates with the Fed cuts and expect to continue to do so. Now this does take time and a measured approach. We've been able to grow deposits in many rate environments, and we aim to continue doing this provided the desired profitability levels can be achieved. At this point in our evolution, growth for the sake of growth is not our end goal. We will focus on growing our deposit portfolio through disciplined relationship-driven strategies while remaining competitive in our pricing. Our goal is to continue to offer fair, market-aligned pricing, supported by strong customer relationships and exceptional service. Our focus is on serving our customers -- or growing our customers and serving our customers well and profitably. And also, our team is doing an outstanding job toward this end. At this time, I'll turn it over to Peter Cahill, our Chief Lending Officer, for his remarks. Peter? Peter Cahill: Thanks, Darleen. Well, Pat and Andrew have already commented on the loan growth. We've experienced in the past quarter as well as year-to-date, an annualized growth rate of 9%, I think, compares favorably to our peers. The third quarter was right in line with budgeted loan growth. And after 2 quarters of growth that were well ahead of plan, I think we're positioned to report good overall growth in earnings at the end of the year. For the past couple of years, I've reported on our goal to do more C&I business, which includes owner-occupied real estate, while maintaining a healthy level of investor real estate and consumer lending. And I'm happy to report that the trend of growing C&I business has continued. New loans closed and funded for the 9 months ending 9/30/25 were comprised 65% by C&I loans and 18% by investor real estate, the remainder consisting mainly of consumer loans. That's an increase in C&I lending from 2024 when C&I loans represented 64% of all new loans. The regional commercial banking teams continue to generate most of the loan growth for us. They represented 39% of new loans generated in Q3, followed by investor real estate at 28%, private equity at 18% and small business banking at 9%. Our specialty areas, which also includes asset-based lending, are all at or very close to their growth plans for the year. Regarding investor real estate, we closed a number of new loans in the third quarter, but similar to previous periods, new loans were offset by payoffs. You'll see a bump up in investor real estate if you look at the schedules in the earnings release, but that was due mainly to a reclassification of a loan from owner-occupied to investor. Our goal over time is to moderate growth in investor real estate and manage more of that business in its own investor real estate team, focusing on relationships and loan concentrations, and that continues to go very well. A focus of most community banks is the ratio of investor real estate loans to total capital, as Pat mentioned, we hit a high point at 430% of capital after the Malvern acquisition, but got to 390% in March of 2025 and finished Q3 at 370%, which is about where we want to be. The lending pipeline at the end of the third quarter stood at $283 million of probable fundings, down 6% from the level of probable fundings at June 30. The number of deals in the pipeline, however, is up 5% from the end of Q2. If one breaks down the components of the pipeline at quarter end, C&I loans made up 68% of the overall pipeline, exactly where we were at June 30 and up from 63% at March 31. Overall, I'm happy with where the new business pipeline stands. We are anticipating a higher level of loan payoffs in Q4 than what we've experienced on average over each of the first 3 quarters, which is why despite a strong start to the year from the standpoint of overall loan growth, our target has remained in the 6% to 7% growth range. On the topic of asset quality, Andrew provided a good outline on where we are. I think things continue to be in good shape. The loan portfolio continues to be well diversified. Andrew mentioned some softness in the small business loan portfolio. We've made some adjustments there, and we anticipate a return to the quality we've experienced previously. Overall, it's a modest piece of the overall loan portfolio. I should probably also comment on what's been out there in the banking news about the fear of deteriorating credit quality and the "one-offs" cited by a handful of banks. I can only say that we don't do any lending into deals like what you read about publicly around First Brands, Tricolor, factoring and borrowers not providing financial information. That's not what we do. We have very -- and we have very limited exposure to NBFIs and none to private lenders. In summary, I think we had a good third quarter. Loan growth was in line with budget, and we expect to meet our loan growth goals for the year. That pretty much concludes my remarks. So I'll turn things back to Pat for any final comments. Patrick Ryan: Great. Thank you, Peter. Appreciate all the additional comments. And at this point, I think we'd like to open it up for Q&A. Operator: [Operator Instructions] Your first question comes from the line of Justin Crowley with Piper Sandler. Justin Crowley: Just want to start on expenses. You've talked about tighter cost control before. So nice to see the core base now down 2 quarters in a row. How would you describe some of the efficiency actions taken, what they involve, what, if anything, is left to do? And where does that leave you on the thinking around run rate here over the next several quarters, more specifically, just factoring in your comments as well about some actions like new branches that could add to costs? Patrick Ryan: Yes. No, absolutely. Justin, we always are focused on costs. But at the same time, we don't want to miss out on important investment opportunities. I think you've seen over the last couple of years, we've invested in some new teams in terms of some of the specialty lending niches, we've invested in some additional branch locations in new markets for us, and we've invested in some technology, whether that be the online loan application platform or salesforce, things like that. But I think in terms of big investments, we're at a point right now where we're just kind of digesting the moves we made. We're letting those new business units scale up. And so I don't see a lot of big new costs on the horizon. We are a year away from needing to make a decision on our core and how much we want to keep kind of with our current provider versus spreading it out amongst other kind of best-in-class operators. So always a little bit of a question mark on tech when you're doing a big core contract renewal. But again, I don't suspect there's going to be anything too outlandish there in terms of technology spend increases. And we've been very focused internally on just making sure we can get our noninterest expense to average asset ratio down to that 2% range and below since that's where we've been able to operate historically. So that's a little bit of big picture on expenses, and I'll let Andrew jump in and talk a little bit about some of the initiatives and kind of where he sees the line item moving forward. Andrew Hibshman: Yes. Thanks, Pat. I'd just add, I think Pat talked about this in previous calls where kind of you do a big acquisition and you get cost saves and then you kind of recalibrate and now we're just kind of recalibrating a little bit more and fine-tuning. We haven't done anything drastic to save money, like things like professional fees, a lot of that was kind of elevated because of some of the big projects we had going, implementation of salesforce. We have consultants helping us with that. We had some other projects going on. And so I think really, the cost mitigation has been really just kind of settling to where we're at, finding some excess spending where we could. I don't think there's any major initiatives that are going to significantly reduce costs from where we're at now. We will -- obviously, like we mentioned, we will see a little bit of a creep for some of the couple of small -- the branches we've done, new branches. But I think we can minimize expenses, keep them relatively flat, maybe again, like some slight increases, always kind of heading into a new year, there's standard cost of living adjustments on things like rent and salaries and things. So we'll continue to see that. But no major new costs that I'm aware of or any major new cost-cutting initiatives, but we're going to just keeping a tight eye on things. We think we can continue to grow without adding meaningfully to the expense base and to the payroll. So again, I think we're going to be able to maintain the total expenses at a relatively flat level. Justin Crowley: Okay. And then just, I guess, in terms of like very near-term run rate, like next quarter, even if we do see a little bit of an increase given the new branches, it's going to be modest. It's not going to be anything too eye-popping. Andrew Hibshman: Yes, I think that's right. Justin Crowley: Okay. And then on the margin and some of the inputs, obviously, the latest Fed cut came late in the quarter. But following that and what should be, I guess, some further reductions looking out here, and Darleen touched on it, but can you folks talk a little bit more on how aggressive or active you think you can get on lowering deposit costs? Patrick Ryan: I'll start and then I'll let Darleen provide a little more color there. But at the end of the day, when the Fed moves, we move, as Andrew pointed out, it takes a little bit of time to kind of to go through it. We have certain rack rates we can move down and we obviously are taking a look to see are there areas where we can move more than what the Fed did. And so we try to be selective in certain product categories to see if we can even move things a little bit further. But at the end of the day, our goal is to try to make enough adjustments on the deposit cost side to offset what we know is coming in terms of floating rate asset yields so that after a month or so, it should be a relatively neutral event from a margin perspective. And then separate from that, there's just kind of the work we do every day to drive core low-cost noninterest-bearing deposits and move promotional customers into rack rate so that if we can make the impact of the Fed move neutral, then some of the mix improvements and some of the other changes we make can hopefully continue to drive costs lower. So I don't know, Darleen, anything you want to add there? Darleen Gillespie: I think, Pat, you touched on it. I would just add that we talked a lot about this over the past year and even early -- I'm sorry, late 2024, in which we've really been focused on lowering our cost of deposits, looking at specific portfolios and determining where we can make an adjustment without negatively impacting our customer base. One of the benefits that we have is our government portfolio, a good portion of that is tied to the effective funds rate. So as the Fed makes adjustments, we can make adjustments immediately. But I think everyone within the organization understands the message of competitive pricing but not going overboard and not necessarily winning based on rate. So overall, I think that we do a really good job in managing our cost, and I anticipate us continuing to be able to do that as the Fed continues to make adjustments over the next couple of months. Justin Crowley: You mentioned the government portfolio of funding. How much do you have in deposits that are like that, that are indexed directly to Fed funds? Darleen Gillespie: Our government portfolio is approximately 12% to 13% of our total deposit base. And I would say 75% of that portfolio is tied to the effective funds rate. So we look to onboard full customer relationships when we look at deposit opportunities on the government side. And generally, when we bid on that business, the request is to tie it to an index. So we've been successful in winning business in that world by bidding based off of an index rate. And so I think, again, as we look at additional cuts down the road, we'll be able to make adjustments in that portfolio. Justin Crowley: Okay. Got it. And then just one last one. You continue to be active on the buyback and seems like that should continue to some degree. Obviously, with the stock right around tangible book makes it attractive. But what are other considerations like, for example, on capital levels? What levels are you comfortable at? Or what do you think could serve as a good floor for you guys? Patrick Ryan: Well, we always look at internally the total risk-based capital ratio, and we have a soft limit around 11.5% that we try not to dip below if we don't need to. And then after that, it's just sort of looking at different uses for capital, and we're happy to see that based on -- despite the strong growth based on the strong earnings, we've been able to see that level creep up over the last couple of quarters. So I think we're in a position right now where based on organic growth alone, we're growing capital, which gives us flexibility. And what we choose to do with that " additional capital" that we're creating will be a function of the opportunities in the market. Obviously, M&A could be one consideration, but we continue to be very selective there. Our dividend is relatively low, so we could take a look at that. And then depending on where the stock trades, we think we've got room to look at capital deployment in the form of the buyback. So we're at a level where we think capital ratios are growing nicely, and that gives us flexibility to kind of pull the levers that we think will generate the best returns. Operator: [Operator Instructions] I would now like to turn the call over to Patrick Ryan. Please go ahead. Patrick Ryan: Thank you very much. I just want to conclude the call by thanking everybody for calling in. We appreciate your interest in First Bank, and we look forward to reconnecting with you after year-end results. Thanks, everybody. Have a great day. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.
Operator: Good day, and welcome to the ARMOUR Residential REIT Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Scott Ulm, Chief Executive Officer. Please go ahead. Scott Ulm: Good morning, and welcome to ARMOUR Residential REIT's Third Quarter 2025 Conference Call. This morning, I'm joined by our Chief Financial Officer, Gordon Harper, as well as our Co-Chief Investment Officer, Sergey Losyev and Desmond Macauley. I'll now turn the call over to Gordon to run through the financial results. Gordon? Gordon Harper: Thank you, Scott. By now, everyone has access to ARMOUR's earnings release, which can be found on ARMOUR's website, www.armourreit.com. This conference call includes forward-looking statements, which are intended to be subject to the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995. The Risk Factors section of ARMOUR's periodic reports filed with the Securities and Exchange Commission describe certain factors beyond ARMOUR's control could that cause actual results to differ materially from those expressed in or implied by these forward-looking statements. Those periodic filings can be found on the SEC's website at www.sec.gov. All of today's forward-looking statements are subject to change without notice. We disclaim any obligation to update them unless required by law. Also, today's discussion refers to certain non-GAAP measures. These measures are reconciled with comparable GAAP measures in our earnings release. An online replay of this conference call will be available on ARMOUR's website shortly and will continue for 1 year. ARMOUR's Q3 GAAP net income available to common stockholders was $156.3 million or $1.49 per common share. Net interest income was $38.5 million. Distributable earnings available to common stockholders was $75.3 million or $0.72 per common share. This non-GAAP measure is defined as net interest income plus TBA drop income adjusted for interest income or expense on our interest rate swaps and futures contracts minus net operating expenses. Total economic return for the quarter was 7.75%. Quarter end book value was $17.49 per common share, up 3.5% from June 30 and up 2.8% from August 8, the last date which we have reported book value. Our most recent current available estimate of book value is as of Tuesday, October 21, and was $17.50 per common share, which reflects the accrual of the October common dividend of $0.24 per share payable on October 30. During Q3, ARMOUR raised approximately $99.5 million of capital by issuing approximately 6 million shares of common stock through an after the market offering program. In August, we completed the sale of 18.5 million shares of common stock for proceeds of approximately $298.6 million, net of underwriting discounts and commissions. And in September, we repurchased 700,000 shares of common stock through our common stock repurchase program. ARMOUR paid monthly common stock dividends per share of $0.24 per common share per month for a total of $0.72 for the quarter. We aim to pay an attractive dividend that is appropriate in context and stable over the medium term. On October 30, a cash dividend of $0.24 per outstanding common share will be paid to the holders of record on October 15. We have also declared a cash dividend of $0.24 per outstanding common share payable November 28, to holders of record on November 17, 2025. I'll now turn the call over to Scott Ulm to discuss ARMOUR's portfolio and current strategy. Scott Ulm: Thank you, Gordon. The third quarter unfolded against the backdrop of shifting macroeconomic currents. Downward revisions to employment data confirmed that the U.S. labor market had been softer than earlier reports suggested. In response, the Federal Reserve resumed its easing cycle, implementing a 25 basis point cut in September. Chair Powell described the move as a risk management cut, reflecting growing caution around labor conditions. Updated projections now signal 2 additional cuts by year-end, setting the stage for a constructive environment for Agency MBS as financing conditions continue to improve. Markets responded positively to the Fed's pivot. Treasury yields declined, Agency MBS spreads tightened by roughly 20 basis points and volatility fell to its lowest level since 2022. These dynamics produced a total economic return of 7.75% for the quarter, as previously mentioned by Gordon. Following this strong performance, MBS spreads are now near the tightest levels of the year. Near-term consolidation is possible valuations remain compelling on a medium-term horizon. As we entered the fourth quarter, macro and political visibility became more clouded. The federal government shutdown that began on October 1, delayed key data releases and introduced incremental uncertainty to growth forecast. Even so, the market continues to expect an easing bias through year-end that's likely to redirect liquidity from the short end of the rates curve into Agency MBS. Chair Powell's recent comments also indicated that quantitative tightening may conclude in the coming months. Although details are still evolving, the Fed's MBS runoff is likely to continue with paydowns from MBS and treasuries expected to be reinvested in the treasury market. Together with a broader push toward banking deregulation, these shifts are aimed to ease balance sheet constraints and reinforce demand for treasuries and Agency MBS. Notably, SOFR treasury spreads have turned more positive in recent weeks, strengthening the effectiveness of pay fixed SOFR swaps as portfolio hedges. On the policy front, reports suggest that major banks are positioning to lead potential IPOs for Fannie Mae and Freddie Mac, collectively estimated around $30 billion. Although the process has been delayed by the U.S. government shutdown and the absence of a formal road map for privatization, administration officials have reiterated support for retaining an implicit government guarantee, an outcome that could transform GSE reform from a potential headwind into a tailwind for MBS investors. An additional and somewhat unexpected source of demand could come from GSEs themselves. After years of balance sheet contraction under conservatorship, Fannie Mae and Freddie Mac now have roughly $250 billion of combined capacity to invest in mortgage loans and MBS should it align with GSE's earnings and valuation objectives. While no formal plan has been announced, recent disclosures point to greater flexibility within their investment mandates, hinting at a more dynamic approach to managing their portfolios than in the prior cycles. I'll now turn it over to Sergey for more detail on our portfolio. Sergey? Sergey Losyev: Thank you, Scott, and good morning. ARMOUR's most recent net duration and implied leverage were 0.2 years and 8.1x, respectively, a balance stance with a bias towards further Fed easing. Roughly 87% of our hedges are in OIS and SOFR pay fixed swaps with the balance in treasury futures. Our liquidity remains robust at approximately 55% of total capital. The portfolio is invested entirely in Agency MBS, Agency CMBS and U.S. treasuries. Our recent activity has centered on par to slight premium coupon mortgages where levered and hedge ROEs range from 16% to 18%. Higher premium pools continue to offer up to 19% returns, though with greater sensitivity to prepayment risk. Diversification across 30-year coupon stack, Ginnie Mae and DUS securities whose positive convexity and shorter duration provide relative value remain a key advantage. During the second half of the year, 30-year mortgage rate briefly reached 6.15%, lowest level of this year. While rates remain just above 2024 lows, refinancing activity has already exceeded last year's pace, elevating prepayment concerns for TBA and generic premium MBS. This reinforces our long-standing focus on specified pools, which represent over 92% of the portfolio. Aggregate portfolio prepayment rates rose to 9.6 CPR in October compared with the third quarter average of 8.1 CPR, a 19% increase and consistent with our expectations. We anticipate a similar uptick in November before prepayments stabilize towards the year-end as refinance volumes moderate. Should mortgage rates move down below 6%, levels we've not seen since early 2022. The MBS coupon stack offers a deep market of lower-priced coupons as a hedge against higher prepayments. Roughly 40% of our assets are already positioned in prepayment of protected Agency CMBS pools and discount MBS. As usual, we financed 40% to 60% of the MBS portfolio through BUCKLER Securities, distributing the balance across 15 to 20 additional repo counterparties. Average gross haircuts stand near 2.75%. Repo market liquidity remains healthy with only a modest 2 to 3 basis points increase in repo SOFR spreads versus Q3 average. More meaningfully, the spread between SOFR and Fed funds widened from 3 basis points in Q3 to roughly 10 basis points through October, muting the transmission of the Fed's recent cut to funding markets and by extension to broader economy. An increase in treasury bill issuance and a gradual decline in banking reserves means banks can lend cash at higher prices. This makes repo funding a key area of focus heading into year-end, yet despite a recent bump in SOFR rates, we view funding conditions as stable with standing repo facility to supply liquidity if needed. Looking ahead, we expect structural demand for Agency MBS to continue to strengthen. Regulatory clarity around banking reform and resumed easing cycle have historically been a powerful catalyst for high-quality liquid assets like MBS. While spreads have compressed, underlying fundamentals and market dynamics remain favorable. Back to you, Scott. Scott Ulm: Thanks, Sergey. We executed a $300 million overnight underwritten bought deal in August, first one we've done this decade. While it was somewhat more expensive than our ATM execution, it allowed us to put a significant amount of capital to work at attractive spread levels. In fact, we estimate that the spread tightening from the newly purchased assets alone contributed about 0.6% to our increase in book value this quarter, along with a meaningful reduction in operating expenses per share. We saw some weakness in our stock in mid-August. And as in the past, we repurchased some shares in the open market. We will continue to look at both sides, selling and buying in our equity account. As you know, we determined our dividend based on a medium-term outlook. We view our current dividend as appropriate for this environment and the returns available. ARMOUR's approach remains unchanged, grow and deploy capital thoughtfully during spread dislocations, maintain robust liquidity and dynamically adjust hedges for disciplined risk management. We are confident in our positioning strategy and ability to deliver value for shareholders. Thank you for joining today's call and your interest in ARMOUR. We're happy to now answer your questions. Please open the line for some questions, please. Operator: [Operator Instructions] Our first question comes from Doug Harter with UBS. Douglas Harter: Hoping you could talk a little bit about where you see current returns on incremental investments and kind of the importance of the hedge choice you make in that and how that factors into your view of the attractiveness of the market today? Desmond Macauley: Yes. Doug. So expected ROEs, hedged ROEs are in the 16% to 18% range. Obviously, a touch lower than where they were at the end of June, given the tightness in mortgage spreads. So over a short-term basis here, you can assume 8 tons of leverage and hedge to swaps. So that's also picking up the swap income. Now we are still constructive medium term, given the resumption of the normalization cycle and also because of spreads, while local types are still attractive over a longer time horizon. So if we see another 10 basis points of tightening, that could add about 4% in return on equity to that base case of 16% to 18% range for production coupon. Douglas Harter: I guess how do you think about what the outlook is for swap spreads? And then how do you think about the attractiveness if you looked at mortgage spreads on like an OIS basis? Sergey Losyev: Doug, this is Sergey. Yes. So swap spreads have also had a big move since September meeting. We think swap spreads will continue to normalize. If you look at some of the average prior to Liberation Day, we see 10-year swaps somewhere in the mid-30s, currently trading around 44%. So we've gone a long way from minus 60 earlier in Q2, and we feel like this is going to continue to be a tailwind for the portfolio as effect of more effective hedges to hedge MBS. Currently, we have about 87% notional allocated to SOFR and OIS swaps. So that's a good positioning. We will probably tailor it if we do get back to those averages, but a lot of things have been lining up to see balance sheet expansion as well as potentially the Fed looking at changing the target policy rate from the Fed funds to SOFR or another repo measure, and that will provide lower volatility to funding rates and potentially wider SOFR spreads as well. So a lot of tailwinds are lining up there. Operator: And the next question comes from Jason Weaver with Jones Trading. Jason Weaver: Scott, along with your prepared remarks, if the administration is actively looking for ways to reduce borrower rates via GSE deregulation, do you have any thoughts on what the actual implementation looks like, whether that's GP manipulation, changes in LLPAs, underwriting guidelines? Scott Ulm: There are a lot of levers they could pull. And what knows we get a lot of levers pulled these days that we may or may not expect. So I think -- and I think that probably fits somewhere on their agenda. So the broad answer is yes. I think we could see a lot of things move around here. And particularly, if -- but particularly, I think you have to put it through the lens if they are thinking about a capital raise here for the GSEs. They're going to want to configure the GSEs to be as attractive a proposition as they can. So that may put the brakes on a couple of things as well. So there's a balance there I have no further insight into it other than just note that there are 2 competing things going there. One is undoubtedly, they'd like to see lower mortgage rates, but they also want to see the GSEs as an attractive investment proposition. Jason Weaver: Agree. That's helpful. And then noticing the hedge ratio ticked down quite a bit from Q2. Is that more of a timing issue? Or just along with the greater confidence in the pace of easing activity, you can be a bit more directional here? Scott Ulm: There are a lot of things going on in that. Sergey, Desmond, maybe you want to give a little more color on that, but there's a lot that goes into the way that, that ratio in itself works. Sergey, Desmond, do you want to give a little more color on that? Desmond Macauley: Yes, Jason. So I mean, the way we kind of look at hedges, it's really to hedge our duration across the entire curve, right? So as we said earlier, our duration of 0.2, we are taking a balanced view with a bias towards more Fed easing. So our goal is to -- most of that 0.2 duration is actually in the front end of the curve, whereas in the back end, we aim to stay flat. And ultimately, we move our hedges around to accomplish our duration targets across the curve. Operator: And the next question comes from Trevor Cranston with Citizens JMP. Trevor Cranston: All right. There was a pretty significant drop in interest rate volatility in the third quarter, which had a carryover impact to MBS, obviously. Can you guys share your thoughts on kind of how you think volatility evolves going forward? And since it's being priced significantly lower today, how that factors into your -- the potential to maybe add some swaptions or options into the hedge portfolio? Desmond Macauley: Yes. Trevor. So in terms of volatility hedging, you can think of 2 approaches to it. One, obviously, is you can use swaptions. We have used swaptions in the past. We continue to look at hedges even those that are not in our balance sheet. But the other approach is actually through asset selection, right? So you can pick assets that have low optionality. About 40% of our book, as we said in our prepared remarks, is in shorter -- lower coupons and also DUS securities. And these actually have very low optionality and another benefit of these securities is that their convexity in some cases, is even positive. So they act as a good offset to the negative convexity that you see in our production coupons. Now one more point on volatility is that, yes, volatility has come down a lot so far this year. But if you expand the time scale if you go back and look at other periods that are similar to this one, you can pick 2019. That was a period when the Fed had resumed normalization. They had started [indiscernible] back -- not buying mortgage-backed securities. That period of time, volatility was actually lower than where they are right now. If you take, for example, obviously, it's an entire volatility surface, but if you look at the swaptions for 1 year by 10-year, today is about 82 basis points. The average over that period was about 64 basis points. So still we are still about 18 basis points higher. If the Fed continues normalization, we can expect that the tail risks around rates will become compressed. And for that reason, we can see volatility in the medium term continue to decline, right? Now that's not going to prevent short-term bouts of volatility. But over the medium term, we can see volatility decline. And if you are long options, then the valuation of options would decline if volatility declines. So yes, I mean, we always -- it's a very dynamic position. We're always looking at our hedges. But for now, we think just keeping low optionality assets is the better approach. Operator: And the next question comes from Timothy D'Agostino with B. Riley Securities. Timothy D'Agostino: Just one for me. Regarding economic net interest margin, it seems like it widened about 1 basis point quarter-over-quarter. Looking forward to year-end and maybe to halfway through 2026, what would we need to see for this trend to kind of continue and if not pick up pace? Gordon Harper: Well, I guess you're going to -- it really depends on our portfolio and where continued cuts in the Fed rate, and that will imply how it impacts on our financing costs. And we think we've constructed a very good portfolio. And I think the returns that we're generating, I think, are reasonable under the circumstances. I don't know, Sergey and Desmond have other things to add to that what they think on the horizon, but we don't normally give too much forward-looking statements on where we think earnings are going to be in the future, but it's really going to be dependent on how fast the rates cut and also how the market reacts to that. But we think we've constructed a very good portfolio for the future. Desmond Macauley: Yes. Yes. So just on that to continue God's comment there. Yes, so we kind of typically just look at forward ROEs as well, another way to look at the same way of looking at things. So 16% to 18% in production coupons. Our dividend yield, weighted average dividend yield, both preferred and common plus operational expenses all in is about 18%. So that could be sort of as a hurdle rate. We already have assets we are buying that are at 18%. There are others that are slightly lower than that. But as we said, we're still constructive medium term here. So just a few more basis points of tightening and those assets would meet or exceed our hurdle rate. Operator: [Operator Instructions] Our next question comes from Eric Hagen with BTIG. Eric Hagen: Maybe following up on some of this conversation here. I mean what do you think is priced into MBS spreads with respect to the Fed cutting rates? Like right now, it looks like there's 125 basis points of cuts priced into the forward curve through the end of next year. Do you feel like spreads would widen if those expectations got walked back for any reason? And do you feel like spreads would actually have room to tighten once they actually deliver those cuts? Sergey Losyev: Eric, this is Sergey. Yes, to both. Definitely, a pause in the easing cycle or something that would cause them to walk back their projections would be a potential source of volatility in the market. But in terms of delivering cuts to the market, I think a lot of the bank demand will get unlocked there. If you look at the current coupon mortgages versus yields on money markets or T-bills, it's compressed again over the course of the year, closer to 100 basis points. So I think as we get closer to 152% on the spread of mortgage yields versus cash you start to see more and more engagement from other players in the market that we've seen -- we haven't seen as much demand as expected earlier this year. So I think that kind of answers yes to both scenarios. And we note in our prepared remarks that spreads have tightened significantly over the course of the quarter. We do see upside, but I think it's overall macro picture, the lack of government economic data coming through that's given us a little bit of pause here. But over a medium-term horizon, that's a clear positive for -- to have lower Fed funds rates. Eric Hagen: Yes. Got you. That's good color. The move to raise capital and buy back stock in the quarter, can you kind of share the rough level of your stock valuation when you did those transactions? And like what's the best way to compare the value from having done each of those deals, transactions? Scott Ulm: Yes. So Gordon will maybe give me the -- if you can pull up the level where we bought back. But look, we're committed to being on both sides. And when we get a dislocation, we'll buy back some stock. And when we see good valuations, we'll sell stock. Stock buybacks are always fraught because they happen when a bunch of other things are going on, and it's always expensive to get the stock back out there as well. But we had a pretty good spread between where we executed both of those. Gordon, do you have those numbers to hand? Gordon Harper: Yes, I know offhand, we -- when we did the buybacks, it was about a couple of cents accretive on the days, and it was in the 14 -- just get you the right number. Got it. We were buying it back at -- yes, it was in the [ $14.40 ] handle around that on the days that averaged out. So you can see we've bounced back since those days and we bought back the stock. Scott Ulm: Is that useful? Eric Hagen: Yes, that was helpful. I appreciate you guys. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Scott Ulm for any closing remarks. Scott Ulm: Thanks for joining the call today. We appreciate it. Any further questions occur to you, give a ring at the office, and we'll be back to you as soon as we can. Very good. Thank you, and have a nice day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.