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Hjalmar Jernstrom: Good afternoon, and welcome to Pricer's Third Quarter 2025 Earnings Presentation here at DNB Carnegie. My name is Hjalmar, and I work as an analyst, and we are joined here today by CEO, Magnus Larsson; and CFO, Claes Wenthzel. Welcome, gentlemen. Thank you very much. And we have a lot to speak about. So let's get started right away. The floor is yours. Magnus Larsson: Excellent. So thanks, everyone, for joining. We're going to present now our third quarter for 2025. It's myself and Claes as mentioned by Hjalmar. And as always, let me just start with Pricer in a brief for those of you who don't know us since before. So our vision is to be the preferred partner for in-store communication and digitalization. We work within retail tech. We are a leader within retail tech, and we have been around for nearly 30 years or actually more than 30 years, and we have to date 28,000 stores sold across the world. Looking at market development and the Q3 highlights, of course, the first thing I want to lift is that we managed now in Q3 to have the best net sales so far in this year for a quarter, SEK 598 million. It's better than both Q1 and Q2. We had a very great increase in our recurring revenue. Why is that? So it's partly due to all the SaaS services we sell through Pricer Plaza. But we've also changed our business model and our pricing model for all software services, also older installs to subscription model only. So even if you, for whatever reason, are not able to actually connect your store to Pricer Plaza, you will still need to renew the software for your installed base or your installed server and the new pricing model is recurring. So basically, as of now, we are in principle only recurring when it comes to software sales. And this is why you can see the almost 50% increase in recurring revenue in this quarter compared to last quarter. You will also see that it's a quite high increase versus Q2. It's almost 20% increase versus Q2. This is one of the drivers behind the margin improvement. We're on 23% now for the quarter. And it's, of course, partly part of the recurring revenue, but it's also product mix, and I think Claes will speak a little bit more about it in detail. One of the highlights for me personally is, of course, that we, with our EBIT result, managed to -- it's a positive result, and it's actually not only for Q3, but with the result of Q2, we take the entire result for the full year into positivity. So I'm super happy for that. Something I'm a little bit less happy with is, of course, the order intake, which was bleak now in the quarter. We could see that there are many different reasons, but the key reason is the fact that there is still a lot of market uncertainty affecting the retailers' decision to invest. We have quite a few customers where we know there is a project they want to deploy, they want to get started with, but it's being pushed into the future. So we haven't lost them, and we do expect that there will be -- there will be -- the orders will actually come at a later stage. But it's clear, it's not only ourselves, we see it also for our competitors that this unwillingness to invest is affecting the market growth at the moment. Then on the Nordic side, as you probably know, if you followed us, we have been moving from a partnership sales model in the Nordic and Baltic market into a direct sales market approach. Since August, we have a full team in place. We can actually see that we're now getting traction on the order side. You don't really see it in the Q3 report, but I expect that it will be visible as of Q4 and forward on. And one first example of this new direct [ modes ] is that we got a direct frame agreement this week with Norgesgruppen, who is the -- one of the leaders on the Nordic market, but also then in Norway. Obviously, for those of you that are Nordic, that we announced a couple of days ago. So it's a frame agreement we expect to serve all the stores over the coming couple of years. One thing I would like also to speak about is that we have another customer. It's one of the largest Nordic customers. that we have. They now had their first store on Pricer Plaza and they have an ambition to actually do all their stores as soon as possible. So there will be a couple of hundreds by Christmas and then some more by beginning of next year. So it's a very clear trend also in the Nordic market for Plaza and connecting your stores. Looking at the organization and for those of you that will look more on the OpEx side of our business, we have invested over the last couple of months and quarters in our organization, in the commercial organization very much on the marketing side, on the sales side, on the product management side, all the parts of the organization that will actually help us build the value proposition of today, but also the value proposition of tomorrow and that will more in a larger extent, also engage with our customers directly. This has generated a lot of positive traction. Once again, not visible this quarter, but hopefully visible in the quarters to come. And as mentioned, the fourth quarter has started well from an order intake point of view. What are we actually solving? We've been looking at different industry trends and the macro trends. And today, I'd like to focus on two of them. One, our customers come to us, often it is to help them with improving the operational efficiency in the store. But it's also increasingly more on the in-store experience, how can they make the shoppers buy more, how can they actually get additional revenues from CPGs, so the brands. So I've got two examples. If you think about the operational cost pressure, I would like to take our customer SOK in Finland and the partnership that we have forged with them since 2023. It was a pretty long sales process, but we got a contract during autumn 2023, which we announced to the market. They started with 15 stores in 2023. And by today, they have -- we have deployed more than 6 million labels across 450 stores. So this is way above the initial discussions we had with them, and we will continue to deploy additional stores. They have some, I think, around 1,000 stores in total. Why did they select us? Well, the key reason was to get the operational efficiency in place, but it was also to improve the work environment for the staff and especially looking at replenishment and picking online orders. So they wanted to make sure there would be less time spent, but it would also be easy for the staff. And they can see now that when they did the pilot, they said, well, there was basically only one choice. You're the only one with a solution that works for us as we need. But it was also now we can see afterwards when they started to do employee engagement service that they have an increase in positive answers on the work environment. They can also see that it's faster to actually get an employee fully productive in the store. And I'm really happy for the cooperation and as Jarko Mäkkinen, the Head of Development at SOK says that Pricer has proven to be the partner that they wanted, acting as an extension of our own team. And of course, we feel the same way. It's very inspirational customer to work with. Here -- so this is very much on the store operational side. And if you're more interested in this case, I think you will have it now or it will come very soon, a video actually from SOK where they speak about why they selected us. The next thing would be then addressing the in-store experience. Price Avenue is a product that we conceptually launched in New York in January at the NRF event. We have now come to the place where we are starting pilots. So yesterday, we actually had our first Pricer Avenue aisle live. It's in a store north of Stockholm. It is very much a store where we will let our engineers just verify that everything is working as it should. But if you want to see it, you should go northwest of Stockholm and see if you can like locate the store, it's really nice. What you also see on the picture here is what we call the floating canvas. This is something unique to Pricer. It's a patented way of doing. And actually, we're the only one with the current look and feel of the general ESL on the market where you can do it. We -- unlike everyone else and unlike our old models, we have not made our thin so -- frames are so thin on the ESL that you can easily then build a picture over 2 ESLs or over 3 or 5, any -- actually, any number of ESLs you want, you can build the merchandise in the promotion area. So we're going to do in addition to what we just installed in Sweden, we will do pilots more of a commercial nature in Finland, in France and in the U.K. now during October and November. So there will be more updates on this, but we can see there is a huge interest in Pricer Avenue. And I think it's also fueled by the fact that there's no one else on the market that is actually doing it this way. So having done now the [ shameless ] marketing of Avenue, I hand over to you, Claes. Claes Wenthzel: Yes. Q3 is the best quarter for this year. You see we have a strong gross margin and gross profit, and we see effect in our production cost now from the weaker U.S. dollar. We have had a negative currency effect compared to last year with about SEK 10 million, which affected our EBIT of course. So -- but still, we have a return on sales of 6.5% for this third quarter. If we then look at the cash flow, the operating cash flow for the first 9 months is positive and SEK 16 million. Cash flow has been affected by the high accounts receivables and has actually increased by SEK 120 million in the third quarter. So this is just -- it's a timing effect, and that will be, of course, a positive effect from this now in the coming quarter. Then if we look at the order intake, it's, of course, weak, as Magnus said, but the backlog now when we go into the fourth quarter is higher than last year. On the sales side, it is the best this year, and it's SEK 598 million. Gross profit, it's also the best for the year with SEK 139 million. And even then the total result is, of course, the best for this year. Magnus Larsson: Good. Thanks, Claes. So going to the summary. Well, as I mentioned, the geopolitical situation is still affecting retailers' decision to invest. They believe in digitizing the stores. They are digitizing the stores, but we can see a lot less activity on the market. And I know, of course, there are questions, is the market growing? Yes, we believe that over the coming couple of years, there will be a massive growth. But we can see that this year and actually last year, we had poor growth in the market. If we look at the top 4 players, I would say that we had a standstill in the market last year, and there will probably be something similar here as well. But we still see the same interest from our customers. It's painful. It's, of course, something we don't want, but we actually still have the positive dialogues. And I think that's important to remember, especially when you feel frustrated over the lack of sales or lack of results, it will come back. I'm really happy that we managed to return to profitability this year. It's, of course, painful for everyone when you're actually not making money. We have committed in the Q2 report that we will be profitable for the year, and I think we can repeat that commitment to the market. Clear recovery in net sales. We improved our gross profit a lot versus Q2, but also versus Q3 last year. The Pricer Avenue pilots, I'm super excited to see them in place. The first install looked beautiful. And now when we do them fully for our additional customers, France, U.K., Finland, I expect a lot of interesting dialogues afterwards. The direct frame agreement with Norgesgruppen, very positive. I do expect more frame agreements coming out of the Nordic market within this year. And I would like to also close with saying that we have a strong position to really capitalize the future demand, the future opportunity. And I believe that with our setup, with our current portfolio, but above all, also with what we do now on the revenue side, there will be a lot of opportunities for us to grow into the future. So please bear with us, there will be improvements. Hjalmar Jernstrom: Thank you so much, and let's dive into the Q&A then. First, on the jump then in recurring revenue, which, of course, is very interesting. You mentioned there that you can also have a recurring revenue setup with sort of the non-Plaza customers, if I got that correctly. Could you just elaborate a bit on this initiative and this pricing? Magnus Larsson: So what we've done is we see that, of course, recurring revenue is a solid base for us to stand on. And we want to move all customers over to Plaza to get them connected. But we also see that some customers, they need to do the proper planning, they need to do the setup. And if you have almost 1,000 stores, as an example, you need to plan that transformation pretty carefully. But we do not want to wait for the revenue. So what we have done is that all customers with an old install that will still be installed on a server. We changed the price model and said that now you got the latest version, but it will be a recurring revenue model. So this is the key reason. So all the new softwares that we sell will be sold as a SaaS service. I'm sure there might be some exception, but at large, this is what we do. So this is -- has been one of the key reasons for the impact now in Q3. Hjalmar Jernstrom: Yes. And what does this mean for the prospects of recurring revenue? I mean I know you don't have a recurring revenue target currently, but what is the implications of this? And how much can it grow? I mean, just depending on now addressing also non-Plaza customers? Magnus Larsson: I think the key growth will come from connecting customers, and we have several projects ongoing. If you take Carrefour as an example, I think we've connected -- I can't recall the exact number, but somewhere roughly 500 additional stores this year. And we believe that all stores that we haven't connected so far, let's say, we have -- we sold 28,000 stores. We have a number of Plaza stores today, but there's probably at least 10 to 15 stores still to actually connect. And that will, of course, be one chunk of the forthcoming recurring revenues. The other one will be now as we get stores connected and our software team spend more time on developing applications and functionality rather than the basic Plaza functionality, we see that we will also be able to package and sell much more upsells to our customers and new functionalities that they would need to pay for. And we've come to a point now we have the R&D capability fully in place. We have the Plaza fully developed to the extent that we want. But we also have the product team that is now really good at packaging it in a way that will be easy for our sales team to do it. So I see that there are quite a lot of opportunities to actually grow this continuously. Hjalmar Jernstrom: It sounds like a lot of focus on recurring revenue currently then. Magnus Larsson: Absolutely. It's actually when we communicated internally, it's really the #1 objective is to get more customers and to make sure that every single customer is connected. Hjalmar Jernstrom: Yes. And on the pricing side, you mentioned the Avenue pilots currently running. Could you give us maybe some granularity on the pricing that you're expecting for this model? Is it mainly recurring and -- and what would sort of the margin profile be potentially. Magnus Larsson: You can see with Avenue, we will see a few different revenue streams. One is, of course, selling the ESL, which, we will not take it on our balance sheet. So we will still sell it as a product, but we will sell the software. We -- with the powered rail that we have in the system, we have a unique setup that we actually do expect that we'll be able to license for people that want to use it and sell it for their own IoT devices or for -- in the stores that we have, if they want to use it, they will have to pay a license fee. Then we have the ability to do the merchandising. There we're still looking at the price model, but we see that there is a real chance to actually get some increased revenues, hopefully, more than smaller amounts on the merchandise side. That's one of the things that we really want to test now when we do the new stores, France, U.K. and Finland, how can we actually -- how should we work with the merchandise side, especially. But I see, in essence, 3 different kind of revenue streams. Hjalmar Jernstrom: Is it possible to start up selling the avenue already in early 2026? Or when do you expect to maybe see sort of a ramp-up of... Magnus Larsson: It would be, we will actually have volume or will do small volume production during the first half, mainly because we know that customers that will never go for a full deployment immediately. Typically, when we approach our customers, they want to test it. They test it in one part of the store, then they might do an extended part of the store. But we would say, as of the second half of next year, that's when we're ready to do volumes, and I expect us to do volumes -- it will not be a bulk of our revenue, but I would expect it to be at least on a level where we can speak about it and say it's actually making a difference. Hjalmar Jernstrom: Yes, yes. And then if we move on to the order intake, maybe you mentioned Europe and also one impacting factor being that you're going to a direct-to-market approach here. Could you elaborate just how this is impacting the order intake here in the third quarter and why this sort of like dampens the order intake that you saw in Europe? Magnus Larsson: There are two key reasons. One is actually Nordic Baltic, where we can see that the transformation from distributor sales to direct sales -- now it's -- since all the Nordic customers know that we were doing this, they've been waiting, which means that some of them, they are waiting to invest, but it also means that some of them said that if they were not in a hurry, they probably took the investment and put it into next year's budget. So it's money that will come our way, but it's more of a timing issue. We can also see when we address franchisees. So now we have an organization in Sweden to do franchisee sales. Here, I see on a daily basis that we get store orders in, but it's coming now, and we got the full team in place at the end of August, but we can see that they're all busy, and we have had several orders, both from a store level until then the frame agreement like Norgesgruppen. The other one was Carrefour, where we had a very high order intake from Carrefour in Q3 last year. That order we got in Q2 this year, not exactly the same size, but still the large Carrefour order of the year came Q2 this year. Hjalmar Jernstrom: So it's reasonable then I assume to expect some sort of catch-up and maybe not Q4. I mean some -- you mentioned some budgets, they are taking it into 2026. So a gradual catch-up maybe from here. Magnus Larsson: I think there will be a gradual catch-up. And above all, I think the key message is that there will be a catch-up. This is not lost sales. This is sales that we will get. And we are, of course, in discussions with like Norgesgruppen and others on what are their investment plans for the future. We have a pretty good idea on what will happen and when. Hjalmar Jernstrom: Yes, yes. And then if we move on to the Americas region, could you just give us sort of like the current view of the impact from the tariffs? I mean you mentioned that this has been an issue and of course, maybe an ongoing issue as well. But still, I mean, there is for you some order intake in the Americas, which is sequentially improving even, if I recall correctly. And I mean, maybe this is outside of the U.S., it's Canada, but could you elaborate a bit on the drivers here and sort of like what do you currently see from the tariffs? Magnus Larsson: Yes, I think we can split it in U.S. and Canada. And if I start with U.S., we still -- there is still a slowness to make new investments. There are discussions. They have started again, but they are quite slow. But we can see that suppliers that actually had a contract in place, we can -- it seems like volumes are actually accelerating to make sure that they get things deployed as soon as possible with the rationale. We know the tariffs we have today, but we don't know the tariffs of the future. And I think that is the key rationale where you can see there is some acceleration on the market. But I think the key rationale is that we want to digitize. We had the contract. Let's do it now before it will be way too expensive. But for the rest, we see that there is still cautious. They are still waiting. So there's not a lot -- there are, of course, sales, but not as much as we would expect. It's actually much lower. In Canada, on the other hand, we see a lot of interest. We see that Sobeys deployment, it's progressing extremely well. We see it's catching a lot of interest. So in addition to the order that we got in December, then we're busy deploying it according to schedule. There's a lot of Sobeys franchisees that are constantly placing orders. We can see that there are spillover effects that we have other customers, we have the Metro Group in Canada as well. And of course, they look at all the new stores with 4 color labels. And we see a lot of incoming interest also here where we do believe that Canada will be a really good market for us over the coming couple of years, both Sobeys, Metro Group, Canadian Tire, they're soon fully deployed, but we have now done the first 4 color orders. So they will gradually start shifting their installed base over more and more towards 4 colors. So that will be continued sales as well, maybe not on the same level initially, but eventually. Hjalmar Jernstrom: And how much potential do you see in the Sobeys store network to grow there? I mean, what is the current like sort of penetration rate and I mean if you gain traction there, what's sort of like the potential that we could see? Magnus Larsson: I see it Sobeys and with the different formats, they have, say, roughly 1,500 stores. We -- there's still a lot of upside. Hjalmar Jernstrom: Yes. All right. Magnus Larsson: No numbers, I'm afraid. Hjalmar Jernstrom: No, that's fine. That's fine. Magnus Larsson: But it is same. I expect more. Hjalmar Jernstrom: Yes. You mentioned then some pilots running -- starting in October and November here for Avenue. Could you elaborate a bit on this? Is this new customers or current customers that... Magnus Larsson: So it's existing customers, and it's customers where we said that we will only do a few. We will select the customers we want to work with. We want customers where, of course, they will test it in their store environment and see does it work for them? How well do they like it. But we also want to test the commercial model. We want to make sure it's not just another label. We want to make sure that all the merchandise abilities are in place. We want to make sure that we have either their private brand or that they have another brand they work with as part of the campaign. So they've been -- we've been extremely selective in this process. We will do more promotion around these pilots. That's also been a requirement. We want to talk it and we need to talk about it. Hjalmar Jernstrom: All right. Thank you. Then we got a question on the line regarding the SOK that you mentioned. Could you just clarify a bit? Are you expecting to see additional rollouts here? Or have you already received these orders? Magnus Larsson: We're expecting to see more. So they've been driving it as a structured process. They've been doing a lot of deployment now with 450 stores, but they still have another more than 500 stores. Different formats still. There's been a focus on the large formats, even though we also won the smaller formats, which we were not certain that we would win. I think originally, they were thinking about having maybe dual vendors, but they decided to just go with us because they were so happy with how things were working. But we do expect to get more like store-by-store orders into the future more than like a structured. So I don't think we will have a very large PO, but I think we'll continuously have a good run rate business that will be on a good level. Hjalmar Jernstrom: And then on the U.K., I mean, a lot of questions regarding U.K., we know that it is a market with great potential. We see -- we see some deals being made in this market. Could you elaborate a bit on what you're seeing right now sort of like the current picture of the activity in the U.K? Magnus Larsson: We see a lot of activity. I mentioned many reports that I expect something to happen now during autumn, and I guess it just did. Everyone is looking at it, and we see the investment decisions are either being made or will come within the coming 6 to 18 months, I would say, or maybe as of now and within the coming 18 months, but everyone is looking at ESL. I expect the question to pop up. And yes, we are doing pilots with several of the Tier 1s. So we are in discussions. Yes, we were also in discussion. We were in final stages of negotiations with one of the large funds that were recently won by a competitor, but we actually said no. There were some commercial conditions that were -- I've never seen before actually. So we said this is unacceptable. So we declined. Hjalmar Jernstrom: Okay. Okay. Then we got some questions on the working capital. Could you maybe elaborate a bit on -- I guess, mainly on inventory. Do you feel that the levels that you currently hold are satisfactory? I mean, or do you feel that they are sort of -- maybe they could lean in some direction one or another if we look forward for the next maybe 2 quarters? Magnus Larsson: Yes. The inventory level now is higher than we actually expected. So we expect the inventory to go down. From the levels they are at the moment. And also regarding working capital now, also in the quarter, the accounts receivables has increased a lot. And as I said, it's just a timing effect. So that will also change. Hjalmar Jernstrom: All right. Thank you so much, Magnus and Claes, for coming in today and presenting and answering our questions. And I'll leave it to you for any concluding remarks. Magnus Larsson: All right. So thank you, Hjalmar. Thank you, Claes. Thanks for everyone watching. Thanks for joining. I hope you found it interesting. I hope you got something more out of the call than you could actually read out of the report. I would like to summarize saying that I'm very positive looking at the future, not very happy with 2025, but I see that things are improving. They were improving in Q3. We will make a profit for the full year. We have the dialogues in place to actually make sure that we come back and deliver better into the future. So thanks a lot.
Operator: Good afternoon, everyone, and welcome to Associated Banc-Corp's Third Quarter 2025 Earnings Conference Call. My name is Diego, and I will be your operator today. [Operator Instructions] Copies of the slides that will be referenced during today's call are available on the company's website at investor.associatedbank.com. As a reminder, this conference call is being recorded. As outlined on Slide 1, during the course of the discussion today, management may make statements that constitute projections, expectations, beliefs or similar forward-looking statements. Associated's actual results could differ materially from the results anticipated or projected in any such forward-looking statements. Additional detailed information concerning the important factors that could cause Associated's actual results to differ materially from the information discussed today is readily available on the SEC website in the Risk Factors section of Associated's most recent Form 10-K and subsequent SEC filings. These factors are incorporated herein by reference. For a reconciliation of the non-GAAP financial measures to the GAAP financial measures mentioned in this conference call, please refer to Pages 24 through 26 of the slide presentation and to Pages 10 and 11 of the press release financial tables. Following today's presentation, instructions will be given for the question-and-answer session. At this time, I would like to turn the conference over to Andy Harmening, President and CEO, for opening remarks. Please go ahead, sir. Andrew Harmening: Well, good afternoon, everyone, and thank you for joining us for our third quarter earnings call. This is Andy Harmening. I am joined once again by our Chief Financial Officer, Derek Meyer; and our Chief Credit Officer, Pat Ahern. I'll start some highlights of the quarter. Derek will cover the income statement and capital trends, and Pat will provide an update on credit quality. Over the course of 2025, we've been squarely focused on execution and delivering on the strategic growth investments we've made across our company. 9 months into the year, we continue to see several trends that are both leading to strong current results and positioning us for future performance. We're proving that we can grow and deepen our customer base organically. We've posted net household growth each quarter so far in '25 and are on pace to deliver our strongest year for organic checking household growth since we began tracking a decade ago. We're also proving that we can grow and remix our balance sheet simultaneously. On the asset side, we've added nearly $1 billion in high-quality C&I loans year-to-date while working down our mix of low-yielding low-relationship value resi mortgages. On the liability side, we added over $600 million in core deposits in the third quarter, enabling us to work down our wholesale funding mix. As this mix shift continues, it enables us to drive stronger profitability after delivering quarterly net interest income of $300 million in the second quarter, a record for our company. We posted another record of $305 million in Q3. And with this enhanced profitability comes enhanced capital generation. We added another 13 basis points of CET1 capital in Q3 and have now added 30 basis points year-to-date. This capital generation enables us to support our growth while continuing to execute on our organic strategy. Now I'll remind you, just because we're growing assets doesn't mean we're stretching. Credit discipline remains foundational to our strategy, and our growth is focused on high-quality commercial relationships and prime/super prime consumer borrowers, which is consistent with our conservative credit culture built over the last 1.5 decades. We continue to manage our existing portfolios proactively and meet with our customers regularly to stay on top of emerging risks. As we look at the remainder of 2025 and '26, Associated Bank has strong momentum that continues to build. While we continue to monitor risks tied to the macro uncertainty, our growth strategy puts us in a position to grow and deepen our customer base, take market share, remix our balance sheet and improve our return profile without having to rely strictly on a hot economy or a perfect rate environment. With that, I'd like to walk through some additional financial highlights on Slide 2. In Q3, we reported earnings of $0.73 per share. Total loans grew by another 1% versus the prior quarter and 3% versus Q3 of '24. Adjusting for the loan sale we completed in January, we've grown loans by 5.5% over that same time period. C&I lending has continued to lead the way as we deepen relationships across our markets and see noncompete agreements from our new RMs expire, we grew nearly $300 million of C&I loans and we've now grown C&I loans by nearly $1 billion year-to-date. Shifting to the other side of the balance sheet, seasonal deposit positive inflows came back as expected during the quarter, with our core customer deposits up 2% or $628 million from Q2. With that said, we're seeing more than just seasonal strength core customer deposits were also up over 4% or $1.2 billion relative to the same period a year ago. Moving to the income statement. Our Q3 net interest income of $305 million set a new record as the strongest quarterly NII we've seen in our company's history. Our NII was up 16% relative to Q3 of 2024. We also saw strong quarterly noninterest income of $81 million in Q3, a 21% increase from the prior quarter. The increase was driven primarily by capital markets revenue, wealth fees and a onetime asset gain of approximately $4 million tied to deferred compensation plans. Total noninterest expense was $216 million in Q3, up $7 million from the prior quarter. The quarterly increase was primarily driven by performance-based incentive programs, delivering positive operating leverage continues to help us post strong quarterly operating results and is a primary objective as we execute our plan. Managing credit risk is also a top priority, and we remain pleased with asset quality trends. In Q3, delinquencies were flat and nonaccruals were just 34 basis points of total loans. Net charge-offs were also flat at 17 basis points and our ACLL decreased 1 basis point to 1.34%. And finally, we posted a return on average tangible common equity of over 14% in Q3, a 250 basis point improvement from Q3 of last year. On Slide 3, we provide a reminder of how our strategic investments are transforming our return profile and setting us up for additional momentum over the remainder of this year and into 2022. First, we're positioned to take market share in commercial lending and deposit acquisition, thanks to a strategy predicated on hiring talented RMs in metro markets where we're underpenetrated. In fact, we've already seen results from our efforts. Through the first 9 months of the year, we've already added nearly $1 billion in C&I loans to our balance sheet with pipelines remaining strong and several more noncompete set to roll up between now and the first quarter of next year, we expect our momentum to carry through '26. And as those relationship C&I balances come onto the books, they're replacing lower-yielding nonrelationship resi mortgage balances that are rolling off, positioning us to diversify our asset base more profitably without changing our conservative approach to credit. This mix shift is driving enhanced profitability. Over the past 2 quarters, we saw our margin climb above 3% and posted back-to-back quarters of record NII. As we continue to grow and remix our asset base and support it with low cost core deposits, we see additional opportunity ahead. On Slide 4, we highlight our loan trends through Q3. On both an average and period-end basis, quarterly loans grew by 1% versus Q2. And that growth was once again led by the C&I category. On a spot basis, C&I loans grew by 3% or nearly $300 million versus the prior quarter. After adding nearly $1 billion in C&I balances to our balance sheet year-to-date, we feel very well positioned to meet or exceed the $1.2 billion growth target we originally set for ourselves in 2025, thanks to the strength of our pipelines and the additional lift from newly hired RMs as our noncompetes expire. Auto balances also grew by $72 million in the third quarter as we've continued to be, to selectively add prime and super prime balances to our book. Total CRE balances grew slightly for the quarter, but decreased by $160 million on a quarterly average basis. We expect elevated CRE payoff activity in the coming quarters as rates continue to fall. Overall, we continue to expect total bank loan growth of 5% to 6% for the year. Shifting to Slide 5. Total deposits and core customer deposits both bounced back as expected in Q3 following Q2 seasonality. Core customer deposits increased by over $600 million point-to-point with gross spread across most key categories. Relative to the same period a year ago, core customer deposits were up 4% or $1.2 billion. And growth in our core deposit book has enabled us to work down our wholesale funding balances. Here in Q3, overall wholesale funding sources decreased by 2% versus Q2. Based on our latest forecast, we now expect core customer deposit growth to come in towards the lower end of our 4% to 5% growth range for the year, but we remain confident in our ability to grow granular low-cost core customer deposits over time for 2 key reasons. First, our consumer value proposition stacks up well against any bank or fintech in the industry, and we have additional product upgrades planned for late Q4 of '25 and into 2026. This gives us an engine to attract deep and retain checking households over time, and it's already driving results. After posting the strongest organic primary checking household growth numbers we've seen since we began tracking a decade ago back in Q2, we followed that up with another quarter of solid growth in Q3. Second, we've refined our focus on commercial deposits by moving to a balanced scorecard, hiring relationship-focused RMs, launching a new deposit vertical and most recently, hiring Eric Lien as our new Director of Treasury Management. With pipelines growing and several noncompetes set to expire in the coming months, we feel very well positioned for growth in 2026. We continue to expect that our efforts to drive growth in lower-cost core customer deposit categories, will enable us to further decrease our reliance on wholesale funding sources over time. And with that, I'll pass it to Derek to discuss the income statement and capital trends. Derek Meyer: Thanks, Andy. I'll start on Slide 6 with our yield trends. In the third quarter, total earning asset yields remained flat at a 5.5% and interest-bearing deposit costs also held flat at 2.78%, while total interest-bearing liabilities ticked up 1 basis point to 3.03%. Within our major asset categories, slight decreases in commercial, CRE and auto yields were offset by slight increases in mortgage and investment yields. While total interest-bearing deposit costs were flat compared to Q2, they were down 55 basis points from Q3 of 2024. Moving to Slide 7. Third quarter net interest income of $305 million was up $5 million versus the prior quarter and $42 million versus Q3 of 2024. Q3, net interest margin held firmly above 3% at 3.04%, which was flat compared to Q2 but 26 basis points higher relative to Q3 of 2024. Based on our latest expectations for balance sheet growth and mix, deposit betas and Fed action, we continue to expect to drive net interest income growth of between 14% and 15% in 2025. This forecast assumes 2 additional Fed rate cuts in 2025. Given the potential for additional rates, we've provided a reminder of the steps we've taken to dampen our asset sensitivity on Slide 8. Over time, we put ourselves in a more neutral position to minimize interest rate risk. We've maintained repricing flexibility by keeping our funding obligations short we've protected our variable rate loan portfolio by maintaining received fixed swap balances of approximately $2.45 billion, and we built a $3 billion fixed rate auto book with low prepayment risk. While we're still modestly asset sensitive, a down 100 ramp scenario now represents just a 0.5% impact to our NII as of Q3. We expect to maintain this relatively neutral position going forward. Moving to Slide 9. Total securities increased to $9.1 billion in Q3 as we've continued to modestly build our AFS book. Our securities plus cash to total assets ratio climbed to 23.4% for the quarter. We continue to target a range of 22% to 24% for this ratio. On Slide 10, we highlight our noninterest income trends for the quarter. In Q3, total noninterest income of $81 million was up 21% relative to both the prior quarter and the same period last year. The increase in Q3 was primarily driven by strength in capital markets and wealth fees with an additional boost from nonrecurring asset gains. In the capital market space, in particular, the increase was due to an elevated level of activity in our syndications and swaps businesses. The asset gain booked during the quarter was approximately $4 billion for deferred compensation valuation adjustment. Given the strong quarter, we now expect a total of -- we now expect total 2025 noninterest income to grow by 5% to 6% relative to 2024, after excluding the nonrecurring items that impacted our fourth quarter 2024 and first quarter 2025 results from the balance sheet repositioning we announced last December. Moving to Slide 11. Third quarter expenses of $216 million were up $7 million versus Q2, with much of the increase attributed to performance. The increase came in personnel where we booked $4 million of additional expense for the same deferred comp valuation adjustment that was recognized as a gain in our noninterest income. Another large component was a $4 million increase in variable compensation expense the result of strong execution against our strategic plan. During Q3, the personnel bucket was also impacted by approximately $1 million of incremental health care costs relative to Q2. Outside of personnel expense, we also saw quarterly increases in technology, business and development and advertising expenses, offset by decreases in legal and professional fees, loan and foreclosure costs and other noninterest expense. As we've stated previously, we continue to invest to support growth, but driving positive operating leverage remains a top priority. Here in Q3, our efficiency ratio decreased for the third consecutive quarter coming in below 55%. Based on our latest forecast, we now expect total noninterest expense growth of between 5% and 6% in 2025 off our adjusted 2024 base. On Slide 12, capital ratios increased across the board once again in Q3. Our TCE ratio of 8.18% in Q3 was up 12 basis points versus the prior quarter and 68 basis points versus Q3 of 2024. Our CET1 ratio increased to 10.33%, a 13 basis point increase relative to the prior quarter and a 61 basis point increase versus the same period a year ago. Based on our expectations for growth in 2025 and current market conditions, we continue to expect to manage CET1 within a range of 10% to 10.5% for the year. I'll now hand it over to our Chief Credit Officer, Pat Ahern, to provide additional updates on credit quality. Patrick Ahern: Thanks, Derek. I'll start with an allowance update on Slide 13. Our CECL forward-looking assumptions utilized the Moody's August 2025 baseline forecast. This forecast remains consistent with a resilient economy despite the higher interest rate environment. It contains no additional rate hikes slower but positive GDP growth rates, a cooling labor market, continued elevated levels of inflation and continued monitoring of ongoing market developments and tariff negotiations. In Q3, our ACLL increased by $3 million to $415 million. This increase was primarily driven by an increase in commercial and business lending, which largely stemmed from a combination of loan growth, plus normal movement within risk rating categories. Our ACL ratio decreased to 1.34%, down 1 basis point from the prior quarter. On Slide 14, we continue to review our portfolios closely given ongoing uncertainty in the macro picture, but we maintain a high degree of confidence in our loan portfolios and continue to see solid performance in Q3. Total delinquencies were flat at $52 million in Q3. These delinquency trends are largely in line with the benign trends we've seen for the past several quarters. Total criticized loans ticked higher in Q3 with an increase in substandard accruing partially offset by decreases in the special mention and nonaccrual categories. [Audio Gap] With the current industry guidance. As a reminder, we do not feel that recent trends in this category are an indication of a material shift in the credit profile of the portfolio nor has there been a corresponding risk of loss. In fact, we continue to see resolution with some of our more stressed credits and liquidity remains present in the market in terms of both payoffs and loan re margin. Nonaccrual balances decreased to $106 million in Q3, and down $7 million versus Q2 and down $22 million from Q3 of 2024. Finally, we booked $13 million in net charge-offs during the quarter and $16 million in provision. Our net charge-off ratio held flat at 0.17%. All 3 of these numbers remain squarely in line with the figures we've seen over the past several quarters. In response specifically to tariffs and ongoing trade policy negotiations, we remain in contact with clients as the trade policy discussion continues. I would note that clients have been planning for tariff changes for some time, and we feel comfortable with the positioning of their strategies and the ability to execute when more clarity exists. Going forward, we remain diligent on monitoring other credit stresses in the macro economy to ensure current underwriting reflects the impact of ongoing inflation pressures and shifting labor markets to name just a few economic concerns. In addition, we continue to maintain specific attention to the effects of elevated interest rates on the portfolio, including ongoing interest rate sensitivity analysis bank-wide. We expect any future provision adjustments will continue to reflect changes to risk rates, economic conditions, loan volumes and other indications of credit quality. And finally, given the recent industry news surrounding nondepository financial institutions or NBFIs, I'd like to provide a brief update on where we stand. NBFI balances represent a minimal part of the bank's total loans largely comprised of REITs, mortgage warehouse lines and insurance company lending. These facilities have historically performed very well with relationships that average over 10 years with the bank. With that, I will now pass it back to Andy for closing remarks. Andrew Harmening: Thanks, Pat. In summary, we're really pleased with the results, both in the third quarter and year-to-date over the first 9 months. We feel very well positioned based on the actions we've taken. And believe that the enhanced strength and profitability profile, solid capital position and disciplined approach to growth will serve us well going forward. With that, we'll open it up for questions. Operator: [Operator Instructions] And our first question comes from Timur Braziler with Wells Fargo. Timur Braziler: C&I growth has been and remains pretty impressive here. I guess I'm just wondering what happens when the remaining RMs come off of their noncompete? To what extent should we expect that growth rate to accelerate? Is the expectation of that -- that growth rate accelerates from the area as they come online? Andrew Harmening: Yes. Well, good question. Look, we still have quite a bit of lag, we think, left in this. There are a couple of things that I look at, specific to this initiative I look at what is our production this year? Well, that production is up 12%. What does our pipeline look like? Our pipeline is up 31%. That's on the loan side. So as we head into the end of the year and you start to see some of the nonsolicitations and about half of them are already off. So we're getting up to that point where production, we would expect it to go up just a little bit next year. You may have a little more amortization because your portfolio has grown. What we believe though is we're set for a strong C&I growth above the market in 2026, probably as exciting and something we don't talk about. We thought there would be a lag effect to deposit production on commercial, and it's panning out the way that we thought we're adding some very good new names on the deposit side. But when we pull up our deposit production right now, our deposit production is up 23%. Now that's not seasoned, and we'll roll that into our seasonality and be able to forecast very clearly. But it's a very good omen because the pipeline itself is also up 46%. And I've been asking continually each quarter to our Head of Commercial Banking. When will we see that production start to catch up with the pipeline? And the answer is right now. Timur Braziler: That's good color. And then looking at fees this quarter, obviously very impressive. The guide does imply a pretty large step down in 4Q. Can you just maybe talk through some of the success you saw in 3Q and what the expectation is for decline in the coming quarter? Andrew Harmening: Yes. I mean, the fee income in some categories can be a little lumpy. We did have a onetime benefit through a portfolio asset gain. So that's not likely as repeatable at that level. However, when I look towards 2026 versus the fourth quarter, so it was a little bit higher in the fourth quarter but some of the underlying benefit that we're getting in capital markets, commercial production is up. Rates are trending down and likely to continue. That makes fixed rate conversion more attractive. Pipelines are up. And with fixed rate likely up and more popular in 20 -- or fixed rates likely more popular in 2026 and production trending up. We think that bodes pretty well for the forward view. The linked quarter-over-quarter is not likely to be quite as high for the reasons that I mentioned in Q4. Timur Braziler: Okay. And then just last for me. ROTCE, 14% this quarter continues to grind higher, 15% seems to be in striking distance. I guess how are you thinking about further improvement here in these next couple of quarters with rate cuts? Is there an ability here to continue grinding that higher? Or does that trend maybe take a step back a little bit as you digest these hikes or these cuts? Andrew Harmening: Derek, do you want to take that? Derek Meyer: Yes. Thanks, Tim. Yes. I think the opportunity is there. I think, again, I was just going to come back to the market's response to rates vis-a-vis deposits because obviously, the big, we had a nice uptick in fees we expect the hiring to help that continue, but it will still be choppy. So I see the opportunity on the margin side in the long run still being the bigger the bigger lever. And based on what we saw the first couple of weeks after the rate cut in September and the response to how we rolled out our deposit back book rate cuts and what we're seeing in the market response, the outlook is pretty good. So I think we have the ability to continue to grind that higher. I think it's going to bounce around quarter-to-quarter while we do that. But it feels like everything is on track. Operator: Your next question comes from Daniel Tamayo with Raymond James. Daniel Tamayo: Maybe just to follow up on the deposit side. You talked about the momentum you have there, certainly evident in the numbers. We did see deposit costs overall up a bit in the third quarter. Is there a read-through there on an increase in competition? Or something unusual. I'm just curious what you saw in the third quarter that drove those costs modestly higher? Derek Meyer: Yes. I don't think there's a lot to read you there. Part of our benefit, I know you remember the first part of the year and then the last year, we have seasonality that's in addition to account acquisition that affects the rates. And what happens this quarter is some of that seasonality is in accounts that are at the higher end of pricing. So as those things came back in, they came in at the higher rates relative to the back book and put a little bit of pressure on the overall yields. But I don't think we're uncomfortable with what we netted out altogether. Again, why my early canary in the coal mine read on deposit pricing is what happened when we went and looked at the $11 billion, $12 billion of managed rates we had to reprice right when the Fed cut and where are we able to execute on it and what was the response from the customers, and that went very well. Daniel Tamayo: Great. That's helpful color. Appreciate it. And then maybe for you, Andy, on the hires. You talked a lot about the solicitation agreements that those folks will be coming off. They are coming off and more coming. Just curious in terms of additional incremental hires that the pace around that timing if there's the time of the year, beginning of the year when that tends to happen. Andrew Harmening: Yes, I feel like we're open for quality relationship managers year-round. We've shared with our Head of the Commercial Bank that if there is a team that is well known in a market, that has a following that is interested in joining us, we'll consider that any quarter of the year. We don't have a stated plan to increase off of what we have because we know that what we have will lead to pretty solid growth next year. But we'll be opportunistic in a market where we see disruption in dislocation. When you see the M&A activity in the world, that usually leads to opportunity for those banks that have a good reputation in the space. I'll say, as you start to track talent as you start to do deals, you get a reputation that's positive. And so what I would say to that, Daniel, is we will be opportunistic, we won't have a stated number of new RMs, but should that opportunity arise. And I suspect it will during the year, we'll take advantage of that. Operator: Your next question comes from Scott Siefers with Piper Sandler. Robert Siefers: Let's see. So Andy, I just wanted to follow up a little on the loan growth discussion. I mean like the C&I really it speaks for itself. Maybe just a thought or 2 on where we stand with some of those areas that have been more of headwinds on total growth, like resi real estate rundown the CRE payoffs. I know you mentioned those in particular, will likely stay elevated in coming periods. But any reason that either of those or are there any recent headwinds would either accelerate or decelerate in coming periods? Just trying to get a sense for kind of likely interplay between the momentum in C&I and the things that have held back even stronger net growth. Andrew Harmening: Yes. No, that's a great question. You characterized resi as headwind. It's a headwind in terms of balances. It's a benefit in terms of having that run off and what that leads to, and it's purposeful, as you know. Certainly, if rates go down, they'd have to go down pretty significantly, say, 1% to 2% because of the position that those are in today to have a meaningful adjustment. But we plan for the decrease that we're seeing. So that's within the plan. The part that is maybe -- I'm not sure what adjective, a little bit less predictable but expected is CRE. So on the CRE front, as rates go down, there'll be a little bit of pent-up demand for pay downs, not just with us but across the industry. We're expecting that. So does that happen in 90 days? Does it happen in 120 days? Does it happen over 180 days? It's hard to say. So it could have a short-term impact. However, we've already gone back out to market. And the production on the commercial real estate side has increased versus the prior year. So we're up, for instance, about $100 million above the prior year in construction lending. And those are loans that will help offset some of that in 2026. So you could see a short-term impact if a couple of rate drops and there's an opportunity for some of our customers to refinance in the permanent market. So that would be a short-term thing. It doesn't worry me through 2026 because I think we've positioned ourselves with additional lending to make up for that. But probably on the CRE side, that's one where you might see it a little more quickly if rates become advantageous. Robert Siefers: Got you. Okay. Perfect. And then separately, just sort of following up on that last question about like sort of team and RM lists and stuff like that. I think during the third quarter, you made some comments about perhaps entering some new markets, I think, in particular, you sort of talked out like Oklahoma, Kansas City and Denver. I know you already -- or I believe you already did the team lift in Kansas City. But when you think about adding to the footprint, are you thinking still the bias is strongly organic? Or would M&A become a possibility at some point? Andrew Harmening: Well, I mean, the bias is strongly organic. We feel like we have a proved it out year, and we're 3 quarters into proving it out. We feel like we're stacking up quarters. So we're really pleased with that. but we want to do that through the fourth quarter. So that remains number one. And Scott, what I would say is I've been here 4.5 years. So I'm in year 5. And the focus has been the same. It's been execution and opportunity. And so when we see things -- and it has to be within our wheelhouse. It has to fit what we understand and what we know and what we can execute on. So that won't change. Does that mean it's organic or inorganic? I would leave it with we continue to evaluate opportunities in a way that's very similar to everything we've done over the last 5 years. Operator: Your next question comes from Jon Arfstrom with RBC Capital Markets. Jon Arfstrom: Andy, a question for you on the pipelines. When you talk about the lending pipeline increases, is that from new hires and market share gains? Or is it borrowers expanding and becoming more optimistic. Can you just kind of separate the two? Andrew Harmening: Yes. I don't think it's from the latter. I think you have an economy that's been -- news has been bouncing around and forecast of kind of perhaps a little bit slower GDP. What we've said is whether GDP is 1.5%, 2%, 2.5%, we believe we can grow. And so this is, I think, largely from the approach from the folks that we have brought into the team, these are A players. They are folks that could get a job anywhere in the country at any bank. And so being able to bring that kind of talent in. And then we've surrounded it with tools that we continue to establish to make it easier for them to do business. But I think the lion's share of this is on the pipeline, and I'm really pleased to see the production pulling through now. I mean that to me is what we've been waiting to see. We've seen it a little bit more each quarter. But I would say it's, by and large, it's mostly people. Jon Arfstrom: Okay. Good. Derek, one for you, just a follow-up on the margin. I appreciate Slide 8, but what is the message on the kind of the near-term margin outlook from here if we get a couple more cuts? You're talking about reducing asset sensitivity, but I'm wondering, are you signaling a little bit of a dip in the margin? Or do you think the mix shift is enough to keep the margin stable and moving higher? Derek Meyer: I think we believe that we've been very focused on stability. So generally speaking, our remixing generates a basis point or 2 of margin improvement. That's been true for many forecasts now. You could have a blip in any given quarter based on strange behavior in the market with deposit pricing or movements in the portfolio related to payoffs or nonaccrual reversals or pay downs. But I think over a quarter or 2, it's still mostly stability. And I know you're asking that because frequently, if there's a long lag in repricing deposits, you can get compression. But that's why I keep harkening back to what were the first steps that we were able to take and how did I see customers respond and do we see anything strange in the market that would take us off course and make everyone hesitant. And that hasn't -- I haven't seen a lot of that. It's still early, but it gives us confidence in committing to a pretty stable outlook. Andrew Harmening: Jon, I just -- I agree with everything Derek said, but I'd also add on to that is every time we go from a negative 2% to negative 1% to a 0% household growth, 2.5% to 1% to 1.5%. We intend to continue that trend as we head into next year. It's small incremental movements, but those are operating accounts that we're bringing in. That is the cream of the crop when it comes to how you think about managing your margin and your funding sources. And then we go into next year with, really, frankly, again, more tools than we've had before, whether it's a focus on wealth, the product mix that we're going to launch before year-end or it's the expansion of the vertical and HOA and title, that is significant and those are things we just haven't had. There are more quivers that fit into that. So the household growth as in addition to additional capabilities, that is what allows us to believe that we're able to remain either flat or slightly up as we go through the course of the next several quarters regardless of the multiple interest rate changes. Operator: And your next question comes from Jared Shaw with Barclays. Jared David Shaw: Tying into the margin, I guess it was this time last year that we got a little bit of an update on thoughts around beta on the deposits through the cycle. If we get the 2 cuts or if we get 2 more cuts this quarter, where do you see with the changes in the deposit base, where do you see that sort of cumulative beta moving from there? Derek Meyer: Yes. I think the range I'm thinking about now is about 55% to 58%, I think that's a little bit better potential. I think last time, it was more like 55%, 56% to the cycle. So again, things look good. And I also think we get more confidence as we get closer to the additional verticals rolling out because it gives us more options on how to manage levers and handle the higher-priced accounts. Jared David Shaw: Okay. And then on the expense, especially on -- specifically on the personnel expense, you called out a couple of things. As we look at fourth quarter, should we assume that the incentive comp stays in the numbers going forward? Or is that more of a onetime catch-up? How should we think of that? Derek Meyer: Yes. So the deferred comp is largely tied to market value. So if -- so that -- it should stay where it is, unless the market goes up a lot from here were down from here. So set that aside. We tie that largely to our forecast. So as long as if we are consistent with our guidance, we would expect that to stay at similar levels, not step up from here. but we're not going to complain if we blow through our guidance, and we have to share some of the comp for it. Andrew Harmening: And just to piggyback on that, too, Jared, you didn't ask necessarily about what we're expecting next year, but that usually is the next question. And we're planning for '26 expense increase to be -- the increase to be less than 25%. We've been opportunistic this year when we see opportunities to drive revenue and drive return and improve operating leverage, we've taken it. But those are manageable and we've already planned for going into if we don't have the exact same scenario. Jared David Shaw: Okay. All right. And then, Andy, I think in your comments, you mentioned something about a new deposit system or a system upgrade that can help drive maybe some incremental growth. Any details around that? And is that fully baked into the expense structure? Andrew Harmening: It is baked into the expense structure. The capability, really, it's a product enhancement first, on the wealth side that we expect to launch by the end of November that is substantial in the value proposition that we've had, which we've largely not built out before. So we focused on the consumer, growing that, mass affluent, growing that, commercial growing that, and it kind of meets at wealth management. So we believe that's one of the opportunities. The HOA title is a business where we have a very good team that's ready to go. And they have helped us with what capabilities their customers require in detail. And so that will be an ongoing road map. We expect to launch something either by the end of the year, if not the first part of January but then we think we'll have additional pieces in second quarter and third quarter. That will be a priority for us. It won't raise the cost. We'll do that at the expense of something else that is not such a large opportunity for the bank. Operator: And ladies and gentlemen, there are no further questions at this time. So I'll hand the floor back to Andy Harmening for closing remarks. Andrew Harmening: Well, look, we leave here pleased with the third quarter. We expect to land the plane in the fourth quarter and are optimistic about the fundamentals going into 2026. And as always, we appreciate your interest in Associated Bank. Operator: Thank you. And with that, we conclude today's call. All parties may disconnect. Have a good day.
Henrik Høye: Hello and welcome to the presentation of quarter 3, 2025 results for Protector. As always, I want to start with who we are and a small recap of what we do, this morning with all employees. The topic has for some time been the challenger. And it's, to us, very relevant with new technology and AI and a more uncertain future when it comes to what we -- or how we should do what we do. So what we have done lately is to involve all employees in exploiting the opportunities with AI. And we've done that through giving access to an enterprise model through Google to absolutely everyone. So it gives the opportunity to generate agents and use AI as we know it through ChatGPT and other types of platforms. But what we want from it is to make sure that everyone understands the value of data because when you use AI with poor or little data, then you get the wrong results. And data is our currency. It is 1 out of 2 targets we have for 2025 for the company. And we say -- we practice saying that it is our job to invest that data and create value by understanding our risks and making profits out of that. And some of the activity we've done is, as you have most likely heard, challenging to quantify in an actual return. But obviously, there are efficiency gains that you get immediately from usage of AI. But our focus is more to see if we can solve the more complex tasks. So focusing on really challenging AI and the creation of agents and support to solve what we either have seen as too capacity requiring or too complex to solve ourselves. And what we see is that we get these efficiency gains. So we can -- we've made some agents and some functionality that reads through health documentation for personal lines or employee benefits in Norway. It takes 5 hours normally to read through it and get something out of it. Now it's a few minutes. We do that for incoming e-mail. It makes it a lot more efficient. And that's interesting but that's something that will happen. So in our opinion, that's not where our focus should be. Our focus should be in seeing if we can get better results. And it is something interesting around the fact that you will accept a poorer accuracy from a human than what you will accept with AI. And what we can see is that we get very high accuracy with very little effort, for instance, on what we call preunderwritings, we get a tender, get lots of information from the broker and then we run it through a process that evaluates 7 criterias. And in order to decide whether we should spend time on it and evaluate it further and price it and quote it or not. And it is obviously also a start of the underwriting process. And we had one target and that was to increase the quote rate. So meaning that we should actually quote more than what we have done because sometimes it is noise in the decision of whether to quote or not and some kind of assumption from an underwriter that this is going to take a long time or since I've seen it previously, it is a bad risk, which is not necessarily the case. It needs to be based on data. And we've increased the quote rate in the U.K. from 38% to 44% through using an application that we've designed on AI. And that's to us being the challenger. And then this -- what we do becomes old very quickly as the technology develops. And we are not spending any time in predicting what this will look like in the future because I don't think that we are any -- or have any edge in that. But what we do know is that we're not taking advantage of a fraction of what we can do today. So we still have a lot of investment to do when it comes to utilization of AI and actually using data or investing data as our currency. And we've discussed different ways of investing that time. We could have set up some expert center of excellence groups and see if we could find something genius through those groups of people who know the technology and know the business. But we have decided that Protector is -- and we get some kind of -- I've never used our -- and I've used our values and our culture a lot in my decision-making every day but I've never used it as much as now because it is more uncertain. And due to who we are, people who have a common set of values who should make decisions all of us because that's what best-in-class decision-making is. We have decided that we will include absolutely everyone in it but also that the only focus of our leadership development program that starts now in the first quarter of 2026 is AI. The previous decision, not too long ago, was data because that has been a focus. But then we have realized that now it is about AI because it will include data. And we need to make all our leaders, there are 140 leaders in Protector today, responsible for taking that ownership of utilizing AI because the fact is it is here and we are not utilizing even a fraction of it. So that's been part of the topic. And in order to do those things, we have also decided that for the first time in many, many years, all Protector employees will get together. So in March, we will get all Protector employees together in Norway at a place that is big enough to house close to 700 people. And we will have workshops to decide together with everyone and prework before we go there, who we will be and where we want to be in 2030. So -- which could be an exercise that we did in the management group and we did as leaders but we want to include everyone in that. It's a complicated resource requiring -- task to do that well. And I don't know if we're going to do it well but at least we have decided that going forward, both because we are growing, becoming more people, more countries and getting a bigger risk or having a bigger risk of becoming like everyone else, which is, in my opinion, the biggest risk of Protector. We need to invest more in this and in our people. So that's how we -- that's the angle that we take to AI. And unfortunately, we don't have a lot of exciting demos and value creation documentation to share with you. But a lot of it is happening. And we are investing, which you have also seen in our cost ratio and which I will come back to. But then let's get over to the results. So the quarter 3 results are very strong on the profitability side. As always, I get back to normalizing that and explaining the underlying realities. We have a weak growth in quarter 3 and I'll get back to that as well. So -- and then the investment result is in absolute terms, poor and also that I will explain further when I get into that. On the side of that, the transfer deal of the portfolio on Danish workers' comp that we previously expected to be finalized in quarter 3 is -- and it was due to subjectivities and that is mainly the authorities in the different countries is now expected to complete in quarter 4. So volume. And I think that this is, in many ways, where we have spent more time this quarter because this is not anything close to what we have had previously in percent. It is the smallest quarter. It's 12% of the volume totally in Protector. So there is some volatility in it. But the composition is some underwriting discipline, which we should have. Profitability comes first. So we've lost some large clients, some of which we wanted to lose. So we actually priced them out. Some have been -- we haven't managed to match the price, which is fair. And then there is this normal churn where we don't manage to renew all the clients. And then there are some technicalities in this where inception dates moved from -- it was -- the volume incepted quarter 3, 2024 and then they've moved the inception date to another. We mentioned this in the quarter 1 presentation that we had some volume there that moved to quarter 2 and quarter 4. And there's some of that. But it's also -- so it's a mix of that, discipline and some technicalities but also some realities. And the reality is that, in particular, in the U.K. market, we don't get support from high inflation -- inflationary increases on the prices anymore. So the property market, which is our biggest product, is in a softening cycle. So the rates are going down. And then we don't get that -- and we get very high churn if we continue to increase prices and we don't need it, as you can see on the profitability side in the U.K. So that's a reality and we have talked about that before as well. I forgot to say that it's better if we have questions during the presentation then all of them are saved for the end. So please raise your hand and I guess you'll get a microphone if you have questions along the way here. So -- and the market situation in the different areas is interesting to say something about in quarter 3. And there is not anything very special from what we have communicated previously. So the softening property market in the U.K. and that's both corporate and public sector and housing makes it harder to retain the clients at the same rate levels and makes it harder to win new business. In the Nordic countries, it is no real change in the market situation. So it's still a rational market. But obviously, we don't get that support from the same inflationary increases also there. And our new sales in quarter 3 are on the low side. We've missed out on also some of the larger opportunities that sometimes come our way and now not -- I wouldn't read too much into that part of it because it doesn't look like a trend. So that's quarter 3. Any questions to quarter 3? [indiscernible]? Unknown Analyst: [indiscernible] I guess, I have 2 questions, Henrik. First, could you give a bit more flavor on the U.K. real estate statement you have on one of the bullets here to make us understand a bit more. And the second question is that you have seen so far EUR 460 million in France. Will that figure increase through quarter 4? Or is it kind of the final volume that you will see in entering January 1? Henrik Høye: Yes. I can do that. So I was just wondering if there were any more questions on quarter 3 because I was going to get to those 2 about France. Get the microphone and can run a bit now. Thomas Svendsen: Thomas Svendsen from SEB. So questions to the U.K., it has been -- the combined has been stable at around [ 80% ] for several quarters. So what is your assessment? What is sort of the new level of combined ratio there? Henrik Høye: On new sales? Thomas Svendsen: On new sales. Henrik Høye: No, I think that on the corporate, so commercial sector, we basically target below 91% and have been doing that for some time but we've been able to get rate increases in renewals. And so not a lot of difference on the corporate commercial sector. We've been quite stable there. But obviously, in the public sector and housing, where we haven't had a lot of competition, we have not targeted a lower combined but we have been able to increase our margin and still win business. So then I think that for new sales, I would say that we will close in towards 91% combined ratio on our new sales over time. But that market will fluctuate and have volatility. Ulrik? Ulrik Zürcher: Ulrik Zürcher, Nordea. You say that it's softening a bit in the U.K. Should we read anything into that into the renewal next year, has an impact on growth expectation? Henrik Høye: Yes. It has been softening for some time on the property side. If you read the big reports of property and property rates in the U.K., you'll see that there was quite significant rate reductions in that market. But that doesn't mean that we come from those extremely high levels on everything. So I wouldn't read too much into it. We see that we can be -- we can still be competitive in the U.K. property market. But the kind of 2023 -- 1st of April 2023 situation is not the case anymore. So it's more like a normal... Ulrik Zürcher: Yes. But we have to counter like something is the same, borough, like public market but then we also need to the new market, the real estate. So I'm just -- they're -- you're not saying there's any reasons why you shouldn't have very potentially high growth in U.K. next year in new business or... Henrik Høye: No. So -- and then I can come to that because that's interesting. In a market like the U.K. So we've -- we're in the corporate sector clients with GBP 50,000 and more annual premium and that's where we started. And we're in -- we've also entered what we call the mid-market between GBP 20,000 and GBP 50,000 approximately annual premium. So we're starting to get some kind of traction in that market. And then we've had public sector and housing the whole time. And that's where we have a fairly high market share. So we are a top 3 player there. There's still opportunities but the real opportunities lie in the commercial private space. And there, we will find pockets and segments that are fairly big pockets because it's the U.K. and the U.K. real estate is one of them. And there's 2 reasons why we are entering that market now. One and the most important one is that we have hesitated entering that market because of extremely high commissions. So there's been commissions between 30% and 40%, not only to the broker but also to the property administrators. And the value chain is not very transparent. We don't want to be part of that type of a value chain. And in addition to that, the volatility in those -- or fluctuations in those commission levels means that cost ratio -- cost advantage is not that important because it's -- a lot of it is with the brokers and the administrators. Now the authorities have put a focus on it. So the commission levels are coming down. So that market is more professional. It suits Protector in a better way. And then we have achieved the A rating, which is important in that sector because the banks who finance the properties, they require it in their contracts. So then we get an access to that market. So we've spent some time getting to know the brokers who operate in that market. So the large players -- the largest broker players in that market gathering data. And it's always a milestone to win the first client in the segment that has a new product. So the new terms and conditions and it is accepted by the market when you win the new client. So this is a big market. It's bigger than GBP 1 billion. That's our risk appetite. So that's basically what we will -- what we think we will quote on. So that's a big opportunity. And then on France, it is the same thing. We need to say something about what we know and what we know is the tender volume. It will [indiscernible] not stop there. So there is still volume coming out but we know -- this we've known for some time that the tender volume is quite -- is a high number for 1st of January '26 because we do pipelining together with the brokers. But then the ones that they don't know about will come out throughout quarter 4, especially on the motor side, which is 50% of this and -- but also on the public sector and housing side. In France, they have something they called failed tenders. So if a tender doesn't meet the criteria, then they put it in a failed category and then they can go out and negotiate those contracts. And they have budgets on -- so they -- most of them fail because of a budget that is too small on the premium. So -- and if it doesn't meet, then they have to, so they're required to cancel it. So they will come out. A few of those will come out as well. Ulrik? Ulrik Zürcher: Just one follow-up. You forgot a bullet point because you forgot to put in your expected win rate. Henrik Høye: And you can estimate and guess as much. I'm sure that we could probably be slightly more accurate than you but we don't know what the market is. And there is actually a -- so there's actually a reason for why we -- why I don't even want to indicate anything there because we -- from the beginning, which is right to do, we have been a bit more restrictive on terms and we have slightly higher margins on what we quote in the beginning. And it should be like that because we both need to get confidence in what we look at. And the first ones that come out have had slightly poorer data than what we require. And then we need to test the market. So we know very little about the quotes that are out in the market now because the ones we have sent out and have some feedback on, they are not representative for the majority of them. [indiscernible]? Unknown Analyst: Regarding the U.K. real estate market, you have won the first client now in the third quarter. Last time you presented, you said that you expected the first client to be on board at the earliest April 2026. I have in my notes. What has happened and has the process speed up? Henrik Høye: I think it's a combination of things. We -- so the reason why we said 1st of April was that we didn't believe that we were able to -- we were going to be able to collect this -- enough data to quote in that market before that batch 1st of April inception. And then we also know that we needed a different kind of process -- underwriting process and using technology has made it easier to create those models. So we have, in our IT systems today, 60% of the code is AI generated. But on the underwriting side, I'd say that probably at least 2/3 of the code is AI generated on our modeling. And that gives a huge advantage in developing these models. So we can make one version, benchmark it with another one. And then so we can create a lot of different models and benchmarks them with each other without being delayed in the process. So that's that. And then we've also got -- managed to get traction with at least one of the brokers earlier than what we expected. They were a bit skeptical in the beginning because there are many competitors in this market and it's a commodity and it's a -- so -- but then they've understood that we have an edge and have something to bring to the table. So then they have started to send us. So it's actually a case where we've said no to quote cases because we are not ready. Unknown Analyst: But is 1st of April also very important in this segment as the other in U.K.? Henrik Høye: 1st of April is because of some kind of a strange financial year setup there, is important in all segments but not at all like public sector. So it's more spread out in the real estate. But we don't have all the data. So we don't exactly, know exactly know how it's spread out. But it's less dominant 1st of April in real estate. Okay. So that's, volume. Again, so if you look at it, on the face, adjust for large losses and runoff compare the quarter 3 figures there to quarter 3 last year, you see a very similar number on the loss ratio. But the underlying realities are slightly better than that in '25 relative to '24. We have had large losses on the property side only in U.K., Sweden and Norway in quarter 3, not in the other countries. So then you understand that they are artificially low in Denmark, Finland and France to a certain degree. But France, as I said last time when we had black figures on the combined ratio, it's very early and I wouldn't read much into the loss ratios in France for quarter 3. So that's on the large loss side. Runoff gains in all quarters. We had a question around our practice of best estimate reserving, which we follow and which is correct, both on the case side and on the actuarial side. But obviously, following a period of time when there's been more uncertainty on the inflation, which I have mentioned before, there is a higher probability of some runoff movements and uncertainty sometimes makes us a bit more conservative. So I think that it's slightly higher probability that you get gains than losses for some time after a uncertain inflation period. So that shouldn't be too much of a surprise either. And then there was a big storm that mostly hit in Norway but also a little bit in the U.K. and Denmark. And for the Norwegian part of this, this is quarter 4 numbers. It is -- it doesn't make a big difference, as you can see, if you try to calculate those numbers and especially with the reinsurance side of it. So we get our share but the Natural Perils Pool is reinsured with a quota share this year. So it's not a very large number, some few tens of million Norwegian kroner approximately is what that will have an effect. So one large loss. Yes. So any questions on the claims development? I've touched upon some of these points that you could potentially see here, both on the runoff but also on the volatility for large losses. I think that still it's important not to kind of look for trends in large losses because this is about very few losses and it's very volatile. So I would still look at around 7% as a normalized level. When it comes to the cost ratio, it is up exclusive of commissions by a bit more than 1 percentage points for quarter 3. And there's been a development in the share price. We've talked about this before. And only that is -- so if you correct for that relative to quarter 3, this is real cost. So it's about the salaries for some key people that have been part of a bonus scheme for some time that follows with synthetic shares that follow the share price. And when there is a lot of movement there, it does affect. But if you correct for that, you're basically at the same level. And then France was booked on the other expenses row before. Now it's in the cost ratio. And so that's a bit more. So it's slightly lower if you correct for those 2. I don't think it's very important to correct for any of them because the important message I want to give and what we talk about with the employees is that we are in a position now where we have a lot of development opportunities on the volume side. So we've opened a new market. U.K. is still -- there's a lot of opportunities. And even in the Nordics, there are a lot of opportunities on facilities and the property side. So we're investing in creating. It's a great time to invest in creating better data and preparing ourselves for the future in utilizing AI. So let's do parallel processes where we create AI functionality that can do exactly the same as the process today and then we benchmark. That costs some resources and we could have been more efficient today and I've talked about that before. I still mean that. We have overcapacity and we're not stressing in taking out those efficiency gains at the moment because that's probably the wrong decision. Any questions on the cost side? [indiscernible]? Unknown Analyst: Not on the cost side but on AI. You are using a lot of time talking about AI and I understand you are putting a lot of effort on this. Regarding your competitors, how are they using the same tool? Do you have some indication or... Henrik Høye: Right now I think it's much better that we spend our time on how we can utilize it. But obviously, we should learn from successes and mistakes out there. So we need to look out, out the window as well. And -- but I think what we do see is that lot of our competition, they focus that on their customer experience and because of the consumer -- the weight of the consumer segments in their companies. So it's a lot about improving the customer journey or whatever they call it, which is not very relevant for us. And I also -- what I do hear and see is that it is a lot about efficiency. So it's automation, which is not what AI is -- that's not our focus at least. That's a bonus and it will happen. So let's not stress about getting some efficiency gains because we're all becoming more efficient every day and you are, I'm sure. So that's not the main aim of this. It's the quality. And automation and robots and that is something we could have done a long time ago. So that's not really about AI. But I think the focus is -- we hear that the focus is a lot around that. So to the investment side, I'm not planning on spending a lot of time here but please come with questions. So in absolute terms, poor equity results. And then we've done a -- so we've accumulated profits or own funds in the different currencies and countries as that has come in. And now we've moved that equity home. That increases the running yield on the interest rate, the bond portfolio slightly because we get better yield in the Norwegian bonds than what we have on average for the rest. And then on the underlying realities for our papers or the companies in the equity portfolio, it is a -- so we have some IT consultancy where there is some poorer underlying development. And other than that, it's a good development. So in total, we characterize that as okay. So it's not like it's just volatility there but we haven't changed any strategy. And 1 quarter is a short time. A year is a short time, as we've said many times on this area. No losses in the bond portfolio. Capital position is -- so, yes, so there's no -- if you look at the other income expenses row here, you see that it is a high increase. That is due to the increased debt that we have, the Tier 2 debt that we have increased during 2025, so the interest rates there. Other than that, nothing special. And then this is slightly new in how we present it. The biggest element that you can see here is on the market risk, on the solvency capital requirement on the market risk, the [NOK 558 million that is on the orange box is due to the -- to moving the equity from the branches to Norway that decreases the requirement on the market risk. But on the other side, we get less diversification. So -- but there is an effect there on the solvency, which takes the requirement down. And the solvency position is very strong. And we still see obviously some geopolitical uncertainty in the world. And then in spite of what you see on the growth side for quarter 3, we see a lot of opportunities. When that volume will come in, that I don't know because that's dependent on the market. But we see a lot of opportunities and we have the data and we are quoting and we're comfortable with the quotes we send to the market. So we still believe that over time, the growth journey of Protector will continue. And therefore, it's good to be on the solid side since there is some volatility in that. And so that we don't have to do stupid things or the wrong thing either on the insurance or the investment side in the future. Yes, Ulrik. Ulrik Zürcher: You have a Tier 2 bond that's up in December, right? Henrik Høye: Yes. Ulrik Zürcher: Will you refinance that? Or will you cancel it? Henrik Høye: So we will continuously look to what we can utilize because there is a -- so now we're not able to utilize and partially because the requirement has reduced, right, from taking the equity on. So we'll continuously monitor how much we can utilize. And there are also limitations on how much we can take in. So it may be that we wait. But most likely, we won't renew it in December. December is also a poor date. So it's better to have it at a different date but that's a small part of it. But we'll assess that going forward. And then we'll most likely renew it or fill up with something in 2026 on that. Is that an okay answer, detailed comment? Ulrik Zürcher: Yes. Because it's a bit important when we judge your like actual solvency now. It's like that bond is that, [ i.e.,] because now you're not utilizing, so you could pay that back and then you can utilize what you have or you're very forward leaning on growth, so you need... Henrik Høye: Also that's, so in general, what we will aim to do is to have what we can utilize. So that's where it will be. And then you probably in a good market, be a bit ahead of that curve rather than behind it. So I spent more time here on this than I usually do and we do that in the organization as well. But when it comes to the quarter 3 results, this is the same slide as I started out with. So any further questions outside of what we have covered so far or anything that we have online? Unknown Executive: Yes, we have a couple of questions. Some of them have been dealt with already. But continuing on the capital situation, which is assumingly very strong and the potential for high growth in France, given the numbers. Could you say something about how much of that volume we will win, how much that will kind of consume of capital? So how much will NOK 1 in growth consume January 1? Henrik Høye: I can't give an exact answer. But today, we -- I guess it's about 30%. So 1 unit is 0.3%. And then there is something on the -- especially on the cat side, natural catastrophes that will make a difference because France is a different geographical area. So we will get diversification. So a property will -- in France consumes less because we have a lot of property pounds and property kroners. So that's -- so yes, it consumes slightly less on the property side, not on the motor side. Any other questions? Thanks for coming. Thanks for listening. Unknown Executive: Thank you.
Operator: Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to today's SS&C Technologies Q3 2025 Earnings Call. [Operator Instructions] I'd now like to turn the call over to Justine Stone, Head of Investor Relations. Justine? Justine Stone: Hi, everyone. Welcome, and thank you for joining us for our Q3 2025 earnings call. I'm Justine Stone, Investor Relations for SS&C. With me today is Bill Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer; and Brian Schell, our Chief Financial Officer. Before we get started, we need to review the safe harbor statement. Please note that various remarks we make today about future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, October 23, 2025. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to Bill. Bill Stone: Thanks, Justine, and welcome, everyone. Our third quarter results include record adjusted revenue of $1.569 billion, up 7% and adjusted diluted earnings per share of $1.57, a 17.2% increase. We delivered record adjusted consolidated EBITDA of $619 million, up 9.3%, resulting in quarterly adjusted consolidated EBITDA margin of 39.5%. Our third quarter adjusted organic revenue growth was 5.2%, with performance driven by GlobeOp with a 9.6% revenue growth and our Global Investor and Distribution Services or GIDS business with a 9% revenue growth. We saw strength across all alternative markets, and we are capitalizing on international opportunities. In our GIDS business, we successfully completed a large lift out in Australia on July 1 and announced an additional lift out for our U.S. life and pensions provider. Q3 Financial Services recurring revenue growth was 6.7%. For the 9 months, ended September 30, '25, cash from operating activities was $1.101 million, up 22% over the prior year. In Q3, we returned $305 million to shareholders, which included acquiring 2.8 million shares for $240 million at an average price of $86.82 and $65.8 million in common stock dividends. This quarter, we've raised our common stock dividend to $1.08, an 8% increase. SS&C's strong cash flow characteristics allow us to return capital to our shareholders in multiple ways. We continue to believe our shares are undervalued, and we'll continue to prioritize share repurchase. High-quality acquisitions that meet our financial criteria are also a key element of SS&C's capital allocation strategy. In September, we announced the acquisition of Curo Fund Services, a South African fund administration business. This acquisition deepens our relationship with 2 meaningful clients and gives SS&C a local presence in the African market. Our Calastone acquisition closed on October 14, a global team of 250 employees will join our GIDS business, reporting into Nick Wright. We are excited about Calastone's proprietary global funds network and the additional capabilities in money markets, ETFs and digital assets they bring to the SS&C solutions set. Tokenization is gaining meaningful traction amongst our clients, and we are pleased to offer a solution that supports their evolving digital asset strategies. I'll now turn it over the call to Rahul to discuss the quarter in more detail. Rahul Kanwar: Thanks, Bill. We had a strong third quarter with solid organic growth of 5.2% and improved margins. Across our business, we remain focused on taking care of our customers and deepening our product set and expertise. And we're pleased to see that focus translate into financial results. We continue to pay close attention to our cost structure and view intelligent automation and AI as both a revenue opportunity and a way to reduce repetitive tasks while enhancing career paths for our employees. We've seen the results of these efforts reflected in improved EBITDA margins to date and expect this positive trend to continue. GlobeOp had a good quarter with continued strength within our hedge fund client base, international wins in private markets and benefits from the ongoing trend towards retail alternatives. Looking ahead, we view GlobeOp as a key beneficiary of emerging technologies and aim to dramatically enhance user interfaces and client experiences as meaningful competitive differentiators. Our Global Investor and Distribution Solutions business had an excellent quarter, driven in part by successful lift-outs across the globe. We're encouraged by the potential these mandates unlock. SS&C continues to help accelerate the global transformation from traditional automation to AI-powered automation, selling purpose-built agents as a managed service. With SS&C as customer zero, we can leverage millions of daily use cases to build deep and comprehensive solution sets, which provide for both internal efficiency and external revenue opportunities. As one example, we sold an AI agent to a U.K.-based health care organization to automate MRI, CT and ultrasound request processing, saving over 15,000 radiologist hours annually. This frees clinical capacity, reduces outsourcing costs and addresses a global hospital challenge as well as points to the utility of these AI agents in a wide range of applications. With that, I'll turn it over to Brian to walk through the financials. Brian Schell: Thanks, Rahul, and good day, everyone. Unless noted otherwise, the quarterly comparisons are Q3 2024. As disclosed in our press release, our Q3 2025 GAAP results reflect revenues of $1.568 billion, net income of $210 million and diluted earnings per share of $0.83. Our adjusted non-GAAP results include revenues of $1.569 billion, an increase of 7% and adjusted diluted EPS of $1.57, a 17.2% increase. The adjusted revenue increase of $102 million was primarily driven by incremental revenue contributions from GlobeOp of $37 million, GIDS of $33 million, acquisitions of $17 million and a favorable impact from foreign exchange of $9 million. As a result, adjusted organic revenue growth on a constant currency basis was 5.2% and core expenses increased 4.1% or $37 million. Adjusted consolidated EBITDA was $619 million, reflecting an increase of $53 million or 9.3% and margin expansion of 90 basis points to 39.5%. Net EBITDA of $619 million is a quarterly record high for SS&C. Net interest expense for the third quarter of '25 was $104 million. a decrease of $6 million, primarily reflecting lower short-term interest rates. Adjusted net income was $396 million, up 16.5% and adjusted diluted EPS was $1.57, an increase of 17.2%. Our effective non-GAAP tax rate was 21.1%. Note, for comparison purposes, we have recast the 2024 adjusted net income to reflect the full year effective tax rate of 23.1%. Also note that diluted share count is down year-over-year to 252.6 million from 254.1 million, primarily as a result of share repurchases. Cash flow from operating activities grew 22%, which was primarily driven by growth in earnings. Our quarterly cash flow conversion was 115%, up from 99% last year. Our year-to-date cash flow conversion is 98% versus 89% last year. SS&C ended the third quarter with $388 million in cash and cash equivalents and $6.6 billion in gross debt. SS&C's net debt was $6.2 billion and our LTM consolidated EBITDA was $2.4 billion. The resulting net leverage ratio is 2.59x. As we look forward to the fourth quarter and the remainder of the year with respect to guidance, we will continue to focus on client service and assume that retention rates will be in the range of our most recent results. We'll continue to manage our business to support long-term growth and manage our expenses by controlling and aligning variable expenses, increasing productivity to improve our operating margins and effectively investing in the business through marketing, sales and R&D. Specifically, we have assumed short-term interest rates to remain at current level, an effective tax rate of approximately 23% on an adjusted basis and capital expenditures to be 4.2% to 4.6% of revenues, and revenues of approximately $20 million for the Calastone acquisition. For the fourth quarter of 25%, we expect revenue to be in the range of $1.59 billion to $1.63 billion and 4.5% organic revenue growth at the midpoint. Adjusted net income in the range of $394 million to $410 million. Interest expense, excluding amortization of deferred financing costs and original issue discount in the range of $106 million to $108 million. Diluted shares in the range of 251.5 million to 252.5 million. And adjusted diluted EPS in the range of $1.56 to $1.62. For the full year 2025, we are raising our top line guidance by $37 million at the midpoint and now expect revenue to be in the range of $6.21 billion to $6.25 billion and 4.6% revenue growth at the midpoint. For the full year 2025, we are also raising the midpoint of our earnings guidance. Specifically, we expect adjusted net income in the range of $1.522 billion to $1.538 billion. Adjusted diluted EPS in the range of $6.02 to $6.08, up $0.11 at the midpoint. And cash from operating activities to be in the range of $1.515 billion to $1.575 billion. Our 2025 guidance reflects our record results thus far in 2025, and we look forward to continued execution during Q4. And now back to Bill. Bill Stone: Thanks, Brian. SS&C's record adjusted revenues and adjusted EBITDA this quarter attest to our strong and long-term financial and operating strength. The 22% increase to $1.1 billion in operating cash flow through 3 quarters gives us the flexibility to pursue growth opportunities as we continue to pay down debt and repurchase shares. We also look forward to hosting almost 1,000 clients and prospects at our annual Deliver conference beginning this Sunday in Phoenix, Arizona. This year's conference will feature the latest and greatest SS&C's offerings, and we'll have our Chief Technology Officer there, Anthony Caiafa, will talk about all of our AI advancements within SS&C in the market. And our keynote speaker is Victor Haghani, founder and CIO of Elm Wealth and a co-founder of Long-Term Capital Management. So we appreciate all of you being here on the call, and I'll now open it to questions. Operator: Thanks, Bill. [Operator Instructions] All right. It looks like our first question today comes from the line of Dan Perlin with RBC Capital Markets. Daniel Perlin: Nice quarter here. I just wanted to try and get a sense around the 4Q organic guide around 4.5%. Kind of keeping in mind that Battea is contributing into that organic growth. So I'm just wondering, can you tell us at least directionally what the contribution of Battea would be in that 4.5% and -- or is that just kind of a conservative kind of jumping off point. It felt like it should be contributing, I think, more meaningfully in the fourth quarter. Rahul Kanwar: Yes. I think that the -- the one thing that I would just highlight is Q4 of the year before was by far our strongest quarter. So we think that's a reasonable jump in all point, not overly conservative, but also something that hopefully we can positively improve on. And Battea's contribution, I think we did about $16 million in Q4 last year. We expect to do about $25 million in Q4 this year. Daniel Perlin: Got it. Okay. That's great. And then just secondly, I mean, GIDS had a very successful organic quarter. I wanted to make sure I understood maybe the mechanics behind that a little bit. I think the contribution to that organic growth was driven by this lift out, but maybe if you could provide a little more details around that, that would be great. Bill Stone: Yes, that was a big chunk. We had a big lift out in Sydney, Australia, that we completed July 1. So we had a half a year from that. And we also sold other large lift outs as well, and we have a pipeline. So we're pretty confident in Q4 for GIDS and '26. Operator: And our next question comes from the line of Jeff Schmitt with William Blair. Jeffrey Schmitt: On the Curo Fund Services deal, could you discuss what attracted you to that business? And how much revenue is that generating? I guess why is that going to be held under GIDs if it's a fund administration business? Bill Stone: The African market is still quite a bit behind the European and the U.S. markets in fund administration and a lot of where you find these kinds of companies is in the life and pensions area. So the 2 large clients, we have very large insurers and they jointly owned Curo. So that's why it's going into GIDS. Jeffrey Schmitt: Okay. And did you mention how much revenue that's generating? Bill Stone: It's negligible. It's $15 million or so, I think. Jeffrey Schmitt: Okay. And then you had talked in recent quarters just about implementing agentic AI and Blue Prism. I think that had sort of been more bot-based automation in the past. So could you give us an update on kind of where you stand there? And what other businesses are you developing that for? Bill Stone: Well, we call ourselves customer zero. So we're doing it across our entire business. And as we have been leaders in most of the technologies that have come out over the last several years, we're now infusing all of those technologies with AI agents and making them smarter and faster. And again, with 27,000 people we have and literally thousands of experts, we believe that we bring the functional expertise to make really smart agents. You can use the greatest technology, but if you don't know what the hell you're talking about, they are not going to be particularly good agents. We think we have the largest, most sophisticated clients because we deliver. And I think that's what you're going to find with our delivery of AI agents. Operator: And our next question comes from the line of Alexei Gogolev with JPMorgan. Alexei Gogolev: Bill, it's clearly a competitive market out there. Could you elaborate on the potential impact from the lost business at State Street in-sourced SPDR. Will that impact on revenue be felt in 2026 or in 4Q of this year? Bill Stone: I mean we'll have a small impact. We still believe our WIT business will still grow, and that was kind of an ancillary business anyway. And it's not something that we were investing in to see if we could do more distribution of SPDR-like products. So while we don't ever like to lose revenue, but at the same time, this wasn't our focus. It's not really going to hurt us much and we look forward to taking those resources that we had there and apply them to things that we think can grow faster. Alexei Gogolev: Thank you, Bill. And then Brian, with GIDS and GlobeOp's growth performing quite well this quarter, how much does that revenue mix shift change margin outlook? I think you seem to have suggested that 3Q 2024, SS&C had strong performance of Intralinks and significant license sale that boosted WIT business. And both of those have visibly higher margins than GIDS and GlobeOps. Can you elaborate on margin impact this quarter? Brian Schell: Yes. No, I think what you saw is you saw the strength of the margin impact, actually, obviously, with the GlobeOp. It, obviously, already has very strong margins above the consolidated average and you saw an incremental contribution from them. I think that some of the things that GIDS has been doing is continue to try and work on their margin as well. But I'd say more broadly, because of the different growth areas, we're continuing to see positive signs from the rest of the business. So that's why you've been able to continue to see actually a margin uptake, right, from overall, right? So we're projecting that a greater than 50 basis point margin improvement in EBITDA, which has always been our kind of our general target. And so that mix shift hasn't affected our overall plans on a consolidated level. Bill Stone: And at 39.5%, you can compare us to any of our peers, we perform admirably relatively. Operator: And our next question comes from the line of Peter Heckmann with D.A. Davidson. Peter Heckmann: I wanted to follow up on Calastone a little bit. Two things there. Talk a little bit about how their existing operations complement your existing U.K. operations for advisory firms and then in wealth management firms. And then number two is remind us, is there any significant seasonality of Calastone's revenue? I seem to remember there was some seasonality to the first quarter for year-end statement, but I can't remember if that was correct. Bill Stone: So we're excited about Calastone. Jason Hammerson has built a great business, got 250 people, and I believe, have about 4,600 clients, fund companies and other asset managers and wealth managers around the world, and it really has a powerful tokenization process. It has very powerful ETFs. And many of you know that it looks like dual share class ETFs has been approved, and that's going to be another boon to the ETF market, which is pretty strong in the United States. And the mutual fund industry, where Calastone is also real strong, it's still strong in Asia and in Europe. So we really like the synergies we get with Calastone acquisition, and we look forward to building on our distribution networks together. Peter Heckmann: Okay. And then on the seasonality of revenue and anything significant there to call out? Bill Stone: I don't think so. I think, Pete, it's a great company, but relative size is not going to impact our growth rates are -- and there's no seasonality in any one quarter that's going to make much of a difference. Peter Heckmann: Really going to stand out. Okay. Appreciate it. Operator: And our next question comes from the line of Patrick O'Shaughnessy with Raymond James. Patrick O'Shaughnessy: So it sounds like, at least anecdotally, the M&A pipeline is starting to pick up. But obviously, that really hasn't translated to improved growth for Intralinks quite yet. What are you seeing out there in terms of the pipeline for Intralinks and the competitive landscape? Rahul Kanwar: Yes. I think it's a little bit like you just pointed out, we are seeing the early indicators of the pipeline. So the opportunities that we're talking to and the data rooms that are getting opened, we're seeing those numbers improve. Generally, revenue lags several weeks to maybe a few months from there, but we are starting to see some positive signs. Patrick O'Shaughnessy: Got it. I appreciate that. And then health care business, 2 consecutive quarters of positive year-over-year growth. What's your confidence level that, that business has positively inflected in a sustainable way? Bill Stone: Well, I think, Patrick, that one of the things people should keep in mind is we built DomaniRx while we ran this health care business, and we had 1 million hours in that development. So the Domani runs at -- or our health care business runs at 30%, 35% margins. We -- it's lumpy. You get $10 million, $20 million deals, sometimes way bigger than that. And we have a great client in Humana that we continue to build out further, and we have another great client in Centene. And so we have opportunities. And it's just selling into large banks, large insurance companies, large asset managers. Sometimes I think they're nimble when I sell into large health care organizations. Operator: And our next question comes from the line of Kevin McVeigh with UBS. Kevin McVeigh: Congratulations on terrific results. I think you came in $0.07 above the high end of the range, including kind of some -- it seems like, obviously, implementation work. I guess where was the source of the upside just relative to where expectations were on the EPS? Bill Stone: Well, again, we talked a little bit about the lift out we did in Australia that lifted the GIDS business. And then we also have had very strong performance out of GlobeOp. And even though we had some weaker revenue performance on Intralinks, they're still very profitable. So all of our businesses are doing well with opportunities. And in Q3, we had most of them hitting a pretty good stride. And we think in Q4, we have -- we're pretty good out of the gates, right? It's certainly towards the end of October, which is 1/3 of the quarter, and it's also got Thanksgiving and Christmas in the fourth quarter. So we're reasonably optimistic, as you can tell. Kevin McVeigh: You sound really encouraged. I guess you mentioned tokenization a couple of times with Calastone. Is there an opportunity to kind of implement that technology across the other business lines, similar to what you've done with Blue Prism? Bill Stone: There's opportunity. And one of the great things we always talk about is that you have to get right? So a lot of people dabbled in things like machine learning and natural language processing and robotic process automation and that -- but you buy a few licenses to UiPath or Automation Anywhere and you don't have any substance. SS&C spent $1.6 billion, $1.7 billion to buy Blue Prism so that we had 1,400 people that are steeped in these technologies. And now with what we're doing with AI agents and being customer zero, we get to add all kinds of capabilities in a very controlled manner so that we become your trusted source for AI at a -- in a regulated and highly complex industries. Operator: And our next question comes from the line of James Faucette with Morgan Stanley. James Faucette: Just wanted to ask a question on the general environment. Bill, you've had great insight previously into private credit flows, and there's been a lot of chatter about that market maybe beginning to show a little squishiness. Are you seeing anything from a flow perspective? Or do you consider that a bit of noise right now? Bill Stone: I think as more people get into it, James, that people need to learn and understand the vagaries of the private markets versus the public markets. But the smartest people in the industry are all over private credit and other new ways in which to develop returns that sometimes are not there in the public markets. And so we've had a bunch of the biggest players in the industry are our clients, and we've had talks by a number of them. And they're talking 100, 200 basis points more in the private markets than what they can get in the public markets. And so as long as that's true, and there's no -- nothing that's showing that it's not, I don't think it's going to slow down. James Faucette: Appreciate that. And then I wanted to ask on go-to-market. You've been more focused on selling some enterprise solutions that combine multiple products and services. The organic results are still really strong, but anything you can share qualitatively or quantitatively on the impact on that initiative and how it may be impacting things like average deal size or even customer retention? Bill Stone: Well, obviously, you work for a big investment bank and understand that you guys moving real quickly is kind of an oxymoron, right? And so I think what we see is that these larger and larger institutions, the top management wants to move fast. And what they find is that, that really is out of character for these large commercial and investment banks. And what they like about us is that we're still a pretty big place. We've got 27,000 people. We have 120 offices or 130 offices around the world. And so we can bring you scale and we still move pretty quickly. And relative to the gigantic banks, we moved very quickly. Operator: And it looks like there are no further questions. So I will now turn the call back over to Bill Stone for closing remarks. Bill? Bill Stone: Dan, thank you. So I think from a standpoint of our third quarter, we're happy to have performed well. We look forward to talking to you after the new year. And hopefully, we will surprise you positively. So have a good quarter. Thanks.
Operator: Good afternoon, ladies and gentlemen, and welcome to the South Plains Financial, Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Steve Crockett, Chief Financial Officer and Treasurer of South Plains Financial. Please go ahead. Steven Crockett: Thank you, operator, and good afternoon, everyone. We appreciate you joining our earnings conference call. With me here today are Curtis Griffith, our Chairman and CEO; Cory Newsom, our President; and Brent Bates, the bank's Chief Credit Officer. The related earnings press release and earnings presentation are available on the News and Events section of our website, spfi.bank. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statements in our earnings press release and in our earnings presentation. All comments expressed or implied made during today's call are qualified by those safe harbor statements. Any forward-looking statements made during this call are made only as of today's date, and we do not undertake any duty to update such forward-looking statements, except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release and in the earnings presentation. Curtis, let me hand it over to you. Curtis Griffith: Thank you, Steve, and good afternoon. As outlined on Slide 4 of our presentation, we delivered strong third quarter results, highlighted by solid earnings growth as we continue to experience net interest income expansion, supported by our low-cost community-based deposit franchise. The credit quality of our loan portfolio also continued to improve, and our return on assets markedly expanded. Our results demonstrate the strong foundation that we have purposefully built. We've added exceptional talent across the bank while also making the necessary investments in our technology platform that positions South Plains to efficiently scale our operations as we grow. We have also built strong liquidity and capital while continuing to improve the asset quality of our loan portfolio. As a result, I believe the bank is firmly positioned to accelerate our asset growth through both organic growth and accretive M&A opportunities. As Cory will expand upon, we continue to benefit from our competitors' acquisitions by attracting experienced lenders to the bank. We expect they will bring high-quality, long-term customer relationships they have built in their successful careers to South Plains. While we have been experiencing higher-than-normal loan paydowns, which has proved a headwind to loan growth, we expect an acceleration in growth next year through increasing our lending team by up to 20%. The investments that we've made in the bank, combined with the experience that we gained through the acquisition of West Texas State Bank also positions us to explore further acquisitions. Of note, we continue to engage in discussions with potential target banks in our core markets that we believe have the potential to fit our conservative nature and overall culture and meet our strict criteria for a deal. As I have said on many of these calls, we are only interested in acquiring a bank that possesses these qualities and makes sense for us and our shareholders. Importantly, M&A is not the only option that we have to grow. Our organic growth initiative is just in the early innings, and we are optimistic that we will see a sharp acceleration in loan growth in the year ahead. As a result, we will only do a deal that makes sense for the bank and our shareholders, of which my family and I are the largest. We believe that we are in a strong position to capitalize on opportunities to drive growth as the bank and the company each significantly exceed the minimum regulatory capital levels necessary to be deemed well capitalized. At September 30, 2025, our consolidated common equity Tier 1 risk-based capital ratio was 14.41%, and our Tier 1 leverage ratio was 12.37%. Given our capital position, we remain focused on both growing the bank while also returning a steady stream of income to our shareholders through our quarterly dividend and keeping a share buyback program in place. Last week, our Board of Directors authorized a $0.16 per share quarterly dividend, which will be our 26th consecutive dividend. Now let me turn the call over to Cory. Cory Newsom: Thank you, Curtis, and hello, everyone. Starting on Slide 5. Our loans held for investment decreased by $45.5 million to $3.05 billion in the third quarter as compared to the linked quarter. The decline was primarily due to a decrease of $46.5 million in multifamily property loans, mainly due to the payoff of 2 loans totaling $39.6 million. As Curtis mentioned and we have discussed on previous calls, we've been experiencing a heightened level of loan payoffs and paydowns through the year, which have been a headwind to loan growth. Looking forward, we expect level of paydowns and payoffs to moderate as we look to 2026. Our yield on loans was 6.92% in the third quarter as compared to 6.99% in the linked quarter. Our loan yield was boosted by 8 basis points in the third quarter due to $640,000 in interest and fees related to the resolution of credit workouts. As a reminder, our loan yield was also boosted by 23 basis points in the second quarter due to $1.7 million interest recovery from the full repayment of a loan that had been on nonaccrual. Excluding these onetime gains, our yield on loans was 6.84% in the third quarter and 6.76% in the second quarter, representing an increase of 8 basis points. Looking ahead, the impact to our loan yields from the FOMC's 25 basis point reduction in their benchmark interest rate in September was not material, though we do expect our loan yields to moderate. That said, we remain optimistic that we can continue to reprice our deposits and manage our margin as market rates decline. Importantly, our new loan production pipeline continues to remain solid and economic activity continues to be healthy. As we discussed on our second quarter call, we have a strong position in each of the communities and metro markets where we do business and have capacity within our existing infrastructure to expand our lending platform. We're actively recruiting lenders who fit our culture to grow our lending capabilities as we work to accelerate our loan growth, which is a priority for our management team. We continue to be very pleased with the quality of bankers that we are speaking with who have an interest in joining South Plains. We are also seeing dislocation from recent acquisitions in Texas, which is creating more opportunity to expand our platform. As Curtis touched on, our goal is to grow our lending platform by up to 20%, and we are more than halfway there, having added lenders in Houston and Midland since our last call. This builds on our success from the second quarter where we recruited several experienced lenders in our Dallas MSA. While loans in our major metropolitan markets of Dallas, Houston and El Paso held steady in the third quarter at $1.01 billion, as can be seen on Slide 7, we remain optimistic that loan growth will reaccelerate as we continue to add lenders across our metropolitan markets. At quarter end, our major metro loan portfolio represented 33.2% of our total loan portfolio. Skipping to Slide 10. Our indirect auto loan portfolio totaled $239 million at the end of the third quarter, which is relatively unchanged as compared to $241 million at the end of the linked quarter. We've been carefully managing this portfolio with a focus on maintaining its credit quality over the last 2 years, which has resulted in a decline in loan balances of $57 million since the third quarter of 2023 when the portfolio was $296 million. Over this time period, we have seen competitors become more aggressive at the higher end of the credit spectrum while volumes have declined. More recently, we have tightened our loan-to-value requirements to further ensure that we are proactively managing this portfolio in the current environment as well as any potential challenges to come. It is also important to highlight that we are primarily a lender through auto dealers to borrowers who are in our markets, 86% with super prime or prime credit ratings at origination. Our borrowers' strong credit profiles can further be seen in the credit metrics of this portfolio as our 30-plus days past due loans, which totaled approximately $575,000, improved 8 basis points to 24 basis points in the third quarter as compared to 32 basis points in the second quarter. At year-end 2024, our 30-plus days past due loans stood at 47 basis points. We believe our 30-plus past due loans are the best early indicator to any potential signs of credit stress in this portfolio and believe our tightened credit standards will further protect the bank and the credit profile of our indirect auto portfolio as we look forward. Additionally, our net charge-offs for all consumer autos were approximately $160,000 for the quarter as compared to $350,000 in the linked quarter. Given the stable profile of our indirect portfolio, combined with the success that we are having adding lenders to the bank, we expect loan growth to gradually accelerate to a mid- to high single-digit rate through 2026. We expect our new hires to begin contributing to a loan growth in '26, while the level of payoffs begin to diminish. We also remain cautiously optimistic that economic growth across our Texas markets can remain resilient and provide a tailwind to growth. Turning to Slide 11. We generated $11.2 million of noninterest income in the third quarter as compared to $12.2 million in the linked quarter. This was primarily due to a decrease of $1 million in mortgage banking revenues as can be seen on Slide 12. The decrease was mainly from a $769,000 quarter-over-quarter decline in the fair value adjustment of the mortgage servicing rights asset. Overall, our mortgage banking revenues have been relatively flat over the last 4 quarters given persistently high mortgage rates combined with low housing supply. We are pleased with how the business is performing in this low transaction environment and the recent easing of market interest rates and believe we are well positioned for the eventual upturn in volumes as rates look set to decline further. For the third quarter, noninterest income was 21% of bank revenues, essentially flat with the linked quarter and the year ago 2024 third quarter. Continue to grow our noninterest income remains a focus of our team. I would now like to turn the call over to Steve. Steven Crockett: Thanks, Cory. For the third quarter, diluted earnings per share were $0.96 compared to $0.86 from the linked quarter. This increase is primarily a result of the reduction in provision for credit losses and increase in net interest income, which I'll cover, partially offset by the decrease in MSR fair value adjustment Cory mentioned. Starting on Slide 14. Net interest income was $43 million for the third quarter compared to $42.5 million in the linked quarter. Our net interest margin calculated on a tax equivalent basis was 4.05% in the third quarter as compared to 4.07% in the linked quarter. As Cory touched on, we had loan interest and fee items related to specific credit workouts that positively impacted our NIM in both the third quarter and the second quarter. The third quarter impact was 6 basis points or $640,000, while the second quarter impact was 17 basis points or $1.7 million. Excluding these onetime items in both periods, our third quarter NIM increased by 9 basis points to 3.99% from the linked quarter. As outlined on Slide 15, deposits increased by $142.2 million to $3.88 billion at the end of the third quarter due to organic growth in both retail and commercial deposits. The increase was predominantly noted in the loan market and follows the overall $53.6 million decline during the second quarter. Noninterest-bearing deposits increased $50.7 million in the third quarter. Additionally, our noninterest-bearing deposit to total deposit ratio increased to 27% in the third quarter from 26.7% in the linked quarter. The mix shift change in deposits along with the continued drop in CD rates contributed to the 4 basis point decline in our cost of deposits to 210 basis points in the third quarter, down from 214 basis points in the linked quarter. Turning to Slide 17. Our classified loans decreased $21.1 million during the quarter. This includes the full collection of a $32 million multifamily property loan that had been talked about on prior calls. This is the second consecutive quarter with a positive resolution to a large previously classified and/or nonperforming loan that included full repayment of all amounts owed and shows our commitment to asset quality. Our ratio of allowance for credit losses to total loans held for investment was 1.45% at September 30, 2025, unchanged from the end of the prior quarter. We recorded a $500,000 provision for credit losses in the third quarter compared to $2.5 million in the linked quarter. The decrease in provision expense was largely attributable to a decrease in specific reserves, decreased loan balances and overall improved credit quality. I would note that we believe we continue to be well positioned for varying economic conditions. Skipping ahead to Slide 19. Our noninterest expense was $33 million in the third quarter as compared to $33.5 million in the linked quarter. $519,000 decrease from the linked quarter was largely the result of a decrease of $581,000 in professional service expenses related primarily to consulting on technology projects and initiatives. On September 30, 2025, we redeemed $50 million in subordinated debt. The redemption was done in conjunction with the end of the initial 5-year fixed rate period as the debt was to begin floating quarterly at a higher interest rate. We made the decision to repay the debt given the higher rates, combined with our view that we can readily access the fixed income market if and when a need arises. Moving to Slide 21. We remain well capitalized with tangible common equity to tangible assets of 10.25% at the end of the third quarter, an increase of 27 basis points from the end of the second quarter. Tangible book value per share increased to $28.14 as of September 30, 2025, compared to $26.70 as of June 30, 2025. The increase was primarily driven by $13.7 million of net income after dividends paid and by an increase in accumulated other comprehensive income of $9.1 million. This concludes our prepared remarks. I will now turn the call back to our operator to open the line for any questions. Operator? Operator: [Operator Instructions] Our first question is from Joe Yanchunis with Raymond James. Joseph Yanchunis: So you discussed your plan to increase your lending team by up to 20% next year. And that follows a relatively rapid pace of hires over the past couple of years. I guess how much of that growth is coming from true lenders versus support staff? And for context, can you tell us how many lenders we should use as a base to go off this growth? Cory Newsom: Yes. Nothing -- I think from the base is probably about 40. And as far as -- none of that includes support staff. That's all production. And I would say -- and based on the 20% that we're talking about, we've probably already achieved north of 10% so far this year. Curtis Griffith: We're partway to that. Joseph Yanchunis: And are there any particular markets that you can highlight where that growth has either come from or where you're expecting that growth to come from? Cory Newsom: Yes. Permian, Houston and definitely in the Dallas area. Joseph Yanchunis: Okay. So shifting gears here, and I apologize, I only heard most of your comments on your indirect auto portfolio. And I certainly understand your great past due ratios and low charge-off activity. However, I noticed in your deck, your concentration of subprime and deep prime indirect loans increased pretty materially. Can you talk about that? Cory Newsom: Repeat part of that. I didn't hear part of what you said. Joseph Yanchunis: Yes. It looks like there was an increase in subprime and deep subprime kind of concentration in that portfolio. Cory Newsom: I mean I don't see that. We haven't had much of it. Steven Crockett: Yes. Joe, this is Steve. I'll start with that. And I'll have to say the -- this is showing -- while it says on the deck, it's showing the category at origination. The numbers that actually got put in are updated information, so it's not as of origination date, which it normally is. I think we did not grab the consistent data we've been providing. This is really more updated and shows some changes in what's going on with borrower credit scores. And that is -- so that's why it does look different than what you've seen before. Joseph Yanchunis: Got it. Okay. That's helpful. And then lastly for me, just kind of a modeling question. Based on that $50 million of sub debt you guys redeemed, what was the incremental cost associated with that? If you happen to have that. Steven Crockett: Well, I mean, the $50 million, we were paying $4.5 million, and it would have been going up to $8 million. Joseph Yanchunis: No, I was wondering about any expenses that you incurred in the P&L from redeeming that. Yes, just to kind of try to understand the true run rate. Steven Crockett: Yes. And I may not be understanding. I mean, there was no expense to redeem it. It was at the end of the call period. Cory Newsom: If that's what you're wondering. We didn't go outside of the call period. We had the opportunity. The window opened and we took it. Operator: Our next question is from Woody Lay with KBW. Wood Lay: I wanted to follow up on the hiring initiative. You did a similar initiative back in 2021, and I believe it was pretty successful. So could you talk about your kind of previous experience being aggressive on the hiring front and how you're translating those past experiences to what you're doing now in the market? Cory Newsom: Yes. So if you go back to that time frame, we were fairly aggressive in hiring those. But if you also remember, we had a fair number of retirees that were coming around in the near term after that. And so we were as equally focused on making sure we were prepared to replace those as we were trying to increase our team at the same time. That's not the case today. We're just -- I mean, we feel like that we're in a position to continue to take advantage of some really good opportunities and for us to be able to expand in those markets. And the way we look at those, whenever we model one, we model to a breakeven in 6 months or less. And that's what we stay pretty well focused on to make sure that's how we do it. But if you still go back to the hiring process, it's pretty rigorous trying to make sure that we find a credit culture fit and a culture fit that fits into who we are. So it's quite an undertaking, but one that we're quite proud of and have had great success. Wood Lay: Yes. And then I believe you all said you are about 50% the way through there, but it doesn't feel like we've seen a huge expense impact from that. Is it fair to -- I guess, just how should we think about the expense growth rate from here given the additional hires you expect? Cory Newsom: Steve, you're usually on cleanup on me for stuff like that. But I mean, these guys are covering the way as we go on this. So the expense run hasn't been that bad. I mean it's from a net perspective. But Steve, what would you? Steven Crockett: Yes. I mean it will increase. It's increased a little bit as we've gone. I mean it hadn't all -- everybody hadn't all hit at one time has been spread out. And so that's -- again, I would expect overall noninterest expense to modestly increase. Cory Newsom: We've kind of taken the approach that this is the kind of money we're quite proud to be spending and having the increases on. Curtis Griffith: And remember that a significant part of the compensation will be in their ICP packages, and that won't get paid out until well into next year, even for the ones that are bringing the business on. Wood Lay: Yes. And maybe just last for me on M&A. You all sound a little bit more optimistic on the M&A front than maybe previous quarters. I know you are very stringent on who you look at and who would make a good target for you all. So could you just remind us sort of go down the checklist and what makes a good target for South Plains? Cory Newsom: I'm going to lead it off. It's number one, got to be a culture fit. And we've got to make sure that this is somebody that we think that we could go achieve success with long term. And the numbers have got to line up. There's no question. And I'll let Curtis talk a little bit further about this, but we're as focused on culture as anything that you can find because that's where we've seen more of the train breaks that really come from. Curtis Griffith: Yes. If we can't integrate the acquired banks successfully, then this is not good for anybody, not good for their customers, not good for our shareholders. So as Cory says, that's really what we focus on. But we also want to focus on successful banks, ones that are doing a good job with what they're doing, that have built some customer loyalty that they have -- again, and this is all part of the culture, but have that mindset among their employees that they're not there short timers for things. They're there for the long haul, and we want to just transition them over to be working for us. And that's the kind of group that we look for. And it's got to -- the numbers have to work. And right now, I think we're seeing out there in the marketplace, lots of activity. And it's interesting that it's coming at a time when bank stocks really aren't doing all that well. We're certainly not leading the market by any means. So a lot of the acquirers, including us, don't have a big multiple to play with. So you've also really got to look at someone that is looking at joining us up, joining with us as an investor to be there for the long pool, and they ultimately benefit, their shareholders ultimately benefit through the long-term growth in our stock. So it's a combination. And it's -- I think we are going to see some activity. I really do. We're looking at some very promising situations right now. Cory Newsom: Woody, both of your questions are kind of funny because they're kind of tied together. Typically, unless there's disruption involved, we're not hiring lenders or employees that are looking for a job. We look for contentment. I think the same thing goes as we look for an acquisition. There's a difference between somebody who may want to sell and somebody who has to sell, and we're much more focused on somebody who might want to sell. Wood Lay: Yes. That makes total sense. Operator: Our next question is from Stephen Scouten with Piper Sandler. Stephen Scouten: I'll see if you've gotten tired of asking -- answering questions about these new hires yet. When you bring these guys on, I know, Cory, you said think about like a 6-month breakeven. Are you guys targeting any specific kind of segment of lender like C&I versus CRE currently? And then ultimately, how big of a book of business do you anticipate each one of these people bringing over? Is it kind of -- is it a $50 kind of million book over time? Or what's the right way to frame up the potential of each kind of hire as you see it at a high level? Cory Newsom: So Woody -- I mean, to me, Stephen. We're mean I would say a good portion of these are -- I mean, there's still going to be CRE or real estate. I mean, portfolios as a general rule, I mean, we like the C&I when we can get it, but I mean we've never hit from the fact that we're a real estate bank and a lot of that stuff ties together. But if you -- I will just tell you this, I can't -- we've never gone out and hired somebody to see what portion of their book they could bring. We want to know what their abilities have been and how they generate business. And we really -- typically, we will hire them under the impression they not bring anything. But the people that we're hiring are carrying portfolios that might run anywhere from $75 million to $300 million to $400 million. And I mean, these guys have very good -- we're looking at people that have the capacity to go out and produce and have been very successful for long periods of time before they've ever joined our organization. So I would just tell you that I'm probably pretty conservative when I give you those numbers right there. Stephen Scouten: Okay. That's helpful. And just the ones -- I mean, if I'm doing the math kind of roughly right, it sounds like maybe you got 4 or 5 more lenders to add to get to this 20%. And the 4 or 5 maybe that you've already added that comprises the 10% already, what have they done so far? What kind of build have you seen in those people over -- I don't know what length of time that's been when you've added them, but over the duration of time that you've added them? Cory Newsom: I think you have to factor in that you're probably on the longest of 2 quarters in place as opposed to some that have been a little bit shorter than that. So I mean, I'm not prepared really to, I guess, rattle off any numbers because I didn't kind of expect that one. Are we seeing nice good-sized transactions coming across the table? Absolutely. Absolutely. I would venture to say I can't think of one that's not already breakeven. Stephen Scouten: So most of them have been there under -- it's all under 6 months. It sounds like maybe a lot of 3 months. So it's all been relatively recent. Got it. And then maybe going back on -- sorry. Cory Newsom: So typically, a lot of these people that you'll bring on, they may have a nonsolicit for a period of time on the front end. So it's getting where they are and the new business that they're chasing that doesn't conflict with anything they might have already had in agreements in place. So we're pretty careful about all of that stuff. So that's -- I mean, what we see is their overall ability and what we see probably in the first 6 months are probably a little bit different. Stephen Scouten: Got it. Helpful. And then maybe this one will be for Steve. I'm kind of curious on where you think like a good starting point is for the NIM next quarter. Obviously, there's a lot of puts and takes there with the recovery. I guess maybe starting from that 3.99% net of the recovery, but then I assume it looks like you're paying the sub debt off with existing liquidity. So I assume there'll be some NIM benefit there and then rate cuts. So if there's maybe a starting point you think about for fourth quarter as a jumping off point? Steven Crockett: Yes. No, that's a good question. I mean we -- as you said, there are lots of puts and takes. I mean that's -- we did show for, if you will, a 9 basis point increase, but the Fed movement just only occurred right at the end of the quarter and with a couple more scheduled. That's I'm going to say I don't necessarily foresee us increasing NIM. I mean, we could a basis point or 2 or it could decline a couple of basis points. In the short term, again, we've got some -- I think we've talked about before, some of our public funds that they are tied to an index, but they do -- they may lag until the following month or something like that where they will catch up. But it's -- we've done good. I think in the immediate term, it may -- you may see a slight decline in NIM until everything kind of works through the system. We're able to reprice deposits the way we need to. And you still have some loans coming off of low rates as they hit a 3- or 5-year mark. So again, like I said, lots of puts and takes, but that range is not a bad spot. Stephen Scouten: Okay. That's helpful. And maybe one last one for me. Just kind of going back to the indirect auto, and I hear what you're saying, Cory, losses obviously haven't really been material this quarter or in the past. But that data of credit scores and the migration, even though I know it's not apples-to-apples in the quarter-over-quarter presentation of it, but it does obviously show a migration of credit scores downwards. I mean, does that concern you at all? Or is that kind of part of why you guys have been pulling back a little bit in indirect auto? Or maybe any more color you can give about that credit score migration and what that maybe means for the consumer part of your book? Brent Bates: Yes. This is Brent. We have done kind of a study on -- typically once a year where we pull scores on the whole portfolio, soft scores on the whole portfolio. And what we're seeing is both this year and in last year, we saw some migration in the bottom half of those credit scores migrating downward. All through those 24 months, we really haven't seen delinquencies rise or other credit issues that would cause some concern. But it is something we actively monitor just like all other areas of credit risk where we're diligently looking for potential issues. Cory Newsom: And average duration on these loans ends up being, what, a little over 2 years. So it's... Curtis Griffith: Pretty. Cory Newsom: We just stayed so focused on the upper portion of that growing the higher-end stuff on the portfolio that we want to be very, very careful with it. Curtis Griffith: Stephen, it is very true all across the country, the folks kind of on the lower end, life is getting harder. It's getting tight out there, and you're seeing it in all kinds of areas. And I worry about that some just from the overall economy. The good news for us is, yes, we do have some of those, but we have very few of those. So we're not immune to some of our people having some credit problems. But so far, it just hasn't impacted us on any meaningful losses. And we don't think it will because so much of that portfolio is much higher credit scores. Cory Newsom: Yes. And go back and keep in mind one thing. I mean, if you put the dollar amount to it, you're still looking at less than $20 million that is in subprime or deep subprime in the whole portfolio, less than 2% of that is in non-autos, which would be in any type of an RV or something like that. We just don't get out into some of that stuff that's a little bit questionable. We're very, very careful about what we're going to put on our books. Stephen Scouten: Yes. Yes. No, that makes sense. And I guess at the end of the day, if the past dues are still good, maybe they're not paying their credit card, but they're continuing to pay their auto payment to make sure they got some way to get to work and the like. Cory Newsom: And that's what we've seen [indiscernible] years. I mean they'll pay for the car when [indiscernible] sometimes they may miss on something else. Operator: [Operator Instructions] Our next question is from Brett Rabatin with the Hovde Group. Brett Rabatin: I wanted to go back to payoffs. And I know that's been a topic for some quarters now, and you guys are optimistic. Obviously, all this hiring is going to help drive origination activity. To what extent does the commercial real estate book look vulnerable to the curve here to the permanent market, just given a dip here recently in rates. Does that concern you guys at all about continued payoffs maybe in the CRE book, just given where rates are? Brent Bates: Yes. This is Brent. I'll address that. I do think we're -- we still have some that are scheduled. We expect to have scheduled payoffs of some projects that are complete and stabilized into the first quarter, maybe second. So it's kind of a normal course a little bit. I mean I think what you've seen a little bit of in the past 6 months or so has been just partly efforts of identifying potential credit issues and resolving those and that put a little pressure on loan balances. But we will have some additional payments coming at us, we think, in the first and second quarter of next year, maybe a little earlier. Cory Newsom: And we were just looking over looking at our multifamily, it's down about $100 million over the last 3 quarters. If you take that $100 million and you try to reconcile it just a little bit, over half of that was the 2 credits that we told the whole world, we were exited. It did not matter. we exited without any loss or anything else, but we didn't feel like it was what we wanted on our balance sheet. But you take another 25% of that and it went into a nontraditional bank lender that let them take a P&I loan back to interest only. We're not doing that stuff. And so there's a little bit of that stuff that we're not lowering our credit standards to keep something on our books. We'll go out there and find new business to continue to replace it with, but we will not lower credit standards just because we're afraid of something is going to pay off. Here's the bigger one in all of that. I think in nearly every aspect of even what we've talked about, all those loans were at below market rates. We were okay they left. And so not all headwinds that come with some paydowns are necessarily a bad thing, especially if you were in a situation that you had some stuff that was back in the 4% or 5% rates that you don't really -- I mean, it's not something you really want to have on the books. Operator: There are no further questions at this time. I'd like to hand the floor back over to Curtis Griffith for any closing comments. Curtis Griffith: Thank you, operator. Thank you to all of those that participated on today's call. To conclude, we do believe our third quarter results demonstrate a strong financial position as well as growing earnings power and capital of the bank. While delivering our strong earnings growth, we've been making necessary investments to expand our capabilities, position South Plains to be a much larger company. Our growth will come from our strategic initiative focused on reaccelerating organic loan growth while seeking to expand South Plains through accretive M&A opportunities. We've continued to add experienced lenders all across our markets to expand our lending platform and increase our loan growth through 2026. We also continue to engage in discussions with potential acquisition candidates and are pleased with the opportunities we're evaluating. Fortunately, the organic loan growth initiative is also just in the early innings. We're optimistic we'll see that growth in the year ahead. As a result, we're only going to do a deal that makes sense for the bank and our shareholders. Taken together, we believe we're in a good position to deliver on our initiatives and drive value for our shareholders as we work to accelerate the growth of South Plains Financial. Thank you again for your time today. Operator: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Thank you for standing by. My name is Tina, and I will be your conference operator today. At this time, I would like to welcome everyone to the Old Republic International Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Joe Calabrese with MWW. Joe Calabrese: Thank you, Tina. Good afternoon, everyone, and thank you for joining us for the Old Republic conference call to discuss third quarter 2025 results. This morning, we distributed a copy of the press release and posted a separate financial supplement. Both of the documents are available on Old Republic's website at www.oldrepublic.com. Please be advised that this call may involve forward-looking statements as discussed in the press release dated October 23, 2025. Assumptions, uncertainties and risks exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these assumptions, uncertainties and risks, please refer to the forward-looking statement discussion in the press release and the company's other recent SEC filings, and the risk factors discussed in the company's most recent Form 10-K and other recent SEC filings. We may also include references to net income excluding net investment gains, or net operating income, a non-GAAP financial measure, in our remarks or in responses to questions. GAAP reconciliations are included in the press release. Presenting on today's conference call will be Craig Smiddy, President and CEO; Frank Sodaro, Chief Financial Officer; and Carolyn Monroe, President and CEO of Old Republic's National Title Insurance Group. Management will make some opening remarks and then we'll open the line for your questions. At this time, I'd like to turn the call over to Craig. Please go ahead, sir. Craig Smiddy: Okay. Thank you, Joe. Good afternoon, everyone, and welcome again to Old Republic's third quarter 2025 earnings call. In addition to our earnings release, we also issued a separate news release this morning regarding our agreement to purchase Everett Cash Mutual through a sponsored demutualization. We think this is reflective of our commitment to continue to pursue profitable growth of our specialty insurance business. ECM, as it's referred, is a leading insurer of farm and agricultural operations nationwide, writing $237 million of direct premium in 2024. We also added a new slide on ECM to the appendix of our investor presentation on our website, so there's more there for you to see if you're so interested. Strategically, ECM fits very nicely into our Specialty Insurance portfolio given our close cultural alignment and their narrow and deep focus on farm and ag specialty. ECM provides for further product diversification within our existing specialty insurance business. And we will not compete with any of ECM's current offerings or vice versa. So once the transaction closes, we expect ECM to be very well positioned from a capital and product perspective to pursue profitable growth geographically and through new product offerings. So we're very happy to have the ECM folks join the Old Republic family. So now turning to the earnings release. Our story of solid growth and profitability continued through the third quarter as we produced $248.2 million of consolidated pretax operating income. That's up from $229.2 million in the third quarter of '24. Our consolidated combined ratio was 95.3%, and that compares to 95% in the third quarter of last year. On our balance sheet, it remains strong, while we continue to invest in new specialty operating companies, make ongoing technology investments and also invest in talent across the organization. Our annualized operating return on beginning equity improved to an annualized rate of 14.4%, and that compares to 11.9% in the third quarter last year, which we think reflects our strong operating earnings and thoughtful management of capital. In Specialty Insurance, we grew net premiums earned by 8.1% compared to the third quarter of '24 when we produced $207 million of pretax operating income, up from $197.3 million in the third quarter last year. The Specialty Insurance combined ratio was at 94.8% in the quarter, compared to 94% in the third quarter last year. Despite the continuation of a slow real estate market, Title Insurance grew premium and fees by 8.3% compared to the third quarter last year; and produced $45.7 million of pretax operating income, and that's up from $40.2 million in the third quarter last year. The Title Insurance combined ratio was -- or excuse me, 96.4% in the quarter, and that compares to 96.7% in the third quarter last year. Our conservative reserving practices continue to produce favorable prior year loss reserve development in both Specialty Insurance and Title Insurance, and Frank will provide more details around that topic. So with that, I'll turn the discussion over to Frank. And then Frank will turn things back to me to discuss Specialty Insurance, followed by Carolyn, who will discuss Title Insurance. And then as the operator says, we will open it up for Q&A. So Frank? Francis Sodaro: Thank you, Craig, and good afternoon, everyone. This morning, we reported net operating income of $197 million for the quarter, compared to $183 million last year. On a per share basis, comparable quarter-over-quarter results were $0.78, compared to $0.71, a 10% increase. Net investment income increased 6.7%, primarily as a result of higher yields on the bond portfolio. Our average reinvestment rate on corporate bonds acquired during the quarter was 4.7%, compared to the average yield rolling off of about 4.1%. The total bond portfolio book yield stands at 4.7%, compared to 4.5% at the end of last year. Turning now to loss reserves. Both Specialty Insurance and Title Insurance recognized favorable development in the quarter, leading to a benefit in the consolidated loss ratio of 2.5 percentage points, compared to 1.3 points of favorable development last year. Within Specialty Insurance, workers' comp continued to have significant favorable development and accounted for the majority of the group's total favorable development. Commercial auto, general liability and property all had favorable development in the quarter. As we have mentioned in the past, general liability is a relatively small but growing line that does have some quarter-to-quarter volatility. This quarter, GL had favorable development, and the year-to-date impact was negligible on the Specialty Insurance loss ratio. We ended the quarter with book value per share of $26.19, which, inclusive of the regular dividend, equated to an increase of 18.5% year-to-date. That resulted primarily from our strong operating earnings and higher investment valuations. In the quarter, we paid $71 million in regular cash dividends and repurchased $44 million worth of our shares. We did not repurchase additional shares since the end of the quarter, leaving us with just over $910 million remaining on our current repurchase program. The recently launched operating companies and the ECM acquisition do not materially hinder our ability to return capital. So as usual, we will be discussing with our Board of Directors the most efficient way to return capital by the end of the year. I'll now turn the call back over to Craig for a discussion of Specialty Insurance. Craig Smiddy: Okay. Frank, thanks for that summary. Specialty Insurance net written premiums were up 6.9% in the third quarter, with strong rate increases on commercial auto and general liability, that I'll talk about momentarily. We had solid renewal retentions, strong new business writings and an increasing amount of premium in our new specialty operating companies. As mentioned in my opening remarks, in the third quarter, Specialty Insurance pretax operating income was $207.7 million, and the combined ratio was 94.8%. The loss ratio for the third quarter was 63.5%. That included 3.4 percentage points of favorable prior year loss reserve development, compared to 65.2% in the third quarter last year, which included 1.7 points of favorable development. The expense ratio was 31.3% in the third quarter, compared to 28.8% last year, primarily reflecting higher personnel expenses, including those within our newest specialty operating companies not yet producing premium, and ongoing investments in technology. For note, the year-to-date expense ratio and loss ratio tend to be better indications of run rates, and they also reflect changes in our mix of business toward lower loss ratios and higher commission ratios. Now to give you some details around our 2 largest lines of business: commercial auto and workers' compensation. Commercial auto net premiums written grew 7% in the third quarter, while the loss ratio came in at 68.3%, compared to 67.1% last year. Rate increases remained at the 14% level, which is the same we saw in the second quarter, and that's commensurate with the loss severity trend we're observing. Switching to workers' compensation. Net premiums written grew 6.7% in the third quarter, while the loss ratio came in at 63.8%, compared to 58.8% last year. Rates continue to remain relatively flat. And here too, that's consistent with what we observed in the second quarter. Loss frequency trend continues to decline, more than offsetting the increase in loss severity trend. So given the positive wage trend within payroll, and again that's what we apply our rates to, a declining loss frequency trend and a relatively stable loss severity trend, we think our rate levels continue to remain adequate. So we expect solid growth and profitability in Specialty Insurance to continue, reflecting the success of our specialty strategy and our growing contributions from our new specialty operating companies. Our operational excellence initiatives continue to contribute to this profitable growth by leveraging Old Republic's collective knowledge and expertise. And we also here too included a new slide on these initiatives in the appendix of our investor presentation on our website. So that concludes my remarks on Specialty Insurance, and I'll now turn the discussion over to you, Carolyn, to report on Title Insurance. Carolyn Monroe: Thank you, Craig, and good afternoon, everyone. Title reported premium and fee revenue for the quarter of $767 million. This represents an increase of 8% from third quarter of last year. The third quarter market story is a continuation of what we reported last quarter. We still see strong activity in the commercial sector, a modest uptick in refinance activity, and a softness in the residential purchase market driven by persistent price and affordability challenges. Overall, we are pleased with our revenue improvement during the year. Premiums from our direct Title operations were up 8% from third quarter of last year. Agency produced premiums were up 11% and made up nearly 80% of our revenue during the quarter, up from 78% during third quarter of 2024. Commercial premiums increased this quarter and were 26% of our earned premiums, compared to 20% in the third quarter of last year. Investment income was also up this quarter, by nearly 11%, compared to third quarter 2024, primarily reflecting higher investment yields earned. Our overall loss ratio decreased to 2.7% this quarter, compared to 2.8% in the third quarter of 2024. The slight improvement relates to continued favorable development in prior policy years. Agency premiums accounted for a larger share of our revenue this quarter, raising agent commissions and increasing our expense ratio by 1.9%. The remainder of our expenses decreased by 2.1% relative to premiums and fees. These changes led to a combined ratio of 96.4% for this quarter, an improvement over both last quarter and the 96.7% reported in the third quarter of 2024. Pretax operating income this quarter was $46 million, compared to $40 million in third quarter of last year. During the quarter, we continued progressing with the advancement of digital transaction tools and solutions for our direct operations and title agents through our strategic partnerships. We remain focused on the importance of providing our agents with the innovative technological solutions required to maintain a competitive edge. Thank you. And with that, I will turn it back to Craig. Craig Smiddy: Okay. Thank you, Carolyn. Well, that concludes our prepared remarks. So we'll now open up the discussion to Q&A where I'll try to answer your questions or I'll ask Frank or Carolyn for some help. Operator: [Operator Instructions] And our first question comes from the line of Gregory Peters with Raymond James. Charles Peters: For my first question, I want to go back to Frank's comments on capital. And I guess what I'm looking for is just how you are measuring excess capital, because it seems like there's a shift. Or maybe put it a different way, maybe your -- there's been a strategic decision not to hold as much excess capital. But either way, I'm just looking for how you're measuring capital right now. Is it reserves -- based on reserves, or what the ratios you're looking at and how you're thinking about excess capital in the context of what Frank was saying in the fourth quarter? Craig Smiddy: Yes, Greg. I'll start, and if Frank has anything to add, he can add it. Last year when we declared the $2 special dividend, we made note that we had this nice problem of continuing to have operating income retained earnings that were building faster than we could return capital to shareholders either through share repurchases or dividends. And so we issued a special dividend. When we contemplate that and discuss that with our Board, we look at several different enterprise risk management measures. And one of those is certainly the amount of capital we hold relative to the reserves. But there's been no major shift at all. It's really just a matter of, again, having a nice problem where we continue to just build capital faster than we could deploy it. So as we sit here this year, the same kind of thing has happened. We have built up capital again, and we have done so faster than we're able to return it through share repurchases or ordinary dividends. So as Frank indicated, it's a matter that, as we always do, we'll take up with our Board and suggest the best ways to return that to shareholders in a way that is most productive for the shareholders. So that's, again, no shift. We continue to look at multiple different metrics when we look at capital and we manage it thoughtfully as I indicated in my comments, and do a significant amount of analysis and make recommendations accordingly to our Board. Charles Peters: Great. And I was looking over your slide on Everett, and just curious if you could tell us a little bit more about this entity. You highlighted that there's not a lot of crossover in terms of product. So I'm just curious how you're thinking about this business and how it's going to sit inside Old Republic. And when -- more importantly, I know you've got these start-up operating companies, the 5 that you've outlined, does this become #6 as you branch off into some other types of businesses? So just some more color there would be helpful. Craig Smiddy: Sure, sure. So I'll start with the latter part of your question. And that is we definitely look at it as a new operating company within our existing portfolio of operating companies. I think that would take us up to 18 companies within our Specialty Insurance, and then, of course, our Title Insurance being our 19th. So one of the things that was very, I think, attractive to ECM was that decentralized model and the degree of independence and accountability that we give to each of those operating companies. And as I mentioned as well, just a strong cultural alignment of integrity and transparency and the other components of our cultural tenets that we share. So as far as the business itself, we, again, are thinking that it is very complementary, doesn't compete with our existing segments. It's a specialty segment in the marketplace. And that is the sole focus of Everett, which is exactly what our strategy is, and that is for our each of those 18 different operating companies to be an inch wide, mile deep in their specialty, focused very narrowly on what they do and do it better than anybody else. And ECM checks every one of those boxes. So I guess getting into more of the technicals, as I mentioned, ECM focuses on farm and ag business. And in that portfolio, farm owners and commercial, multi-peril make up 70% of their coverages, with inland marine and commercial auto each making up about 9% of their coverages. And another important attractive note is that their business skews more toward short-tail lines of coverage, which a lot of the new companies that we've added lately to diversify our portfolio have been, which is short tail kind of line, so you have a much faster understanding of how the business is performing. And again, we intend to give ECM the capital necessary to continue to drive expansion of their business. We expect they'll do that through geographic expansion. They started some geographic expansion by making an acquisition in late 2022 when they made an acquisition that allowed them to expand westward. And I think another attribute that is shared is they compete on the basis of expertise, relationships, ease of doing business around their specialty niche, just like all of our specialties. So again, their profile is very consistent with the profile of our existing specialty companies. And as such, we just think it's a perfect fit. Charles Peters: Excellent. And I -- just pivot to the Title business, my final question. Hope springs eternal that things and market will turn on the residential side. In the interim, I know you addressed this last conference call, in Texas there were some challenges on some rate rollbacks. I'm wondering if you're seeing any other regulatory pressures build up in any other states, or is it just normal operating status everywhere else? Craig Smiddy: Yes. I think it's been fairly consistent. Nothing significant has emerged. But Carolyn, you're much closer to the action than I am, so I'll turn it to you to maybe add any color you might have. Carolyn Monroe: Greg, no, it's been fairly quiet on the regulatory front, nothing out of the ordinary. Still waiting on the Texas. It was appealed. There was supposed to be a hearing in December, but really no word on that yet. But that's the only thing that's out there brewing right now. Operator: And our next question comes from the line of Paul Newsome with Piper Sandler. Jon Paul Newsome: I want to beat on the ECM dead horse a little bit more. I don't know if we'll actually get more precise numbers, but I'd like to know how this fits in with -- a little bit better with how it fits into the capital decisions that you're going to be making in the near future. I mean, I would imagine ECM is going to cost at least the statutory capital for you, folks. And then it sounds like -- again, correct me if I'm wrong in these assumptions, that there's an intention to put more capital into ECM. And then I guess, on top of that, you have whatever is left in your view of excess capital. And so I guess the questions are, are those the right pieces I should be looking at? And then can we talk about sort of like potential timing for those things? It sounds like ECM is going to close sometime in '26. I don't know if that means you'll hold on to capital a little bit longer this time around than some of the more speedy things you've done in the past at year-end. It's about 5 questions in there, I apologize. Craig Smiddy: Yes. I think we follow, though. Well, as we indicated in the release, we expect this to be accretive to book value per share. So you can infer from there that it is not -- will not be at least the amount of their statutory capital. And that is because of the structure of a sponsored demutualization. So from a high-level standpoint, the sponsored demutualization is not going to affect our view of capital as we get to that analysis with our Board and look at things -- how things look at the end of the year. There's really no consideration in that analysis of capital needs in order to follow through on the sponsored demutualization. Through that sponsored demutualization, ECM will end up with additional capital and that is what will enable them to pursue growth opportunities. As you know, Mutual has a limited amount of ability to raise capital. And under our umbrella here at Old Republic, we will have that capital if they need it. But just through the sponsored demutualization itself, they will end up with more capital to pursue those goals. And again, on top of that, we don't plan on contributing additional capital beyond that. So long story short, it is -- really doesn't move the needle at all when it comes to how we're looking at our capital position and the recommendations we'll be making with regard to returning capital to shareholders going forward. Jon Paul Newsome: Okay. That's great. Now follow-up questions on a different horse -- beat-up horse. Yesterday night, last night, we had some not-so-happy news out of Selective about commercial auto insurance rearing an additional problem for them. And I don't know if you can or would like to respond to that directly, but obviously, you are a big commercial auto writer. It's a different business, I recognize that. But maybe some thoughts on what you think is going on in the commercial auto business and why you may or not be ahead of the game there. Craig Smiddy: Sure. I'd be happy to talk about that again. We're quite proud of where we stand relative to the industry, as I think I've mentioned in prior quarters. We continue to put up favorable loss reserve development on commercial auto, while many of our peers over the course of the last few years have been putting up unfavorable development. And there's a lot of components that account for why we're in such a strong position. Again, I would point to just first and foremost the starting point of identifying the severity trend and then getting the commensurate rate that you need. And now we're going back 6 or 7 years, where we identified it a lot earlier than a lot of our peers and responded with rate increases to offset those trends we were seeing. I mentioned in my opening comments, we -- it's still a problem for the industry in that we think the trend is running somewhere in the low teens and we're getting rate increases on commercial auto of 14%. So that's been our MO for the last 6 or 7 years. We spot the trend. We get rate increase commensurate with that trend, once you have a good starting point. And I think a lot of our peers didn't have a good starting point because they didn't recognize it as quickly, maybe weren't getting the rate increases early enough and -- or not getting as strong as rate increases as necessary to keep up with that trend. And then there's other things just about the way we think about things and do business that are important. One of the things, Great West is our trucking business, and they do one thing and one thing only: long-haul trucking. They have a team of statisticians, analysts that are relying on data and analytics to adjust their rates in real-time fashion. They don't rely on ISO. A lot of our competitors rely on ISO. And if you're going to write commercial auto, long-haul trucking, you're relying on ISO, you're already probably behind the game. So we're real time. We have our own team. We have our own proprietary rate filings in every state. Those rate filings we have -- we have 42 tiers built within our proprietary rate filings, so that we can segment our business and analyze it and apply the appropriate rate, the appropriate risk, and do that, again, in a fashion that is very responsive to what we're seeing on trend. On the claims side, again, inch wide, mile deep. All we do is long-haul trucking claims. We have -- our folks are -- we have a catastrophic team, 5 airplanes that immediately get out to catastrophic events, immediately try to get our arms around the catastrophic losses that can certainly cause significant severity in the results. Our team in claims, they have relationships with all the EPA folks within all the states. So if you have a spill, a cargo spill or something like that, we know immediately how to handle it, immediately who to talk to mitigate the amount of damage from those kinds of instances. And I could go on about just, again, how specialized we are in that space. And then lastly, I would just say it's about reserving. It starts with case reserving. Great West is terrific at getting case reserves set to ultimate as quickly as possible. As a matter of fact, when they get those case reserves set, unlike many in the industry, our case reserves actually run off a little bit redundant, which is unheard of. So the only IBNR we really need is for true IBNR, where we actually don't know of an incident yet. But when we know of an incident, our case reserves are set to ultimate and set there very quickly. We don't stair-step, as it's so-called in the industry, like many like many do. And then when it comes to our IBNR reserving, we've talked about that on all of our lines, but we have a very conservative approach on our IBNR reserves whereby we'll set a loss pick at the beginning of the year. Auto liability, we're holding that loss pick at what we set it at, even if we see results come in that look better than expected. If we see results that come in and we think it's a little bit hotter than we expected, we will raise that initial loss pick. But we will not lower that initial loss pick until we get at least 3, 4 years out on commercial auto, 5 years out on workers' compensation. So those long-tail lines, we are very conservative in how we manage IBNR, in addition to, on all of our lines of business, our new Chief Claims Officer, new being he's been here a couple of years, came in at exactly the right time to help us address the legal system abuse issue, the severity issue, plaintiff attorney tactics. And he's helped in that regard. But one of his main charges is to ensure all of our companies are getting case reserves set to ultimate as quickly as possible on every one of our lines of business so that we can know what we have and ultimately respond and produce the kind of results we have, and have -- achieve our goal of having a couple of points of favorable development on average over time on every line of business. Operator: [Operator Instructions] And with no further questions in queue, I will now turn the call back over to management for closing remarks. Craig Smiddy: Okay. Well, we appreciate the interest. We appreciate the questions. And again, we look forward to welcoming the ECM stakeholders to the Old Republic family. And we also are looking forward to producing the strong profitable growth for our shareholders and all other stakeholders as well. And we look forward to reporting our year-end results next time we talk to you. So thank you very much. Operator: Thank you again for joining us today. This does conclude today's conference call. You may now disconnect.
Operator: Good afternoon and thank you for standing by. Welcome to the Deckers Brands Second Quarter Fiscal 2026 Earnings Conference Call. [Operator Instructions] I would like to remind everyone that this conference call is being recorded. I'll now turn the conference call over to Ms. Erinn Kohler, VP, Investor Relations and Corporate Planning. Please go ahead, ma'am. Erinn Kohler: Hello, and thank you, everyone, for joining us today. On the call is Stefano Caroti, President and Chief Executive Officer; and Steve Fasching, Chief Financial Officer. Before we begin, I would like to remind everyone of the company's safe harbor policy. Please note that certain statements made on this call are forward-looking statements within the meaning of the federal securities laws, which are subject to considerable risks and uncertainties. These forward-looking statements are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. All statements made on this call today, other than statements of historical fact, are forward-looking statements and include statements regarding our ability to respond to the dynamic macroeconomic environment and the impacts on our business and operating results, including as a result of changes to global trade policy, tariffs, pricing actions and mitigation strategies and fluctuations in foreign currency exchange rates. Our current and long-term strategic objectives, including continued international expansion, the performance of our brands and demand for our products; anticipated impacts from our brand, product, marketing, marketplace and distribution strategies, product development plans and the timing of product launches; changes in consumer behavior, including in response to price increases, our ability to acquire new consumers and gain share in a dynamic consumer environment; our ability to achieve our financial outlook, including anticipated revenues, product mix, margin, expenses, inventory levels, promotional activity, anticipated rate of full price selling and earnings per share and our capital allocation strategy, including the potential repurchase of shares. Forward-looking statements made on this call represent management's current expectations and are based on information available at the time such statements are made. Forward-looking statements involve numerous known and unknown risks, uncertainties and other factors that may cause our actual results to differ materially from any results predicted, assumed or implied by the forward-looking statements. The company has explained some of these risks and uncertainties in its SEC filings, including in the Risk Factors section of its annual report on Form 10-K and quarterly reports on Form 10-Q. Except as required by law or the listing rules of the New York Stock Exchange, the company expressly disclaims any intent or obligation to update any forward-looking statements. On this call, management may refer to financial measures that were not prepared in accordance with generally accepted accounting principles in the United States, including constant currency. For example, the company reports comparable direct-to-consumer sales on a constant currency basis for operations that were open through the current and prior reporting periods. The company believes that these non-GAAP financial measures are important indicators of its operating performance because they exclude items that are unrelated to and may not be indicative of its core operating results. Please review our earnings release published today for additional information regarding our non-GAAP financial measures. With that, I'll now turn it over to Stefano. Stefano Caroti: Thank you, Erinn. Good afternoon, everyone, and thank you for joining today's call. Deckers delivered outstanding second-quarter results ahead of our expectations on both the top and the bottom line. Specifically, in the second quarter as compared to last year, we drove revenue growth of 9% and a 14% increase in diluted earnings per share. These results closed out a solid first half for Deckers' fiscal year 2026 with highlights that include total company revenue growing by 12%, HOKA revenue increasing by 15%, UGG revenue rising 12% and diluted earnings per share growing by 17%. In the first half, our international regions remain the driving force behind UGG and HOKA revenue growth, increasing 38% versus last year. Year-over-year gains were led by the wholesale channel, in part from earlier shipment timing, while DTC also delivered strong growth for the first half. We continue to see progress from our brand-building marketing investments in these regions, helping grow HOKA awareness and expand UGG mind share with consumers around the world. I could not be more pleased with how our teams are executing our strategy and connecting with consumers who are increasingly looking to HOKA and UGG for innovation and newness. In the U.S., consumer sentiment is still under pressure, but we're encouraged by the signs of progress we have seen in our business and have maintained our focus to ensure HOKA and UGG remain positioned for long-term success. The U.S. marketplace remains dynamic, with recent consumer trends indicating a heightened preference for multi-brand shopping experiences. We believe UGG and HOKA are prepared to acquire new consumers and gain share in this environment with consumers wherever they wish to interact with our brands as with strong brand partnerships with premium wholesalers, which help elevate our brands, UGG resonates with consumers with high-quality distinctive products that provide a unique tactile experience, HOKA sees the highest consumer adoption when people can try its unique blend of technologies, geometries and materials firsthand on their feet. We view this as a strategic opportunity to continue expanding our consumer base across both brands while maintaining this relationship through our direct-to-consumer business. This approach supports our long-term objective of achieving a balance of 50% between direct-to-consumer and wholesale channels. As we enter our historically largest fiscal quarter, our brand and global marketplace teams are focused on delivering profitable growth and building UGG and HOKA for sustainable value creation. I'm confident that our solid foundation, sound financial discipline and nimble operations will serve us well to continue executing against our long-term strategic objectives. Steve will provide additional details on our second quarter financial results and an update on our latest fiscal year 2026 projections later in the call. Prior to that, I will share further details on first half brand performance as well as the forward direction we see for HOKA and UGG. Starting with HOKA. Global HOKA revenue in the first half increased by 15% versus last year. Performance was driven by consumer-led updates to the brand's 3 largest road running franchises, the Clifton, Bondi and Arahi as well as exciting updates in the trail category with the expansion and evolution of the Mafate franchise. Bondi, Clifton and Arahi have continued to deliver strong growth and impressive sell-through rates for the brand as consumers embrace the significant enhancements implemented by our product team. The success of these top franchises helped HOKA gain market share. According to Circana, HOKA gained 2 points of market share in the overall U.S. Road running category for the past rolling 12 months ended September 25 and also outpaced the competition in Europe as one of the fastest-growing road running brands across Italy, France and Germany for the first half of 2025. Beyond the success of top franchises, the HOKA team is making great progress developing product families deeply rooted in the brand's origins. We're leveraging a multilayered approach to build recognizable icons that resonate across multiple categories and use cases, including dimensions of peak performance, everyday performance use and versatile active lifestyle. The Mafate, HOKA's original shoe is the latest example of how we are aligning our products within these key dimensions. Mafate X was created to deliver peak performance through maximum cushioning and carbon plate propulsion for agile long-haul efforts on the trail. Mafate 5 was upgraded to adapt to all types of trail terrain with premium performance cushioning and traction. And the Mafate Speed 2 has been reintroduced on the archive with an updated aesthetic to achieve a contemporary active lifestyle look. This product family has already contributed meaningful growth during the first half of the year and now accounts for a larger share of total brand revenue, supported by targeted marketing initiatives that have strengthened consumer awareness, visibility and alignment with HOKA's brand heritage. We have previously discussed the importance of the UTMB World Series finals in Chamonix, France, where HOKA is a title sponsor. The event includes 7 races attracting top trail runners from around the globe and nearly 100,000 spectators. HOKA reinforces leadership in UTMB, and it was the top brand in overall shoe share as well as among top 5 finishers, including first place finishes for HOKA athletes Jim Walmsley, Francesco Puppi and Martyna Mlynarczyk. Our marketing initiatives for the HOKA brand are designed to establish coherent product narratives that foster consumer engagement and encourage adoption across our portfolio. We're seeing traction with our approach to building product families that are supported by marketing investments. This approach will, over time, allow us to further segment and differentiate the marketplace. You will soon see this product strategy evolution come to life through the Mach franchise, where we recently introduced the X 3 peak performer in the lineup. And in spring '26, we'll be launching the Mach 7 and Mach Remastered for everyday road running and active lifestyle, respectively. From a regional standpoint, HOKA's performance in the first half was driven by the strength of our international business, where the brand continues to grow awareness and gain market share. We tailor our strategy for each region, taking into account the unique stages of brand distribution and awareness while staying attuned to evolving consumer preferences. What remains consistent is our focus to maintain high levels of full price selling as we continue to expand our presence within the premium and elevated marketplace. And we're very pleased with the HOKA brand's results across the board. HOKA has seen consistently strong gains across all international regions throughout the first half, with notable incremental revenue contributions from EMEA and China. In the EMEA region, HOKA is driving impressive results across all countries and segments of distribution, including market share gains and robust reorders with our specialty partners as we continue to drive double-digit growth. Best-in-class sell-through with our key sporting goods partners, significant percentage gains with athletic and lifestyle specialty accounts, where we are just beginning to build our business and broad-based strength in our DTC channel across Germany, France, Italy and the U.K. with our first German store opening in Berlin and a pop-up retail experience in Chamonix for UTMB. In China, the HOKA brand's premium positioning and product innovation continue to drive resilient consumer demand. Highlights include new store openings in key cities that are attracting strong consumer interest, substantial growth in loyalty membership with particularly strong gains with females and younger consumers, industry-leading full price selling and sell-through rates for wholesale exceeding the goals set for mono-brand partner locations. As we navigate a dynamic U.S. marketplace, HOKA continues to gain market share in the athletic footwear category, and we remain dedicated to controlling distribution and driving a pull model demand. There are a number of positive signals for the HOKA brand U.S. business that give us great confidence in the vast opportunities ahead for this brand with wholesale sell-through increasing double digits in the first half. DTC is delivering a sequential improvement from Q1 to Q2, maintaining a high-quality full-price business, a strong Spring/Summer '26 season order book, and positive feedback from retailers on our fall '26 product line. HOKA is a disruptive and transformational brand with the ability to further capture billions of incremental global market share dollars. Across both domestic and international markets, we'll continue to uphold our disciplined approach to marketplace management by building our DTC business and carefully exploring potential expansion into attractive wholesale channels and partnerships. We are committed to building sustainable growth for HOKA and are confident in the strategy we're executing to achieve this goal. As we enter the second half of fiscal '26, our priorities are driving healthy sell-through and gaining market share, leveraging our enhanced DTC loyalty program to drive consumer engagement, preparing the marketplace for spring '26 updates to Gaviota, Mach and Speedgoat franchises, and investing in marketing to build global HOKA awareness. Moving on to the UGG brand. Global UGG revenue in the first half increased by 12% versus last year. The UGG brand's first-half performance stayed consistent, fueled by our key brand initiatives. Top-performing styles remained in line with our 365 focus. Men's footwear achieved growth at twice the rate of the overall brand. International regions accounted for the lion's share of our growth. We are especially encouraged by the consumer response to newer products and expanded franchises aligned to our men's and 365 initiatives. Including the Mel franchise, which across sneaker, chukka and Chelsea silhouettes has more than doubled versus last year in the first half. The Classic Micro, our most versatile derivative to the original Classic boot, debuting as a top 5 style across DTC and wholesale and also the Zora Ballet Flat, an unmistakable UGG version of the timeless silhouette that is significantly outperforming our expectations in its first month since launch. While these products have driven positive sell-throughs, I would note that wholesale sell-in was the driver for total UGG brand performance in the first half, which includes benefits from earlier shipments that were carefully curated in alignment with our marketplace management strategy. These shipments have provided greater opportunities for consumers to discover UGG at wholesale points of distribution, which we believe in combination with the shifts to consumer shopping habits has put pressure on our DTC business near term. From a regional perspective, as anticipated, international markets are leading our growth, but we have seen a very strong order book conversion across all regions. The consumer response to our fall '25 collection has been very consistent globally, with consumers gravitating towards fresh seasonal colors and transitional newness such as the Classic Micro, Astromel, PeakMod and Zora Ballet Flat. This quarter, these styles saw gains as consumers preferred versatile buy-now, wear-now items. As we prepare to ignite UGG season, our teams have created cohesive brand stories with our iconic style and iconic design global marketing campaigns, aiming to generate excitement and drive consumer engagement. In August, UGG's Iconic From the First Step campaign featuring Stefon Diggs, Sarah Jessica Parker and Founder Brian Smith to celebrate the brand's legacy. In September, UGG served as the official starting partner for Highsnobiety's New York Fashion Week opening ceremony party aimed at building fashion credibility with influential males. At the beginning of this month, to celebrate Paris Fashion Week, UGG took over the atrium of Galerie Lafayette to create a curated icons pop-up store. And tomorrow, UGG will launch an aspirational product collaboration with the renowned Japanese fashion label, Sacai. These brand activations help the UGG brand generate momentum with consumers, while at the same time, maintaining cultural relevance. And our team will continue to build upon the compelling content we've created to elevate the brand and amplify key seasonal product stories. I'm confident that the global marketplace is well-positioned for UGG season. Thanks, everyone. I'll now pass it off to Steve to discuss our second-quarter financial results and provide an update on fiscal year 2026. Steve Fasching: Thanks, Stefano, and good afternoon, everyone. We are extremely proud of the results achieved in the second quarter and first half of our fiscal year 2026. For the second quarter, HOKA delivered more balanced growth across wholesale and DTC led by the strength of international and included sequential improvement in U.S. DTC compared to the prior quarter as we continue expanding the brand's presence to gain global awareness and market share. The UGG brand drove robust wholesale growth also led by the strength of international as we prepare the global marketplace for the brand's peak season. Our disciplined approach, flexible operating model and strong balance sheet continue to position us favorably in a dynamic marketplace as we head into the second half of our fiscal year 2026. We remain energized by the opportunities ahead for HOKA and UGG and look forward to further progress towards our long-term vision for these consumer-loved brands. Now let's get into the details of our second quarter results. Second quarter fiscal year 2026 revenue came in at $1.43 billion, representing an increase of 9% versus the prior year. Performance in the quarter was driven by HOKA and UGG, which increased 11% and 10% versus last year, respectively, with small offset primarily from winding down stand-alone operations of smaller brands. For HOKA, wholesale remained the primary driver of growth, increasing 13% in the quarter as the brand continues to experience strong sell-in and healthy sell-through with innovative and compelling products that are resonating with consumers. HOKA DTC grew 8% versus last year as international momentum carried through from the previous quarter, and we saw improvements in the U.S. business as anticipated. For UGG, growth was driven by wholesale, increasing 17% in the quarter, which was partially offset by a 10% decline in DTC. Wholesale strength was driven by strong demand from our retail partners, including earlier demand as well as European shipments that were pulled forward related to our upcoming third-party warehouse transition. UGG DTC was softer than anticipated, as we have continued to experience pressures from better in-stock positions with our wholesale partners due to increased allocations delivered earlier in the year in an effort to match the demand that has continued to build in recent years. A more challenging macroeconomic environment for the U.S. consumers with shifts in consumer preference toward multi-brand in-store shopping experiences. Additionally, we believe these factors will continue to have an impact on UGG growth in the second half. Gross margin for the second quarter was 56.2%, up 30 basis points from last year's 55.9%. Second quarter gross margins compared to last year benefited from price increases, favorable product mix, favorable foreign currency exchange rates and factory cost sharing with partial offsets from incremental tariffs on U.S. goods and channel mix headwinds. As a result of our price increases being implemented at the beginning of July, in combination with actions to bring additional inventory in ahead of increased tariff rates being implemented, we saw a slight delay in the net headwind of tariffs and did not experience a meaningful negative impact in the second quarter compared to the prior year result. However, this is unique to the second quarter, and our expectation of net tariff headwinds in the back half of fiscal year remain largely unchanged. SG&A dollar spend in the second quarter was in line with expectations at $477 million, up 11% versus last year's $428 million as we continue investing in key areas of the business. As a percentage of revenue, SG&A was 33.4% versus last year's 32.7%. Our tax rate was 21.7%, which compares to 24% for the prior year as a result of onetime benefits recorded in the quarter. These results culminated in diluted earnings per share of $1.82 for the quarter, which is $0.23 above last year's $1.59 diluted earnings per share, representing EPS growth of 14%. In terms of our second-quarter performance relative to the guidance we provided in July, gross margin was the primary driver of EPS favorability. Again, the better-than-expected gross margin result was largely driven by favorable timing of tariff-related variables unique to the second quarter, with benefits of our pricing actions flowing through in advance of the full burden from increased tariffs. Turning to our balance sheet. At September 30, 2025, we ended September with $1.4 billion of cash and equivalents. Inventory was $836 million, up 7% versus the same point in time last year. And during the period, we had no outstanding borrowings. During the second quarter, we repurchased approximately $282 million worth of shares at an average price of $109.31. As of September 30, 2025, the company had approximately $2.2 billion remaining authorized for share repurchases. Now moving into our forward-looking update. We are now providing an outlook for our full year fiscal 2026 and expect total company revenue of approximately $5.35 billion, with HOKA increasing by a low teens percentage versus last year and UGG growing in the range of a low to mid-single-digit percentage. Gross margin of approximately 56% as we anticipate headwinds from the impact of tariffs as this becomes material in the back half of this fiscal year with partial offsets from our mitigation strategies and normalized levels of promotion in a more pressured macroeconomic environment. SG&A to be approximately 34.5% of revenue, reflecting our commitment to investing in the long-term opportunities of our powerful brands. This results in an expected operating margin of approximately 21.5%, which remains at a top-tier level of profitability relative to our peers. We are projecting an effective tax rate of approximately 23%. And finally, we expect earnings per share in the range of $6.30 to $6.39. This guidance assumes a blended growth rate of approximately 9% from our 2 largest brands as we have streamlined our brand portfolio to focus on our most profitable long-term opportunities and expect to yet again deliver record years for UGG and HOKA, each with annual revenues north of $2.5 billion and significantly contributing to our best-in-class profitability profile. Within this revenue guidance, we continue to expect international to outpace U.S. growth and global wholesale to outpace DTC for this fiscal year. Over the longer term, our focus remains to create a balanced business across regions and channels as we continue building our consumer base, bolstering connections with consumers through direct relationships and capturing incremental market share for years to come. Regarding tariffs, with timing-related favorability seen in the second quarter results and our expectation of tariff impact in the second fiscal half largely unchanged, we now expect the unmitigated tariff impact on fiscal year 2026 to be approximately $150 million. Further, we now estimate that our mitigation efforts for this fiscal year will offset approximately $75 million to $95 million of this pressure, including benefits from select strategic and staggered pricing increases as well as partial cost sharing with factory partners. Please note, this guidance excludes any unforeseen charges that may be considered nonrecurring to our ongoing business or impact from any future share repurchases. Additionally, our guidance assumes no meaningful deterioration of current risks and uncertainties, which include, but are not limited to, further updates to imposed tariffs or other global trade policy, changes in consumer confidence and recessionary pressures, inflationary pressures, fluctuation in foreign currency exchange rates, supply chain disruptions and geopolitical tensions. Overall, our second quarter and first half fiscal year 2026 results illustrate the strong demand for our brands and strength of our disciplined model, giving us conviction to provide and achieve a compelling outlook for fiscal year 2026. We remain confident in the growth trajectory of our consumer-loved brands as our top-tier levels of profitability provide opportunities for targeted investments supported by our fortified balance sheet, all of which position us effectively to drive sustainable growth over the long term. Thanks, everyone. I'll now hand the call back to Stefano for his final remarks. Stefano Caroti: Thank you, Steve. Before we take your questions, I would like to highlight that our brands have continued to perform very well through the first half of this fiscal year. More importantly, we remain committed to supporting and strategically managing our brands to ensure sustained long-term growth. We believe that both HOKA and UGG are well-positioned across the global marketplace as we enter the holiday quarter, and our teams are energized and hyper-focused to deliver our full-year guidance. HOKA has established itself as a prominent global performance brand, extending far beyond its disruptive origins. HOKA is just beginning to realize its full potential and capability to innovate, and we are excited to continue building this transformational brand. And UGG brand continues to inspire generations of consumers with its iconic products and its global appeal. This powerful brand has established a unique position in the marketplace with a strong, loyal customer base and an ability to capture new audiences through compelling product evolution. These 2 premium brands maintain a strong commitment to the original values, consistently creating purposeful products while adapting to the evolving demands of their respective global customer base. We are very excited about the opportunities ahead and remain focused and disciplined on our approach to delivering long-term sustainable growth and value creation. I'd like to sincerely thank all of our valued employees across the Global Deckers team for their continued commitment to our collective success. Thank you all for joining us today and thank you to our shareholders for your continued support. With that, I'll turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question comes from Laurent Vasilescu, BNP Paribas. Laurent Vasilescu: Stefano and Steve, very glad to hear that you are reinstating guidance here. And I wanted to ask about that. Originally, Steve, the framework, I think, on the fourth quarter call was calling for HOKA to grow mid-teens for this year, UGG to grow around mid-single digits. I think last quarter, I think there was greater confidence in that framework. With today's guide, lower expectations on those 2 metrics, can you maybe just unpack that a little bit more? Is there just a degree of conservatism? And I didn't hear anything about weather with regards to UGG of the low single to mid-single, but do you think that's a factor playing into your guidance? Stefano Caroti: Laurent, this is Stefano. We have 2 of the healthiest brands in the global marketplace with a very strong and loyal consumer base and a growing global demand. Our first half demonstrates the strength of these brands. For the back half, we are anticipating a more cautious consumer as the full impact of tariffs and price increases will be felt here in the U.S. Having said that, our brands are well-positioned when the consumer shows up for the holidays. And as always said, we don't manage our business month-to-month and quarter-to-quarter. We build brands for long-term profitable, sustainable growth. Steve Fasching: Yes, Laurent, this is Steve. I think just to talk a little bit about the guidance and kind of reorient everyone in terms of what we said at the beginning of the year, and you're right, we didn't give full year guidance and the fact and appreciate your recognition of that, giving guidance now, I think, is a demonstration of our confidence of how well our brands are performing in the marketplace and the continued path that we see on that. Part of the framework that we gave at the beginning of the year really said, if tariffs did not have an impact on consumers, how we saw kind of certain growth. And we still believe that, right? But we do know and we are more currently seeing some impacts on the U.S. consumer. So as U.S. consumers are beginning to see some price increases, it is impacting their purchase behavior within the consumer discretionary space. And so as we now look out at the next 6 months to give the full year guidance, our HOKA back half still is a low teen guide. So in many respects, we're not off of what we originally thought, maybe a little bit of a reduction, but we are now anticipating the impact of tariffs. So I think that's a demonstration, again, that the brand continues to do better than what we thought in a tariff-imposed environment. So we feel good about that. To Stefano's point, we're going to manage these brands for the long run. We're not going to try to chase growth in a current period that could be detrimental to the brand. And again, that is what our guidance reflects is we are going to maintain these brands. We're going to manage them in the marketplace that allows us to grow these -- grow these meaningful over a sustainable longer period of time. And I think that is a bit of what you're seeing in our guidance. And yes, we do know that the revenue is below where the consensus was. We're taking into account a consumer who's a little bit more cautious. I think is there opportunity that we could do better? Sure. And we'll see how the consumer shows up. And that's how we're looking at it. From an inventory position, we have inventory that if the consumer shows up, we will be able to capture some upside to this. But we're confident, again, in how our brands are performing in the marketplace internationally and domestically. We know domestically that the U.S. consumer is a little bit more pressured. So we're reflecting that in our outlook for the next 6 months. But again, our positioning of the brands remains with long-term sustainable growth in mind. And then just the other bit on the guidance. I think, again, we're showing a demonstration of how we can manage our business from an overall perspective. So even with a more conservative approach on some of the revenue guidance, we're still delivering profitability on a consensus bracket for the full year. So again, I think we will continue to manage these brands in a healthy way and drive long-term sustainable growth. Laurent Vasilescu: Very helpful. And then, Steve, just to understand a little bit more on the back half guide for HOKA, low double digits. I know you don't guide anymore by quarter out, but any nuances we should consider just because there are some compares that we can look at between 3Q and 4Q. I thought it was also interesting that you mentioned there's some positive reception regarding spring/summer order books. Maybe can you unpack that a little bit more? Steve Fasching: Yes, sure. I think in terms of how we're looking at the back half, more pressure in Q3 with more growth in Q4. So -- and again, I think that's where we're going to see how the consumer shows up kind of Thanksgiving through the holiday season. That's one thing that we're going to keep a very close eye on. We believe our brands are positioned better than most, right? If the consumer shows up, our brands are positioned to capture that demand. And so really, this is more about how does the consumer show up. So we're being a little bit more cautious with our third quarter growth with a little bit more aggressive growth in the fourth quarter. And then to your point on the order book, and I'll let Stefano jump in here, very confident with how things are shaping up and the consumer response to our products. Stefano Caroti: Yes. So, I'm very happy with what the teams have done specifically in the U.S. market for HOKA. We are growing awareness. We're gaining share really across every country. But specific to the U.S., the marketplace is clean. Sell-throughs are stronger than sell-in. Our full-price business is very, very strong. Our key franchises, Clifton, Bondi and Arahi are performing well in the marketplace. And our most recent product launches have also performed well and referring to Challenger, the Mafate family, Mafate X, Mafate 5, Rocket X 3, Rocket X Trail. Our order books are healthy. We're gaining share in Performance Run. We're back to #1 in specialty. And we're well set up with the transition to these new models I just mentioned. So our marketing also has been resonating, and we're seeing improvements also in our DTC business. So all is good on the HOKA side of the U.S. Operator: The next question is from John Kernan, TD Cowen. John Kernan: Steve, can you talk to the split between DTC and wholesale in Q3 and Q4 a bit more? The DTC compare gets a lot easier as you enter the fourth quarter. You did provide some color to Laurent's question. Just curious, the channel split between wholesale and DTC and what you're doing specifically to reaccelerate DTC same-store sales or omnichannel comps, particularly in America -- in the U.S. Steve Fasching: Yes. I think from a total company DTC perspective, we expect to continue to see improvements in Q3 and then further improvements in Q4. I think also important just to -- as you look at our growth and understand kind of what we said about this year is, again, remember, as we're expanding wholesale this year, we said much of that was going to come in the first half of the year, right? And that's what we've delivered and more so. And I think that's a demonstration of the strong demand that's out there for both brands is that our wholesale partners to get their hands on product earlier, they wanted to be able to showcase product earlier. And so we were selling in into that environment. That has put some pressure on our first half DTC. So with expanded distribution, right? It's more a demonstration of the growth of our demand for our brands and really a timing effect. And so it's not an indication of things kind of slowing down for brand and from a demand perspective, they are still increasing. And on a full-year basis, it still has increased. But as we've shipped more of that in the first half of the year, you're just seeing kind of a timing flow of that. And so in respect to that, right, that's where we'll see a little bit or expect a little bit more DTC growth on a percentage basis in the back half, a little bit more in Q3, a little bit more in Q4. And then with selling more in the first half in wholesale, you're going to see kind of lower numbers as a result of having more products move into the wholesale channel earlier in the year. John Kernan: That's helpful. And you obviously called out the company's top-tier profitability. I think you have the highest operating margin structure of anybody in the athletic footwear and apparel space. I was just curious, as we look into next year, obviously, tariff pressure is going to be pretty significant in the first half of the year. How do we put guardrails on the long-term margin structure of the business? We're finishing this year around 21.5%. Is north of 20% plus operating margins, how you look at the business long term? Steve Fasching: Yes, it's a good question, John, and we appreciate it. Clearly, right, what you're seeing. So last year, we delivered exceptional levels. Again, this year, I think in comparison to what others are saying, it's going to be another exceptional year with half of the year being impacted by tariffs. Next year, you're going to have kind of another half of year. So that will be a headwind to further margins. But again -- and I think you can see, as demonstrated by Q2, how we manage our business. So we are continuing to organically grow our business. The demand for our brands continues to increase. And at the same time, we're doing, I think, a very good job of managing an uncertain, volatile environment. And you can see how we've mitigated some of those tariff impacts in Q2, where we earlier thought that we would see some headwinds, we were able to take some actions and mitigate some of that and flow that improvement through. And that's what you're seeing on that gross margin. We will continue to operate in that disciplined approach. But yes, to your point, we're going to continue to see tariff headwinds as we look into FY '27. We're not in a position yet to kind of give guidance on that. But yes, you will assume further pressure. Stefano Caroti: And our strong financial profile will also allow us to invest in capabilities we're building, whether it's innovation or apparel, or technology digital. John Kernan: Got it. And then the gross margin pressure you're guiding to in the back half of this year, it's safe to assume at least that magnitude carries into the first half of next year, I would assume. Steve Fasching: Yes, correct. If the tariffs stay in effect the way they currently are, yes, equivalent. Operator: Up next, we'll hear from Adrienne Yih from Barclays. Adrienne Yih-Tennant: This is probably for both of you, both Stefano and Steve. Can you talk about kind of the price actions that you have taken at both brands earlier in July? Earlier in back-to-school, it seemed like those price actions didn't have a lot of impact on the demand, but obviously, that was kind of in the back-to-school time period. Is there something that you've seen either sell-through in the channel at your own DTC or maybe on the products that actually had those price increases that has given you a little bit more concern about the consumer? And then, Steve, my follow-on is, how are you seeing -- it's a really good point on more points of wholesale distribution, right, because there's more places to buy the product. But how are you thinking about when we kind of see a more normalization in the DTC versus wholesale balancing? Stefano Caroti: Adrienne, on the pricing question, we have premium brands and premium brands have more elasticity than other brands. And we've been very selective and strategic in our price increases. And we have not seen any issues. Sell-through on key styles continues to be strong for both UGG and HOKA. No issues so far. Steve Fasching: And then on the wholesale question, it's a good one, and we appreciate you asking it. I think if you go back 1.5 years or 2 years ago, we talked about how we are in the marketplace significantly underpenetrated in wholesale in comparison to many of our peers. So many of our peers are selling in a lot more points of distribution, wholesale distribution, than we are. And we've talked about marketplace management for years now about how we do this. And this is how we lean into wholesale. And I know there's questions out there about, oh, their growth is coming through wholesale. Yes, we're putting more shoes on feet, right? And -- but we're doing it in a strategic long-term way, right? We're not chasing growth in a quarter or in a year, trying to blow out wholesale distribution just to show sales increases. This is how we're expanding our brand globally and sustaining longer-term growth over a longer period of time. Does it mean that we deliver slightly lower levels of growth rate in the current period as we continue to expand, but are able to sustain longer-term growth rates? Yes, that's what we're doing. And so last year was a big year of wholesale expansion. We are anniversarying some of that this year as well as some additional wholesale expansion this year, but that will begin to slow. It doesn't change our outlook on that balance that we talked about of getting to 50-50 wholesale to DTC. So we're still on that. You will begin to see wholesale growth slow a little bit and DTC again begin to pick up. But again, this is about taking opportunities, increasing demand in the marketplace, giving consumers more points to purchase product and overall leading to more shoes on feet. And that's what we're building. Stefano Caroti: Yes. And we operate an omnichannel model, and we have the ability to flex and react to consumer demand as needed. Operator: The next question is Samuel Poser from Williams Trading. Samuel Poser: I got a handful. Number one, you talked about the healthy order book in for spring. I assume that's for both UGG and HOKA. Can you define what that means, please? Stefano Caroti: Sam, we provide those details, but we are very happy with the order book that we have for spring/summer '26 and the early reaction to fall '26. Steve Fasching: Yes. And I think, Sam, it's fair to say that it's up, right? And that's why we're happy that we're seeing increases in order book. Samuel Poser: And can you talk a little bit -- I'm going to get into a little bit of weeds here. Can you talk a little bit about like how -- especially with the UGG brand, sort of in and out of back-to-school, how you saw both in your own DTC and within your wholesale partners, because you get sales reports, how you saw that business like peak in valley? And are you seeing any big differences between the peak like peaks and valleys versus last year? And I mean, because I'm really wondering what -- sorry, go ahead. Stefano Caroti: It's a good question, Sam. What we're experiencing, and this is probably due to the consumer uncertainty in the U.S., is deeper valleys and higher peaks. Back-to-school is strong, and we anticipate to have a strong holiday season. But September, October are typically not the strongest months in our space. Samuel Poser: And so that leads to -- are you -- is your guidance for the back half and I guess, particularly holiday, is it more about what you saw during back-to-school? Or is it more about sort of what's going on right now? Because given those peaks and valleys and given the fact that in your own DTC business, you'll do every day between Thanksgiving and Christmas, you'll do more business in a day than you basically do in a week, July through probably the beginning of October. I'm wondering how much of this is just real caution or my favorite saying. So I won't say that in front of everybody, guys, but you do live near the beach out there. And I'm just wondering how much of the -- because I mean, consumer seems to want your product. It seems to be -- and so the concern about the consumer it seems like whatever they're buying your stuff at full price. You're not getting margin pressure, you're not getting those things. So the fact is they're not buying Jo's Frye boot brand. They generally want UGG, and they're not buying Champion sneakers because they want HOKA. And so either they want your brand or they don't. And you talked about the elasticity you had in price, which tells me that you actually believe that the consumer is buying your stuff regardless. So why so much caution around this macro consumer like, oh my God, the consumer in the U.S. might be hurting, but they still seem to go to your brands, not to us. Steve Fasching: Yes. I think, Sam, on that, clearly, our guidance for the year, which is reflective of the next 6 months, is taking into consideration what we're currently seeing kind of right now. And so I think that's where the question is, right? It's not about question about how we think our brands are placed in the marketplace. We think we're, again, positioned better than most and in many cases, very well positioned. But we'll have to see how the consumer begins to show up. I think some of the economic signals are consumers are beginning to see higher prices. Inflation is starting to affect them more in the U.S. And so there is some caution on our part as we take that into consideration. And again, we don't want to just chase sales because we want to achieve a higher number. We're about building brands for the long term. And so we don't want to do something in the quarter that could be detrimental to us in the longer term. So to your point, yes, we're taking a little bit of caution in there. We don't know how the consumer is going to show up, but we do know if the consumer does show up, we're better positioned than most. Samuel Poser: And then lastly, Stefano, with HOKA, are you -- are there any lower profile max cushioning? Or are we going to see any evolution to lower-profile shoes out of HOKA? Stefano Caroti: Yes. You will see more lower-profile solutions going forward. Ready for spring, we have the new Solimar that's been very well received. The new transport on our lower profile tooling. We have the Speedgoat 2 in lifestyle that is resonating and it's a lower profile than what we had in the past. So you'll see a more vast array of products going forward. Operator: The next question is from Jonathan Komp from Baird. Jonathan Komp: I want to follow up on HOKA. Hoping that maybe you can be a little bit more specific when you think about changes to the product launch plans into 2026, just any more details on what we should expect broadly and then maybe for some of the key styles going forward, the big 3 in terms of cadence and plans? And then just bigger picture on HOKA, as you talk about having potential to add billions of revenue yet. Can you give somewhat of a buildup or some of the big buckets or growth opportunities that you see when you make that comment? Stefano Caroti: Yes. Let me start with the latter. So we're focusing on a handful of categories for HOKA. It's performance run a trail, it's hike, it's fitness, it's a lifestyle. And over time, you also see apparel. So those are the 5 key areas of growth for us. And we compete in a $0.5 trillion market, and there's plenty of upside for HOKA, both in the U.S. and internationally. As we continue to grow awareness and consideration, we should continue to grow our brand in a healthy way. As regarding product transitions, we have tightened inventory of key outgoing style as we prepare for the upcoming launches of Gaviota, Mach, Transport and Speedgoat. So you should see -- experience less noise in the marketplace as we have bought less and tight inventories. And in regards to cadence, you will see an update to our biggest franchise, the Clifton in fall '26. So Clifton and Bondi will no longer overlap. Jonathan Komp: Okay. That's helpful. Steve, one follow-up then on margin. It looks like the back half margin for operating margin pointed in the low 20% range. Historically, when the back half was in the low 20s, the full year margin was more in the high teens, below 20% on an annual basis. Is that the run rate for the business currently, as we think about annualizing some of the second-half pressures? Or how should we think about the back-half margin guide in relation to the current annual run rate that you're performing at? Steve Fasching: Yes. I think, John, just on that, as we look at the back half kind of this year in comparison to kind of last year, the declines that we're reflecting are really being driven by the tariffs, right? So in terms of how we're running the business, how we think about margins and the margin profile of the business, really, the change that you're seeing in the back half is tariff-driven. So that's what we expect, again, based on the tariffs as they're imposed today. Jonathan Komp: And just a follow-up, given the discussion about maintaining premium positioning, should we view that pressure and the unmitigated portion that you guided to for tariffs, is that more temporary? Or is that a permanent step down in the margin that you're willing to give up potentially? Steve Fasching: Yes. So the margin change that you're seeing between last year and this year is going to be driven by the tariffs. And then we'll see kind of if promotion changes, we do have an element of promotion assumed for the back half. So we'll see that. Again, the biggest driver being tariffs, that's the overall driver, but there is a level of promotion given the environment today. That will, again, to the earlier question. I think that John asked is that, that will also trickle into FY '27. Again, we haven't given any update on '27, but the first half will be pressured by that margin. But -- so there will be an overall headwind. We have done, I think, a very good job of mitigating that in Q2, and that's what you saw us deliver. We don't have the same levers necessarily going into the back half nor will we have those levers kind of going into. We were able to take advantage of inventory movements that now that the tariffs are fully into effect, you won't necessarily get -- you'll get that benefit into future periods. So -- but we'll continue to look. As we talked about some of our mitigation strategies, we'll again continue to review pricing. To an earlier question, we didn't really see much pushback on some of our price increases. So we'll always -- with a strong brand that's well positioned in the marketplace, we'll continue to evaluate levers that we have. But the way we're kind of currently looking at it, we still have headwinds in the back half that will continue into FY '27. Operator: And our final question today comes from Jay Sole from UBS. Jay Sole: Maybe, Stefano, first question for you. As you just think about calendar '25 for HOKA brand, do you see this year as a little bit of a transition year where you had sort of the accelerated life cycles of Bondi 8 and Clifton 9 and then you have this tariff situation where next year maybe is sort of not a transition year where you have a lot of newness and clean inventories in the marketplace and good brand momentum where you might see a different kind of momentum financially. And then I guess, Steve, the question for you is that I know this was asked on an earlier question, but the guidance before was, say, mid-teens for HOKA, assuming no tariffs. Now you're saying low teens for HOKA with tariffs. So if we had gone back to the beginning of the year and you would have given guidance for HOKA with tariffs, what would it have been? Or without giving you the exact would have been, would the guidance that you gave today have been in line with that? Would it have been better than that? Would it worse than that? Maybe if you could just frame that clearly for us, that would be super helpful. Steve Fasching: Yes. Sure, Jay. I'll start kind of with that question, then Stefano can kind of talk about a bit of the transition year of 2025. So to your point, if we look back, I think one way to answer your question is that how we've seen HOKA perform, especially with the product transitions, we're very encouraged by the year. So to the point where in a pre-tariff environment, we saw mid-teens and the fact now with a tariff imposed world in the back half, we're low teens. I'm very encouraged by that, right? Because what it shows is even in a tariff-imposed world, consumers are still showing up for our brand, probably a little bit better than what we may have thought at the beginning of the year. So I think that speaks to how well some of our updates are resonating with consumers in the U.S. and globally, too, and you're seeing that in the global numbers. So where the tariff is impacting a U.S. consumer, I think we've seen a good response. And then we've seen a very good response from an international perspective, which gives us a view into that non-tariff-imposed world of a consumer response. So having seen that be very positive is actually very positive on the brand because I do think tariffs are having an impact on the U.S. consumer. Stefano Caroti: Yes. And regarding the question on transition. Yes, it's -- '25 is a bit of a transition year. We probably have masked a few too many big product launches in the first half of the year, and we didn't space them out enough. There are a few learnings from us in the transition to the model. So I think it was a learning year for us. And hopefully, this will help going forward. Operator: Thank you, everyone. That does conclude our question-and-answer session. This does conclude our conference for today. We would like to thank you all for your participation. You may now disconnect.
Laurie Shepard Goodroe: Good morning to all, and thank you for joining this earnings call for the third quarter of 2025. Financial statements were posted with market authorities early this morning, and all materials can be found on our corporate website. Please refer to the disclaimer in this presentation and note that this call is being recorded. Today, we are joined by our Chief Executive Officer, Gloria Ortiz; and Chief Financial Officer, Jacobo Diaz. Gloria Portero: Thank you, Laurie. Good morning to all, and welcome to this third quarter 2025 results presentation. Since we last met in July, many things have happened. The tariff conflict between the European Union and the United States has been resolved. The Israel Gaza conflict seems for now to have reached its end. We learned the results of the BBVA Sabadell takeover bid last Thursday and interest rates have bottomed as the European Central Bank has ended rate cuts with inflation aligned with its targets. Additionally, the EBA stress tests were published on August 1, in which Bankinter is again the listed bank in Spain as well as in the Eurozone with the lowest capital depletion in the hypothetical case of a very adverse economic scenario. We continue to navigate an uncertain and volatile environment. And despite this, I would like to highlight that this quarter's results remain satisfactory following the trend of the previous quarter with very relevant growth and activity across all business and geographies. The third quarter has been another quarter with strong commercial activity translating into a post-tax result of EUR 812 million, 11% above the same period last year. These results are also accompanied by solid management ratios in terms of asset quality, efficiency, profitability and solvency. As reflected in the figures, we continue to report improving results in which, as usual, balanced and diversified growth is key. Credit and loans as well as retail deposits grew 5% with off-balance sheet balances up 20% year-on-year. Net interest income has continued to improve in the quarter. In the second quarter, we reported a contraction of 5% that has been reduced to 3.5% in September. In fact, in quarterly terms, it is the second quarter that we have grown over the previous quarter, reaching levels of the third quarter of 2024. This is thanks to the resilience of the customer margin, which remains at 2.7% this year. On the other hand, fees and commissions continue to perform exceptionally well, maintaining a growth rate of 10.6% despite the fact that each quarter, the comparison with the previous year is more demanding. All this growth has been achieved while keeping our risk appetite intact, which is reflected in the NPL ratio that stands at 2.05%, improving previous quarter ratio as well as the one reported 12 months ago, which was 17 basis points higher. Another key to our business model is efficiency, which stands at 36%, the best cost-to-income ratio in the sector. Diversified growth, asset quality and efficiency are the pillars on which the profitability of our business is based, maintaining a ROTE above 19%. As a result of intense commercial activity, we once again present strong diversified growth in business volumes this period. If we add credit and loans, retail deposits and off-balance sheet volumes, the volumes managed amount to EUR 234 billion at the end of September and grew by EUR 19 billion year-on-year. This is a remarkable growth rate of 9%. Going into detail, lending reached EUR 83 billion at the end of the quarter, which is EUR 5 billion more than in September 2024. Retail deposits closed the quarter at EUR 85 billion, a figure EUR 4 billion higher than in the same period of the previous year. And finally, we added EUR 11 billion to the off-balance sheet business, which stands at EUR 66 billion, showing a strong growth of 20% year-on-year. This year, we have seen a noticeable increase in new client acquisition, particularly through our digital channels. The integration of talent and technology from EVO Banco over the summer has assisted to further strengthen our digital strategy for the group. All geographies are growing at good pace. Spain, which accounts to 87% of business volumes grows 7%, while Portugal with 11% contribution to volumes grows by 12% and Ireland also stands out with 20% growth. New credit production also continues with improving trends as a result of the increased commercial activity. 16% in new mortgages, 6% growth in new business lending and a 3% drop in consumer credit due to the fact that we continue to reduce exposure to riskier segments. On Page 7, for the past 12 months, we have seen increasingly positive trends in sector growth across the geographies in which we operate with close to 3% market growth in Spain, 7% in Portugal and 2% in Ireland. In each of these markets, we continue to gain market share in each of our business lines. In our core markets, Spain, the retail banking loan book increased by 3.4%, 30 bps above the market and our business banking book outperformed by 180 bps, reaching a 4.3% growth rate. With both Bankinter Portugal and Ireland in expansion, we continue to gain significant market share, further diversifying our asset portfolio. Portugal grew 11%, 450 bps above the sector and Ireland, an exceptional 20% growth rate, well above market growth rates in both countries. In terms of revenues, there is a very notable performance of core revenues. This is the sum of net interest income and net fees and commissions, which has reached similar levels to those in the previous year. In quarterly terms, core revenues reached EUR 762 million, the largest in the series. And in fact, they are already growing both compared to the previous quarter by 1.3% and compared to the same quarter of 2024 by 2%. This sustained solid performance quarter after quarter of fees and commissions growing at 10.6% compensates for over 90% of net interest income compression in the year due to the negative impact from the reduction of yield curves. Net interest income fell on a cumulative basis, 3.5%. But in quarterly terms, the upward trend continues. We are already 3% above the last quarter of the previous year and 5% more than in the first quarter, and we also grew 1% over the previous quarter. Going now to the next page. I would like to talk about productivity. We have a scalable and efficient business that is reflected in productivity improvements. The volume of customers managed per employee expands year after year, while the cost per million euros of volumes managed decreases year-on-year. This is thanks to the investments made in technology and in particular, in artificial intelligence projects that are oriented to the improvement of personal activity, commercial efficiency, which relies mainly on algorithms, but also process efficiency and the improvement of the customer experience and the development also of new products. Bankinter culture of applying targeted innovation across products, services and processes continues to deliver measurable results, reinforcing our strategic positioning and driving ongoing improvements in operational scalability. I will now hand over to Jacobo, who will provide you with more additional detail and insights into our financial and commercial results. Jacobo Díaz: Thank you very much, Gloria. Good morning, everybody. We are pleased to share once again another quarter growth and increased revenues and profitability. In operating income, we have grown by 4.7%, thanks to increased volumes, continued strong fee growth and effective margin management. We continue to rebalance operating costs more evenly over quarters with a year-on-year increase declining each quarter to end the year within our guidance. Cost of risk and related provisions declined by 10% compared to the prior year, reflecting a continued positive trend in risk management. Net profit rose 11% to EUR 812 million, gaining momentum to well surpass our initial goal of EUR 1 billion in 2025. Let's move on to review additional details about each line in the following slides. So after the trough in the first quarter of this year, we continue to deliver quarter-on-quarter improvements in net interest income, now recovering levels of the third quarter of last year, reporting EUR 566 million, a 1% increase quarter-on-quarter. Asset yields continued to contract this quarter at 3.49%, down 22 basis points. This quarter reflects a typical low seasonality period where corporate banking activity is relatively lower compared to retail banking activity, which has influenced a bit of a mix change leading to a higher weight of repricing more in line with retail durations than the shorter corporate durations. Given these dynamics and a stable outlook for Euribor 12 months rates, we believe average quarterly asset yields should drop marginally in Q4 to reach stability in the first half of 2026. Average customer margin for the year remained resilient at our 270 basis points, continuing to demonstrate our ability to effectively manage margins. With cost of deposits now at 84 basis points, a material 14 basis points decrease from last quarter, we are optimistic to reach levels around 75 basis points by the end of the year. Our NIM also remains resilient, a direct result of the effective balance sheet management. After sharing the details of the NII results, we wanted to talk about the excellent results we have been seeing quarter-on-quarter related to our digital account strategy that we initiated last year as part of the new digital organization. This growing digital site account deposits in yellow in the graph on the left have aided in reducing and replacing typical long-term deposits with more granular and flexible shorter duration deposits. Between both digital site accounts and private banking or corporate treasury accounts, we now have a significant proportion of our deposits with less than a 3-month duration. This is less than half of the average duration of the term deposits. Not only does this provide us greater agility to adjust deposit rates in line with market rates, but it also has a great source of increased customer activity, either transactional or through AUMs activity, driving additional fee volumes with a scalable operational model at a marginal lower servicing cost base. As you can see on the chart on the right, we have increased our average deposit spread over the past 4 quarters, reaching now close to 130 basis points. We believe these deposit spreads levels are likely to remain quite resilient, possibly with some upside for the coming years given the favorable rate environment as well as a more flexible deposit structure and our deposit gathering capability from our excellent existing and new customer base. Bear in mind that 50% of new customers are acquired through our 100% digital channels. Fees continued to deliver sequential increases quarter-on-quarter even during the seasonally low summer months with an increase of 11% on a year-on-year basis, reaching EUR 196 million this quarter, up 2% on a quarter-on-quarter basis. This continued quarterly growth momentum is mainly attributable to the strong volume growth in fund management and brokerage services that we detail later in the presentation. We are quite optimistic to continue to maintain this growth momentum going forward, given our strong focus and strategy on affluent customer base and increasing flows from on-balance to off-balance sheet activity and customer-centric operating model. It is also quite remarkable the performance of these business lines delivering improved results, notably in the equity method and dividend lines, up 29% on a year-on-year basis. The diversification of sources of revenue is well represented here given our diversified business investment over the past years in areas like our insurance JV partnership, our JV in Portugal with Sonae to deliver consumer finance products as well as our successful strategy with the Bankinter investment franchise, delivering alternative investment vehicles, allowing our customers to invest in real assets. This business line will continue to develop and deliver increased results over the coming years, providing upside risk in nontraditional revenue lines. Regarding cost, we continue to reduce seasonality and balance our expenses over the year, increasing 3% when comparing average 25 quarterly cost to those in 2024. Although cost volumes may increase in Q4, they will be lower on a year-on-year basis when comparing to Q4 of 2024. cost-to-income ratio remains at an exceptionally low level of 36%, and will remain committed to maintaining positive operating jaws in the future. On Page 17, loan loss provisions continue to show improvements versus last year with a cost of risk of 33 basis points. Other provisions also remained under control and performing well at a stable 8 basis points with no signs of deterioration in the market of our portfolio and with a well-managed risk management across the bank, we are optimistic to maintain current levels for the coming quarters. Next page. Net profit achieved record levels once again, reaching EUR 812 million, an exceptional increase of 11% year-to-date. Credit quality, credit and asset quality indicators continue to improve with the group NPL ratio dropping to 2.05%, down 17 basis points from last year. Spain down to 2.3%, Portugal at 1.4% and Ireland at 0.3%, all well below sector average. Moving into capital. As Gloria mentioned, we are very pleased with our EBA's stress test results this quarter, resulting once again in the lowest level of capital depletion among all Spanish and Eurozone listed bank. Even under a severe economic adverse scenario, the potential capital depletion would only be 55 basis points. The prudent risk profile of our activity is differential. This has been a strong quarter for capital generation with the CET1 ratio at 12.94%, with a seasonal mix shift from corporate lending to increased retail lending, therefore, reducing RWA growth this quarter, which we review with the reverse in the following quarter with larger loan growth and density consumption and the annual operational risk capital consumption recorded in the fourth quarter. As we continue to invest in technology and strategic projects, we have also seen an increase in intangibles this quarter due to the software-based solution under deployment, for example, with the new banking IT platform for Ireland or the Portuguese digital transformation program. Moving into Page 22. Commercial activity and trends remain strong with customer volumes up 7% in Spain, 12% in Portugal and 20% in Ireland. Each region contributing at increased levels to the gross operating income of the bank. On Page 23, loan growth, again, strong, up 4% year-on-year, growing both in retail as well as business lending. Retail deposits continued to demonstrate solid growth, increasing by 4% with also strong performance in Wealth Management, reflecting a 19% increase in assets under management, contributing to fee income increases of 11%. Profit before tax, up 6%, reflecting solid contribution for our core Spanish business. On Portugal, continued exceptional performance in lending activity across both business segments, up 11%, strong deposit gathering up 5% as well as increased wealth management and brokerage balances rising 23% on a year-on-year basis. Moving into Ireland. Commercial momentum continues with mortgage loan growth up 23% as well as consumer finance loan growth by 11%. We have also launched our fully digital time deposit in the Irish market with an attractive value proposition that will surely grow deposit volumes over the coming quarters. Profit before tax contribution reached EUR 34 million with strong sequential increases in NII each quarter, up 16%. Moving into corporate and SME banking. Business lending continued to deliver strong performance even with a seasonally low quarter in terms of new loans. Customer lending increased by 5%, well above sector loan growth. International business segment continues to be a key growth catalyst contributing to 1/3 of new credit production with a growth rate at 9% year-on-year. Page 27, Retail Banking asset and deposit trends remain strong with increased new client acquisition driving core salary account balances up by 7%. New mortgage origination up 16% year-on-year with solid market share of new production in Portugal, Spain and Ireland at 6%. Our mortgage back book continues to grow by a strong 5% year-on-year, outperforming sector growth in every region. Regarding Wealth Management, our high-quality customer base typically brings annual net inflows between EUR 5 billion to EUR 7 billion into the bank. However, this year, we have already surpassed this historical range and now reset our ambition to achieve between EUR 8 billion to EUR 10 billion of net new money every year. When taking into consideration the market effect as well, incremental wealth of our customers increased by EUR 20 million or a 16% increase on a year-on-year basis. Moving into off-balance sheet volumes. We continue to grow in assets under management and assets under custody, reaching now EUR 150 billion with assets under management advisory or customer direct execution services in brokerage. Since our differentiation strategy centers around the client and how they prefer to interact with the bank rather than a product strategy, we indistinctively offer Bankinter products as well as third-party products to retain independence in terms of customer advisory services. With a full range of products as well as various servicing models based on customers' preference, we are able to consistently grow these off-balance sheet volumes, a key driver of continued fee growth quarter after quarter. And finally, let me recap our ambitions and targets. Given our solid third quarter financial results, a strong commercial momentum and volume growth trends and with a stable outlook for Euribor 12 months over the coming year around 220%, we remain optimistic in terms of future growth potential. In terms of our specific ambitions for this current year, loan volumes are expected to continue to grow at mid-single-digit rate, similar than deposits with assets under management commercial activity following the same strong performance than previous quarters. As market conditions become more favorable, we are committed to maintaining 2025 average customer margins around 270 basis points to support robust profitability that surpasses our cost of capital. In essence, we will not compromise margin integrity. Regarding NII, we anticipate that the final phase of retail repricing will take place mostly in Q4 and with much lower impact in the beginning of '26. Consequently, while some pressure on asset yields is expected to persist, it should moderate as our corporate portfolio has now been fully repriced in Q3. On the deposit side, we will continue to reduce and manage costs in a balanced manner to support ongoing customer and deposit growth, particularly in the digital site accounts. As a result, we expect a more modest reduction in deposit costs in Q4 compared to Q3 between the range of 5 to 10 basis points. Given these dynamics and our current commercial strategy, NII in Q4 will keep growing quarter-on-quarter again and growing year-on-year again, which may result anyway in a slight slippage in our flattish NII guidance in 2025 that will be compensated by a stronger fee growth. With upside risk in fees, we increased our targets of high single-digit growth target to reach now double-digit growth in fees. With respect to cost management, we continue to allocate and balance cost volumes over the quarters and remain on target for 2025 full year annual cost to grow mid-single digit. We also remain committed to delivering positive operating jaws in 2025, gross revenues above cost. As credit quality continues to improve, we are revising our targets with the expectation of cost of risk to fall below 35 basis points for the entire year. Although we do not provide guidance for the following year until the results presentation in January, we must say that as of today, with the current macro outlook for Spain, Portugal and Ireland, there is no reason why we should not expect similar levels of growth in our loan book as well as resilient client margin in our levels of cost of risk. Efficiency will also remain at the top of our agenda to ensure sustainable levels of return on equity in 2026 and so on. And capital levels are expected to stay strong in coming quarters despite profitable growth expectation. I believe that this has been another high-quality set of results with no surprises, one-offs or extraordinary items, quite predictable that make us feel to be on track to achieve another excellent year in 2026. Gloria, back to you for any closing comments. Gloria Portero: Thank you, Jacobo. Well, as you can see, the results of these first 9 months of the year have once again beaten records of previous years with an 11% growth in net profit, and all this is accompanied by an excellent level of operational efficiency and asset quality, both ratios improving compared to the previous year. All this allows us to continue improving returns on capital, which stands at 18.2%, 30 bps better than in 2024 and continues generating value for our shareholders, both in terms of dividend distribution and the book value of shares. To close the presentation of results for the first 9 months of the year, I would like to highlight that we are once again presenting solid results because of the recurring activity with our customers and the execution of a consistent long-term growth strategy. We are growing steadily in all the businesses and geographies in which we operate, keeping our risk appetite intact, even improving the risk profile of the loan portfolio as reflected in the NPL ratio and the increase in the coverage of the nonperforming loan portfolio. We continue to invest in projects and initiatives that allow us to keep pace with business growth. And despite this, we improved efficiency. All this results delivering a sustained return on the capital of the business, well above the cost of capital. For my part, this is all. Thank you again very much for your attention, and I will pass now on to Laurie. Laurie Shepard Goodroe: Thank you very much, Gloria. Thank you, Jacobo. Let's now move on to the live Q&A session, please. [Operator Instructions] Our first caller is Francisco Riquel from Alantra. Francisco Riquel Correa: My first question is about the fast growth in digital accounts. It's 4x bigger year-on-year. So I wonder if you can comment on the cost of these digital accounts compared to your total cost of deposits and the alternative of time deposits where you are switching. And I wonder if you can also elaborate on the commercial experience with these online customers and cross-selling ratios. You are not exceeding your traditional mid-single-digit growth in loans and deposits. You are growing faster in AUMs, but I wonder if this is coming from these online clients or from your traditional affluent and high net worth clients. And then my second question is about loan growth in Spain, which has slowed down year-on-year a bit, particularly in higher-margin corporates from 6% in Q2 to 4% in Q3. The sector has not. They're still growing by 3% in lower margin retail mortgages. So I wonder if you can comment on competition dynamics and update in terms of loan growth and also in the loan yield, where do you see the trough of this interest rate cycle? Jacobo Díaz: Regarding the loan growth, I think we had another, I think, good quarter comparing year-on-year in terms of the loan book. As I mentioned, the seasonality of the third quarter is -- I mean, typical in Spain, it has a negative seasonality. And the corporate banking activity has been lower as we normally expect. So we do not have any sign of slowing down in that perspective. It's just a matter of seasonality. In fact, we keep expecting similar levels of growth at the end of the year compared to, I don't know, previous quarters. So basically, we do not expect any changes. You mentioned competition. Of course, there is competition in the corporate banking as well in the mortgage activity, but this has been always the case. So there's nothing special to highlight. I would say that the loan growth will continue to show strong results. And regarding the digital accounts, definitely, digital accounts have been a quite relevant strategic commercial move for us in the past months and quarters. So we are delivering excellent results. We are capturing quite large volumes of deposits. We are cross-selling, of course, as you can imagine, plenty of different types of products. I wouldn't say that the largest volumes of AUMs are coming from the new digital accounts because it takes some time to transform and to cross-sell this type of accounts. But definitely, we are quite happy. You were mentioning about the cost. The thing is that these digital accounts have a quite short duration and for us is -- we have the agility and the capacity to change prices within a quarter. So for us, from a commercial strategy, we're quite happy. Gloria Portero: I will add 2 things. I mean the average cost of the digital accounts at present is around 1.6%. Actually, as Jacobo has said, the duration is around 2 months. So -- and we manage centrally, which is different to when it's products that are managed by the branch network, we manage centrally new prices. So it is quite easy and fast to reduce the cost. But on top of this, what I want to mention is that what we have been doing is a substitution effect. So basically, these deposits have been substituting higher tickets from enterprises and corporates. And there has been a reduction in the cost because we have been substituting higher costlier deposits. As Jacobo has said, I mean, looking forward, we expect the cost of funds to retail funds to continue reducing next quarter -- sorry, this quarter and in the order of 5 to 10 bps depending on where the Euribor stands. With respect to competition, here, yes, we have been growing quite nicely in mortgages in Spain so far. But I have to say that the competition is starting to be a little bit irrational, particularly in fixed rate mortgages of long term like 30 years. So you can expect us to be a little bit less active in that segment, although we think that we will continue to grow. Laurie Shepard Goodroe: Let's move on to our next question. Our next question comes from Borja Ramirez from Citi. Borja Ramirez Segura: I have 2. Firstly is on the NII, if I were to base the Q4 NII of this year and multiply by 4 and add the loan growth, would this make sense from a technical point of view to -- for estimating the 2026 NII? Or would there be any other moving parts? And then my second question would be in Ireland. I think you -- according to press, you launched a deposit of 2.6% rate, if I am correct. I would like to ask if you could provide some details on the growth strategy in Ireland in deposits. Gloria Portero: Regarding Ireland, I mean, what we are doing is just a test for the moment. So it's a friends and family. We are offering this deposit only to our clients and only a certain amount. I mean, initially, we are talking about EUR 50 million. So this is like a welcome deposit, and it's not going to have any impact at all in this year NII, and I don't think in next year either because we are controlling, as you can imagine, the growth in these deposits. With regard to NII, multiplying by 4. Well, it's a little simplistic. It could be near it could be near if Euribor rates stay completely stable around the year. It will be probably better than that than the mere multiplication by 4. Jacobo Díaz: Yes. I think our assumptions are we keep, as we mentioned, estimating that the average -- the client margin for coming quarters should be around 270 basis points and that we will continue to grow in similar -- the similar path that we've been growing in the past quarters. So that will be the main assumptions that you should take into consideration. As Gloria was mentioning, it's not just multiplying by 4. We definitely think it could be a little bit higher than that. Laurie Shepard Goodroe: Our next question comes from Ignacio Ulargui from BNP Paribas. Ignacio Ulargui: Just wanted to get a bit of a sense on the capital performance of the quarter, what you just -- Jacobo flagged about reverting the effect of the mix in the quarter in the coming quarters. I mean still 12.9% looks to me like a very high level. Is there any chance that the bank considers changing the 50% payout ratio with the current trend of capital? Second one is on costs. You said in the guidance, if I hear correctly, mid-single-digit growth. Should we expect a slightly more acceleration given the good performance of revenues that you front out a bit of cost for '26 in the fourth quarter beyond the natural seasonality that you have been trying to smooth this year? Or that would be -- or you're going to be very focused in keeping the costs on that limit to avoid slippage in '25? Jacobo Díaz: Ignacio, regarding the capital performance, as I mentioned, we present a quite strong capital ratio this quarter. And I did mention that there is some seasonality impact in this figure. So for the fourth quarter, we do expect a growth or much larger capital consumption from the growth, especially from the corporate banking activity that tends to be quite strong at the end of the year and of course, growth in the retail business and in other geographies as we have done. And additionally, I mentioned that there are some special recordings in the fourth quarter from capital consumption as the operational risk is fully recorded in the fourth quarter. So we do expect a figure probably lower than this one that we have shared today with you, although the results for the fourth quarter are going to be, again, very, very strong. To this means are we -- do we have in mind changing our dividend policy? I would say not for the time being. But of course, if we will see these trends in coming quarters, of course, we will -- we might think about doing whatever in terms of keeping our capital ratio in levels where we feel comfortable. Gloria Portero: Ignacio, with regard to cost, I mean, we are very comfortable with the low mid-single-digit growth, and we will stick to this. I mean we don't see any reason why we cannot meet our target. Laurie Shepard Goodroe: Our next question comes from Carlos Peixoto from CaixaBank BPI. Carlos Peixoto: Carlos Peixoto from CaixaBank here. A couple of follow-up questions actually as well. So mostly on NII. So if I understood correctly, you're expecting to see some pressure on asset yields coming through still in the fourth quarter through the repricing mechanism. Then you mentioned deposit costs maintaining roughly the spread to Euribor. And I guess that some volume growth, as you mentioned, fourth quarter tends to be much stronger. So putting all of this together, do you see enough support for NII in the fourth quarter to do materially better than in the third Q? And as you mentioned in the call, to see some -- well, basically that you won't be reaching the stable NII guidance, but I was just wondering whether we could be talking about a small single-digit decline in NII or closer to mid-single digit. Jacobo Díaz: Carlos, we did mention that the cost of deposit in the -- we are expecting next quarter to continue to decline, probably at a lower speed that we saw in previous quarter. And we mentioned somewhere between 5 to 10 basis points decline in the coming quarter. But we also -- we mentioned that we are -- we have come to a much lower speed of loan yield repricing, and we do expect some sort of stabilization or a slight reduction in the fourth quarter. That will mean that we do expect client margin to recover, and we are quite strong optimistic in terms of we will have a good -- at the end of the day, a good final quarter. But indeed, like you mentioned that -- and I did mention there might be a slight or minimum slippage in the overall flattish guidance. But again, it's going to be much more than compensated with fees. So we are good -- I mean, we are quite well optimistic about what's going to happen in the fourth quarter. So there is full repricing in corporate that has already been achieved in the third quarter. Euribor 12 months is behaving quite well around 220. There is a little bit more repricing from the mortgage book in the fourth quarter to come. But again, there is a strong seasonality that we believe will make a good fourth quarter to end up the year. As I mentioned, the fourth quarter is going to be again higher than the third quarter and much higher than the same quarter 1 year ago. So we think we are optimistic about the fourth quarter of this year. And of course, the coming quarters in 2026. We think this 270 client margin is something that we -- is definitely our ambition, and we are definitely managing everything in order to achieve that figure. Laurie Shepard Goodroe: Our next question comes from Ignacio Cerezo from UBS. Ignacio Cerezo Olmos: I've got one on the international credit book, which is around 30%, 35% of the total corporate lending book and seems to be growing much faster basically than domestic. So if you can give us some information, some color basically of what is in there and what is the reason is growing faster and what kind of sustainability you see on that? And kind of related to this more on a system basis, from a mortgage growth point of view in Spain, obviously, housing prices going up very fast. It doesn't feel that the shortfall of housing is going to be corrected anytime soon. I mean, is there any risk that the demand actually ends up drying up faster because of, I mean, problems of affordability, I mean, difficulties from people to access housing, et cetera. Do you think actually the pickup of mortgage growth we are seeing in the last year or so has less or there's a risk actually that drives up into the next, say, 6 to 12 months? Gloria Portero: Ignacio, with regard to mortgages, we don't see changes in demand in the very -- in the short term, so this year or next year. It is true what you're saying that prices go up and up and that there could start to be -- particularly in medium salaries, there could be problems of affordability. There are measures like the ICO lines where we are being active. Obviously, we have a little bit more than our market share that basically are trying to tackle this problem because they cover up to 100% of the value of the property. So what we are seeing in mortgages rather is what I've mentioned, which is a competition that is not being very reasonable with regard to long-term fixed rates. And basically, we are not going to enter that war, particularly in those clients. Well, in our clients, we might do because if we know how profitable their relationship with them is okay, but it won't be a measure to acquire new clients definitely. I think that's for mortgages. Jacobo Díaz: Ignacio, I'll take your question on international credit book. I think basically, our corporate banking Spanish clients are much more international than they used to be. They're much more focused on going abroad. And we do provide a quite large menu of products and services with a good technology, et cetera. So we are developing more technology, more, I don't know, supply chain management products, working capital facilities, endorsements, et cetera. So since we have increased our range of products and services to this type of clients, then the volume of activity and the loans and off-balance sheet items are keep growing and growing. So this is some sort of sustainable. This is something that we do expect to keep growing at the same -- at similar levels. So no one-offs in here is quite recurrent. And this is for us a quite relevant source of revenues, in terms of NII, in terms of fees, and it's a quite profitable business. Laurie Shepard Goodroe: Our next question comes from Alvaro Serrano from Morgan Stanley. Alvaro de Tejada: I just wanted to follow up on the loan growth. I take the seasonality and one thing, I just was curious, I wanted to double-click on your comments around derisking and the consumer book being down, I think you said 3% quarter-on-quarter. Where are you derisking? What kind of product, what region? And is it a one-off thing? And what should we be looking for in consumer going forward from here in terms of volume growth? And then the second sort of follow-up question to the broader discussion in the call is, how do you think the pricing dynamics in the mortgage, in particular, is going to evolve over the next few quarters? Are you seeing the market being less bad? If it stays as competitive as it is, what's the end game for you in the mortgage market in Spain? Gloria Portero: Alvaro, with regard to the portfolios where we are derisking, it is mainly open market consumer credit in Spain. So we are basically reducing our exposure and reducing also the new production and being more selective. That is on one hand. This portfolio anyway is not very significant in our overall book. And we continue to grow in consumer credit, but in our own clients in Spain and also in Portugal and in open markets, both in Ireland and in Portugal with Universo, the JV we have with Sonae. With regard to mortgages, well, for the moment, we are not seeing any changes in the pricing dynamics. But hopefully, we will be getting to prices where we have some margin with respect to the swap curve. But for the moment, that is not the case. That is why I was mentioning that we will probably decelerate growth, not so much in mortgages with our clients, but rather in the acquisition of new clients with mortgages. Laurie Shepard Goodroe: Our next question comes from Maks Mishyn from JB Capital. Maksym Mishyn: Two questions from me, please. The first one is on your Wealth Management business. Press reported several hirings you did. What kind of AUM growth should we think of for Bankinter in the medium term? And does this mean that fees are also likely to grow above the mid-single digits we have seen historically? And the second question is on capital, a follow-up on what the comfortable level is for you? And if the growth is not there, how can we think of deploying this capital? Jacobo Díaz: Maks, I mean, definitely, the current levels of growth in the Wealth Management business is something that we believe are sustainable. Of course, there are market effects that are not controlled. And this is something we cannot control, neither estimate. But the capacity to keep bringing net new money to the bank, as we've mentioned in the call, is becoming higher and higher. So now our estimation has increased from EUR 5 billion to EUR 7 billion every year to EUR 8 billion to EUR 10 billion every year. And that, of course, means that has an impact on fees. So definitely, we don't know exactly what's going to be the level of fees in -- the recurrent level of fees in the future, but we definitely think it's going to be quite strong and probably stronger that your -- I think you mentioned mid-single digit. So for us, again, the combination of our strategy in commercial activity has a full link in the Wealth Management activity and, of course, in fees. So... Gloria Portero: With respect to capital, I mean, we feel comfortable with a level in the -- between 12 40, 12 60, something that can give us room to continue growing and that doesn't restrict that growth. So this is more or less the average level where we are comfortable. Laurie Shepard Goodroe: Our next question comes from Pablo de la Torre from RBC Capital Markets. Pablo de la Torre Cuevas: Just a follow-up on Ireland on previous comments from Jacobo, you've mentioned the fixed-term deposit proposition in the country. But can you please remind us on the broader ambitions? And what are the next steps in the product road map in the country? And I guess in particular, you mentioned today your new higher ambition around net new money growth. So I was wondering if you were planning to start offering wealth products in Ireland next year. Maybe if I can squeeze in another follow-up on capital. Given your excess capital position and given also current valuation levels, can you just kind of update us on your appetite for inorganic growth from now? Jacobo Díaz: Pablo, regarding Ireland, definitely, the first phase is through the launch of the term deposit that we've mentioned before. Our next ambition is going to be the launch of current accounts at the beginning of 2026. And I think this is going to be the great moment of funding the growth that we are expecting in Ireland with deposits from local in Ireland. So we are targeting to fund whatever growth we have in the loan book in Ireland with the deposit book in Ireland as well. So this is the ambition, and this is the next step. We are not considering for the time being to move into the Wealth Management business in Ireland. I think we have plenty of things to capture and to target before that business. Gloria Portero: And with respect to inorganic growth, well, our appetite is very, very low. As you can imagine, we are an organic grower. We have always grown organically in the different businesses and geographies where we have the capabilities, and this is what we are doing in Ireland, and this is what we will continue to do in the future. Laurie Shepard Goodroe: Our next question comes from Britta Schmidt from Autonomous. Britta Schmidt: I have a follow-up on the consumer exposure, the open market consumer exposure in Spain that you talked about. Could you share with us the volume of that book and what the driver was for the derisking? I mean, have you seen a material change in the cost of risk there? And if so, why? And then on the -- you mentioned the operational risk impact in Q4. I mean, would it be reasonable to assume that it could be up to 20 basis points? Or do you expect something less than that? Gloria Portero: I will answer the consumer credit exposure. This is a very small book. It's like around EUR 1.3 billion. Not all of it is being derisking. The reason mainly here is not the cost of risk, it's an ROE question. So basically, we think there are better businesses where we can allocate our capital, and this is why we have decided to reduce our exposure in this book. Jacobo Díaz: Britta, regarding the operational risk, of course, we don't know the figure right now. As you know, the rules have also changed with Basel IV. So it's probably a little bit ambition for me to give you a good estimation. But it could be somewhere between 10% and 30%. So probably your 20% might be in the middle. Laurie Shepard Goodroe: Our next question comes from Hugo Cruz from KBW. Hugo Moniz Marques Da Cruz: I wanted to ask you about fee growth. If you could give a bit more guidance. I think before your guidance didn't assume any performance fees, which you had a lot of them in Q4. So the new guidance of double-digit growth year-on-year, does that include performance fees as well or not? And the second question on the cost of risk. You've improved your guidance a few times this year. The guidance for this year is below what you did in the previous 2 years. And then if we have a bit of slowdown in resi mortgages, does that mean the cost of risk next year could be higher than this year? Your thoughts on that would be very helpful. Jacobo Díaz: Hugo, regarding the fee growth, I think we -- as of today, we are already at the double-digit growth. So just basically, we do expect to continue growing at a similar path that we've done in the past quarters. We don't know yet if there's going to be any success fee. That's why we are not included -- we are not including success fees in those estimations because honestly, we don't know it yet. And regarding cost of risk, I think what we mentioned is that we are expecting to end the year with a cost of risk below 35 basis points. We are currently around 33 basis points as we shared in the presentation. We don't think that next year is going to be a higher figure. There is no reason why we should say that because what we're seeing is that there is quite stable situation. So we are very comfortable with the current situation of cost of risk. We are not perceiving any changes in the levels of delinquency, et cetera. And in fact, as Gloria was mentioning, we are reducing the exposure to some businesses with higher level of risk. So for the next year, we do not expect an increase in the estimation of cost of risk. Laurie Shepard Goodroe: Our next question comes from Fernando Gil de Santivañes from Intesa. Fernando Gil de Santivañes d´Ornellas: Two quick follow-ups, please. Regarding fees, I mean, there has been one transaction in Q3 regarding the renewables, similar to the one you did in the past, but you have not accounted it in Q3. Can you please guide us when this transaction and if there is any potential positive one-off coming in Q4? And is that included in the guidance? This is one. The second one is on costs. In the second quarter, you have the headcount down marginally, but down. Has this anything to do with the growth profile that you have been flagging during this call? Gloria Portero: I will answer the fees. Yes, this quarter, we have made a transaction, the sale of a portfolio of renewables. And we have not accounted for the success fees of this transaction so far because obviously, the contract has to -- how to say -- we have to close the contract exactly. So anyway, the fees that we're talking about are not material. It will be less than EUR 10 million or even a little bit less. So it is not something that is going to move the arrow. With respect to costs and the headcount, we are reducing the headcount in Spain, and we are doing that for several reasons. The first is that we are investing quite heavily in artificial intelligence, and this is allowing us not to replace the employees that go from the bank either voluntarily mainly. And I remind you that we have absorbed EVO Banco this year, and this means that we have 200 more employees Bankinter Spain, and that was enough to absorb the growth in -- needed in the headcount for the year. But anyway, I think that with respect to the headcount, you can expect the headcount in Spain to remain very stable next year or even to reduce a little bit because of all these investments we are making in artificial intelligence. Laurie Shepard Goodroe: Thank you. That ends our Q&A session. I would like to thank you on behalf of the entire Bankinter team, and Felipe and I will be there to support you for any questions post the webcast. Thank you all, and have a wonderful day.
Operator: Good day and welcome to the TransUnion's Third Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Gregory R. Bardi, Vice President of Investor Relations. Please go ahead. Gregory R. Bardi: Good morning and thank you for attending today. Joining me on the call are Christopher A. Cartwright, President and Chief Executive Officer, and Todd M. Cello, Executive Vice President and Chief Financial Officer. We posted our earnings release and slides to accompany this call on the TransUnion Investor Relations website this morning. It can also be found in the current report on Form 8-Ks that we filed this morning. Our earnings release and the accompanying slides include various schedules, which contain more detailed information about revenue, operating expenses, and other items, as well as certain non-GAAP disclosures and financial measures along with the corresponding reconciliation of these non-GAAP financial measures to their most directly comparable GAAP measures. Today's call will be recorded and a replay will be available on our website. We will also be making statements during the call that are forward-looking. These statements are based on current expectations and assumptions and are subject to risks and uncertainties. Actual results could differ materially from those described in the forward-looking statements because of factors discussed in today's earnings release, the comments made during this conference call, and in our most recent Form 10-Q and other reports and filings with the SEC. We do not undertake any duty to update any forward-looking statement. With that, let me turn it over to Chris. Christopher A. Cartwright: Thanks, Greg. During the third quarter, TransUnion again exceeded all key guidance metrics and achieved its seventh consecutive quarter of high single-digit organic revenue growth. These results demonstrate the growing momentum of our innovation-led strategy. I want to outline four key highlights from the quarter. First, we delivered market-leading and diversified growth, with revenue increasing by 11% on an organic constant currency basis, excluding the significant breach remediation win from last year, which represents our strongest underlying performance since 2021. Second, we are raising our 2025 guidance across all metrics, reflecting our strong third-quarter performance, stable lending trends in the U.S., and new business wins. U.S. lending conditions continue to be solid, characterized by modest GDP growth, still strong employment, stable delinquencies, lower interest rates, and manageable inflation. This is despite emerging concerns regarding a slowing labor market and stress for lower-income consumers. Third, we advanced our technology modernization with the successful migration of our first U.S. credit customers. One True is accelerating our pace of innovation in credit and non-credit products. We remain on track to achieve our remaining structural cost savings in 2026 as anticipated. Fourth, we accelerated our share repurchases to take advantage of highly attractive valuation levels. During the third quarter and October, we repurchased $160 million in shares, bringing the year-to-date total to $200 million. Additionally, we increased our share repurchase authorization to $1 billion, underscoring our commitment to delivering value to shareholders. Further details on each of these highlights are discussed below. Our third-quarter results demonstrate effective execution against our growth playbook, with strength evident across our solutions, our verticals, and our geographies. U.S. Markets delivered 13% organic constant currency revenue growth, excluding last year's breach win. Financial services grew 19%, or 12% excluding mortgage, reflecting continued broad-based outperformance in a stable and modestly growing market. Emerging verticals accelerated to 7.5%, their strongest growth since 2022. Our non-credit solutions, which account for over half of U.S. Markets revenue, grew 8%. These results reflect the emerging commercial benefits across our vertical markets from our accelerating innovation in credit, marketing, fraud, and communications. International revenue grew by 6% on an organic constant currency basis. Canada, the UK, and Africa all exceeded expectations and achieved double-digit growth despite muted economic conditions in each market. India grew 5%, slightly below our outlook as new tariffs impacted U.S. export-dependent small and medium-sized businesses, which tempered the pace of lending recovery. We now expect high single-digit revenue growth in India in the fourth quarter. On a positive note, we experienced some volume improvement in the first days of the festival season in late September and early October, supported by further pro-growth actions from the RBI and the Indian government. Todd will provide a comprehensive review of our results in just a minute. Looking ahead, we're raising our 2025 outlook based on our strong third-quarter results, stable U.S. lending trends, and our continued commercial momentum. Our guidance raise maintains a prudently conservative approach, which offers likely upside if current lending conditions continue. At the high end of guidance, we now expect 8% organic constant currency revenue growth, or 9% excluding last year's large breach win, 9% adjusted EBITDA growth, and 9% adjusted diluted earnings per share growth. Excluding the 400 basis point impact of a higher tax rate in 2025, our results show another year of double-digit EPS growth, supported by our consistent execution and the strength of our diversified and resilient portfolio. We continue to advance our technology modernization to drive cost savings, accelerate innovation, and enable sustainable growth. In the third quarter, we completed the migration of our first U.S. credit customers, a key milestone. We're enabling these clients with faster processing speeds and seamless access to our newest innovations, including TrueIQ analytics. Additionally, we expanded our dual-run program for key customers. We're partnering closely with our customers to ensure smooth transitions ahead of a full migration. By year-end, we expect One True to power a critical mass of our run-rate U.S. credit volume and revenue. We plan to complete all U.S. migrations by mid-2026. Over the year, we identified incremental third-party spend and other internal savings to deliver our targeted savings for 2026 and allow additional time to complete U.S. credit migrations. In 2026, we expect to deliver $35 million of operating expense savings and reduce capital expenditures to 6% of revenue. We will leverage these savings to drive margin expansion in 2026 and fund growth investments. We anticipate no technology-related one-time expense add-back in 2026. Next year, our technology modernization will shift to our international markets. We've launched the TrueIQ analytic platform in Canada, the UK, and India in 2025. Next year, we plan to export other OneTru-enabled solutions to these markets and start modernizing the core credit capabilities across Canada, the UK, and the Philippines. One True is our destination platform, and we expect to fund these migrations through normal operations, driving additional savings in 2027 and beyond while diffusing our innovative solutions globally. Our technology modernization is enabling commercial success across our solutions. We see new products rapidly gaining market traction, and we've built a robust innovation pipeline to fuel our next phase of growth. Factor Trust has delivered exceptional results, secured multiple new wins in the quarter, and continues to expand the pipeline. Factory Trust has been a key driver of outperformance in our consumer lending business throughout the year. We anticipate roughly 20% growth from Factor Trust in 2025. TrueIQ data enrichment launched on Snowflake with the first few live customers. The Snowflake partnership expands the market opportunity for data enrichment and underscores our commitment to meet customers wherever their data lives. Data enrichment has quickly become one of our most successful recent product launches. In fraud, we experienced strong demand for our newest synthetic fraud models and credit washing solutions. These new tools are built on One True and leverage our augmented identity graph, which now includes integrated public records and delivers better fraud signals. With One True, we're beginning to penetrate the large and fast-growing global market for advanced fraud analytics. We're accelerating growth in our marketing suite as well, driven by strong demand for our enhanced cloud-based identity resolution and audience activation capabilities. Over the last few years, we've streamlined our marketing suite down from 87 products across six separate platforms into a single integrated marketing platform on One True. This integrated solution improves performance and simplifies our product portfolio for sellers and customers. Trusted Call Solutions continues to scale with new customer wins and ongoing capability enhancements. We expect to deliver over $150 million in revenue in 2025, a 30% plus increase year over year. We also continue to pursue global expansion opportunities for TCS. In Consumer Solutions, our freemium model is increasing in users and offers available. We're also migrating our indirect customers globally onto a new platform that combines our credit education, identity protection, and financial offers behind a single set of APIs. One True brings together our unique data within a single workflow platform, making it easier to deploy AI solutions across use cases and at scale. TransUnion is well-positioned for AI-led growth. Our credit solutions are based on proprietary data contributed by thousands of individual furnishers. This data is not publicly available and can only be gathered and utilized within demanding regulatory frameworks. Our non-credit solutions are also developed from data gathered from tens of thousands of sources, many unique to TransUnion, and then combined with proprietary data exhaust from our fraud and marketing solutions. This vast array of data fuels our credit, fraud, and marketing predictive models, which already use advanced machine learning and AI to boost accuracy and facilitate actions based on their better predictions. Increasingly, TransUnion will capture value with AI agents by performing work currently done by internal client teams or automation upstream from our data and analytics. Our most AI-enabled customers already consume more of our data than our traditional customers, and they adopt our newer solutions more rapidly. We are actively leveraging AI across the enterprise to drive faster product development, enhance customer experience, and improve operational efficiency. Internally, One True Assist and One True AI Studio are driving productivity gains for our software developers and data scientists, but also for non-technical teams. Within the One True Tech platform, agentic.ai is enhancing core processes such as data onboarding, ID resolution, analytics, and delivery. At the product level, we're embedding AI into our solutions, including role-based agents for TrueIQ analytics, our next-generation fraud detection models, and advanced consumer behavioral analytics in our marketing suite. In summary, the tech modernization is driving rapid innovation and operational efficiency, but it's also positioning us to lead in the next phase of AI-driven growth. Our strong earnings and solid balance sheet have enabled us to boost capital returns for our shareholders. In the third quarter and October, we ramped up share repurchases to $160 million, increasing our total for the year to $200 million. This reflects our ongoing commitment to shareholder value. The Board recently raised our share repurchase authorization to $1 billion, and we believe buying back shares is especially attractive given our current market valuation. With that, I'll hand it over to Todd. Todd M. Cello: Thanks, Chris. Let me add my welcome to everyone. As Chris mentioned, we exceeded guidance across all key financial metrics in the third quarter, driven by U.S. Financial Services and Emerging Verticals. Consolidated revenue increased 8% on a reported and 7% on an organic constant currency basis. The Monevo acquisition added 0.5% to growth. The foreign currency impact was immaterial. Excluding the comparison to last year's large breach remediation win, organic constant currency growth was 11%. Mortgage contributed three points to growth. Adjusted EBITDA increased 8% with margin at 36.3%, above our 35.6% to 36.2% guidance due to revenue flow-through. Adjusted diluted earnings per share was $1.10, ahead of the high end of our guidance and an increase of 6%. In the third quarter, we incurred $34 million of one-time charges related to our transformation program: $12 million for operating model optimization and $22 million for technology transformation. Cumulative one-time transformation expenses total $349 million, and we remain on track and within budget for our $355 to $375 million in one-time expenses by 2025. Looking at segment financial performance for the third quarter, U.S. Markets revenue was up 7% on an organic constant currency basis versus the prior year, or 13% excluding the impact of last year's large breach win. Adjusted EBITDA margin was 38.4%, up 70 basis points due to revenue flow-through and lower product cost compared to the prior year. Financial Services revenue grew 19%, or 12% excluding mortgage. In the U.S., consumers remain resilient with still low unemployment and positive wage growth, and lenders well-positioned with adequate capital and healthy credit performance. Our growth reflects strong performance against the favorable and stable market backdrop. We continued to outperform the market by driving new business wins across our solution suites. Credit card and banking rose 5% against modestly improving online volumes. We continue to see good sales momentum with Trusted Call Solutions and alternative data. Consumer lending grew 17%, driven by healthy marketing and origination activity from FinTech and point-of-sale lenders. Factory Trust also delivered another strong quarter. Auto grew 16%, driven by pricing as well as growth in communications and marketing solutions. We saw an uptick in activity in the quarter, including increased electric vehicle sales in September ahead of the expiration of the federal EV tax credit. We anticipate volumes to normalize in the fourth quarter. Mortgage revenue grew 35% on flat inquiry volumes, benefiting from third-party scores, pricing, and non-tri-bureau revenue. Mortgage now represents 12% of trailing twelve-month revenue. Emerging Verticals grew 7.5%, led by double-digit growth in insurance. Other verticals accelerated as well, driven by strength in Trusted Call Solutions, marketing, and specialized risk. Tech, retail, e-commerce, and collections posted double-digit growth. Media and Communications grew mid-single digits, and Tenant and Employment grew low single digits. Public sector declined due to revenue timing. In insurance, we delivered another strong quarter. Consumer shopping remains elevated. Credit-based marketing activity continues to normalize as insurers benefit from improved rate adequacy, complemented by new wins and our modern marketing solutions. Commercial momentum continued in core credit and driving history products as well as Trusted Call Solutions. Turning to Consumer Interactive, revenue declined 8% on an organic constant currency basis due to last year's breach remediation win. Excluding this impact, Consumer Interactive grew mid-single digits with growth in both the direct and indirect channels. For my comments about international, all revenue growth comparisons will be in organic constant currency terms. For the total segment, revenue grew 6%. Canada and the UK delivered double-digit growth, demonstrating our ability to outgrow market volumes in our most mature markets. Africa and the Philippines also grew double digits. Other markets, including India, Latin America, and Hong Kong, experienced below-trend market volumes and growth rates. Adjusted EBITDA margin for our International segment was 43.2%. Looking at the specifics for each region, India grew 5%, slightly below our expectations as recent trade actions tempered the pace of volume recovery. We now anticipate high single-digit revenue growth in India in the fourth quarter. In late 2023 and throughout 2024, the Reserve Bank of India took actions to slow lending by tightening regulations and targeting lower loan-to-deposit ratios industry-wide. These actions included temporary bans of several non-banking finance companies. Volumes troughed in 2024 with gradual improvement throughout 2025. Conditions overall are favorable with manageable delinquencies and modest inflation. The RBI lowered rates by 100 basis points throughout 2025 and lifted lending bans on the impacted non-banking finance companies. The recovery has been measured. Loan-to-deposit ratios are still modestly elevated, and non-bank finance companies have conservatively returned to the market. Lenders are prioritizing existing customers and lower volume, higher notional loans over new-to-credit opportunities. These dynamics have underpinned our guidance throughout the year. Recent U.S. tariffs of 50% on Indian imports, however, introduced uncertainty and have dampened commercial lending, particularly to small and medium-sized businesses in export-oriented sectors. This has resulted in new pressures on CapEx, employment, and credit demand. On a positive note, the Indian government recently enacted tax reforms, and the RBI proposed further regulatory easing to support lenders and stimulate growth. Volumes in the early festive season in late September and early October, while still dampened from tariff effects, showed some improvement. We will monitor ongoing trends. From a TransUnion perspective, we continue to deliver double-digit growth in business wins and new product introductions, outperforming the broader market and our competitors. We remain highly confident in India's robust long-term growth potential. Our UK business grew 11%, our strongest performance since 2022, driven by healthy volumes from our largest banking customers and new business wins across verticals. We also continue to expand our consumer indirect offering to new partners, now serving over 27 million UK consumers. Canada also grew 11%. We drove innovation-led share gains across financial services, telco, insurance, and auto, as well as new and expanded wins in FinTech and consumer indirect. Latin America revenue was flat amid softer economic and lending conditions. Colombia delivered modest growth despite political uncertainty that weighed on government revenues and lending activity. Brazil declined as we lapped one-time project revenue. Our other Latin America countries grew modestly, impacted by consumer uncertainty linked to recent trade and immigration policies. Strategic campaigns and innovation-led wins offset some of the near-term volume pressures in the region. Asia Pacific declined 8%. The Philippines remained strong, but Hong Kong faced a soft economic backdrop. We also lapped one-time consulting revenue from the prior year. Finally, Africa increased 12% with broad-based growth across financial services, retail, and insurance. Turning to the balance sheet, we ended the quarter with $5.1 billion of debt and $750 million of cash on the balance sheet. Our leverage ratio at quarter-end declined to 2.7 times as we continue to push toward our long-term target of under 2.5 times. Our strengthening free cash flow and ongoing natural delevering positions us to accelerate capital returns to shareholders. We repurchased $160 million in shares in the third quarter and October, bringing the year-to-date total to $200 million. We remain on track to complete the Mexico acquisition in late 2025 or early 2026, which will be funded with cash on hand and debt. We look forward to adding Mexico to our leading global portfolio and bringing our state-of-the-art technology, innovative solutions, and industry expertise to Mexican consumers and businesses. Turning to guidance, as Chris mentioned, we are raising our full-year outlook, reflecting strong third-quarter results, stable U.S. lending conditions, and new business wins. Our guidance remains prudently conservative. If current conditions continue, we expect to deliver results at or above the high end of our guidance range. That brings us to our outlook for the fourth quarter. FX impact is expected to be minimal to both revenue and adjusted EBITDA. We expect our Monevo acquisition to contribute roughly 1% to revenue. We expect revenue to be between $1.119 billion and $1.139 billion, up 7% to 9% on an organic constant currency basis. Our revenue guidance includes two points of tailwind from mortgage. In the fourth quarter, mortgage inquiries are expected to increase modestly. We expect adjusted EBITDA to be between $393 million and $407 million, up 4% to 8%. We expect adjusted EBITDA margin of 35.1% to 35.8%, down 70 to 130 basis points. We expect our adjusted EBITDA margin in the second half of the year to be roughly 36%, consistent with the first half of the year and full-year expectations. We expect our adjusted diluted earnings per share to be between $0.97 and $1.02, down 1% to up 5%. Turning to the full year, we anticipate FX to be immaterial to revenue and adjusted EBITDA, and the Monevo acquisition to contribute 0.5% to revenue. We expect revenue of between $4.524 billion and $4.544 billion. We expect organic constant currency revenue growth of 8%, an increase from our prior guidance of 6% to 7%. Excluding mortgage, we expect organic constant currency growth of 5% to 6%. These growth rates include a 1% headwind from last year's breach win comparison. Specific to our segment organic constant currency assumptions, we expect U.S. Markets to be up high single digits or mid-single digits excluding mortgage. We now anticipate financial services to be up mid-teens or roughly 10% excluding mortgage. We expect mortgage revenue to increase by nearly 30% against modest declines in mortgage inquiries. We expect emerging verticals to be up mid-single digits. We anticipate Consumer Interactive decreasing low single digits but increasing low single digits when excluding the impact of last year's large breach win. We now anticipate international growing mid-single digits. Turning back to the total company outlook, we expect adjusted EBITDA to be between $1.622 billion and $1.637 billion, up 8% to 9%, an increase from our prior guidance of 5% to 7%. That would result in an adjusted EBITDA margin of 35.9% to 36%, down 10 basis points to flat. We anticipate adjusted diluted earnings per share to be $4.19 to $4.25, up 7% to 9%, also an increase from prior guidance of 3% to 6% growth. Our expected adjusted diluted earnings per share growth reflects strong double-digit underlying performance, excluding a 400 basis point headwind from a higher tax rate in 2025. We expect depreciation and amortization to be approximately $570 million. We expect the portion excluding step-up amortization from our 2012 change in control and subsequent acquisitions to be about $285 million as technology modernization initiatives go into production and start to depreciate. We anticipate net interest expense will be about $200 million for the full year, and we expect our adjusted tax rate to be approximately 26.5%. Capital expenditures are expected to be about 8% of revenue. We continue to expect to incur $100 million to $120 million in one-time charges in 2025 related to the last year of our transformation program. Given those investments, we expect our free cash flow conversion as a percentage of adjusted net income to be 70% in 2025 before improving to 90% plus in 2026. I will now turn the call back to Chris for closing remarks. Christopher A. Cartwright: Thank you, Todd. I'd like to provide some perspective on the recent changes in the mortgage market, both in terms of score competition and also distribution. We believe that these changes are a net positive for TransUnion, enabling us to fully leverage our leading trended and alternative data to the benefit of homebuyers. Additionally, we believe that the introduction of score competition will redistribute the economic value in the mortgage credit market towards data providers and away from scores. This is what we experience in all markets where score competition exists. It's our extensive contributed data from thousands of lenders that forms the foundation of value in mortgage credit decisions, not the score. We expect the proportion of value associated with data to increase over time now that competition is possible. As a pioneer in trended data and an innovator in the alternative data space, TransUnion will empower mortgage lenders to reward consumers for responsible credit behaviors while preserving the safety and soundness of the mortgage market. TransUnion is the only bureau with thirty months of trended credit data, creating the most complete picture of consumers. We continue to enhance our mortgage credit report with alternative data, including rental and utility trade lines and short-term lending attributes. VantageScore 4.0 uses trended and alternative data to boost predictive accuracy and to expand financial access, scoring 33 million consumers that were previously credit invisible. The scores are already used by the largest banks and 3,700 institutions in total, including increasingly in securitization. Additionally, VantageScore is the leading credit score for credit education, serving 220 million consumers. We believe that the combination of TransUnion's leading trended and alternative data alongside VantageScore 4.0 will shape a new era of more inclusive mortgage access, benefiting homebuyers, lenders, and investors. We provided further details on the importance of TransUnion in the lending ecosystem and the value proposition of the VantageScore in our appendix of this earnings presentation. Starting in '26, we're expanding our mortgage credit offerings to accelerate VantageScore adoption. First, we'll offer VantageScore 4.0 at $4, significantly below FICO's announced price hike to $10. For customers that adopt Vantage 4.0, the cost for a credit report plus a score in '26 will be similar to the cost of a credit report plus the FICO score in '25. To enable lender choice, we'll also provide a free VantageScore 4.0 for mortgage customers that purchase a FICO score from TransUnion through 2026. We'll also offer multi-year pricing for credit reports and Vantage 4.0 to promote certainty after multiple years of rapid FICO price increases. We'll launch a free VantageScore credit score simulator to empower prospective homebuyers to improve their credit scores and qualify for the best possible mortgage terms. These offerings provide clear cost savings and predictable pricing for clients, emphasizing that the main value in lending is in the data. Our actions will preserve the profitability of our mortgage vertical regardless of changes in third-party score delivery models. For TransUnion, VantageScore adoption represents an incremental profit and margin opportunity over time. Looking at the industry broadly, even a modest recovery in mortgage activity would boost already attractive financial results. Mortgage originations in 2025 are roughly 40% below 2019 levels, at their lowest levels since the middle of the 1990s. Despite this volume decline, we have built a strong profit base in mortgage. This year, we expect to deliver $580 million in mortgage revenues, or $395 million when excluding the $185 million of no-margin FICO royalties. We expect an eventual normalization in mortgage activity, with the pace largely determined by interest rates. Lower rates would drive substantial refinancing activity and start to unlock home purchase demand. Currently, over 9 million mortgages have rates above 6%, compared to 5 million total mortgage originations in 2024. If the average rates fall below 6%, we expect a significant increase in market activity. This normalization would significantly boost our earnings. Every 10% increase in mortgage volumes would add $40 million of adjusted EBITDA and $0.15 to our earnings. A full recovery to 2019 levels equates to a $240 million adjusted EBITDA increase, or $0.90 in our earnings, representing a 20% increase to 2025's adjusted diluted earnings per share. Any volume normalization would be in addition to the typical growth drivers in mortgage of pricing, innovation-led new business wins, and the upside from VantageScore adoption. Lower interest rates would drive incremental volume demands across all lending categories, which also remain below the long-term trends. Taking this together, we remain confident in navigating this evolving mortgage landscape to maintain our attractive financial profile with upside from VantageScore adoption, as well as an eventual recovery in lending volumes. In closing, TransUnion's strong third-quarter and year-to-date results highlight the benefits of our multiyear strategic transformation. We view the high single-digit revenue growth and the double-digit underlying EPS growth in each of the last two years as indicative of the long-term earnings power of our business in stable conditions. Going forward, we're poised to accelerate growth and efficiency, powered by our modern technology platform and the most innovative products in our history. We're just beginning to tap the potential in large and growing markets such as credit analytics, fraud, marketing, and trusted call solutions. We've also reinvigorated our consumer business. We see growth upside in each of these businesses because of recent product innovation and our expanded go-to-market efforts. This is in addition to any benefit from normalization in U.S. mortgage as well as India returning to its typical growth algorithm. Our industry-leading growth and enhanced free cash flow generation will enable us to accelerate capital returns to shareholders while continuing to invest thoughtfully in innovation and expansion. We plan to share more about our technology transformation, product innovations, and accelerating commercial momentum, as well as updating our medium-term financial framework at an Investor Day that we will host in early 2026. With that, let me turn it back to Greg. Gregory R. Bardi: That concludes our prepared remarks. For the Q&A, we ask that each ask only one question so that we can include more participants. Operator, we can begin the Q&A. Operator: Thank you. We will now begin the question and answer session. If you are using a speakerphone, please pick up your handset before pressing the keys. The first question comes from Andrew Steinerman with JPMorgan. Please go ahead. Andrew Steinerman: Good morning. I appreciate the left side of Slide four. This is the slide that breaks down the growth drivers by bars and colored bars in U.S. Market. I particularly wanted to ask how much of the U.S. Market growth here on Slide four is coming from FICO pricing pass-through. I'm just assuming that is on the green bar of pricing. Correct me if I'm wrong. While you're looking at the green bars, if you could just comment on the other green bars, the volume growth, that's credit volume growth and the non-credit growth green bars. Do you think is growing with market or gaining share relative to end market activity? Todd M. Cello: Good morning, this is Todd. I'll take that question. As it pertains to pricing when we look at that 5%, I would say a good portion of that relates to the mortgage pricing. But there still is pricing that TransUnion does take and we do have a pretty robust process to have price increases on an annual basis, but I'd say the majority of that is primarily related to mortgage. If we look at the other green bars, the volumes in particular do speak to the growth that we have been experiencing within credit. We articulated that, talked specifically about within financial services excluding mortgage, saw some really good growth in consumer lending. Credit card and banking also was up a little bit and auto is kind of held its own. Other than that, we are seeing good volume growth outside within the emerging verticals as well. If you look at non-credit growth, think of that as our Trusted Call Solution capabilities. Think of that as marketing as well as fraud. In particular, in the third quarter, we saw very strong growth continue in Trusted Call Solutions and encouragingly marketing posted a very good solid quarter and you can see that when you look through to the emerging vertical overall growth rate at 7.5%. Andrew Steinerman: Great. Thanks, Todd. Then if I could just add on to that too, one last is that I just talked about the volumes in that first bar, but the bar clearly has wins in there as well too. So I'd be remiss to not recognize the terrific work that our sales team has done and continuing to build our pipeline, convert that to bookings, and then ultimately enjoy the revenue recognition that you're seeing here. Christopher A. Cartwright: Look, if I can add my 2¢ Andrew. Obviously, to compare our results to the market, you got to do some slicing and dicing for non-comparable lines of businesses and such between the different players. When we isolate it down to financial services performance, we think we're materially outgrowing the market. A lot of it is due to our new innovation. The Factor Trust score has really reinvigorated our growth across consumer lending. We think we are gaining share. When you adjust for mortgage, which is a bit of a constant between the several bureaus, our growth rate is more than double that of what we see elsewhere in the market. Andrew Steinerman: Great. Thanks, Chris. The next question is from Jeffrey P. Meuler of Third. Please go ahead. Jeffrey P. Meuler: Yes. Thank you. Good morning. So really nice quarter. They've been good for a while now. I want to ask about the pace of investment. There was a nice EBITDA beat to go along with really good revenue growth, but the flow-through on the revenue upside was lower than it sometimes is on big revenue beats, especially when you're at 11% underlying growth. So my question, are you incrementally, I guess, reinvesting into strength? If it's incremental investment, what is it in? Like is it some of the AI initiatives ahead of productivity and revenue benefit or what is it? Any framework updated framework you can give on how to think about margins beyond 2025? Thank you. Christopher A. Cartwright: Yes. Well, listen for sure Andrew, I think you characterized it Oh, sorry, Jeff. Apologies. I think you characterized it right that we are accelerating investments given the financial strength that we're delivering in 2025. I mean, pulling back the frame a little bit, we're very happy with how we're performing not just in the quarter, but how we're set up to perform in 2025 and really over the past couple of years. We're talking very high single-digit organic compounding growth. We've got margin expansion. We've got low double-digit EPS growth when you make sensible adjustments to the numbers. We're highly confident that we're going to deliver on all of these metrics including our 36% margin guide. I would also point out that our guide for the remainder of the year, the fourth quarter, and the full year maintains our prudent conservatism, which I think you guys know means if conditions persist as we have experienced them in the quarter, and for most of the year, we would expect to outperform the high end of this guidance. So in terms of the fall-through, look, the strong outperformance has given us a chance to continue our product innovation, to invest in AI areas like I highlighted. We had a slide on that in the deck and I talked about how AI is really permeating much of our product and some of our new feature functionality for using our new analytics platform. But additionally, we're growing our go-to-market effort across all of our new product lines because we want to make sure that we can continue to compound the top line at this level going forward. So hopefully that gives you what you need. Todd M. Cello: Question, I think I heard you talk about '26, Andrew. So let me kind of sorry, Jeff, I call you Andrew now too. So, 2026 as far as how we're thinking about margins, I think our expectations are for what we would characterize to be solid expansion in 2026. So, if conditions stay the way that they are, revenue growth plus the remaining savings from our transformation program will allow us to achieve that solid margin expansion while also allowing us to invest back in the business. So just like what Chris just talked through, so that's an important point. Also, we're committed just to reiterate a point we made in our prepared remarks to stop the transformation program adjustments. That will end at the 2025. I think it's important to call out here that when we announced that program in November 2023, we called for that spend to be between $355 million and $375 million. We've managed to that budget and we've hit our deliverables. So that's been a big focus for us internally. So really proud of what the team has been able to accomplish there. The other part when we think about 2026, let's not forget that we're also planning to reduce our capital expenditures down from about 8% to 6% of revenues. So the margin expansion plus the CapEx coming down to 6% nets us to a 90% plus free cash flow conversion, which we've had our eyes on since the beginning of this transformation program two years ago. Christopher A. Cartwright: Yes, good point. Thank you. Operator: The next question is from Faiza Alwy of Deutsche Bank. Please go ahead. Faiza Alwy: Yes. Hi. Good morning. I wanted to ask about the really strong growth you had in emerging verticals. I'm curious how do you think about the sustainability of that growth? I know you're still guiding to mid-single digits for the year. But was there anything sort of one-time related? Maybe if you can remind us around how much of the business is subscription-related and what you're seeing from a new business perspective here? Christopher A. Cartwright: Yes, thanks for the question. Look, there's nothing anomalous in the third-quarter results for emerging verticals. There's nothing that is one-time or that you need to make an adjustment for. Obviously, it's been a little bit bumpy in the past couple of years as we've been raising our growth rate and emerging from low single to now high single digits. We've got a stable foundation of revenue performance across almost all the vertical components of emerging. We had to get through some volatility in the tenant and employment because of CFPB changes and the like. The only component I think that is not performing right now is public sector, which is relatively small for us. But we used to be able to count on it for low double-digit growth. Doge kind of interrupted that. Shutdown is probably not going to help. But there's no reason in the intermediate future with stability that our solutions don't start growing at low double digits again. Now with that said, what's driving the improvements in the growth are first insurance. Insurance has been a solid double-digit organic grower for the past couple of years. We're doing exceptionally well there. We've got terrific products, particularly our drivers' risk solutions. We estimate now with current policy levels that we touch 50% of all policies that are being underwritten in the U.S. So it's a fantastic and growthful position that will continue. We've also really grown well in our Trusted Call, our communication solutions. That's again a double-digit grower. There's a lot of addressable market ahead of us. There's a lot of opportunity to expand those solutions internationally. Marketing has been reinvigorated. Marketing has been a target for tremendous reinvestment over these past couple of years. We launched our TruAudience marketing solution. It's now we've gone from just dozens and dozens of point solutions into an integrated end-to-end workflow solution for marketers and our audience data, our onboarding revenues, and most importantly, our core identity resolution, which really leads the market, are performing exceptionally well. Fraud is contributing, investigative solutions, all of them are showing improved revenue performance. Our goal is to get this number up and to really take advantage of some very large and fast-growing markets. Faiza Alwy: Great. Thank you, Chris. The next question is from Toni Michele Kaplan of Morgan Stanley. Please go ahead. Toni Michele Kaplan: Thanks so much. Chris, thanks for going through your AI solutions in the prepared remarks. I was hoping you could talk a little bit more about your proprietary data and particularly how you're positioned in the marketing business, but also across other parts of the business? I think you did a great job, but just wanted to hear more specifics on that. Thanks. Christopher A. Cartwright: Okay. Yes. Well, thanks for the question. Obviously, AI concerns have permeated the info services space over the past couple of months. There's been a lot of thought about who's positioned to win and who might be vulnerable. As I articulated in the main deck, I feel like TransUnion and the bureaus overall are really positioned to be beneficiaries of AI because of the breadth and the proprietary nature of the data, the broad contributory network, and all of the levels of regulation around this information. You simply can't go out and crawl the web, get all of this credit information, and then credential all of the customers who consume it and then ensure that those customers are only using it in the regulatorily approved ways. That can't happen, right? We've got this proprietary defensible foundation of information. If you look at the marketing space, we are gathering information in marketing and fraud from literally tens of thousands of different touchpoints. Many of them are not publicly accessible, and that information, while it's not regulated by the Fair Credit Reporting Act, it is regulated by the Drivers Privacy Protection Act, by GLB regulations overall. Again, there are regulatory hurdles or moats protections around this data. Our solutions not only take that foundation of data, but they combine all of the exhaust we get from providing marketing, in particular audience activation and measurement services to the space, and they incorporate that back into the data foundation. So there's a bit of a network effect that enriches our marketing data and our fraud data that makes it hugely defensible. Now as we build AI on top of that foundation, as we move from advanced machine learning to more AI and generative techniques, it gives us an incremental growth opportunity because look, the analytics and the insights that consumers drive from our data that leads them to take actions. A lot of those actions are embedded in software applications upstream. Decisioning and other workflow applications. Increasingly, the AI agents that we're going to build are going to erode the value of the upstream software applications. So over time, our business and as you look across our industry, we are going to evolve into integrated workflow platforms driven by proprietary data and analytics. We strongly believe that AI represents a massive growth unlock for the business. It's just going to take some time for the market to understand this and then recognize it. Toni Michele Kaplan: Thank you. Operator: The next question is from Manav Shiv Patnaik of Barclays. Please go ahead. Manav Shiv Patnaik: Thank you. Chris, I just want to on that last statement you made. I think, yes, the market will take some time to appreciate it, but is it also because it's going to take you guys some time to actually show that benefit in the revenue line item? Then maybe to Todd just on the cost side, does that help? When can we start seeing that help your margin flow through? Christopher A. Cartwright: Yes. Look, fair question, Manav. We've raised our guidance for the fourth quarter, but we didn't do it based on anticipated new AI revenues. Right? So if your perspective is the next quarter, it's going to take a little bit of time. In the intermediate term, you're going to start to see increases in wins and retentions and pricing power increases and absolute new categories of revenue developed quarter by quarter as we begin to utilize AI across the product suite. The other thing I would say is look internally, we're using AI to automate a lot of our customer service and our dispute resolution operations. We have thousands and thousands of people that service consumers around the world who have questions or concerns about their credit or the scores being calculated based on it. We can do a better job servicing those consumers with AI-enriched processes, and we're investing a lot to make that happen. I think that's going to allow us to continually improve service at much greater productivity over time that will be a net positive to our margins going forward. Manav Shiv Patnaik: Thank you. Operator: The next question is from Ashish Sabadra of RBC Capital Markets. Please go ahead. Ashish Sabadra: Thanks for taking my question and congrats on such solid results. I just wanted to ask a few questions on mortgage, questions that we are getting a lot from investors. First one was just around mortgage. Is there an opportunity for you to continue to raise prices on your data file even in a FICO direct license model? Second is just some concerns around 3b2-2b. Have you heard anything on that front? Third would be just on the trigger marketing regulation. Could that have any impact on your revenues going forward? Thanks again. Christopher A. Cartwright: Hey, Ashish, I didn't hear the second component of your question. The first is the change competition and the changes in the distribution model and go-forward pricing power. The third is about triggers. What was the second? Ashish Sabadra: Just the three bureau to two bureau. Is there any potential risk there? Thank you. Christopher A. Cartwright: Okay. Well, we've got our mortgage team at the Mortgage Bankers Association meeting has been going on since Sunday. We've had a ton of client interactions. All three bureaus have had their representatives on stage talking about their new integrated mortgage offerings to counter this latest and very aggressive price increase by FICO. I think you have to just stop for a second and realize that four years ago, the FICO score cost I think it was $0.62. Today, we're talking $10. Resellers and lenders are really frustrated by the aggressive price increases that have been put through and put through on the eve of competition for the first time in thirty years in score pricing. Now what we have put forward 30 million plus consumers that were previously because we were using a score that was point-in-time data and not trended data. Trended data has been the standard for a decade in the mortgage industry. Right? So there's been a real lack of innovation in that regard. The power of our trended data and alternative data, we estimate 5 million to 6 million more Americans will qualify for GSE-sponsored mortgages going forward. There is value there that I think TransUnion and the other bureaus will be able to capture while still saving the industry an enormous amount of cost. Right. So the industry is looking for this opportunity. Now look, for thirty years, the industry has not had choice. So much of it is calibrated to the FICO classic score. But the industry is hungering for change. They want greater financial inclusion because that means more customers for them to make loans to. The GSEs care about financial inclusion and they also care about safety and soundness. For ten years, they've insisted upon trended data from the bureaus because they know it works better. Right? So now the stars are aligning to really support what I think will be a material share shift over time. Yes, it's going to take some time to warm up the engine. But look, we have already helped a number of clients move off of the FICO score. Synchrony moved to VantageScore for underwriting their card portfolios some years ago. They wrote a white paper on how to do it. They've had teach-ins on how to do it. They securitize those mortgages. Community financial institutions have been under the vice of FICO price increases. They hold a lot of their mortgages on their books. We have been converting many of them over to the VantageScore and trended data for years. Okay. So it's not like this can't happen. I think the industry is awakening to the opportunity. I think the entirety of the industry is going to start experimenting with this. I think over time you're going to see material share shift to Vantage because it works better and it unlocks trended data and the industry is fed up with price increases. So that's the first point. Now triggers, we've essentially been out of the triggers business for years, right? So we're not impacted by the changes in regulation or legislation. Look in terms of the TriMerge, the tri-merge is an important part of the safety and the security of the mortgage lending system in the U.S. We've proven it out empirically. Neutral third parties like S&P have analyzed this. What they've observed is that in recent years the three bureau files have started to diverge in terms of their data content. This era of accelerating alternative data on the credit files is just going to lead to further divergence. If you don't pull three files, the chances are you're not going to qualify somebody who could be qualified. It's a misrevenue opportunity. You're also not going to assess the risk as well as you will if you pull three files. You may end up charging people more on a very large and long-duration credit. That higher rate is going to come down to a massive increase in the interest that a consumer pays. So for a very small cost in the context of this larger transaction, you get greater financial inclusion, greater profitability, greater safety and soundness. For all of those reasons, which the FHFA understands very well and there's an enormous amount of support on Capitol Hill for the TriMerge, I don't see any changes coming on that horizon. Ashish Sabadra: Very helpful, Chris. Thank you very much. Operator: The next question is from Scott Darren Wurtzel of Wolfe Research. Please go ahead. Scott Darren Wurtzel: Hey, good morning guys and thank you for taking my question. Just wanted to go back to maybe some of the trends you're seeing on the FinTech lender side. It sounds like during the quarter itself, trends were pretty stable. But just given some of the noise that we've heard around subprime credit or anything, just wondering if you can maybe talk about some of the trends you've seen since kind of the end of September, early October on that side of the business? Thank you. Christopher A. Cartwright: Well, look, let me pull back the lens and just talk about the overall market conditions that we're seeing and the health of the market. The broader context is coming out of COVID and coming out of this era of really cheap money in the U.S., in 2022 and 2023, we had to deal with declining volumes. In '24 and '25, we've largely had stable but muted lending levels. All lending categories are below the long-term trend. Mortgage lending is dramatically below the long-term trends. It's back to mid-90s levels. Now I think we're in a period of stable to improving loan volumes. I mean if you look at our results, 11% organic growth with 13% in U.S. Markets alone reflects really good volumes. Now we're not back to the long-term trend lines, but when I look at my daily volume reports across all categories, I see material volume increases. Part of that is because of the soundness of the market. So it's macro-driven, but a lot of it is based on our commercial success. Right? The wins that we're racking up in the market and the dramatic performance improvements in our subprime-oriented credit scores. Right, the Factor Trust scores. So we're doing really well there. We see a market that's got decent GDP growth, lowering interest rates, a lot of stability in delinquencies. We've looked really hard here at the nominal debt levels of consumers of all risk tiers. Looking at their current levels back to 2019. You see in the media a lot of concern about the nominal increases in consumer leverage. But when you adjust that for inflation and you adjust it for the substantial wage gains particularly that lower-income Americans have enjoyed over this period, their net indebtedness in 2025 looks pretty much the same as 2019. I think the banks confirm this. I mean we just had a round of bank reporting. All the results for the industry are quite solid. Lending volumes are increasing and practically no one took any increase in their bad debt reserves. Right? So the industry feels good about the condition of the market. The industry feels good about the condition and lendability of the consumer. Now at the lower end in subprime, I mean, look go back over the last eight quarters, ask AI to do a media search for you. In every quarter somebody is talking about instability and subprime rising delinquencies etcetera, etcetera. Despite those concerns, some of which are legitimate, we have managed to post market-leading growth in every quarter. Right? So clearly our foundation for growth is very broad-based across all risk tiers in the U.S. The portfolio is really representative of the broader lending ecosystem. It's not skewed toward subprime. If it were, we wouldn't have been able to outgrow the market for the past eight quarters. So those are my thoughts on that topic. Thank you. Operator: The next question comes from Craig Huber with Huber Research Partners. Please go ahead. Craig Huber: Yes, hi, good morning. Thank you. My understanding is out there that VantageScore has about 5% market share in autos, credit cards, personal loans, etcetera. Obviously, on the non-conforming part of mortgages, I believe it's basically negligible in the non-conforming piece. When we think about the pricing you guys have come out with for VantageScore for mortgages of $4 you just announced recently, Equifax obviously came out at $4.05 $0 price. Then you talk about it versus $10 for FICO score. That is a huge cost savings. I could see your argument there. But obviously, FICO has a second model out there, right, a brand new one at $5 but then it's a $33 fee on the back end if the mortgage closes. All this stuff, of course, gets paid by the consumer. If I'm the lender, if I'm the lender here, I'm going to be much more likely to go with the $5 option for FICO. Then the $33 on the back end that the consumer pays for all of that, correct? On the lender. So in my mind, I'm comparing your $4 number to $5. Am I wrong on that? Also, can you comment on the 5% market share? Christopher A. Cartwright: Yes. Well, look, the market share is low in these other areas, but I think that's derived in large part to the monopoly positioning in mortgage. Of course for FICO, the profitability of the business is driven disproportionately out of mortgage where the pricing is high. I think now that all of these resellers are being forced to do the analytics behind the Vantage score in conversion, it just creates a very ripe opportunity for share shift. I think that's how it's going to play out over time. Now in terms of the success-based model or the booked fee model, and in terms of shifting the calculation of the FICO score via the direct approach, I think that the resellers and the lenders, but particularly the resellers, are just starting to understand the complication with administering the model. It comes with a blizzard of complexity. Right? The first is just the accuracy of the calculations themselves. As we've seen in the industry, sometimes there are errors. When there are errors, the question will be who's responsible? For that error? Secondly, today none of the resellers are agents of the bureau. That's a status that's very difficult to attain. You have to have considerable cybersecurity investments and scrutiny and they've simply been consumers of the data and the output of the score calculation that we provide and then they pass the three of them on to the GSEs or to their lending customers. Right? Well, now they're going to have to increase their cybersecurity investments. They're going to have to increase their personnel investments to support potentially consumer dispute inquiries and the legal and the regulatory liability that they're going to have to assume is considerable. Now, I don't think that any of that was really understood at the initial press release. Based on the feedback that we're getting from the MBA, the resellers are now understanding that and they really have they don't really know how to handle that. Because it is really quite complicated and it is fraught with a number of challenges that can have significant financial consequences. Craig Huber: From your perspective in 2026, are you viewing that the changes that FICO have done for their pricing in the marketplace from your perspective, given the change with your own pricing, etcetera, that you will be it will be neutral to you? In essence, you're raising the price on your credit file for mortgages, basically to make up the loss FICO revenue and profit? Am I thinking about that correctly? Christopher A. Cartwright: Yes. Look, the measures that we have taken around our mortgage offerings in total actually hold the cost of the credit in the services that we provide related to credit constant between the years. Right? So we expect that we're going to protect our revenue and our profits regardless of who's calculating the FICO score and regardless of which model they choose. Right? Then from there, I think we will have revenue growth and margin enhancement as we start to take share from FICO Classic. Craig Huber: So again, I'm sorry, in '20 you don't think of an EBITDA basis that the changes that FICO put in place here are going to change your outlook for next year? Is that correct? Todd M. Cello: Is correct. Craig Huber: Thank you very much. Operator: The last question will be Andrew Nicholas from William Blair. Please go ahead. Tom Rausch: Hi, good morning. This is Tom Rausch on for Andrew Nicholas. Thanks for taking my call. I wanted to touch on the trajectory of India growth. I think fourth quarter you were expecting to exit the year in high teens growth. Was curious when you're what you're thinking about like getting back to that rate, could you see it happening next year? Then relatedly, it sounds like the tariff impact was on the commercial lending part of the business. So I was wondering how consumer lending within India tracked relative to your expectations in the quarter? Thank you. Christopher A. Cartwright: Well, yes, well look the India situation is very fluid. Because we're in the middle geopolitically of intense negotiations around tariff and trade terms. We were very much pivoting back toward high teens growth in India in the fourth quarter. When things went a little bit sour, the U.S. imposed a 50% tariff on all imports coming from India. Now the challenge there is that a good portion of the economy about 30% is driven by micro, small, and medium businesses, very entrepreneurially driven that are also export-dependent. So with this additional cloud hanging over, the banks have slowed lending to that segment, which has flowed through the form of lower volumes to our leading bureau there, Sibyl. Right. Now again, things change pretty quickly in these trade negotiations. Could be here a month from now with stability restored and lending volumes increasing. But what we do know is that India continues to be an awesome market. They've got 7% GDP growth, they've got inflation down to 3%. They have a central bank, the RBI, that is growth-oriented that has been enabling fintechs that support unsecured retail lenders to resume their operations, which was driving more volume. They've been cutting rates. So all the macro factors are aligning for a resumption of terrific growth coming out of one of the largest and most attractive markets on the planet. But we have hit a speed bump here with the 50% tariff and we're just going to have to wait until that gets resolved. I'm confident it will resolve. I think the U.S. and India are natural partners and there's a tremendous amount of trade that we'll do. But things do get heated in the course of negotiations and so that has delayed the full recovery of that market a bit. Say the other bright spot in India is that mean, have 40% exposure to consumer credit. We're growing in all of our other categories. We recently launched our analytics platform TrueIQ Analytics in India. We know with a lot of interest from major bank clients, and I think it's a whole new vector of growth that will both help us defend the massive market share that we have and then generate new revenues additionally. Todd M. Cello: Tom, I'm going to add on to that. Hopefully, you're hearing from Chris is just the conviction that we have in the India business and the runway that's ahead for us. You got to think about this longer term. But when we take a step back and we think about just the overall portfolio of TransUnion and the businesses that we have and how diverse they are, just want to call out while India is very important to us, it does represent only about 7% of our total revenues. What's important to talk about that balance of the portfolio is if you go back to 2022 and 2023, when the more developed markets of the U.S., the UK, and Canada in a slowdown because of high inflation and rising interest rates, India business was growing in the 30% range. So right now there's some things going on in their market that Chris just articulated. So that revenue is down to 5%. But if you look across the portfolio now, markets like Canada and the UK are leading the international growth. 11% in the third quarter. Despite all of this noise, with India, we continue to deliver high single-digit revenue growth with India clearly below trend and our long-term aspirations. Christopher A. Cartwright: Yes. In addition to that, I mean, I outlined in my concluding remarks, there's a number of places in the portfolio where we think we will boost our growth rate based on all the product innovation and based on expanded go-to-market investments. I would put marketing, fraud, communications, analytics across credit, marketing, and fraud. I think investigative solutions have got a lot of juice. Of course, India is upside. Of course, mortgage is upside. Let's not forget the consumer business. We've made massive investments to remediate the consumer business. They're starting to bear fruit. Our intermediate goal is to get that back to a mid-single-digit compounder. I feel like we're on the way there. So I mean if you like 11% in market-leading growth, understand that it's on a stable consumer lending foundation today and there's upside from that given all of the product innovations in all of those different market areas that I just outlined. I think again it's important to emphasize that this is a global portfolio. At any point in time, we're going to have strength and weaknesses across it. If you look at the consistency of our results over the past five years, the worst we've ever done is grow in line with the market, but for the most part, we outperformed the growth rates in the market. So I think this portfolio is much less risky and far more durable than is currently understood. Gregory R. Bardi: All right. Thanks, Chris, Todd. I think that's a good place to end. Thanks for all your questions today and have a great rest of your day. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Christoffer Stromback: Good morning, everyone, and welcome to this presentation of Castellum's Q3 report. My name is Christoffer Stromback and I'm Head of Investor Relations. There will be a Q&A session in the end of the webcast. [Operator Instructions]. Let's start. Please go ahead, Pal Ahlsen. Pal Ahlsen: Good morning. The mission from the owners and from the Board to all at Castellum is crystal clear. Castellum needs to become more profitable. I think that's an exciting and fun assignment, fun mission, but I don't think it will be a walk in the park. I think everyone knows that the heydays of real estate is over for this time. So now it's back to basics for Castellum in the day-to-day business. So instead of yield compression, it's leasing. Instead of interest rates, which are -- which were almost 0 it's turning over every stone to find ways to become more efficient and more cost efficient. But it's also in the day-to-day business making sure that we are owning the right properties in the right locations and consequently seizing the opportunities we see in the transaction market. It means that we will become a more entrepreneurial company, I would say, a less democratic company. Although the net leasing in the first quarter -- the third quarter, this quarter, was positive with SEK 16 million. We know that the net leasing for the previous quarters have been negative. So in terms of vacancy rate, we know that our performance will become slightly worse going forward than it is right now due to this negative net leasing in previous quarters. So in the property management for us right now, it's mainly 1 focus, and that's leasing, leasing and leasing, means that we have to become more flexible and faster in our leasing activities. At this stage, I've been CEO now for almost 2 months. I've seen almost all properties, not all our properties yet. And just a personal reflection, I think what I've seen so far of the property portfolio is actually a bit better than I had expected. Of course, that statement has to do with what I thought before I started. But at least, this is slightly better than I thought, and I'm very happy about that. The locations are good and suits the type of purposes the buildings have. We have nice locations for office in inner cities, but also nice locations, but in B locations in the office segment. And then we have lots of industry and warehouse and logistics, also in the right locations given the purpose of those buildings. And I also think that the property portfolio is a bit more well kept than I had thought before. So that's a nice starting point, I think, for my new assignment here in Castellum. And the other reflection I would like to do is, I met most, but not all, of the staff, and I'm meeting quite competent staff that know their property portfolio by March. So I think we have a nice starting point for not turning the ship around, but really to get to where the owners and the Board want us to more profitability. As I suppose most of you know, we are commercial real estate company with most of our holdings in southern part of Sweden, but we also have properties in Copenhagen and in Finland and mainly in Helsinki. Most of our assets are office properties. We have lots of public tenants, governmental tenants and then we have a large proportion also of office -- of warehouse and light industry. And most of you also know that we have a significant share of the bid in Norway called Entra, which owns mostly AAA located office buildings in Oslo, and we own almost 40% of that company. So all in all, we have almost, and including Entra, we have almost properties for SEK 160 billion and directly own SEK 137 billion. Jens Andersson: Thank you, Pal. I'm jumping into the summary of the results. The results compared with the same period last year is negatively affected by divestments and higher vacancies. In addition, income from property management is impaired by higher financial costs due to one-off profit from our bond repurchase last year. Net leasing in the third quarter is positive SEK 16 million and minus SEK 166 million for the period, still happy to report 2 consecutive quarters with positive net leasing. Occupancy rate stands at 90%, which is somewhat lower than last quarter. Net investments of SEK 3.5 billion compared with minus SEK 327 million in the same period last year. Going into details, looking at development of income during the period, the like-for-like portfolio income is unchanged. Indexation contributes, but is offset by higher vacancies. The vacancies is coming quarters will continue to increase due to our weak net leasing in the first quarter. The direct property costs for the like-for-like portfolio is increased by SEK 40 million, equivalent to 2.5%. Direct property cost decrease at the beginning of the year due to the warm winter, low increase in the second and third quarter, primarily due to the higher rental losses, which increased by SEK 25 million. Divestments decreased income with SEK 125 million, however, partially mitigated by acquisitions in the second quarter, contributing to the income with SEK 29 million. Central administrative and property administrative cost is in line with previous years. On an aggregate debt level, NOI decreased by SEK 226 million with divestments, increasing vacancies and one of insurance claims recorded during second quarter previous year as key drivers. Looking at renegotiations. Corresponding to an annual rent of SEK 197 million, which translates to 9% of total lease stock up for negotiation were conducted during the period with an average positive change in rent of 1.6%. Limited investments on average to secure the renegotiated leases. Additionally, contracts with an annual rent of SEK 1.345 billion were extended during the period with no change in terms, equivalent to 60% of total lease stock up for negotiation, which is up from 50% in the second quarter, indicating that a good portion of our tenants are comfortable continuing paying their current rent of the indexation. Net leasing for the quarter amounts to SEK 16 million for the period, the net leasing amounts to SEK 166 million minus. The economic occupancy rate amounts to 90%, a decline of 1.2% since third quarter '24. The decline is driven by increasing vacancies corresponding to 0.8% and a general review of vacancy rents, which explains additional 0.4%. Looking at property values. During the period, Castellum has written down property values with approximately SEK 1.4 billion, equivalent to 1%. The value change is partly driven by the default of Norrköping, the fact that offer will leave approximately 24,000 square meters in Solna and generally lower cash flow expectations in our valuations due to a downward pressure on rental levels and/or increasing tenant investments to uphold lease levels in some of our markets. The valuation yield is in all essence, the same as the second quarter 2025 at 5.63%. In addition, our projects continue to show positive value add. Looking into the transaction market in Sweden, the investment volume in the Swedish real estate sector ended up at approximately SEK 104 billion in the period, compared with SEK 82 billion in 2024 and SEK 83 billion in '23. Our investment volume -- of the investment volume approximately 20% was office properties, which is higher than '24 and '23, indicating growing interest into the office segment however, on aggregate, a bit lower than historical average. Looking at financial highlights, market conditions are very favorable credit margins at historically low levels and with attractive term premium, current credit spreads in the domestic market for a 3-year bond is at around 90 bps and for a 5-year bond around 120 to 125 bps. European market is at the lower end of this range. Nordic banks continue to offer competitive pricing and are willing to increase volumes. S&P confirmed our BBB rating with stable outlook during the quarter, also hold a Ba2 rating with stable outlook for Moody's. Low refinancing activity during the quarter. In total, we refinanced SEK 1 billion in secured debt on a 10-year tenor, no activity in the bond market and limited bond maturities in the coming 6 months. Average interest rate currently at 3.1%, down from 3.2% during the second quarter. We see a potential to further reduce the average interest rate in our debt portfolio by refinancing loans and bonds on better terms. Looking at financial key ratios, very small changes in financial key ratios compared to the previous quarter. Loan-to-value now at 36.5%, an ICR currently at 3.2x, comfortable headroom against policy levels and covenants. Average debt maturity in average fixed interest term stable at 4.6 and 3.6 years, respectively. We would like to highlight that our interest rates hedging exclusively comprises plain vanilla interest rate swaps. Interest-bearing liabilities amounts to SEK 57.5 billion, down by SEK 1 billion since the beginning of the year. Over to you, Pal. Pal Ahlsen: Thank you, Jens. As most of you know, we have a very sustainable portfolio and a high focus on sustainability. And here, I would like to highlight the energy efficiency, which has improved by 7%. And that's what I meant previously that we have a very good staffing in the company because it's not easy to reduce the energy consumption with 7% which is needed since the costs of energy are normally increasing quite heavily from the municipalities as we buy lot of energy from them. So this is a very good performance, I would say, reducing energy efficiency. We're improving in energy efficiency. We have made some acquisitions this year. We bought a couple of properties from Corem during the summer, also sold some properties, mostly single assets and we made the investments. And I think going forward, we will have -- as I foresee it at least, we will have more transactions going on in Castellum, even if the net investments may remain the same, we will have higher figures, both on the acquisition and property sales side of things because that, I think, is one driver of profitability for a company -- for a property company in owning exactly the right properties at the right moment in time. And I think that sums up our presentation, and we are happy to answer questions. Christoffer Stromback: [Operator Instructions]. And the first question comes Fredrik Stensved of ABG. Fredrik Stensved: Firstly, Pal, when you took the CEO position in almost 2 months ago in the end of August, I believe you stated that the management and the Board of Directors would sort of formulate a strategic update or a strategic review. Would you say that the communication today where it's back to basics, it's focused on leasing, leasing, leasing, et cetera. Is that the strategic review all said and done? Or should we expect anything more in sort of a formal strategy update going forward? Pal Ahlsen: I think that's what I've said regarding back to basics is certainly part of the day-to-day business of commercial real estate company. But we are still working and thinking a bit about how to exactly formulate the strategy. So we will come back to that in a more formal way than this. Fredrik Stensved: Okay. Perfect. Sorry. And then on -- I think -- it's mentioned in the CEO letter that maybe Castellum will be more about entrepreneurship, decreased bureaucracy and selling and buying when good opportunities arise and so on. Is it possible to make any more concrete comments about what this means, which type of properties are you looking to sell and buy, et cetera? Pal Ahlsen: No, not at this stage. I would say. What I can say, though, is that I'm also surprised by this of our colleagues in the industry has reached out to see if there are any swaps we could make the properties or that they are interested in buying certain parts of our portfolio or in general, making transactions. So there's definitely opportunities in the market. Fredrik Stensved: Okay. Final question from me, for what's your view on share buybacks, given where your share is trading an implied deal as you see it in the direct transaction market versus buying shares? Pal Ahlsen: Personally, I'm all in favor of that. We're not there yet in our discussions internally, but I'm in favor of buying back shares, at least when we have such a huge discount as we have today. Christoffer Stromback: Thank you. Next one is John Vuong, Kempen. John Vuong: In the media, there were talks about you considering splitting up the company or at least the shareholder is talking about that. What are your thoughts on that now? Pal Ahlsen: It's too early to answer that specifically, but that's obviously, something many people are speaking about, the possibilities of splitting Castellum into smaller parts, and that would sort of show value in -- on the stock market. But that's obviously 1 option that we have, but we are looking on continuously all options we have for driving profitability. So I can't really say more than that at this stage. John Vuong: Okay. And then when you're talking about owning the right proposition in the right locations, how do you see the current pace of noncore asset sales? And is there a change in what you designate as noncore? Also following up on that how do you assets outside of Sweden as well? Pal Ahlsen: Yes. What I mean with owning the right properties in the right locations is owning those properties that will contribute to our mission to over the business cycle giving a return on equity on 10%. That's exactly what I mean with that. That doesn't mean that we should have specific locations, only AAA locations in downtown cities or that we should only have office buildings. I think we will have a mix of different type of properties that we believe that in the long term will support us in our mission to get 10% return on equity. John Vuong: Okay. That's clear. And you were talking about asset swaps, that's colleagues of your view in the industry are considering asset swaps with you. What's your view on nonyielding assets in your portfolio like the Säve Airport. Could you consider swapping down into, say, a higher-yielding assets? Pal Ahlsen: This was more a comment that there are transactions being made in the market and that is big interest for our portfolio in the market. All our business -- all our activities here at Castellum are aiming to reach our target of 10% return on equity. If a swap with some other owners is supporting that, we are -- we'd obviously look into that and acquisitions as well and disposals as well. Christoffer Stromback: Next one is Lars Norrby, SEB. Lars Norrby: Just follow up on the strategy and the portfolio composition in particular. When you're looking at it, are you particularly thinking about parts that are subscale in terms of achieving efficiency, are those most likely to be on the divestment list? Pal Ahlsen: I mean, efficiency that ends up in the cash flow from the property, right? But when we are looking at this, we are not looking at efficiency in that manner. A property can be very inefficient in some sense but very profitable. So we are not saying that just because this property is a bit messy to deal with or expensive in some sense, that's reflected in the cost of the property, right? So looking at this from a strict expected return on equity perspective. Lars Norrby: So in that sense, just still thinking about, let's say, the portfolios in Finland and in Denmark, are they big enough or are they efficient enough to warrant the position within Castellum? Pal Ahlsen: I can answer generally on that question. I think more important than size and more important than efficiency in some sense is the markets as such. Other markets that will support rental growth are the markets where vacancy in 10 years from now or 5 years from now, will be lower or higher than today. Those questions are significantly more important than if we can reduce the cost of property management by [ SEK 10 or SEK 15 ] per square meter per year. The rental growth and the demand are significantly more important. And I think that's something that shows up very well when you do a portfolio analysis like this. That it's the long-term vacancy and the long-term growth possibilities in rents that are the most important factors when owning real estate. So when -- and obviously, the price of the properties. That's the starting point, obviously. Lars Norrby: Okay. Final question from my side, while I brought up Finland, brought up Denmark, let's talk about Norway just briefly. I'm thinking about Entra, you're holding in Entra some 37%. And at the same time, Balder is close to 40%. Are you -- I mean, my impression is that Balder may be interested in looking for some kind of solution to that ownership situation, what's your view on Entra going forward? Pal Ahlsen: I think what I can say regarding Entra, I think they are facing somewhat of the same challenges that we are facing in Castellum. And they also have a financial target of trying to reach 10% return on equity over the business cycle. And to reach that in an environment where needs are not compressing, you need to have significantly better growth in the net operating income to as low investments as possible. So they are facing, I would say, the same challenges as us, how can we be growing net operating income on a like-for-like basis with as low investments as possible to come close to the target. So they are facing the same challenges as we do. Regarding our position there, we haven't discussed that much and I have no further to say rather than that we, as owners really want to see profit, obviously, in the company to increase. And the only way forward is increasing net operating income by working by leasing, optimizing costs and not just -- and minimizing CapEx -- making smarter CapEx... Christoffer Stromback: Next one is Nadir Rahman from UBS. Nadir Rahman: It's good to hear from you, Pal, on your first conference call. Looking at the like-for-like rental growth, I know that was, I think, around minus 0.3% on a total basis and minus 3.4% on a net basis. So could you give a bit more color on the contribution from indexation versus vacancy given that the vacancy did reduce slightly -- sorry, the vacancy increased slightly during the quarter. That's my first question. Pal Ahlsen: I think the -- we managed to increase sort of the rental levels in the portfolio. But the vacancy increase is sort of wiping that away. And I think the rental levels have increased somewhat around 2% in the portfolio. But the vacancy effect is bigger plus that we have a bit more rent losses than we've had in previous periods, and that explains the sort of flat like-for-like growth in rental income. Nadir Rahman: And your indexation, what kind of percentage were you seeing during the quarter? Pal Ahlsen: During the quarter, we get it once every year. And what we see right now is if the CPI, if we get 0.8%, we believe that from the first quarter, we will achieve slightly below 1%. So we have fixed step-ups in some of our contracts. And of course, some of our public sector tenants have below 100% CPI indexation. But on average, when CPI is low, we usually get a bit higher. Nadir Rahman: Okay. That's very clear. And my second question is on the net lettings. So like you mentioned, it's been positive in Q3 and I know that for the year-to-date, it's been negative overall. But how do you see this trending in Q4? And I know that Q4 generally is a more active quarter for lettings and general transaction activity in the Nordics and in Sweden in particular. Pal Ahlsen: I'm reluctant to speculate. But what I can say is that this is our main focus. It's leasing, leasing, leasing to get to turn this around, so to say. We don't want to present flat like-for-like growth rate. We don't want to present an increasing vacancy. So this is our focus. It's leasing, leasing, leasing to turn that ship around, so to say. Lars Norrby: And in order to achieve all the leasing that you need to maintain vacancy and prevent that from rising any further. Do you feel like your -- wouldn't you change for rental strategy and perhaps offer more rent freeze or incentives to tenants? Or do you think you need to compromise on rents in order to achieve a higher level of... Pal Ahlsen: I think we need to use all the tools in the toolbox being faster and more flexible. It's very dependent on the specific squaring about, but we really need to use all tools in the toolbox in a market where -- in some markets, there's a slight oversupply of offices, for example. There, you have to be faster and smarter and more flexible than your competitors. And at least in the long term, having the right locations where there actually is a long-term demand for the square meters. But using all the tools in the toolbox being faster, more flexible than our competitors, then we can turn this around. Nadir Rahman: Okay. That's very clear. And final question from me direct to Pal. You mentioned earlier on the call that the situation at Castellum and the portfolio and so on, where "better than you expected when you came in." What was the expectation before you joined Castellum? Pal Ahlsen: Well, that's a good question. But as I said, I think what I've seen so far, I think the locations are slightly better than I thought they were. And I think that the upkeep of the buildings are slightly better than I thought. And as I said, it's difficult to -- it's just my feelings around this, it's difficult to put words on it. But it is a bit like 100 meters sprinter with the targets running below 10 seconds on 100 meters. I thought we were started at 103 meters with the goal of running below 10 seconds, but it's actually starting from 100 meters. So to give some color on that. So slightly easier than I thought, given a slightly better portfolio and a very dedicated staff in the company. Christoffer Stromback: Next is Stefan Andersson, Danske Bank. Stefan Erik Andersson: Three quick ones from me. First one on reducing costs. You're talking about that, and we see that in your -- in the report as well. You mentioned that -- just trying to understand the magnitude of this. I mean it's one thing to cut newspapers and be prudent of whatever you do. But is there any -- do you see any bigger opportunities here? I mean is there still synergies from Kungsleden merger to take out? Or is it -- I mean I'm just trying to understand if we're talking about small, small things here and there or if there's any bigger ones. Pal Ahlsen: I'm sorry I have to ask this, but could you repeat the question and speak a bit louder? Because I didn't hear the full question. Stefan Erik Andersson: Okay. Sorry. I hope this is better. So my question is really on reducing costs. You talk a little bit about that. But just to understand the magnitude, is there any bigger things that could be done with efficiency, heritage from Kungsleden merger, I don't know. But was it just smaller items here and there and [Foreign Language], as we say in Swedish, daily? Pal Ahlsen: Okay. I got the question now. Your question in regards if I could give any estimate how much costs we could cut when we are turning over every stone. I cannot give a forecast cost about that. But what I can say is that we are really turning on over every stone. And that's why I mentioned the newspaper subscriptions. I think I mentioned that in the CEO letter, and when you're turning over every stone, you will find things like that. And just to be specific when it comes to newspaper subscriptions, I think we can save SEK 0.5 million there. And that's perhaps not money. But a large, many stones being turned over, I think we can save a lot of money, but I cannot give an estimate on that at this stage. Stefan Erik Andersson: Okay. Good. And then on -- we talked a little bit about the renegotiated rents that I imagine there is some investment in CapEx associated to that. Could you maybe give us a flavor of what kind of direction you have on the spot market? I mean, is that -- do you actually see rents coming up? Or is it actually going down? Pal Ahlsen: I mean looking at the renegotiations, I must admit that I was actually surprised myself when we dug into it and we do not invest that much money into the renegotiated deals, and we do not see any clear sign that it's increasing or decreasing. Stefan Erik Andersson: Okay. And then the final 1 is Säve, which -- I mean it's -- I thought -- I've seen it as a very attractive asset that you have within a very nice segment and all. I understand that you've had some planning issues there with other potential use of the airport and all that. Maybe could you maybe elaborate on your hopes for that now with the new situation if you could get compensation somehow? Or if you could alter the use in some way, whatever you might have on that? Pal Ahlsen: I cannot give so much details, but it's, in my mind, a very valuable asset going forward, especially given the huge investments that will be done in the defense industry. So I think that's an extremely valuable asset as it is. It's not yielding too much right now. I think not too much, but that's more of a value play than anything else. That is a very valuable asset. Christoffer Stromback: Next one is Adam Shapton from Green Street. Adam Shapton: Good morning. Hope you can hear me. Okay. A couple of questions. Pal, coming back to your comments on buying and selling of assets. I just want to be -- I just wanted to ask you to be clear. Are you talking about 1 strategic repositioning of the portfolio and then sort of back to business as usual? Or do you mean to say that the business model will permanently shift to much higher asset trading over the cycle? And I have another question, but maybe we can start with that one. Pal Ahlsen: We can start on that one. No, what I mean is that a property has a life cycle. You build it, you manage it and then you have a phase where it's degrading and then you have an upgrade phase. And I think Castellum is depending on market and depending on which type of asset type are good in all of these phases, but perhaps not good in all cities and all markets, and all markets are a bit different. And Castellum has had a tendency to own properties over the full cycle. And I think we need to be a bit more smarter in owning the properties in the lifespan of a property where we are the best. And that may vary over time, that may vary over markets and that may vary over asset types what properties that suits us. This means that we may very well own a property during 1 phase of the life cycle of a property in Stockholm but choose not to own it in another market, and that will trigger a higher asset rotation pace than we've had historically. So that's actually what I'm meaning with this. But also perhaps ceasing a bit more opportunities than we've done historically, when prices are right, either to sell or to buy. So it's not -- you should not read into that strategic that we are down because we are not there yet, downsizing office or increasing whatever, it's just the fact that we cannot be -- it's not perfect from a return perspective to own properties forever and ever. We need to -- we are not a perfect custodian of properties in all their faces everywhere. Adam Shapton: Okay. So that's -- so it will be management's acumen and understanding of the cycle and each individual market that will drive better returns after transaction costs according to that. Okay. And then second question is on CapEx. You mentioned one of the things you'd like to do is, I mean, you said spend less on CapEx, but then I think you sort of corrected yourself to smarter CapEx. Is your assessment that Castellum has been deploying CapEx in the past in a way that doesn't meet suitable return hurdles? Is that what you found and you think you can change that in the future? Pal Ahlsen: That's a good question, and I appreciate that. I think perhaps that was true if we go back 5 or 10 years ago that we -- when money was a bit more cheap and the target actually in Castellum was to invest at least 5% of the property value each year. So it might be some merit to that going back a bit further. I don't think that, that has been the case for the past years. But I do think that there are potential to improve where we put in our money. In some cases, we should perhaps invest slightly more. And in some cases, we should perhaps not invest anything right now. And there, I think, and looking forward to having discussions with management, where our capital makes the most -- where we get the most bang for the buck. I'm sure that there are potential there for improvement. I would be very surprised if it wasn't because that's probably the case everywhere in all real estate companies. Christoffer Stromback: Thank you. Back to Fredrik Stensved of ABG. Fredrik Stensved: Yes. And apologies for jumping in twice. I just have a follow-up on the leasing strategy. Listening to this presentation and what you're saying, Pal, it's pretty obvious that you're not happy about sort of the leasing this year. You're not happy about the lower occupancy in the past couple of years. I think at the same time, you're saying asset quality or the portfolio quality is better than you were thinking and the organization is better. They know the properties by heart and so on. So maybe in order to get sort of a feeling about upcoming changes and strategy in terms of leasing, asset quality is better, organization quality is better. What's your view on why Castellum has underperformed peers in terms of occupancy and which are sort of the concrete actions you believe are the most important in order to improve going forward? Pal Ahlsen: I'm not sure that we have been worse than peers. No idea that's the case on that. But for a company, for a real estate company, the main mission is obviously to have as many square meters rented as possible. And we have roughly 10% at least economic vacancy. That's a huge, huge potential. I think that amounts to roughly SEK 1 billion in rental revenue, and we must do everything we can to catch as much as possible of that potential rental revenue. And we are discussing internally in what measures makes sense here. And here, it's different depending on what type of assets. So I wouldn't say that we have underperformed, but I've said that we have perhaps increased the discussions around how can we reduce vacancy faster than given the measurements we've done historically. Fredrik Stensved: Okay. Thank you. Christoffer Stromback: Thank you. And that was actually the last question for today. So thank you all for listening. Bye-bye.
Operator: Thank you for standing by, and welcome to the Sonoco Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Roger Schrum, Head of Investor Relations and Communications. You may begin. Roger Schrum: Thank you, Jeannie, and good morning, everyone. Yesterday evening, we issued a news release and posted an investor presentation that reviews Sonoco's third quarter 2025 financial results. Both are posted on the Investor Relations section of our website at sonoco.com. A replay of today's conference call will be available on our website, and we'll post a transcript later this week. If you would turn to Slide 2, I will remind you that during today's call, we will discuss a number of forward-looking statements based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore, actual results may differ materially. Additionally, today's presentation includes the use of non-GAAP financial measures which management believes provides useful information to investors about the company's financial condition and results of operations. Further information about the company's use of non-GAAP financial measures, including definitions as well as reconciliations to GAAP measures is available under the Investor Relations section of our website. Joining me this morning are Howard Coker, President and CEO; Rodger Fuller, Chief Operating Officer and Interim CEO of Sonoco Metal Packaging EMEA; and Paul Joachimczyk, our Chief Financial Officer. For today's call, we'll have a prepared remarks followed by your questions. If you'll turn to Slide 4 in our presentation, I will now turn it over to Howard. Robert Coker: Thank you, Roger, and good morning, everyone. Let me start by saying I am incredibly proud of our team's strong operating performance in the third quarter as we achieved record top line and bottom line performance, along with margin expansion despite challenging market conditions, which affected both consumer and industrial demand, particularly in the EMEA region. As Slide 5 shows, net sales grew 57% and adjusted EBITDA was 37% up, while adjusted EBITDA margin achieved a record 18.1% due primarily to improving margins from our Industrial Paper Packaging business. Total adjusted earnings grew 29% in spite of higher-than-expected interest expense. Our Consumer Packaging sales and operating profit grew 117% and adjusted EBITDA increased 112%. Most of the improvements came from the addition of Metal Packaging EMEA and strong results from our Metal Packaging U.S. business, where we saw food can volumes up 5%. Our Industrial Packaging segment also had an exceptional quarter with operating profits up by 28% and adjusted EBITDA up by 21%. Both operating profit and adjusted EBITDA margins grew significantly during the quarter and registered an eighth consecutive quarter of margin improvement in the Industrial segment. Our industrial team continues to successfully drive our value-based pricing model while achieving solid productivity savings. Paul will go through all the numbers and business drivers for the quarter in a few minutes. As shown on Slide 6, we successfully entered into an agreement on September 7 to sell our ThermoSafe temperature-assured packaging business to Arsenal Capital Partners for a total purchase price of up to $725 million. We expect the transaction to close during the quarter, subject to regulatory review. The purchase price includes $650 million in cash at closing, and additional earn-out opportunity of up to $75 million based on the business' 2025 overall performance. The completion of the sale of ThermoSafe will substantially complete Sonoco's portfolio transformation from a large portfolio of diversified businesses into a stronger, more simplified structure with 2 core global business segments. Consumer Packaging, which consists of our global Metal and Paper Can businesses and industrial packaging, where we have global leadership in uncoated recycled paperboard and converted products. Pro forma for the transaction, the expected net proceeds from the divestiture, excluding any additional considerations are projected to reduce our net leverage ratio to approximately 3.4x. I'm now going to turn the call over to Rodger Fuller to give us an update on activities and where we are at S&P EMEA. Rodger Fuller: Yes. Thank you, Howard. Good morning, everyone. If you turn to Slide 8, I'll provide a brief review of Metal Packaging EMEA's third quarter performance and outlook for the rest of the year and actions we're taking to improve performance in 2026 and beyond. Third quarter results modestly improved over the same quarter last year with adjusted EBITDA up approximately 9% and EBITDA margins improving to approximately 18%. Food can units increased 3.5% year-over-year, but unfortunately, business activity was below our expectations due to macroeconomic headwinds and weaker-than-anticipated seafood availability. With the vegetable harvest season substantially behind us, we believe the fourth quarter will likely be weaker than we had anticipated based on our customers' projected demand throughout the EMEA region. In response to these challenges, we're taking actions now to improve our competitive position and drive cost savings to accelerate our performance in 2026. As I mentioned on our last call, our team is making tremendous progress in achieving our targeted $100 million in annual run rate synergies by the end of 2026, with savings benefiting our entire consumer metal and paper can portfolio. Our team expects to further drive procurement synergies in 2026 after they were delayed in 2025 due to the late closing of the acquisition. In addition, we are rightsizing our manufacturing footprint to match our customers' demand profile and better leverage our operating costs. We're also building out our commercial team and have active growth projects that are focused on increasing our exposure to more nonseasonal products. As an example, we're making capital investments to gain new pet food and seafood business in Eastern Europe, which will improve our mix with our large vegetable can customers. In closing, while I'm not satisfied with our recent performance. I'm encouraged by the receptiveness Sonoco has received from our customers and our team's focus on taking the necessary actions to drive improved performance going into 2026. So I'll now turn it over to Paul for the quarterly financial review. Paul Joachimczyk: Thank you, Rodger. I am pleased to present the third quarter financial results, starting on Slide 10 of the presentation. Please note that all results are on an adjusted basis and all growth metrics are on a year-over-year basis, unless otherwise stated. The GAAP to non-GAAP EPS reconciliation is in the appendix of this presentation as well as in the press release. Adjusted EPS was $1.92, representing a 29% year-over-year increase. This improvement was primarily driven by favorable price/cost performance of $43.5 million, the EMEA Metal Packaging acquisition and continued strong productivity of $11 million, primarily from our converting businesses. These benefits were partially offset by unfavorable volume mix, an increase in the effective tax rate by approximately 180 basis points and slightly higher legacy interest expense. Third quarter net sales for continued operations increased 57% to $2.1 billion. This change was driven by the acquisition of Metal Packaging EMEA, strong pricing disciplines across all segments and the favorable impact of FX. Adjusted EBITDA of $386 million was up by an outstanding 37% and adjusted EBITDA margin improved by 130 basis points to 18.1%. This was driven by strong price cost discipline, continued productivity and the net impact of acquisitions and divestitures. These benefits were partially offset by volume softness in the Consumer and Industrial segments and an unfavorable sales mix in our all other businesses. Slide 11 presents information on our operating cash flows, which was a source of cash of $292 million during the quarter, up more than 80% over the prior year. Gross capital investments for the quarter were $65 million, and our annual capital spending is tracking below our $360 million target for the year. As we enter our fourth quarter, we expect similar operating cash flow performance as last year as the seasonal build of net working capital reverses. Slide 12 has our Consumer segment results on a continuing operations basis. Consumer sales were up 117% due to the Metal Packaging EMEA acquisition, price increases implemented to offset the effects of inflation and tariffs and the favorable impact of foreign currencies. This was offset by unfavorable volume mix. Our domestic Metal Packaging business presented higher sales versus the prior year due to higher food can units and price, which was offset by unfavorable mix. Sales for our Global Rigid Paper Can business was relatively flat as favorable price was offset by mix and lower volumes. Adjusted EBITDA from continuing operations grew an extraordinarily 112% year-over-year due to the acquisition, favorable price disciplines, continued productivity gains and the favorable impact of foreign currency exchange rates. This was offset by weaker volume year-over-year. Now let's turn to our Industrial segment slide on Slide 13. Sales were flat year-over-year at $585 million, with the recovery of price offset by volume softness and the exit from our Chinese paper operations. Adjusted EBITDA margins expanded 360 basis points year-over-year in the third quarter and increased by $21 million to $123 million, representing a 21% increase. Adjusted EBITDA was positively impacted by price, improved productivity and fixed cost savings resulting from footprint rationalizations in North America and headcount reductions in Europe and Asia. Slide 14 has the results for the all other businesses. All other sales were $108 million and adjusted EBITDA was $21 million. Sales were higher versus prior year due to higher volumes in ThermoSafe. Adjusted EBITDA improved 2% to $21 million as favorable productivity and fixed cost savings more than offset the negative impact of unfavorable mix and price cost. Transitioning to our outlook for the remainder of the year, as shown on Slide 15. We are tightening our guidance with net sales in the range of $7.8 billion to $7.9 billion. The European market continues to soften, and we are seeing pressures in the North American market with slightly lower demand. From an adjusted EBITDA perspective, we are narrowing our range to $1.3 billion to $1.35 billion, with strength in the performance of our North American businesses, offset by the softness in the European and Asian markets. We are reducing our adjusted EPS range of $5.65 to $5.75. This adjustment is primarily driven by subdued market conditions outside of the United States and the deleveraging process occurring across those facilities as sales volumes declined. Reflecting on the third quarter, July commenced successfully surpassing our expectations. However, August and September experienced declines, mirroring the market's weakening trend. This downward trajectory is continuing into our fourth quarter, which serves as the primary rationale for the lowered outlook. An additional item of note is our guidance assumes a full quarter of ThermoSafe performance. Given the projected pressures in our sales and operating profit, we are adjusting our operating cash flows range to $700 million to $750 million. Over the next 90 days, we'll be closing out 2025 and getting ready for our Investor Day, which is scheduled in New York on February 17, 2026. We are very excited about the strength, stability and simplification of the new Sonoco and the competitive advantage it creates in the marketplace. We intend to lay out a road map over the next 3 years to show how we're going to grow our businesses, strengthen our balance sheet, and continue to drive margin expansion. I will now turn the call back over to Howard for closing comments. Robert Coker: Great. Thanks, Paul. As we look ahead at the remainder of the year, our top priorities are to continue building momentum for growth and improving our competitive position by further reducing our cost structure. As the graphic shows on Slide 16, we believe our consumer and industrial businesses have solid funnels in place with several new products and market launches planned in 2026 and beyond. We believe we can continue to gain additional wins with both aerosol and food can customers in North America as we have successfully done through this year with can units up approximately 9%. As Rodger mentioned, Metal Packaging EMEA continues to achieve market wins, which will provide growth in '26 and beyond. Also, we believe our Rigid Paper Containers business is on the cusp of reigniting growth in global stacked chips, and we continue to launch new all paper cans and paper bottom cans for customers looking to substitute with less sustainable substrates. Finally, our Industrial Packaging segment is purposely driving share gains while focusing on new product categories such as wire and cable reels, where we experienced double-digit growth in the third quarter as well as new markets and applications for URB paper. If you turn to Slide 17, I'll make some final comments with the planned sale of ThermoSafe, we will be entering the next stage of our transformation journey, which is focused on optimizing our operating footprint and reducing future support function costs to align them with the needs of our now simpler portfolio. Our restructurings are never easy. They are necessary if we are to realize the full value of these portfolio changes. As an example, we recently closed a 25,000 ton per year URB machine in Mexico City, which eliminates an older higher cost machine and allows us to better balance our North American mill network. As Rodger mentioned, we expect to continue to drive actions to meet our synergy targets and expect to further optimize our EMEA footprint to better serve our customers and to react to changing market conditions. With a simplified operating model also comes additional opportunities to optimize support functions. We've actioned approximately $25 million in annual savings from stranded costs left from divested businesses, and we're implementing additional actions that will enable our businesses to fully leverage our market capabilities and generate strong cash flow. We've added a save-the-date reminder of our Investor Day in New York on Slide 18 of our presentation. I look forward to sharing our growth plans and the significant savings and value capture we expect to unlock with our simplified focused operating vision. So with that, operator, we will now take any questions. Operator: [Operator Instructions] And your first question comes from the line of Gabe Hajde with Wells Fargo. Gabe Hajde: Howard, Rodger and Paul, thanks for all the detail. I wanted to dig into, I guess, the European Food Can business. It feels like there's a couple of mixed signals here. And I'm thinking about you guys talking to win some share, I guess, in seafood. I appreciate you talked about some powdered formula wins. But just maybe more near term, you're talking about Q4 maybe getting a little bit sequentially weaker. I'm curious if that's associated with a shortened vegetable pack or if there's something unique going on there? And then I thought kind of in the second quarter, you talked about Northern Africa, some disappointing seafood trends. I'm just curious, your increasing exposure there. And then last part on the footprint rationalization or consolidation, what's going on there? It felt like that business was pretty well optimized when you acquired it? If you could just elaborate there. Rodger Fuller: It's Rodger. I'll hit all 3 of those. First one on volume. First of all, when you look at the third quarter volumes, we had guided to mid-single-digit can units up quarter-over-quarter. We came in at 3.5%. The seasonal business, fruits and vegetables for the third quarter came in almost exactly as expected. The shortfall was in Africa, and it was, again, the starting issue in Morocco, plus we have a plant in Ghana, which supplies tuna and other products that primarily supplies one customer and that customer's projections were too high, and that was down. So if you strip out Africa for the third quarter, we would have been in that -- well into that mid-single-digit range. So as we look at the fourth quarter, what we're seeing and what we're hearing from our customers -- and the seasonal business is ramping down. So we'll have some of the seasonal business continue in October, but it is ramping down. What we're hearing from our customers and why we take the guide down for the fourth quarter for the EMEA volume is they're going to be very sensitive to any inventory build in the fourth quarter due to what they see as macroeconomic conditions. Technically, this could help us in the first quarter. But again, they're watching their inventories very closely, and we're watching the Africa business very closely to see how that sardine business improves. We've not seen it this year. We're not expecting it and we're not guiding that for the fourth quarter. When you talk about the footprint issues, the #1 issue is for me right now is Africa because if you look across the board and sardines, again, farming Morocco, other fish products in Ghana and others, we do have to address our footprint there and our cost base there, and we're actively doing that. We've also started some negotiations in France to do some continued footprint optimization around our metal in supply across our platform, which was expected, and we intended to do that as we came into the acquisition. So that was as expected. So yes, it's been a little confusing. The starting business down hundreds of millions of units over a few year period is a fact. It's not really an excuse. It's just a fact. And it's something that we're dealing with, and we've got to really get after the Africa footprint. So I hope that covers some of the confusion, I think, Howard, do you want to follow up? Robert Coker: Yes, sure. Gabe, thanks for your question. What I would say is, first off, we are really, really pleased with this acquisition, the people, the technology, the market position all the things that you point out, optimization. As Rodger just said, we see more opportunity there. And yes, we are indeed disappointed in how we're going to finish up the year and what the fourth quarter is rolling to. And again, Rodger talked to the main points there. But we did this to create a global platform. Consumer for the first quarter ever is one product, basically, it's cans. It's cans made from steel, aluminum and paper. That's it. And so we have clear line of sight as we've talked about in terms of the synergies associated with the acquisition. But what really excites us is what we can do from one consumer perspective. We are very early in the process, but some of the structural, commercial and other opportunities that are materializing across our 3 formats, metal, our legacy rigid paper and steel aluminum are creating some really, really exciting opportunities that we're working now. And so as we talked about February when we go into February, we'll be able to talk more, but different ways to manage, run, go-to-market than we ever even thought about as we started on this journey that are incremental that, again, we'll talk about in more detail in February. Gabe Hajde: Thank you for that Howard. Unfortunately, we tend to be greedy over here, I guess. If we think about big moving parts into 2026, just to make sure we're calibrated properly, and we pick the midpoint $1,325 million. Just to remind us, that does include $50 million TSP contribution in the first quarter. And then assuming that the ThermoSafe transaction closes, that would be another $50 million to $55 million adjustment, again, starting with that $1,325 million. You've talked about actioning about $25 million of stranded cost savings, SG&A, et cetera. I'm not assuming all of that hits in '26, but a decent portion of it. And then we'll make our own assumptions about volume, FX and price cost. Is there anything else that we should be thinking about? I mean, are you -- would you say in the fourth quarter, you talked about Rodger throttling maybe production in the food can business to keep inventories in check. Do we have an estimate of order of magnitude what that might be hitting Q4 earnings? Paul Joachimczyk: Yes. Gabe, this is Paul. And to answer your question there, too, you're thinking about the stranded costs, you're thinking about TFP and ThermoSafe, exactly correct. I'd say the one element that you probably have to factor into your model for next year is the reduced interest expense that we're going to be using the proceeds from the ThermoSafe sale and transaction that Howard talked about earlier in the call. All of those proceeds will go directly to debt reduction. So I'd say that would be the largest element to change on there, too. And if you think about our Q4 performance that's out there, you can see our operating cash flow guide did come down. That does create a little bit of a strain on the ability to pay down our debt. So that's why we are experiencing a little bit of higher interest rate expense that's out there, too. So as you're modeling in your Q4 projections that are out there, and this wasn't a direct question, but interest expense should be in the range of around $50 million for the quarter. And all the other performance will be a little bit muted just due to the overall consumer demand that we're seeing really in the EMEA regions that are out there today. Operator: Your next question comes from the line of George Staphos with Bank of America. George Staphos: Congratulations on the progress. I guess my first question, I know we'll get more of this in February, but is it possible at this juncture to quantify some of the cost or revenue synergies you expect to get from having a Metal and Paper Can business together? And can you give us a couple of, for instances, in terms of what you already think you might be able to pick up commercially? Robert Coker: Yes. George, you want to do your follow-ups now? George Staphos: No, let's -- we'll start first with that question if it possible. Robert Coker: Yes. I know, and I hate it that you started out correctly. It's too early for us. I truly mean it. It's been in the last, I don't know, a month or so that we or 2 that we've really got into this and things have started to settle down from an integration perspective when we start stepping back and we're saying, wow, we've got plants on top of plants around the world. How are we managing geographically, how are we managing substrates that are very, very similar. So it's -- we got a number in mind, but we got to work that a little more. But we're actioning now to be in a position to start generating the savings side of this thing as early as the first of next year. But... George Staphos: What do you think the long-term EBIT growth is for the consumer business as it's currently constructed? And look, the reason behind the question, we recognize all the M&A, heavy lifting that's been going on at the company in the last 1.5 years, 2 years. Having said that, this quarter, you're very happy with the platform. You love the structure, et cetera, but sardines don't swim, the pack is late and the volumes wind up being really not particularly good and nor is the earnings, and you spend a lot of capital to build out this platform. And so that's kind of the reason behind the question. So if you had a view on what you think the long-term EBIT growth is for the combined consumer business, that's what's driving the question. If you had a view at this juncture, if not, we can move to the next question. Robert Coker: Yes. We have a positive view. I can't sit here and give you a percentage point at this time, but we did this for that very reason to grow the profitability of the company. And you can talk about individual fair enough in terms of -- I'm a hell of a fisherman, but I can't guarantee you that I'm going to catch fish every time I go. But that's the thing. You worry about your controllables, you're not your noncontrollables. And that's what Rodger talked about getting rightsized structuring. And when I talk about -- and you asked about commercial opportunities across substrate, it's amazing once we started putting pen to paper to say how many people are buying one or the other from us that we could materially take advantage of. So all our conversations right now, all of our actions that we're taking right now are to do exactly what you're saying, the expectation should be that we should be growing our profitability on into the long term. And we have some very chunky growth opportunities in front of us as we sit here today. And that's without consideration of what if we go to market in a different way. What if we structure our plants in a different way that gives us the positive viewpoint that we have. And I'm really sorry that I can say, hey, this is -- it's going to be 8.75% going forward. We'll talk about this in February. George Staphos: Okay. Understand, Howard. I guess next question I had on cans again in the U.S. I want to say little on the 2Q sort of commentary kind of into the third quarter, the commentary was that maybe it'd be a late pack, but you'd see an uptick in the fourth quarter. What in particular is driving the weaker volume? And then as regards to third quarter, food cans being up 5%, but I think overall, the performance in metal for the third quarter in the U.S. was down low single. That's just mix, right? That's pet food versus other end markets or something else behind that? Robert Coker: Yes. That's just mix. And what I'd say is it was a good pack season. It has carried over into -- in North America into October. So we're actually looking at a pretty reasonable fourth quarter on the food can side of North America. I'd be extremely remiss if I didn't talk about the paper can side of things globally. We've got an issue going on that I can -- what's the appropriate word, I would say, temporary situation with a very major customer that actually is highly material to us, particularly on an international perspective, but certainly touches North America as well. And that's been an extremely disappointing, but exciting at the same time, disappointing in terms of the performance as this particular transaction nears closure, but exciting in terms of where this business can go into the future. So we're seeing inventory drawdown, what we're seeing in the fourth quarter. So that's part of this forecast that we've got in front of you. And again, I look at that as a temporary problem. George Staphos: Last one quick one. OCC prices are really low right now. That's probably helping you a bit on margin. Hopefully, OCC heads up in 2026 for macro reasons and the like. Any way you will try to avoid any margin pressure ahead of time? Or is it -- will it be really the same sort of mechanisms you've had in the past in terms of pricing and the like, your pass-through mechanisms and just you'll manage it on the way up just like you always have. Robert Coker: Yes. Thanks, George. We're going to do what we've always done, but I did just highlight one example in my prepared remarks about preemptively making the right moves in terms of the balance of supply in North America. So if you listen, we've taken 25,000 tons out, and it's a really smart thing to do just in and of itself, replacing coming off of a 25,000-ton machine. And here, we're sitting in South Carolina with a 180,000-ton machine with a different cost profile. So we'll do what we have to do, what we've done traditionally as it relates to price cost management, but we're going to control those things that we can control as well and make decisions like I just announced. Operator: Your next question comes from the line of John Dunigan with Jefferies. John Dunigan: I really appreciate all the details here. If I could start with the URB mill in Mexico City that you just touched upon. What does that do to your operating rates for the business? And what I'm thinking about is, is cost going to end up going up because you have to still supply those same customers. So freight may be more of a headwind next year? And then if you could touch upon a much larger price/cost spread in both Industrial Packaging, which obviously you had the price increases go through for URB. OCC continues to slide a bit. But overall, still quite a bit ahead of where we're expecting. Same with the Consumer Packaging business. I know there was pricing to help cover some of the tariffs, but price/cost spread again seemed outside to our expectations. So maybe you can touch upon price/cost for both those segments going into 4Q and 2026 and how we should be thinking about that? Robert Coker: Sure, John. Let me start with your opening around the mill network. First off, we're running in the low 90s. And we've been proactive and aggressive all along the way in terms of making sure we were -- we had a pretty balanced portfolio here. As it relates to Mexico, that's a math decision as well as the capacity say, control, but a capacity-oriented decision that it just makes better sense. I mean, the math says that 25,000 tons coming off of the mill across the border versus what we can do from a leverage perspective with much larger facilities here. So strictly a math equation. Price/cost going forward, we'll see what happens. Very similar question to what George asked. I wouldn't surprise us to see OCC, hopefully, as noted that markets are going to continue, and that's what happens. OCC starts going up, markets tighten up. That's a sign of market start tightening up and that price/cost -- there's 2 forms of that. One is contractual related to the indices and others are just good management of our cost side of the business as well. So are we going to -- no. I mean we've got -- it's a big quarter for us in industrial and we expect that it's probably going to slip through the course of next year, but be at levels that very consistent with the last 3 or 4 years, which is remarkably higher than the old Sonoco. Rodger Fuller: Yes. John, add one real question on the URB mill closure there, too. This is really to get us to be maintaining an operation efficiencies in the 90s. So this is balancing the overall portfolio. As we started to see, we had redundant capacity across the network and structure, and we wanted to make sure we maintain that because at that efficiency rate, we had to balance out logistics costs and everything else like that to make sure that the net transaction actually was a benefit for the overall company. But our goal is to maintain all of those facilities in the 90s, and we started to see the trend of starting to be a little bit overcapacity in the market space. So just to give you a little bit more context on that. And the total cost of the transaction after is down, just to be clear on that. John Dunigan: Okay. That's helpful. And then just a couple of more questions on the bridge in 2026 that Gabe had touched upon earlier. I'm sure we'll get more insights in February. But just thoughts around with the moving pieces in S&P EMEA, what are you kind of expecting out of that $100 million or so synergy run rate by the end of next year? How should that be flowing through? And in terms of -- apologies, I'll leave it there. Paul Joachimczyk: Yes. And John, Rodger mentioned too, we're on track to getting the $100 million of synergies, and I want to stress by the end of 2026, that would be the full run rate. Year-to-date, we're kind of expecting to have a run rate of $40 million by the end of '25. And the goal would be is to achieve that full run rate of $100 million. Now you could say that's a $60 million more run rate you have to go get. And then timing of this, as you can imagine, in Europe, it does take longer to take those costs out and those stranded costs and other synergies that are out there. So you can split the difference and say roughly $30 million will be actually realized in 2026 with the remainder coming into '27 and beyond. Operator: Your next question comes from the line of Anthony Pettinari with Citi. Anthony Pettinari: You talked about potential reacceleration in RPC, which I guess was down low single digits in 3Q and is expected to be down that much in 4Q. In terms of the reacceleration, is that just a large customer getting to kind of a deal completion? Or are there new projects that are in the pipeline? Or are you seeing anything in terms of inventory? So I'm just wondering if you could give any more detail in terms of what drives that inflection? And is that something maybe we see in the first quarter, the first half of '26? Or any further detail there? Robert Coker: Yes. Anthony, the easy answer to that is all of the above. What I would tell you is that the receleration -- if that's a word, receleration of our Snack business is -- that's a foot on the gas pedal type thing that really is impactful immediately if and when it happens, expectation it will happen, and that's a global phenomenon for us. We're continuing to win as it relates to our paper solutions in Europe. We're adding those capabilities to the U.S. Those are more incremental. They build as big as the business is. You win 50 million units, doesn't really -- it's rounding there, but over time, and what we're seeing is a trajectory in that direction that will continue to build movement throughout. So I suggest to you that we're really bullish about the paper can side of the business and then you start adding that to the synergies that are associated with the metal side. We're looking forward to next year and on into the next coming years with what these businesses can do. Anthony Pettinari: Okay. That's helpful. And then just switching gears to capital allocation. You talked about getting leverage down to 3.4x by year-end, debt pay down next year. I'm wondering if you could talk a little bit more about the capacity for share repurchases in terms of when you'd be able to really buy back at scale in terms of timing or leverage threshold? Or is there an opportunity to maybe pull that forward given the valuation of the stock? And then I guess, related question, the $100 million run rate synergies that you're going to get in '26, is there a cash cost associated with that, that we should think about when we think about that '26 cash bridge? Paul Joachimczyk: Yes, Anthony, I'll start with the, I'll call it the capital allocation. And that strategy, we were really laid out in our February meeting, but I want to reiterate to you is we are committed to as an organization to getting our debt structure down. We talked about our last call getting our debt leverage ratio to 3x to 3.3x by the end of '26. You can see we'll be at 3.4x by the end of this year. So very strong performance. Once we are at that level, it does offer us the optionality to go do things like share repurchase and other activities. But debt in the near term is going to be our primary capital allocation strategy that's out there. And I'm not kind of delaying the question, but I really want to wait for that road map in February to give you the full capital allocation story that's out there. Now the $100 million of synergies and cost outs, we have put in a significant amount of money in restructuring charges already to date. We will have to allocate some capital to that in '26. That amount has not been released, and we haven't disclosed that. But I will say there will be capital definitely allocated towards that as a priority to hit those synergies and run rate. Operator: Your next question comes from the line of Mike Roxland with Truist Securities. Michael Roxland: Congrats on all the progress. I just wanted to follow up on Europe again. And can you give us some more color on EMEA, S&P EMEA and the cost savings that you're looking to achieve? It seems like the business is facing headwinds that you think are structural given the cost actions you're pursuing and the end market realignment. So any additional color you can provide on the cost you too to take out dollar-wise and whether you think there's a structural shift in EMEA relative to your initial expectations? Rodger Fuller: Yes, Mike, thanks. This is Rodger. Yes, I think if you look at what we've actioned. First of all, you've got the synergies that Paul just talked about, so I won't repeat that. Then you've got the incremental cost outs that we're actioning now as a result of learnings that we've had in the marketplace. Typically, and we'll share the more numbers in February, but typically, we're getting 1-year returns on these cost outs. So whether it's footprint consolidation, whether it's actually going in and taking out cost to match the volumes that we see in places like Africa, we look -- we're getting a full 1-year return. And it's not -- if you look at the base business in Europe, the Europe-based business, we're really just advancing plans that the business had in place, again, going around the metal ends and consolidating our metal end production in low-cost facilities. And we're actually adding some capability in Eastern Europe where we see the growth in products like fish and pet food. So it really is a balance. What we found is, again, back to Africa, if you look at our small plant in Thailand, if you look at what we have in Turkey with inflation concerns, those outlying areas where we're really targeting getting some pretty significant cost out to match the volumes that we have today and make sure they have the profitability that we see in our base business in Europe. So there's nothing I would say that's extraordinary, different than what we went into the plan with. The rationale -- strategic rationale around the acquisition is still solid, service quality leader in the organization, strong operational team. Frankly, as we look at next year, where we're focusing, and I mentioned in my opening comments, is around our commercial capability and commercial excellence. We're building out our talent in our regional sales team. We've added talent in France and Italy and Germany. And towards the end of the year, we're going to have a new commercial leader coming into the organization. So I'm really excited about that. So as you get into all areas of commercial excellence, price cost, real disciplined approach to share gain in the marketplace, so on and so on. That's where we're focusing our time, and I think that's really what will drive our improvement that we're targeting in 2026. Michael Roxland: How much -- from you being involved in the business as closely as you are, how much of the weakness that you're seeing in EMEA relates to end markets versus commercial capabilities and maybe not having the talent in the right seats at present? Rodger Fuller: No, I think it's -- no, I don't see that. I think when I get into those type of comments. Longer term, I think certainly it's going to help us. We've got some exciting growth projects that are going to hit in 2026. For me, it's about recovering all forms of inflation. Again, back to that disciplined process to go to market to win share. So what we've seen this year, the surprises we've seen this year, I hate to repeat myself, is around things like sardines in Africa as some of the business that we've seen in Turkey go -- be reduced as a result of really high inflation levels. So no, I don't think this -- volume-wise, I think the year played out exactly how it's going to play out. It has nothing to do with commercial capability because we've got wins coming. For me, it's more around that value add, getting paid to be the service quality, technical service leader in the market and make sure we're getting paid for the value we're taking into the marketplace. The volume -- unexpected volume drops, really, we talked about the reasons for those. And now they're included in our fourth quarter guidance, and we'll talk about more of that in February, how we see it for 2026. Michael Roxland: Got it. And then just one quick follow-up. Can you just help us frame the procurement benefits you expect to receive next year from integrating both U.S. and EMEA steel procurement teams into a single globally focused organization. I think you -- the company originally mentioned $20 million from reducing support functions. Is that still what you're looking to achieve? Is there any upside to that? Any color would be helpful. Rodger Fuller: Yes. From the procurement, we said from the very beginning that procurement savings of the $100 million synergies would be about 60%. We said $20 million will come from synergies around support functions. That's still a really good number. What Howard has been talking about and Paul has mentioned before as far as future restructuring, that would be on top of that. But you're right, the numbers you called out are exactly right. Procurement is about $60 million of the full $100 million run rate and other support cost is about $20 million. And then final $20 million is supplying ends to our Paper Can business that we have not supplied before and other one-off moves that we're making. Again, we're fully confident we can get that $100 million run rate by the end of 2026. Robert Coker: I think, Mike, your comment related to mine about the $20 million that we've expanded costs that we've taken out through the course of this year. That's going to be rolling into next year. And then what I alluded to was that we're on the cusp of looking at even more opportunities corporately. I think, well, it's corporate as well as operationally that we'll be talking about as we go into next year. Operator: Your next question comes from the line of Ghansham Panjabi with Baird. Ghansham Panjabi: Just given that there are so many moving parts with your portfolio, et cetera. Howard, if you just zoom out a bit and kind of think about the end markets, how are you thinking about the operating environment for both consumer and industrial as you look ahead to both 4Q and the early part of 2026? And I'm just asking as it relates to the trend line from what we've seen in consumer and the industrial markets over the last few quarters. Is it -- there any inflection? Or is it just more of the same at this point? Robert Coker: Yes. First, Ghansham, I appreciate the comments about all the moving pieces. I get it. We've been busy for the last 5 years setting the portfolio in place that we have today. I just want to kind of put a stake in the ground and say that's done. So this is the first quarter being the third quarter where you're actually able to look at the go-forward consumer business, which is nothing but cans. Industrial is what it is. On the consumer, what's happening at this point in time and into 2026, I'd say, I don't see a real stimulus across the globe at this point in time. We've spent most of this call talking about EMEA. And I talked about the consumer side as it related to -- certainly Rodger as it related to the metal, but paper can volumes are actually okay right now, flattish last year, but that's with the impact of one discrete customer that I think we all understand. So I'm not looking -- we're not looking for. We're not planning on to see some great resurgence in terms of consumer volumes going forward. Typically, if macroeconomics -- and I say typically, it's actually factual. We went back and looked at slowdowns in the macro, we win on the consumer side, the consumer is spending more in the supermarkets than they are in the restaurants. So we'll see how that plays out. Industrial, just in North America, just kind of flattish quarter-over-quarter, and I don't think you'll see us expecting that to materially improve either as we go into next year based on what we see at this point in time. Europe, as we talked about EMEA and we look at fourth quarter and the forecast, yes, we came out of the August holiday season there. And typically, in our industrial business, we see a pretty good lift as we get into September selling off as we get to the latter part of the fourth. We didn't see that lift, so there is -- in September. So there is definitely signs that things aren't great. And again, additionally, that's been a good thing on the consumer side of the business because people are shopping in the markets more, but too soon to call at this point in time. Ghansham Panjabi: Okay. Howard. And then in terms of the industrial margin expansion of 380 basis points year-over-year for the third quarter. Was there anything unique that boosted the quarter? I mean it seems like margins were quite a bit higher than the trend line over the previous quarters, just given the price cost clip that has benefited. Just more color on that would be great. Robert Coker: Yes. Price cost is certainly a part of it. And I want to take it back in time. Our margins in our industrial business, if you go back to -- way back to Project Horizon to where we are today with our refocus of saying we are the world's #1 in URB and converted URB products, let's behave that way. So the capitals that we started putting in 4 and 5 years ago have continued to drive improved margins, obviously, exceptional for this quarter and price cost is part of that. But I'd be remiss if I didn't say, as an example, our North American team has completely restructured how they manage the business, how they look at how they view the business. And what I'm saying is we no longer here have a paper division and a converting division. They're all one. And it's created a powerful new viewpoint in terms of how we are optimizing our supply chain between the paper mills and the converting operations. It's driven cost out. So there's some stickiness to the improved margins, but certainly, price cost is going to be a part that ebbs and flows. But I'm very, very proud of this team and be able to say that 5 years ago, if I told you guys, we were operating in the 16%, 17%, 18% type margin range. You would ask the same question, when is it going to drop down to 13%. Operator: Your next question comes from the line of Mark Weintraub with Seaport Research Partners. Mark Weintraub: Two quick follow-ups. One, on the synergies or really actually the purchasing synergies. I remember last year, the deal closed a bit late. And so you didn't end up getting them in 2025. I would have thought you would have gotten most of that $60 million in 2026. But the way you talked about maybe like $30 million in total for synergies, it seems like that might not be correct. Can you explain why the purchasing synergies, how much have already come and why more of it wouldn't come quickly in 2026? Paul Joachimczyk: Yes, Mark, it's a great question. And if you think about the cycle of the sales, as they come through throughout the whole year. The procurement is 60% of the overall savings. We did realize a portion of procurement in 2025. So it won't be a full $60 million of savings and additional incremental in '26. So that's why I'm kind of -- I gave you a midpoint of it to be conservative, and we'll give you that real strong clarity in that February '26 of the outlook of the full synergies and the road map that's out there. But the $30 million is a conservative approach. Rodger Fuller: Yes. Mark, remember, we're not just people immediately go to tinplate, but we're talking about all purchasing, so compounds, coatings, indirect, freight and the like. So many of those, we were able to start realizing some synergies this year. Mark Weintraub: Okay. And second, congratulations. I think you say it's an all-time record quarter. Your stock doesn't seem to be reflecting the really strong financial performance. I guess I was a little surprised that I didn't sense a more clear-cut communication on the share repurchase opportunity. I mean, I think buying back stock, just the cash benefit of not paying out the dividend is probably after tax even higher than your after-tax interest expense. And I was just wondering, is that a function of like debt maturities that you have to be conscious of? Or why not kind of a more -- this is a terrific opportunity to take advantage of what's a mispriced stock given the financial performance that you're putting up and I think you're going to continue to achieve. Robert Coker: Mark, what I'd say is certainly, stock buybacks are in the mix, but we're also looking at -- we talk about options, one of which is obviously stock buybacks, more aggressively pay back down debt and the third being capital reinvestments into the business and restructuring. And so we're balancing -- that's our decision tree, if you will, and which one is going to offer the longest term payback to our shareholders, to our owners. So again, we've talked about the restructuring that -- things that are really coming to light today. I talked about very chunky business wins and opportunities that we're looking at that are going to require, in some cases, fairly significant capital. So we're taking the approach that at this point in time, let's stay on the path, let's continue to pay our debt down, let's buying these opportunities. And at the right point in time, we look and say, we've got this capital project. We can buy back shares. We can do this restructuring and still maintain the debt type levels that we think our shareholders expect of us and make that right decision at that time. Operator: Your next question comes from the line of Matt Roberts with Raymond James. Matthew Roberts: Following to Anthony's question earlier on RPC. Any indications on when new international capacity, specifically Thailand will begin to ramp? How many points of incremental volume is expected from that? Or is customer merger time line still a drag into 2026 and potentially delaying any benefit there? Robert Coker: Yes. So we're ramping up. We are starting up as we speak. So first line is up and running, going through qualifications with the customers. So things are moving forward. What I'll tell you is it was when first presented to us and we've mentioned it to you guys, the intent is this will be the world's largest paper can facility in the market. So we've got to see this transaction close. The expectation would be that, that would remain the objective. But at this point in time, we're just kind of starting up and on hold. So we've got a new facility that's ramping up pretty aggressively in Mexico, and we've got capacity additions that are fully ramping up right now in Brazil. So Matt, I wish I knew. It's all quiet right now until things clearer through their process. Matthew Roberts: Howard. Second, you mentioned investments in pet and seafood in Europe. What is the timing of when those come online? Any CapEx considerations next year? And relatedly, what is the mix of these categories expected to be versus what it is now? And how do the margins compare to the system average for Metal Packaging EMEA? Rodger Fuller: Yes, Matt, Yes, capital would be in process as we speak, and that will run into the first quarter of next year. So you're looking at growth coming really probably starting the second quarter of next year. If you look at fish and -- seafood and pet, they're both today about 15% to 17% share of our overall market. Pet is a really mover. We see it going to 20% and the same for seafood. So pretty nice gains in both those markets, again, with the whole idea being our seasonal business is very good business, but it's very seasonal. So it's really spread out and better leverage our operations. As far as EBITDA margin in that business, pretty much average. We approached 18% in the quarter. So I'd say it's maybe slightly better than some of our average margins, but with the incremental investments that will be ramping up starting, let's call it, beginning of second quarter next year. Operator: That concludes our question-and-answer session. I will now turn the call back over to Roger Schrum for closing remarks. Roger Schrum: Again, I want to thank everybody for joining us today. And do please save the date for our February 17 New York Investor Day, and we'll be providing you more information on that in the future. Thank you again for your attention. Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good morning, ladies and gentlemen, and welcome to Essential Properties Realty Trust Third Quarter 2025 Earnings Conference Call. [Operator Instructions] This conference call is being recorded, and a replay of the call will be available 3 hours after the completion of the call for the next two weeks. The dial-in details for the replay can be found in yesterday's press release. Additionally, there will be an audio webcast available on Essential Properties' website at www.essentialproperties.com, an archive of which will be available for 90 days. On the call this morning are Peter Mavoides, President and Chief Executive Officer; Mark Patten, Chief Financial Officer; Max Jenkins, Chief Operating Officer; A.J. Peil, Chief Investment Officer; and Rob Salisbury, Head of Corporate Finance and Strategy. It is now my pleasure to turn the call over to Rob Salisbury. Robert Salisbury: Thank you, operator. Good morning, everyone, and thank you for joining us today for Essential Properties' Third Quarter 2025 Earnings Conference Call. During this conference call, we will make certain statements that may be considered forward-looking statements under federal securities law. The company's actual future results may differ significantly from the matters discussed in these forward-looking statements, and we may not release revisions to those forward-looking statements to reflect changes after the statements were made. Factors and risks that could cause actual results to differ materially from expectations are disclosed from time to time in greater detail in the company's filings with the SEC and in yesterday's earnings press release. With that, I'll turn the call over to Pete. Peter Mavoides: Thanks, Rob, and thank you to everyone joining us today for your interest in Essential Properties. In the third quarter, we continued to execute on our focused investment strategy as our team sourced attractive opportunities to deploy capital accretively into middle market sale-leasebacks with growing operators. During the quarter, we added new operators in our portfolio while continuing to support our existing relationships, which contributed 70% of our $370 million of investments, highlighting a healthy balance within our investment sourcing. Pricing was very favorable again this quarter with a weighted average initial cash yield of 8% and a strong average GAAP yield of 10%, which represents the highest level for us and an approximately 450 basis point spread to our estimated weighted average cost of capital. Our portfolio performance was another highlight this quarter with same-store rent growth of 1.6%, an increase in overall rent coverage to 3.6x, a 120 basis point decline in the percentage of ABR under 1x rent coverage and a decline in the tenant credit watch list, all of which is better than our budgeted expectations. Our capital position remains healthy with pro forma leverage of 3.8x and $1.4 billion of liquidity, which was supported by our unsecured bond issuance during the quarter. This positions us well to continue to invest, support our relationships and grow our portfolio, all to generate sustainable earnings growth for our shareholders. With operating and financial trends coming in ahead of budgeted expectations, we are again increasing our 2025 AFFO per share guidance to a range of $1.87 to $1.89, and our investment volume guidance to a range of $1.2 billion to $1.4 billion. Additionally, we are establishing our initial 2026 AFFO per share guidance range of $1.98 to $2.04, which implies a growth rate of 6% to 8%. Our guidance for 2026 reflects continued strong portfolio performance and a pace of investments generally consistent with our trailing 8-quarter average. Cap rates are expected to compress modestly over the coming quarters, reflecting a lower and stable interest rate environment. Specifically, we expect to invest between $1 billion and $1.4 billion in 2026. Additionally, we expect cash G&A expense to be between $31 million and $35 million, resulting in continued efficiency gains. Turning to the portfolio. We ended the quarter with investments in 2,266 properties that were leased to over 400 tenants. Our weighted average lease terms continued to be approximately 14 years for the 18th consecutive quarter, with just 4.5% of our annual base rent expiring over the next 5 years. With that, I'll turn the call over to A.J. Peil, our Chief Investment Officer, who will provide an update on our portfolio and asset management activities. A. Peil: Thanks, Pete. As Pete mentioned, at a high level, our portfolio credit trends remain very healthy, with same-store rent growth in the third quarter of 1.6%, up from 1.4% last quarter and occupancy of 99.8% with only 5 vacant properties. Overall portfolio rent coverage increased to 3.6x from 3.4x last quarter, and the percentage of ABR under 1x rent coverage declined by 120 basis points. There were no noteworthy credit events during the third quarter, and overall tenant credit trends have performed better than our budgeted expectations and our historical credit loss levels of 30 basis points. From a portfolio diversification perspective, our top tenant concentration continues to decline with our largest tenant equipment share representing just 3.5% of ABR at quarter end, our top 10 tenants overall accounting for just 16.9% of ABR and our top 20 accounting for only 27.6% of ABR. Tenant diversity is an important risk mitigation tool, and it is a direct benefit of our focus on middle market operators. On the disposition front, during the third quarter, we sold 7 properties for $11.5 million in net proceeds. This represents an average of $1.6 million per property, highlighting the importance of owning fungible liquid properties, allowing us to proactively manage portfolio risk. The dispositions this quarter were executed at a 6.6% weighted average cash yield. Over the near term, we expect our disposition activity to be consistent with our trailing 8-quarter average, driven by opportunistic asset sales and ongoing portfolio management activity. With that, I'll turn the call over to Max Jenkins, our Chief Operating Officer, who will provide an update on our investment activities and the current market dynamics. Max Jenkins: Thanks, A.J. On the investment side, during the third quarter, we invested $370 million at a weighted average cash yield of 8%. Our capital deployment was broad-based across most of our top industries with no notable departures from our investment strategy. During the third quarter, our investments had a weighted average initial lease term of 18.6 years and a weighted average annual rent escalation of 2.3%, generating a strong average GAAP yield of 10%. During the quarter, we closed 35 transactions comprising 87 properties, of which 97% were sale-leasebacks. Investment per property was $3.8 million this quarter as our deal activity was characterized by granular freestanding properties, which is one of our core elements of our investment strategy. Looking ahead, our investment pipeline remains strong. Pricing in our pipeline has cap rates in the mid- to high 7% range, which represents a healthy spread to our cost of capital with elevated contractual escalations supporting our long-term growth trajectory. Combined with our investments of $1 billion year-to-date, we have again increased our full year investment guidance to a new range of $1.2 billion to $1.4 billion. With that, I'd like to turn the call over to Mark Patten, our Chief Financial Officer, who will take you through the financials for the third quarter. Mark Patten: Thanks, Max. Overall, we were very pleased with our third quarter results, highlighted by the record level of investments and our AFFO per share, which totaled $0.48, representing an increase of 12% versus Q3 of 2024. On a nominal basis, our AFFO totaled $96.2 million for the quarter, which is up 24% from the same period in 2024. This AFFO performance was consistent with our expectations as reflected in our guidance range. Total G&A in Q3 2025 was $10.2 million versus $8.6 million for the same period in 2024, which is consistent with our budgeted expectations. The majority of the year-over-year increase is related to increased compensation expense, including stock compensation as we continue to invest in our team in support of driving our growth ambitions. Our cash G&A was approximately $6.7 million this quarter, which is consistent with our guidance range of $28 million to $31 million for the full year and represents just 4.6% of total revenue, down from 5.1% from the same period a year ago. We declared a cash dividend of $0.30 in the quarter, which represents an AFFO payout ratio of 63%. Our retained free cash flow after dividends continues to build, reaching $36.4 million in the third quarter, equating to over $140 million per annum on a run rate basis or approximately 10% of the top end of our 2026 investment guidance. Turning to our balance sheet. With the net investment activity in Q3 2025, our income-producing gross assets reached nearly $7 billion at quarter end. The increasing scale and diversity of our income-producing portfolio continues to build, improving our credit profile. On the capital markets front, we successfully executed a $400 million 10-year unsecured bond offering in August with a 5.4% coupon. This achieved an important advancement in a strategic objective of our capital markets program as we continue to build a more liquid bond complex and work to more closely align the weighted average duration on our liabilities with our long-dated assets. Our weighted average debt maturity improved by approximately 18% to 4.5 years, owing in large part to this issuance. With the liquidity from the bond offering, we were able to be more selective on the equity side this quarter, raising approximately $14 million through our ATM Program. We did not settle any forward equity during the quarter, leaving us with a balance of unsettled forward equity totaling $521 million at quarter end. We expect to utilize these funds in the near term to support our investment activities and preserve our balance sheet flexibility by repaying our revolving credit facility balance. Similar to last quarter, our share price remained above the weighted average price of our unsettled forwards of $30.71 at quarter end. As a result, under the treasury stock method, the potential dilution from these forward shares is included in our diluted share count. For the third quarter, our diluted share count of 199.9 million shares included an adjustment for 0.2 million shares from our unsettled forward equity related to this treasury stock calculation. This represented a modest headwind to our AFFO per share for the quarter, which was consistent with our budgeted expectations. Based on our current share price, we expect a very modest headwind from the impact of the treasury stock method in the fourth quarter. Our pro forma net debt to annualized adjusted EBITDAre as adjusted for unsettled forward equity remained low at 3.8x as of quarter end. We remain committed to maintaining a well-capitalized and conservative balance sheet with low leverage and significant liquidity to continue to fuel our external growth and allow us to service our tenant relationships in this dynamic environment. Lastly, as we noted in the earnings press release, we have increased our 2025 AFFO per share guidance to a new range of $1.87 to $1.89. Importantly, this guidance range requires no incremental equity issuance to achieve, and we anticipate ending the year at pro forma leverage of approximately 4x, leaving us ample runway to fund our growth ambition in 2026. Turning to 2026. As Pete noted, we have established an initial AFFO per share guidance range for 2026 of $1.98 to $2.04, reflecting a growth rate of approximately 6% to 8%. With that, I'll turn the call back over to Pete. Peter Mavoides: Thanks, Mark. We are happy with our third quarter results. The portfolio is performing well. The investment market is exceptional and the capital markets are supportive. Operator, please open the call for questions. Operator: [Operator Instructions] We'll take our first question from Haendel St. Juste with Mizuho. Haendel St. Juste: So I guess, first, congrats on another strong quarter. I wanted to ask, I was intrigued, Pete, by your comments about expecting lower cap rates going forward. I understand a lot of that is from lower cost of debt here, but I'm also curious if any of that is from the increased competition we're hearing about. And if you expect any of this new competition to impact your ability to source sale-leasebacks going forward? Peter Mavoides: Sure. Thanks, Haendel, and thanks for the compliment on the quarter. It was a great quarter, and we feel pretty good about it. Listen, the 10-year is down materially and the interest rate environment is more stable than it has been, which all contributes to a lower cap rate environment. We continue to source a strong pipeline of sale-leaseback opportunities as evidenced by the fourth quarter, as evidenced by our increase in investment guidance for the fourth quarter. And we can compete with any competition in the market. And so there's always competition. I think the cap rates are going to be driven down more by the stability in the interest rate environment, and we have an ample opportunity set. Haendel St. Juste: Appreciate that. One more, I wanted to ask about the new industrial assets you acquired. I know you have a little exposure there already, but there were really high rent coverage and I'm curious if there's an expectation perhaps to do more of that asset type going forward? Peter Mavoides: Yes, sure. We've been investing in industrial outdoor storage sites with service-based companies for quite some time now. Our investment in the industrial space really focuses on granular, fungible assets. And so one of the important considerations when we're doing those deals is making sure that we're having a very fungible piece of real estate. And we like it. We like the sale-leaseback where we can structure master leases on our lease, and that's been a part of our business and will continue to be a part of our business going forward. I wouldn't expect it to be disproportional. I would expect it to grow ratably. Operator: Our next question comes from Michael Goldsmith with UBS. Michael Goldsmith: Maybe to follow up on Haendel's first question on the expectation for cap rates to come down. When you marry that with your initial 2026 outlook, are you contemplating compressing spreads in that? I'm just trying to understand the flow-through -- just trying to understand the flow-through of cap rates going down? Peter Mavoides: Yes. I mean I've been saying this consistently for the past 2 years that we expect cap rates to come down. Certainly, as we look at the business, we did in the third quarter, initial cap rate of 8% with a 10% GAAP yield. As I've said in past calls, that's pretty much as good as it gets. As I said earlier, a 10-year going from 4.5% to 4 certainly contributes to downward pressure on cap rates. And if you think about the lag in the business, there's generally going to be a 60- to 90-day lag between movements in underlying interest rates and movements in cap rates. So similar to last year, as we look out here very early, 15 months in advance, we anticipate some downward pressure on cap rates. And overall, and as we think about the forward yield curve, I think it really results in a static spread, if anything. Maybe some compression in spread. I certainly feel like there's some room for that with our historically wide spreads. But there's certainly, as there always is a certain amount of conservatism baked into our forward assumptions because it is pretty early. Michael Goldsmith: And as a follow-up, the percentage of ABR was less than 1% -- or 1x rent coverage came down. It looks like you sold some stuff there. So can you provide a little bit of color about what you sold there, what you still have left in the portfolio in that less than 1x coverage and if you have plans for further disposals of that type of product? Peter Mavoides: Yes. Selling 7 assets at $11 million really isn't going to drive a material movement in that. It's at the margin. As we generally say, we take a very close look at those assets. And if they're permanently impaired, we come up with a strategy, whether disposal, restructuring or whatever to fix that. Many of the assets in those buckets are assets that are transitional, and we expect to come out of that bucket over time. And so we take an asset-by-asset look. And if we see permanently impaired assets, we'll move them out of the portfolio. I think what you see in the quarter is decrease in that bucket is just general improvement in some of the underlying operating conditions. Operator: Our next question comes from John Kilichowski with Wells Fargo. William John Kilichowski: Maybe, Pete, just to kind of go back into the guide here and talk about the drivers. I think it would be really helpful to talk about your assumptions this year versus last year. I understand for the past 2 years, you've been assuming some cap rate compression. I don't know if on the low and the high end, if you could talk to maybe the sizing of that and how that looked on this guide versus the last guide? And then maybe also on credit loss, maybe if there's more conservatism there and if that's just general conservatism given weakness in some of the private credit markets or if there's specific tenants that are on your watch list today that weren't last year, that would be really helpful. Peter Mavoides: Yes. I would say -- I would start by saying we build up our guide really targeting an AFFO per share range and looking at what we need to do to achieve that. As we said on the call, 6% to 8% is implied in our guide and the investment volumes are there to support it. As we think about cap rates, ironically, the cap rates assumptions are pretty similar to what we were looking at this time last year, which assumes a modest downtick in cap rates. As we saw when interest rates were rising and cap rates were rising, cap rates were sticky on the way up. We anticipate cap rates to be a little sticky on the way down. And just to frame that, I wouldn't expect something in the, I don't know, mid- to low 7s maybe at the end of the year. And obviously, there's a range of assumptions built into guidance. As it pertains to credit loss assumptions, we take a very deep dive into our portfolio, look at specific assets and specific tenants and try to create scenarios around where we might potentially take losses. And then we build in on top of that an unknown credit loss assumption to make sure we're covered for the unknown events. I think as we look at the credit loss scenarios built into this year's guidance, Ascent, again, it's very similar to what we were looking at and thinking about this time last year. And we would be hopeful that as the year progresses, the credit loss experience turns out to be favorable to our underlying assumption. I don't know -- Rob, you; Mark, you add anything to that? Max Jenkins: Yes. John, it's Rob. As you think about the low end and the high end of the range, one of the biggest drivers is actually just the timing of when we close investments and close on capital markets activities. Cap rates and credit losses, of course, will move it a little bit, but it's really when you're going to close deals throughout. So that's the main flux in the bottom versus the high end. William John Kilichowski: Okay. That's very helpful. And then maybe just on the credit side, given the issues we've seen with BDCs and private credit this year, can you talk about how you've been able to outperform on the credit side as it relates to the migration out of that sub 1x coverage bucket and just your overall coverage? Peter Mavoides: Yes. And I would really look at the outperformance in our same-store rent growth, right, which at 1.6% reflects a pretty strong pass-through of our contractual rent escalations. And I think our outperformance is really due to our focused and disciplined investment strategy by focusing on service and experience-based industries that are a little less volatile than general retailing, focusing on owning assets at a conservative basis and owning granular fungible assets that give us the ability to manage risk and ultimately, being the most secured creditor as a landlord in these businesses puts us first in line for the cash flows. So I think it's really a tribute to the team and the discipline in the underwriting and a tribute to the assets that we own. Operator: Our next question comes from Smedes Rose with Citi. Bennett Rose: I just wanted to ask a little bit about maybe if you could just repeat what you're seeing kind of in the fourth quarter in terms of activity. It looks like historically, the fourth quarter has picked up seasonally, I guess, people kind of rushing into year-end. Are you seeing that? And can you maybe provide what you've closed on so far and what the -- maybe the LOI pipeline looks like? Peter Mavoides: Sure, Smedes. And listen, I think with our revised guidance, we provide a pretty good landing zone of where -- what the fourth quarter might look like. And it's early in the fourth quarter and the year-end rush has yet to start. We didn't disclose subsequent activities because they just weren't material. But generally, I would expect the fourth quarter to look pretty similar to our 8-quarter trailing average in that kind of $300 million range. And there's -- events that could be a lot bigger, it could be a little smaller, but that's kind of where we're guiding at this point. Bennett Rose: And then I just wanted to -- did you say you would expect to settle the forward equity? And I just -- is that reflected in your 2026 guidance in terms of just the share count we should be thinking about? Mark Patten: Yes. Actually, thanks, Smedes. So that actually is reflected still in our 2025 guide as well. So that would be reflective there, and it would also be reflective of how we see the capital markets activity playing out for 2026 and the way we've utilized the [Technical Difficulty] and then utilize forward [Technical Difficulty] to wipe that off the balance sheet. Operator: Our next question comes from Jana Galan with Bank of America. Jana Galan: Sorry, one more on cap rate expectations. In the prepared remarks, there was a comment of kind of the mid- to high 7% range. I'm just curious if that's the current pipeline or if that's kind of the range embedded in the '26 guide? Peter Mavoides: Yes. I think it's really both, right? We have visibility on part of our fourth quarter pipeline, and that's in the mid- to high 7s. And as we look out, as I said, we don't anticipate cap rates falling off a cliff. We anticipate them to be sticky, but it's really going to be driven by the capital markets. And -- but overall, we would expect to maintain our spread. So yes, as I always say, we really don't have visibility past kind of 90 days, but that's kind of what our expectations would be. Jana Galan: And then back to kind of the -- I think that Mark had mentioned the historical credit loss has been 30 basis points. If you can just kind of help kind of frame the scenarios you've considered for 2026? Peter Mavoides: Yes. Rob, Mark? Mark Patten: Yes. I mean, look, Jana, as you might have suspected, range in our guidance, and I'll let Rob dig into it. But the range of our guidance incorporates a wide range of assumptions around credit. Certainly, we orient the first aspect of it to be our historical experience at that 30 basis points. But as Pete said, we do a deep dive on the portfolio and just look at both just kind of a general assumption. And [Technical Difficulty] some risk mitigation or otherwise kind of orientation around [Technical Difficulty] be appropriate. And that tends to be for us as we move through the year, as Pete, I think [Technical Difficulty] if our experience is better than we expected so far this year, that would be a scenario like that, that gives us an opportunity to tighten the range on our [Technical Difficulty]. Jana Galan: I'm sorry. I don't know if the line was cut off. Peter Mavoides: No, we're here. A. Peil: We're here. Peter Mavoides: Yes. So we don't guide specific credit loss assumptions, and there's a wide range in there, Jana. Mark Patten: And Jana, as we mentioned earlier on the call, our credit loss experience has come in much better than we had anticipated, which has been part of the driver for our guidance increases over [Technical Difficulty] Operator: Our next question comes from Caitlin Burrows with Goldman Sachs. Caitlin Burrows: Pete, in the press release, you mentioned the expanding platform that EPRT has. You also mentioned G&A efficiencies in the prepared remarks. So I was wondering if you could talk more about the potential of the platform and maybe why the '26 midpoint volume guidance isn't necessarily a continuation of growth from '25. Peter Mavoides: Yes. I think as I said a little earlier, Caitlin, it's -- we targeted an AFFO per share growth and try to present a business plan that is derisked from an execution perspective. And so while we continue to scale the platform, we continue to source more opportunities and have the ability to close more opportunities. We're fighting the desire to just do more and get bigger. So we're more trying to execute a business plan that gives us outsized sustainable growth for a long period of time. So the platform is growing. Our relationship base is growing. Our ability to close transactions is improving, but we certainly feel 6% to 8% guide to our AFFO per share growth is ample and adequate and derisked from an execution perspective. Caitlin Burrows: That makes sense. And then as you guys think about funding, obviously, you did use debt during the quarter, a small amount of dispositions. Could you go through like to what extent did share price moves in the quarter impact your equity issuance activity and maybe even bigger picture, not just 3Q, but how you think of it over time? Mark Patten: Yes. I guess what I'd say is I'd sort of flip that around. We were -- I'd say in any given year, if you think about our equity and debt issuance capital raising, it might be anywhere from 50 and 40 because as I mentioned in my remarks, we're over 10% of our capital needs in any given year is now available through free cash flows [Technical Difficulty] an important source for us. But if we were looking at where to access the bond market because I think we've [Audio Gap] our ambition is to be in that bond market, build the bond complex and really align our debt ladder, our maturity ladder with our long-dated leases. So we were looking at the bond market. And so what I'd say instead is being able to do that bond execution really put us in a position to be selective on the equity front. And we already had over $500 million of unsettled forward equity. So we didn't really need to lean in too hard in the quarter. And with the bond deal that made it even more so. And then I guess what I'd say in 2026, as you think about it, we remain very low levered. And so I think depending on the pricing of both our debt and our equity, that's where we would orient kind of our decisions around equity -- access to equity and then otherwise utilizing the bond market on the debt side. Operator: Our next question will come from Jay Kornreich with Cantor Fitzgerald. Jay Kornreich: Just curious, you added a new top 10 tenant this quarter with Primrose Schools. And as the majority of the deal flow comes from repeat business, I guess I'm just curious, how do you think about prioritizing obtaining new tenants that can really set the stage for continued business going forward? And can we expect more additions to that top 10 quadrant as the next 12 months come on? Peter Mavoides: Yes. Max, why don't you tackle that for us? Max Jenkins: Sure. Thanks, Pete. Primrose is a premium childcare concepts with over 500 locations across the country, and we've been partnering with their largest franchisee over the last couple of years and so a subsequent transaction put them in the top 10. But on the sourcing front, we're constantly adding new tenants and relationships to the portfolio. And frankly, it's been pretty consistent over the years of every quarter, we're adding anywhere between 5 and 10 new tenants and -- but then we're obviously focused on repeat business and growing ratably with those operators throughout our industries. And so it's always going to be a two-pronged approach. Jay Kornreich: And then just as a follow-up, in addition to sticky cap rates lately, you also ticked up the lease escalations to 2.3%. And so I'm curious what's driving that lease negotiation leverage and is that something on the lease escalations that you feel like you can continue to increase even in an environment where lowering interest rates could lower cap rates? Peter Mavoides: Yes. Listen, I think that's a key economic term of the sale-leasebacks we're negotiating. And ultimately, in any deal, we're negotiating the best terms we can. And whether or not we win a deal is really a factor of competition and having an ample opportunity set to focus on the deals with the least amount of competition. I would not anticipate that going higher. And as I said in our prepared remarks, a 10% average cap rate over the life of these leases is as high as we've seen and pretty darn compelling. If you look back to 2020, 2021, where interest rates were low and competition was very high level, our escalators were down around 1.4%, 1.5%. And so over a longer period of time, I would expect downward pressure on that key economic term. Operator: Our next question comes from Rich Hightower with Barclays. Richard Hightower: I guess just to maybe follow up on the same theme. I mean, obviously, one of the big, I guess, headlines in net lease this year has been that added private market competition. And so we probably asked this question last quarter as well. But just tell us about what you're seeing in the marketplace and how the different features of deal negotiation are impacted as more capital flows into the space? And does that affect the way you underwrite, you think about guidance, et cetera? Peter Mavoides: Yes. I mean it's always a competitive market. There's always competitive forces, competitive sources of capital, competitive alternatives for our tenants. And ultimately, we compete on our reliability and our ability to execute and deliver capital into capital needs. And I think when you have a lot of new entrants, there's a lot of footfalls and a lot of misstarts. And I think the priority on reliability and certainty and relationships and the ability to service and those relationships reliably gets rewarded. And that's been our operating thesis since starting this company and will continue to be the way we go to market. And so I'm confident that we'll be able to offer more compelling and certain capital to our counterparties than new market participants. Richard Hightower: I appreciate it, Pete. Maybe just to follow up or put a finer point on it. If you are losing out on a transaction, where are you typically losing and on what terms and that sort of thing? Peter Mavoides: Yes. We're going to lose on price. We're going to lose on -- I think the initial cap rate is ultimately the highest point of sensitivity. And if -- I view it as if we lose a deal, it's because we're choosing not to do it, and we're choosing not to chase the price and we see a different risk-adjusted return dynamic and opt to deploy our capital somewhere else. So it's not necessarily losing a deal. It's just deciding to invest somewhere else. Operator: Our next question comes from Eric Borden with BMO Capital Markets. Eric Borden: Just a quick question on the bad debt watch list. I understand that it's coming in above your underwriting. Just curious if you could provide an update on the watch list and where it sits today. I believe last quarter, you said it was approximately 160 basis points. Peter Mavoides: A.J., it's you, Buddy. A. Peil: Yes. So our watch list, and again, just to refresh, is the intersection of B- and less than 1.5x coverage. Today, that sits at 1.2x. And there's a variety of tenants on the list that we keep a close eye on, but it is down 40 basis points quarter-over-quarter. Operator: Our next question comes from Dan Guglielmo with Capital One Securities. Daniel Guglielmo: There were some changes to the ABR by state, but nothing that jumps off the page. When looking at the existing pipeline, are there states or regions where you see better investment opportunities over the next year or so? Peter Mavoides: Yes. As we think about it, geography is always an output, not an input, and we go where our tenant relationships bring us in the United States. And so there's certainly good opportunities across all states, and we just prioritize the best opportunities with the best operators. And so I wouldn't expect any material deviation in our geographies as we think about 2026. Daniel Guglielmo: I appreciate that. And then as a follow-up to the question on the elevated lease escalation number, are there any additional risks you think through for the higher annual rent bumps on some of the newer tenant leases? Anything kind of incremental? Peter Mavoides: Yes, listen, it's -- rent escalations are a key economic term. One of the benefits of lower escalations is a more compelling rent basis for the counterparty, right? The inverse of that is the higher the rent escalations, the more inherent credit risk as you get in the out years to your assets. Certainly, we feel comfortable at the level we're at, kind of roughly CPI-ish. But to the extent that your lease rates are growing faster than CPI, the tenant's underlying ability to generate profit may not keep up with rent. And so that's an important consideration as we structure these leases is really making sure there's a healthy rent payment and healthy coverage as we think about the out years in 10 through 20. So it's a balance. And certainly, more is better, but making sure you're getting the right level and having tenants that can service those obligations throughout the life of the lease. Operator: Our next question comes from James Kammert with Evercore. James Kammert: You've covered a lot. Just to go back on the credit loss assumptions for '26. Would you just say as a platform, you're adopting a more conservative expectation for credit loss for '26 given the economy or the portfolio? Or I'm reading too much into this? Or it's very similar to what you kind of started the 2025 outlook for when you [Technical Difficulty] in late '24? Peter Mavoides: Yes. I would say we're looking at it through the same lens. We have the same guys doing the same work, taking the same assumptions with the same base of experience and our assumptions are based on the most current data that we have in the shop. Ultimately, the result of that process is very consistent to what we're looking at last year at this time. But the risks in the portfolio tend to be very idiosyncratic and not really driven by macro trends. It's more just specific operators who are not operating the way we would expect. So it's a consistent process. The result just happens to be very consistent to last year as we sit today, but nothing out of norm. Operator: [Operator Instructions] We will take our next question from Omotayo Okusanya with Deutsche Bank. Omotayo Okusanya: The group of tenants where the rent coverage is less than 1x, could you just kind of a high level, tell us like who that is, whether -- if you can't mention the specific client or tenant, kind of what sector or what industry it is? Peter Mavoides: Yes. It's a group of assets. First and foremost, let's focus on the real estate properties that we own. And there's really not a consistent theme. It's very much specific idiosyncratic risk to those assets and the lease obligations that the tenants have at those assets. It's going to be across all our industries. It's going to be across all our geographies and it's just specific sites that aren't working. It could be very idiosyncratic as a childcare center lost an operator or a manager or it could be a restaurant where there's a road widening and the access is off-line or it can be a car wash that's just opened and really ramping into its membership base. So very idiosyncratic stuff, not terribly material. Certainly, we're happy that it's come down, but nothing thematic that I would point out. Operator: Our next question comes from Greg McGinniss with Scotiabank. Greg McGinniss: It's never particularly low, but acquisitions through existing relationships hit 70% this quarter, which maybe one could argue is relatively lower than usual. I'm curious if this is an indicator for the growth of EPRT's name as a source of capital? Or how do those nonrelationship deals come about? Is it market deals, the seller approaching you? I'm just trying to understand if you start having even more investment opportunities as you grow. Peter Mavoides: Yes. I think you see that we're having more investment opportunities. Our underwritten pipeline has grown consistently over the years. I think the opportunity set that we've written offers on this year is approaching $7 billion versus $5 billion last year. And we're doing the hard work in attending conferences, sending out mailers, dialing the phone to find new relationships in our industries and find new partners. And I think our execution and our reliability has given us a good reputation as a capital provider, and that continues to drive incremental opportunities. So having that number at 70% is great. I wouldn't concern me if that was 50% because certainly, relationships outgrow us from a concentration perspective, and it's important that we're finding new people to bring deals in the coming years. Greg McGinniss: And then I just wanted to kind of confirm whether or not you start seeing any indications of increased competition today or if this is kind of similar to last year at this time when you expected greater competition to materialize given historically wide spreads and the success that you've been having? Peter Mavoides: Yes. There's other buyers out there. We're seeing them bid on deals. We continue to be successful where we choose and where we see appropriate risk-adjusted returns. So there's platforms out there. There's people investing and there's competition, but we're continuing to execute well and have a good reputation and are able to pick and choose the deals that we do. Operator: Our next question comes from Ryan Caviola with Green Street. Ryan Caviola: Is there any color you could share on the differences in yields between your traditional retail portfolio versus the industrial properties that you mentioned earlier in this call? And is that expectation of cap rate compression, does that apply to these industrial properties as well? Or is that mostly in the retail space? Peter Mavoides: Yes. I would say it's -- there's really no differentiation. The biggest driver of differences in cap rates is going to be the counterparty, the credit and the real estate pricing, not necessarily whether it's retail service or industrial. So there's really not a differentiation, and we would expect cap rate compression across our entire opportunity set driven by the -- as I said on the call, lower interest rates and more stable capital markets. Ryan Caviola: And then I know you've mentioned a few times that credit losses have been better than expected throughout this year. The only notable story across retail that comes to mind for this quarter is some distress in autos. Has any of that flowed into the portfolio? Or how are you viewing that space for the rest of the year and going into '26? Peter Mavoides: Yes. We haven't seen it. Our auto exposure is largely focused on automotive service. And so the noise around automotive retailing and dealerships isn't in our portfolio. The noise around auto parts suppliers isn't in our portfolio. So we still think automotive service is a good industry for us, and we like the real estate in that industry, which is granular, bite-sized, well-located boxes. And so we'll most likely continue to invest ratably across that industry as we think about 2026. Operator: Our next question comes from John Massocca with B. Riley. John Massocca: Sticking with the industrial assets, and sorry if I missed this earlier in the call, do those properties house consumer-facing businesses? Or are they part of a tenant's internal supply chain? And if it's the later, how are you calculating rent coverage? Peter Mavoides: Yes, they're not -- I mean, they're industrial properties, industrial outdoor storage yards where service-based operators are running their business. And the coverage is based upon the revenue generated out of that site and the profitability from that site. I would acknowledge that, that revenue and that profitability is less tethered to that piece of real estate than a traditional retail box like a restaurant, but those sites are still essential to that operator's business and switching costs are very high, such that we would expect durable tenancy in those assets. John Massocca: [indiscernible] are they selling goods made there like directly to other businesses? Or is it kind of an internal thing within a tenant that you're kind of just getting whatever their estimate is of the kind of revenue contribution from that particular manufacturing facility or storage facility or whatever it may be? Peter Mavoides: It's a wide range of businesses and operations. So I would say there's probably a little of both of that. John Massocca: And then as you do your credit underwriting for potential investments with private equity-backed tenants, does the size of the private equity sponsor matter to you at all? I mean, especially in the current environment where private equity capital raising, liquidity events are a little bit more uncertain versus in years past? Peter Mavoides: Yes. We start underwriting real estate and underwriting the unit level profitability and the economics of the site and then take a look at the corporate credit. And I tend to be agnostic to the equity source. It could be private. It could be large private equity and [credits] credit. And we ultimately hang our hat on owning a good piece of real estate at the appropriate basis with a good lease structure supported with rents supported by the operating business. John Massocca: Is there any difference versus maybe a smaller regional private equity operator versus a bigger brand name one? Or would there be a trend do you think in the current kind of credit environment to move one way or another between the two in terms of how you're thinking about valuing potential transactions with those tenants and their sponsors? Peter Mavoides: No. There's good big operators and bad big operators, and there's good small operators and bad small operators. And we really focus on our history and our relationships. And the bigger the operator, we find the more use of leverage and so we certainly take that into consideration, but it's underwriting credit. Operator: And it appears we have no further questions at this time. I'll turn the program back to the speakers for any additional or closing remarks. Peter Mavoides: Super. Well, thank you all for your questions today, and thank you for your time, and we look forward to seeing everyone in the conferences in the upcoming months. Have a great day. Operator: This concludes today's program. Thank you for your participation, and you may disconnect at any time.
Operator: Good day, and thank you for standing by. Welcome to the Vista's Third Quarter 2025 Earnings Webcast Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Alejandro Chernacov, Vista's Strategic Planning and Investor Relations Officer. Please go ahead. Alejandro Cherñacov: Thanks. Good morning, everyone. We are happy to welcome you to Vista's Third Quarter of 2025 Results Conference Call. I'm here with Miguel Galuccio, Vista's Chairman and CEO; Pablo Vera Pinto, Vista's CFO; Juan Garoby, Vista's CTO; and Matias Weissel, Vista's COO. Before we begin, I would like to draw your attention to our cautionary statements on Slide 2. Please be advised that our remarks today, including the answers to your questions, may include forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to be materially different from the expectations contemplated by these remarks. Our financial figures are stated in U.S. dollars and in accordance with International Financial Reporting Standards, IFRS. However, during this conference call, we may discuss certain non-IFRS financial measures such as adjusted EBITDA and adjusted net income. Reconciliation of these measures to the closest IFRS measures can be found in the earnings release that we issued yesterday. So please check our website for further information. Our company is sociedad anónima bursátil de capital variable organized under the laws of Mexico, registered with the Bolsa Mexicana de Valores and the New York Stock Exchange. Our tickers are VISTA in the Bolsa Mexicana de Valores and VIST in the New York Stock Exchange. I will now turn the call over to Miguel. Miguel Galuccio: Thanks, Ale. Good morning, and welcome to this earnings call. During the third quarter of 2025, we recorded a strong performance across key operational and financial metrics, especially on a sequential basis, driven by strong productivity in new well tie-ins in Bajada del Palo Oeste and La Amarga Chica. Total production was 127,000 BOEs per day, an increase of 74% year-over-year and 7% quarter-on-quarter. Oil production was 110,000 barrels per day, an interannual increase of 73% and 7% sequentially. Total revenues during the quarter were $706 million, 53% above the same quarter of last year and 16% above the previous quarter. Lifting cost was $4.4 per BOE, 6% below year-over-year. Capital expenditure was $351 million, driven by new well activity during the quarter. Adjusted EBITDA was $472 million, an interannual increase of 52% and a sequential increase of 70%. Adjusted net income during the quarter was $155 million. Net income was $315 million, reflecting a nonrecurring gain of $288 million from the Petronas Argentina acquisition. Earnings per share was $3 and adjusted earnings per share was $1.5. Free cash flow in this quarter was almost neutral at minus $29 million, driven by higher adjusted EBITDA and a decrease in working capital. Finally, our net leverage ratio at quarter end was 1.5x on a pro forma basis. During Q3, we connected 24 wells, 11 in Bajada del Palo Oeste, 4 in Aguada Federal, and 9 corresponding to our 50% working interest in La Amarga Chica. We recorded solid productivity in the latest well tie-ins, which boosted Q3 production by 7% compared to the previous quarter. Based on robust well performance, improvement in our oil realization prices and financial flexibility award by the $500 million term loan closed in July. We have decided to accelerate new well activity in Q4. We are now planning between 12 and 16 tie-ins in the next quarter, leading to between 70 and 74 connections for the year. We are seeing Q4 production about 130,000 BOEs per day, which leaves us on track to over deliver on production guidance for the year and the second semester. Total production in Q3 was 126,800 BOEs per day, an interannual increase of 74%. Oil production was 109,700 barrels per day, 73% above year-over-year. On a sequential basis, both oil and total production increased 7%, reflecting solid execution of our drilling campaign and robust well productivity during Q3, especially in Bajada del Palo Oeste and La Amarga Chica. Bajada del Palo Oeste also drawn production in our operated block, which increased 50% compared to a year ago and 6% compared to the previous quarter. Gas production increased 87% on an interannual basis and 9% on a sequential basis. In Q3 2025, total revenues were $706 million, 53% above Q3 2024, driven by a strong increase in oil production, which more than offset lower oil prices. On a sequential basis, total revenues increased 16%, driven by 7% increase in total production and 4% higher oil prices. Oil exports increased 84% year-over-year to 6.3 million barrels for the quarter. Realized oil prices were $64.6 per barrel on average, down 5% on interannual basis and up 4% on a sequential basis, in both cases driven by international prices. We captured higher Brent prices and lower discounts, which were around $1 per barrel during the quarter. During Q3, 100% of oil volumes were sold at export parity prices. In Q3, lifting cost was $4.4 per BOE, 6% lower compared to both the previous quarter and the same quarter of last year. This reflects our continuous focus on efficiency. Selling expenses per BOE were down 24% on an interannual basis, driven by the elimination of oil trucking services as of the start of the last quarter. Adjusted EBITDA during the quarter was $472 million, 52% higher on interannual basis, mainly driven by production growth, explained by the 15% in our operated production and the consolidation of 50% of La Amarga Chica. Compared to the previous quarter, adjusted EBITDA increased 17%, mainly driven by oil production growth. Adjusted EBITDA margin was 67%, up 2 percentage points compared to the same quarter of last year as production growth and the elimination of oil trucking offset lower oil prices. Netback was $40.5 per BOE, up 8% on a sequential basis. During Q3 2025, cash flow from operating activities was $304 million, reflecting income tax payments of $179 million, partially offset by a decrease in working capital of $43 million. Cash flow used in investing activities was $333 million, reflecting accrued CapEx of $351 million partially offset by a decrease in CapEx-related working capital of $17 million. Free cash flow during the quarter was minus $29 million, reflecting higher adjusted EBITDA that drove cash from operations and a decrease of $59 million in working capital. Cash flow from financing activities was $195 million, driven by proceeds from borrowings of $500 million, partially offset by the repayment of borrowings' capital of $193 million and the repurchase of shares of $50 million. Finally, cash at period end was $320 million, our net leverage ratio on a pro forma basis reflecting the Petronas Argentina transaction stood at 1.5x adjusted EBITDA. To conclude this call and before we move to Q&A, I will make some closing remarks. During Q3, we recorded a robust well productivity in new well tie-ins, reflecting our high-quality asset base and peer-leading operating performance. This led to a material increase in adjusted EBITDA, both in a sequential and interannual basis, driven by production growth and continued focus on cost control. Q3 production was well within guidance range for the second semester. Production growth in the fourth quarter on the back of solid productivity and more investment in our profitable ready-to-drill inventory leaves us on track to potentially over-deliver on our guidance. I remind you that we will be hosting our third Investor Day on November 12. During this virtual event, we will present an updated strategic plan, focusing on profitable growth, cost efficiency and cash generation. Before we move to Q&A, I would like to thank everyone at Vista for delivering a remarkable quarter. Operator, we can now move to Q&A. Operator: [Operator Instructions] Our first question comes from the line of Rodolfo Angele from JPMorgan. Rodolfo De Angele: Thanks for the time to discuss the numbers presented yesterday. I'm sure we would like -- looking forward to the investor event where you're going to revise the strategic numbers. But for the time being, I think my question to you is on price realization. The numbers were pretty good. And compared to our expectations here, one of the positive surprises came from a realization of prices pretty solid versus Brent. So can you expand a little bit on what drove this? And what should we expect for the coming quarters? That's it for me. Miguel Galuccio: Rodolfo, thank you very much for your question. It's a good one. There are basically 2 factors driving this good realization prices. With our spot export via the Atlantic, we have some flexibility regarding when we trigger the Brent price. This can potentially usually help us to capture some Brent price slightly above what you can see as a quarterly average. In Q3, the Brent averaged around [indiscernible], but the trigger Brent that we use to price the cargo was on average $1 higher. Also, the average discount of Brent was around $1 per barrel during Q3. So this is explained by 3 main factors. The first one is the high oil demand that we saw from West Coast U.S. due to seasonal factor. The other one was the very good demand that we have for Medanito. And the last factor was the lower availability of other type of crude oil that usually compete with us like [indiscernible] crude. So that mainly explains why we have some good realization pricing during the Q3. Operator: Our next question comes from the line of Leonardo Marcondes from Bank of America. Leonardo Marcondes: So my question is regarding the drilling completion and tie-in of the wells since September's figures beat the market expectations, right? So I would like to know if you could provide some color on the rationale of this significant increase in well tie-ins now, right? And also some color on what can we expect from this team for the remainder of the year? I mean, should you keep the rhythm on October, November, December? Miguel Galuccio: Leonardo, thank you very much for the question. And I will explain and give you a bit of context on the rationale on the increase of well tie-ins. So I mean, as a recap, in April, we took on a bridge loan to finance the Petronas Argentina acquisition, as you know. In May, we successfully tapped to the international market and issued a bond of $500 million to take out the bridge loan. And also in July, a $500 million term loan to refinance all our short-term maturities, and that basically give us or regain full financial flexibility. We also consolidate the new assets. We saw very good productivity and production growth, even, I would say, better than our original expectation. And on the top of this, now there is less bearish consensus regarding the oil price. So in summary, due to all these factors, we decide -- we saw that we are aware in a position that we were more comfortable to basically accelerate CapEx. Regarding Q4, the short answer to your question is yes. You will see pretty much, I would say, 11 to 14 wells. And regarding '26, you have to bear with me, I mean we have in a few weeks at our Investor Day in November 12, and I will probably wait to give you a full view of what we're going to do in 2026 and onwards. Operator: Our next question comes from the line of Bruno Amorim from Goldman Sachs. Bruno Amorim: I have a follow-up question on the production outlook. It seems that you ended third quarter on a strong tone. So what does it mean for the fourth quarter, given you just mentioned you're going to continue to drill and tie-in a significant number of wells into the fourth quarter. Can you elaborate on where do your current expectations stand versus your guidance for the remainder of the year? Miguel Galuccio: Bruno. Yes, you can expect that the production for Q4 to be about the 130,000 barrels oil per day that we guide. As always, you will see the typical up and downs that we see month-over-month. As you know, the natural rhythm of how we tie-in the wells sometimes it's not quarterly, but it's changing month-by-month. But on average, Q4 will be similar to September. So this implies that we will likely be above guidance for the year. The guidance was between 112,000 and 114,000 barrels oil per day. And also [indiscernible] we will be about the guidance for the second semester, which was between 125,000 and 128,000 barrels oil per day. So yes, you can you can probably look at Q4 about 130,000. Operator: Our next question comes from the line of Alejandro Demichelis from Jefferies. Alejandro Anibal Demichelis: Congratulations on the quarter. Miguel, one quick question. Could you please indicate how you're seeing the evolution of drilling and completion costs over the next few quarters? We have seen a bit of volatility on the FX. We have seen kind of inflation kind of going up a little bit. So just some kind of direction on how you see those costs go on, please? Operator: [Operator Instructions] Alejandro Anibal Demichelis: Congratulations on the quarter. Miguel, one quick question. Could you please indicate how you're seeing the evolution of cost of drilling and completion costs over the next few quarters given the volatility on the FX, inflation and so on. Miguel Galuccio: Yes, Ale here again. I mean we listened the first one, but thanks for the question. So we announced, I was saying in Q2 that our cost of the well was around $12.8 million. This is drilling and completion cost for well with a lateral length of approximately 2,800 meters and 47 stages. Today, we are slightly below this number and we are seeing very good results from the initiatives that also we announced last quarter that we will implement it. We are currently working on further initiatives on the same 2 verticals that were contracts and technology, so -- which basically, we believe and we feel very strongly that will lead to further savings. So the idea is to comment and to give a lot of color and more color because we have very good news coming on that front on the Investor Day. So I hope you take that answer now, and we will give you more detail when we see you in the [ field ] on November 12. Operator: Our next question comes from the line of Thiago Casqueiro from Morgan Stanley. Thiago Casqueiro: Congratulations on the results. My question here is regarding La Amarga Chica. It's been about 6 months since you acquired the stake in the assets. So looking back on this initial learning period, what would you say are the key challenges and opportunities you have identified in the assets so far? Miguel Galuccio: Thiago, thanks for the question. Look, I mean, we have a very open and contractive relationship with YPF, I will say, at all levels. At my level, CEO and at the level of Matias in the field and everybody. You imagine they have been for many years, co-worker of us. So very good relationship, very good collaboration. We are collaborating in many fronts. First, I would say, sharing technical learnings. We regard ourselves as lead operator. We have learned a lot. YPF has a very extense experience in unconventional. So the sharing of practices has been very rich. Second, in opportunities on services and also in infrastructure, very collaborative and very open discussion also in those both fronts. The performance of the production and the cost efficiency this quarter was very good, I have to say, very good. So we are now focusing and discussing the 2026 [indiscernible] and the budget for that. But overall, it's going very well. Operator: Our next question comes from the line of [ Matteo Tosti ] from Citi. Unknown Analyst: Congratulations on results as well. I was wondering while you may comment on M&A. I mean I remember last quarter, you touched on this, and we -- you said maybe there was still appetite for M&A. And has this appetite continued? Is something that has maybe weighed down a bit? What can you comment on this? Miguel Galuccio: Matteos, well, the short answer is the appetite is intact. So we have a proven track record, as I said before, creating value through M&A. So we are not only good operators, we have been very good M&A wise all the way up to here. And the best example of that probably the Petronas acquisition earlier this year. So that is part of our strategic approach as Vista. So given also that we are increasing our scale and our cash profile going forward, we will continue assessing opportunities. The only thing I will say that you have to take in consideration that we have a very high value in terms of value accretion and also in terms of strategic fit. But yes, the short answer is the appetite to M&A is intact for us, and we will continue looking to opportunities as they come. Unknown Analyst: If I may add a quick follow-up. Are there any open processes today, maybe the opportunities to engage with other companies? Are there any open process, any assets available that you're looking into? Or has the temperature cooled on that front, too? Miguel Galuccio: No, I don't think -- I mean, as we said in a formal process, I don't see any formal process that we are participating. We are having, yes, several discussions as always we have. As you know, the interest in Argentina have renewed a lot during the last few -- during the last year. And also, we see new players coming into the country, I would say, exploring opportunities. So yes, we are maintaining discussion with all of them. But I will not say that we are participating in any formal process at the moment. Operator: Our next question comes from the line of Tasso Vasconcellos from UBS. Tasso Vasconcellos: Great. Miguel, maybe a follow-up question on the discussion on CapEx and production levels. If Vista were to only maintain current level of production is stable without much growth, what would be the level of CapEx required? And in this same sense here, what would be the maintenance CapEx to maintain production stable closer to 150,000 barrels a day. That's my question. Miguel Galuccio: Thank you, Tasso for the question. Yes, these are numbers that usually when we simulate our plans, we look into. I will say using 100,000 barrel per day of production as a reference, we will need around $700 million of CapEx to keep the production flat going forward. And that will imply probably between 50 and 55 wells. If we in [indiscernible] of 130,000 with 150,000 barrel per day, then I think that we should add one rounding the CapEx around $800 million and then the number of wells would be between 55 and 60 wells. So that will be around numbers. Of course, that could change also depend of the context now. Operator: Our next question comes from the line of Michael Furrow from Pickering Energy Partners. Michael Furrow: So there's been a lot of attention on the upcoming midterm election. And for good reason, the outcome could have meaningful implications to the country. Now that said, the Vaca Muerta is an extremely valuable natural resource, and it seems to us that regardless of the outcome, this resource will continue to be developed. So I was hoping that you could maybe take some time to discuss your thoughts on the matter and if you see any outcomes from this weekend's election that would have a material impact on Vista's operations. Miguel Galuccio: Thank you, Michael, for the question. It's a recurring question and a good question. In short, the elections do not change our plan. We've been growing Vista from the scratch to where we are today, participating in 4 different administrations. And even before that, most of us came back to the country in 2012. And as we said, we were part of making Argentina a structural net exporter today and being part of the solution of the country. So the fact that we are holding an Investor Day 2 weeks after the elections is a full reflection of what we feel about the business. Our business model is solid, is dollarized, and we are increasing as we grow the amount of sales to the export market. So also, we said that we have secured the funding to continue growing, and we will discuss that in November 12. And we don't have any large financial debt maturity in the coming years. We also have secured the services, the rigs, the completions, the frac set with flexible contracts going forward. So no, Michael, I don't think, I mean, the elections will affect multiples and other things or the perception of Argentina, but will not affect Vaca Muerta. It doesn't affect our ability to continue growing and to execute our plan. Michael Furrow: That's great. I appreciate such a comprehensive answer. Operator: Our next question comes from the line of George Gasztowtt from Latin Securities. George Gasztowtt: Brent has remained pretty volatile again this quarter. And I was wondering what your EBITDA sensitivity to oil prices was now in 4Q. Miguel Galuccio: Thanks, for the question. Yes, there is a sensitivity. Using 130,000 barrel oil per day production as a reference, you should think that for every dollar per barrel of changing in realized oil prices, the adjusted EBITDA in the fourth quarter will change approximately between USD 8 million and USD 9 million. That's more or less will be the impact. Operator: Our next question comes from the line of Juan Jose Munoz from BTG. Juan Muñoz: Regarding La Amarga Chica, could you provide more color about the production of the 3Q? I understand that you finished on a strong note and also regarding the outlook that you have for La Amarga Chica in the last quarter of the year. Miguel Galuccio: Thank you, Juan Jose, for the question. So in La Amarga Chica, let me do a bit of a recap of La Amarga Chica. In La Amarga Chica, we connect around 18 wells. And we have 50% of that work [indiscernible], so YPF connect 18. This well correspond to 4 parts, Pad 120, Pad 67, and these Pads, if I'm not mistaken, in the south triangle of the block and also the Pad 105 and the PAD 83 that are in the center of the block. All the 4 pads are producing above budget. The well performance of La Amarga Chica was good and the production was for Q2, 38.7 and they took it from 38.7 to 43.5 in Q3. So very good performance for Q3. And we are expecting -- I cannot give you a number, but we are expecting a very strong performance also in Q4. So I hope that gives you a feeling of how we are looking at La Amarga Chica. Operator: Our next question comes from the line of Francisco Cascarón from DON Capital. Francisco Javier Cascarón: My question is what caused the decline in operated production during the first 2 months of the quarter? And if you are looking to accelerate that production going forward like we saw in September? Miguel Galuccio: Thank you, Francisco. So yes, we saw a very good productivity in the wells that we connect during the quarter, specifically Bajada del Palo Oeste where we connect 11 wells that correspond to 3 different pads. Bajada del Palo 35 was connected in July, has 5 wells of around 3,400 meters in lateral length and 57 completion stages on average. Then we connect Bajada del Palo Oeste 36 that has 4 wells, lateral of 3,300 meters. On average, I think, around 50 stages. And then we -- that was -- the last one was connected in August. And then we connect Bajada del Palo Oeste 37 that has only 2 wells, 2,800 meters length and 48 stages on average that was connected in September. So what you're seeing is the solid productivity of this 11 wells is the result of the boost production that you saw from Bajada del Palo Oeste that went from 56,400 barrels of oil per day in Q2 to 60,200 barrels oil per day in Q3. So that are the pads that somehow result in the boosted production. You will see that also continuing in Q4. Operator: Our next question comes from the line of Matías Cattaruzzi from Adcap Securities. Matías Cattaruzzi: Miguel and Alejandro, my question goes on the regard of CapEx guidance. Given the current activity levels and the pulse of -- the pace of well tie-ins, do you see a possibility of this year CapEx ending above the $1.2 billion guidance closer to $1.3 billion or over that number as recent trends in activity suggest? Miguel Galuccio: Matias, yes, thanks for the question. Yes, I mean, we guide 59 wells, and we will be end up drilling between 70 and 74 wells. So you should add 11 to 15 wells to our original guidance. Of course, that will involve more CapEx or some additional CapEx. So you should think that [indiscernible] $1.2 billion. So you should think that we will end up between $1.2 billion and $1.3 billion for total CapEx for the year and Q4, a little over $300 million. So that is how you should look to the actual CapEx numbers. Operator: Thank you. At this time, I would now like to turn the conference back over to Miguel Galuccio for closing remarks. Miguel Galuccio: Well, thank you very much, everybody, for the participation. Of course, we are super happy with the quarter, a fantastic quarter for us. And I'm looking forward to see you all on November 12 in Argentina. Thank you very much, and have a good day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Welcome to XVIVO Q3 Report for 2025. [Operator Instructions] Now I will hand the conference over to CEO, Christoffer Rosenblad; and CFO, Kristoffer Nordstrom. Please go ahead. Christoffer Rosenblad: Thank you so much, and good morning and good afternoon, everyone, and especially welcome to XVIVO's earnings call for the third quarter of 2025. First, a quick introduction of today's presenters. This is me, Christoffer Rosenblad, CEO, calling in from Gothenburg, Sweden. And we also have Kristoffer Nordstrom, CFO, calling in from Philadelphia in the United States. And with that we go to the third slide, which shows Q3 financials at a glance. The Q3 shows a plus 6% top line organic growth if adjusted for the U.S. heart trial revenue compared to the same quarter last year. We can note that there was no destocking during Q3 and hence the EBITDA recovered to expected levels during the quarter. In terms of segment growth, the Thoracic sales were affected by lower heart study revenue in the U.S. and a softer Q3 lung market. The Abdominal segment shows great progress for both liver and kidney. Looking a little bit into the future. In the beginning of October, the 3 out of the 4 clinics that acquired an XPS in the United States during H1 or half year 1 are up and running now in the beginning of October, and we also held a Lung Masterclass. I will come back to that later. Yesterday, where it was noted that, that October at least started better than Q3 in terms of lung transplant and in terms of EVLPs to support for the lung transplant if you compare to what we saw in Q3. Going into our Abdominal segment, liver in Europe are now entering the majority market segments with penetrations above 15% in many European countries. The main task for us are now to support with resources for perfusion and data for improved reimbursement. Sales growth is improved in many countries by improved reimbursement, which is based on the carpet of excellent clinical data with better patient survival and more livers used, as well as hospital economic data and health economic data. Kidney, on the other hand, is still below 15% penetration in many countries, including the U.S., and the main task for us is to win account by account. What is good to note is that the feedback we get from kidney customers is that they are very pleased with the product and see that the kidneys are in better condition after being perfused with the Kidney Assist Transport compared to the available alternatives on the market today. And if we go over to Services, we have stated earlier, and we are not pleased with the progress of the U.S. service business. And we reported in the last Q2 report that the analysis was finalized for an action plan and that we see an increased interest for combined procurement and NRP service model. This would fit very well into the heart launch. During the summer it was decided to execute on this plan and invest into service segment, and I will come back later in this presentation with the actions we have taken and how we will execute during the next 5 quarters to become a preferred partner to the transplant teams in the United States. And I also want to again state, as we have said earlier that the service initiative is very strategic and the purpose is to support the future heart business in the U.S. During the year, a cost and cash reduction initiative was initiated to enable better resource allocation going forward. The CFO will come back to that during the financial part of the presentation. And to end this slide, Q3 shows again that XVIVO has a scalable business model in terms of EBITDA. We can see that the recovery of sales in Q3 versus Q2 also improved the EBITDA as a percentage if you compare to Q2 of this year. And with that, we go over to Slide #4, which is the first 9 months at a glance. And it shows a similar picture to the Q3 slide. A good and stable gross margin. We continued investing into field force and scalable production structures. We saw that sales came in at SEK 586 million with again a 6% growth if we adjust for the U.S. heart trial revenue. In terms of gross margins, I said before that we plan to improve Abdominal gross margin to 70% at the latest in '27 or when we reach economies of scale in production. You will hear more about gross margin or EBITDA levels later in the presentation. For heart the main hurdle is regulatory approval. Once the Heart Assist is used the feedback is overwhelmingly positive. We continue to build evidence and more than 500 patients have now been transplanted successfully with Heart Assist. The CAP in the U.S. is now up and running, and we have 6 patients included as of yesterday. I will come into later a little bit more on heart, but we can also see that in Australia, the heart penetration rate last year was approximately 30% and we now see that this year it has increased to 40% for DBD heart, which shows again that the need for this product in the market. We have also stated in early calls that we're running a DCD direct procurement study in the Benelux to show that we -- it's also a great product for DCD hearts. And I think with that results coming out, hopefully next year and the Australian experience, we see a great potential to truly shift the paradigm of heart transplantation. Lastly, and also important to mention is that the projects are progressing according to plan. Regulatory time lines are hard to predict, which we saw this summer for the EU heart approval. But in terms of clinical trials and development projects, they are progressing according to time lines agreed. The production capacity projects, for example, where we invest to scale up volumes 10x of the day volumes for disposables are running in line with communicated time lines. The full-scale production of disposables for heart, liver and kidney will be extremely important to capture future growth potential for all 3 products. And with that, we can go to Slide 5. And I want to remind everybody why we are here. It's a picture in front of us reminds us that Alex is one of the 500 patients that got opportunity to get a heart transplant, thanks to the innovative XVIVO heart technology. And that's why what we work on every day to make sure that those patients actually survive. If we can go into Slide 6 to the Q3 highlights and important information. If we start with the U.S. federal review, so HHS has launched a review of the organ transplant system in the United States and started to take actions towards at this stage, one, underperforming OPO, listening to the conference. And I think it was best summarized by the quote from the FDA Director, Marty Makary, that you see in the middle of the page here. I want to state that XVIVO is aware that many organs go to waste because of bad communication, underutilization of technology that improves organ utilization, patient outcome, et cetera. And this is why we work day and night to improve the situation for both transplant teams and OPOs. Our products and services correctly used will enable more organs to be used and less stress on the transplant system, which we do acknowledge there is a high level of stress right now. But we hope with longer transportation times, more evaluation opportunities and a better service model, we hope that we see us as part of the solution to release that stress and less mistakes will be made. And we can stay in the U.S. and go to Slide #7 and just have a brief view of the U.S. lung market. And as we said earlier, and you can see it also in the slide, we have gotten used to very high growth in the U.S. lung market '22 to '24, double-digit market growth. And it has been driven by improved allocation and EVLP at the ambitious programs who could safely grow their number of lung transplant using lungs that were rejected by other centers. In 2025, we still see growth, but at a lower pace than we are used to. The reasons for the slower market growth are manyfold. But at least we start to see waitlist coming back at a few of the ambitious clinics I talked to. And we have also acknowledged that the lack of resources has impacted growth rate this year compared to earlier. And I will also come back to how we want to improve our service strategy to reduce stress and lack of resources at both clinics and OPOs. And with that, we can go -- continue to stay in the U.S., but go to Slide 8 to paint the picture of what we will do specifically for lungs. As stated earlier, we have seen fantastic results from ambitious lung transplant programs that safely increased the numbers of lung transplant using EVLP with XPS system solution. For Q3, we can start to conclude that we didn't identify any destocking. We continued to see an increasing interest to start EVLP programs with XPS. And as stated earlier, 3 out of 4 of the new accounts that bought an XPS in the first half of the year is now up and running, unfortunately, not in Q3, but in early October, at least. To improve our service to lung transplant clinic and we acknowledge that there is a resource constraint, we entered into a partnership during quarter 3 with a prestigious perfusionist company. By doing so, we've got access to 175 perfusionists and we can together with our organ recovery business and communication system FlowHawk, give our customers an improved experience and support them also during shortage of resources. During the summer, we have also developed an EVLP product service model to better fit the OPO system. We will run the first pilot during Q4. And lastly, we have also recognized that we need to reorganize the commercial organization, and we have done so during the summer to have a greater footprint in the south of the country and on the West Coast of the United States. Our estimation is that the action taken during the summer will show gradual impact during the next 5 quarters. The interest for starting an EVLP program with XPS is extremely high by the most successful lung transplant clinics in the U.S., has proved that that's the way to safely increase lung transplant volumes. And we believe by increasing our support level, we will be able to better realize this interest from customers. And with that we can go over to -- I came home yesterday still running, but I came home yesterday from the -- our Lung Masterclass 2025. And it was a great pleasure for us to welcome the best of the best in lung transplantation to the 2025 edition. So we have got 100 clinicians from 19 countries that could exchange ideas through collaboration, how we can improve lung transplant practices and improve both usage of lungs and patient outcome. The key takeaway for me was that many clinics has experienced a -- or had experienced a tough 2025 with the lack of resources and in some cases lower waiting list, making matching of donor organ patients a lot harder. We see that we need to support our clinicians better. And so far, what I could -- in the conversations I had, we could see that at least the waitlist looks a lot better going into Q4 than they did up until Q3. And with that we go over to Slide 10, sorry, and just have a snapshot of the U.S. CAP study and the PRESERVE study status. We have the first patient enrolled into the study during Q3. At the end of the Q3, we had four patients enrolled still at one clinic. As of yesterday, we actually had nine patients enrolled into the continuous (sic) [ Continued ] Access Protocol still at one clinic. At the end of Q3, we activated five centers that are able to enroll patients. And the focus for Q4 will be to activate more clinics. There is a need for the product, and also support them as much as we can so they can restart enrolling patients into the continuous access protocol so we can strengthen our regulatory file that we aim to hand in to the FDA during the next year. We can also just briefly state on the PRESERVE status that we had last patient in the original trial, so not the continuous access protocol as November last year. We will have the -- go through the data analysis Q1 in 2026, and the study result is expected to be announced in Q2 2026. And with that we can go over to Slide #11 that I said earlier we should deep dive a little bit into the actions taken during the summer. Besides the footprint of our commercial team in the United States we have also taken action on the service side. To start, we've taken mainly 3 actions. One, we have doubled the surgical capacity both in terms of number of surgeons and in terms of active locations. So we've gone from end of Q2 3 to end of -- 6 end of Q3. And we expect that end of Q4 will be 7 active hubs in the -- on the East Coast or east of the Mississippi. As I stated earlier, we closed a partnership with a great partner not only to improve our EVLP capabilities with perfusionist, but also to support clinics with NRP services, which is nowadays in the United States a must to grow our service business that has been asked for and now we can finally deliver on it. At number 3, we have partnership with numerous both aviation and ground transport partners to enable a full-service offering if the clinics want that offering. Some have their own transportation partnering, and we're happy with that. But if they don't, we can offer a great network of transportation to simplify for the transplant teams. So with those actions we will improve our services. We had already best-in-class service in terms of quality, but now we can offer service tailored to customer needs as well. So we hope that we have laid the foundation for growth within this segment, and -- especially then east of the Mississippi. We are aware of the fact that we need to also grow our hubs and service offering west of the Mississippi, and we will come back to that both the progress on the actions taken and the future plan in the next quarters to come. And with that, we can go over to Slide 12, and we leave the United States and we go over to Europe, which we have concluded into one slide. And the reason is that it's slightly shorter is that the business is progressing very well. We have a stable field force. We have very good clinical data, long and strong customer relations and great interactions. But what we've seen so far in Q3 is a continued strong growth for liver in Europe. Q3 it was similar to previous quarter by plus 31%. And we continue to add new accounts every quarter. We continue to work on reimbursement, et cetera. The main hurdle for growth in liver is mainly human resources and reimbursement, which we're working on. And country-by-country, we now see that reimbursement is coming into place. And with an increasing customer-facing organization, we now have the ability to support clinics better with also resources, and especially human resources that support with perfusion services. Kidney is showing growth, 54% in Q3, and that is great. What we can note, as I said earlier, customers that are using the products are pleased with both the performance of the product and -- but especially how the kidney performed after transplant. So we -- but we have a lower market penetration rate, and we are -- it's more account-by-account base where we have to, let's say, fight a fight to increase penetration rates, and we have to convince clinic-by-clinic. But once they had tried the Kidney Assist Transport, they are very convinced of the product and actually increased usage over time. The lung business in Europe grew mainly with EVLP adoption in the U.K. and higher PERFADEX usage per case as -- the last one as a result of evidence that if you flush more with PERFADEX, you actually improve the lungs before transplantation, which potentially improve outcome after lung transplantation. And if we look going into next year and strategic areas for our European business, we are, as we stated earlier, of course, awaiting the regulatory approval for heart. If we benchmark Australia, it's clear that XVIVO Heart Assist has a very good position in the transplant system. And we expect European heart penetration to over time mimic what we have seen in Australia. We're also awaiting the -- as I said earlier, the DCD to have a full coverage in Europe once we launch. We have also acknowledged that in the U.S. as well as in Europe, there is a constraint on resources. So we have a very successful model in Italy, and we will launch that model into a few test markets where rules and legislation allows for that. And with that, we can move over to our regulatory, clinical update. It's a little bit longer than normal this time, but we can start with just the standard slide of Slide 14, which shows an overview of regulatory approval we have. So our lung and kidney portfolio has obtained regulatory approval in all key market, and liver is approved in all key markets. For heart, we are awaiting, as we know, approval for all core markets. And the time line has -- there are some shifts, and I'll come back to those later in the presentation. But the main time line has not changed besides the pending CE-mark in Europe, which we press released during the quarter. And in U.S., we are working very hard to make sure that the file is approval ready as soon as possible. For the liver, we have now obtained everything we need, but I will come back later to the decision we have taken during the quarter regarding the liver U.S. trial. And we can turn to 16, which is a little bit of a repetition, but it's good to clarify here the heart and the strong evidence we see in heart. The heart trial in Europe is not the -- not only the first trial to aiming for showing superiority, it's also the first trial to show superiority for heart. But more importantly, it's also the first trial ever to show a direct link between perfusion of a heart and patient outcome. And we can see that by using XVIVO Heart Assist, we can reduce severe PGD, which is the leading cause of early and late mortality with 76%. And what we know from before and what we've seen in the trial is that, if you get the diagnosis of severe PGD, you have approximately 40% mortality risk within 1 year. If you compare that to -- if you don't have severe PGD, you have only 5% mortality risk during the first year. So -- and this was in our trial directly translated to 6 patients more safe or life saved during -- up to 1 year, which is the first time we can see those direct links between actually perfusion of an organ and better outcome within 1 year. And if we would extrapolate this to the transplants we are doing on standard criteria heart today in the world, it will translate into more than 400 lives saved every year only for the standard criteria heart. And then we're not counting all the extra hearts that we can actually get available for heart transplant using the XVIVO Heart Assist, either if it's long distances or extended criteria heart, et cetera. And with those great results, we go over to Slide 17, where we are looking into more how we want to change the paradigm of heart preservation. And as I stated, we know that we now can increase both patient outcome and we can increase transportation time for heart. To strengthen the evidence and simplify the DCD process, we have, as I said, the Benelux DCD direct procurement study that we are now under inclusion of patients, and it's progressing fine. The study aim to include 40 patients, and it is estimated to be fully included end of this year 2025. And we are really looking forward to the result of this study. With a positive outcome of this study, the XVIVO Heart Assist would fully transform the process for DCD heart, making it safer, easier, less resource-intensive and with improved patient outcome. So then we cannot only, as we have seen in Australia, change the paradigm for DBD heart with a successful outcome, here we would also change the paradigm for DCD hearts and hence the full heart transplant process. And with that, we go over to the last slide of the clinical and regulatory update on Slide 11 or Page 11 (sic) [ Slide 18 or Page 18 ]. And as you know, we previously reported that the Liver Assist has been granted Breakthrough Device Designation by the FDA. We have an approved ID and can start the trial. We have CMS funding approved, et cetera, and we could have started the trial in Q3. However, the company has decided to temporarily pause the activities for the liver PMA process to investigate if an alternative regulatory route is possible. We hope to, as soon as possible, come back with the result from that investigation. The aim of the investigation is to see if we can get a faster route and hence enable patients in the U.S. a better product than what is currently available on the U.S. market, approved faster. And hence, we can see the fantastic results we have seen in Europe also in the U.S. And with that, I go to Slide 19 and hand over to our CFO, Kristoffer Nordstrom, who will present the financial performance of the year and the quarter. Kristoffer Nordstrom: Thank you, Christoffer. Yes. So net sales in Q3 were SEK 189 million, which represents a gradual improvement from Q2. Organic growth, minus 1%. But in reality, organic growth was plus 6% if we set aside heart trial revenue. Besides heart trial revenue, organic growth was again impacted by soft market conditions in the U.S. and lower EVLP activity among a few larger customers. As our CEO has mentioned before in this call, we do see signs of EVLP activity recovery as we have entered into the fourth quarter. Year-to-date, net sales are SEK 586 million, representing also 6% in organic growth, excluding heart trial revenue. And in the following quarters, we will continue to emphasize the impact of this trial related revenue to provide a clearer picture of the progress of our current business for you all. Total gross margin in Q3 and year-to-date were in line with last year, 75% and 74%, respectively, which we are pleased with given the unfavorable currency effect on sales in 2025 from the weakened U.S. dollar. Throughout '25, we have maintained a strong focus on operating expenses, although the organization has grown with new talent and further recruitment, the associated costs were offset by disciplined cost management. And as a result, OpEx was in Q3 this year, 2% less than last year, as an example. Adjusted EBIT in Q3 was 9% and adjusted EBITDA was 19%. Moving over to the respective business areas, starting off with Thoracic. So sales were SEK 115 million. Organic growth was negative, minus 12%, and excluding heart trial revenue, the organic growth was minus 4%. There are two main reasons for the drop in organic growth this quarter. So first of all, less machine sales, XPS sales versus last year and also lower EVLP activity, as I've mentioned, at a few higher volume customers. We have started to see signs of increased EVLP activity in September-October, and we believe in a gradual ramp-up at current customers over the next 5 quarters. Gross margin in Q3 was phenomenal, 89%, positively impacted by product mix. As an example, our global PERFADEX sales grew 17%, and this is the product with our highest margin. And we also have the positive effect of not having any XPS machine sales this year. When it comes to heart, sales were SEK 10 million in Q3 versus SEK 19 million last year. Worth repeating, last year included significant trial revenue, which makes the comparable numbers irrelevant. We will start to see more and more revenue from the CAP study as patient enrollment continues. In Q3, 4 patients were transplanted by one center, and the majority of Q3 heart sales came from Australia, very strong, SEK 8 million. I get some reports, operator, that there are some issues with the sound, especially if you are viewing this conference from the webcast. So could you please look into that? And I will continue in the meantime. Abdominal. So Abdominal performed a record quarter. It was the best quarter in history for us, showing strong performance both in liver and kidney. Net sales, SEK 55 million, translating to an organic growth of 47%. Year-to-date, the organic growth is 31%. Liver sales grew 34% in local currencies, and we're pleased to see that throughout the year, we have successfully expanded and grown our business in larger markets such as Italy, DACH and U.K., which are big markets and will be very important for us in the future. Kidney sales increased 79% versus last year and 49% excluding machine sales, and we saw double-digit growth in both Europe and the U.S. So once again, a very strong quarter for Abdominal. Services. I think most importantly, Christoffer has already shared what we have done, what actions we have taken in the quarter that will lead us to growth in 2026. But from a financial perspective, the quarter was soft. We see good contribution from FlowHawk, our latest acquisition, who added 17% of growth in the quarter. But in terms of the recovery business, we expect to see improvements starting next year. So let's switch to focus to EBITDA and cash flow. EBITDA came in at 19% in Q3 and rolling 12 months we're currently at 19% as well. As mentioned, throughout 2025 we maintained a strong focus on operating expenses. And in the following quarters, we will continue to manage our operating expenses with discipline, ensuring resources are directed towards initiatives that drive clear commercial returns in the short term. Our operations, R&D and administrative functions are well scaled for current ambitions, allowing us to invest selectively. We are a growth company. We're built on a scalable business model and strong gross margins. And as we grow, increased profitability will follow. And my final slide, cash flow, so we ended the third quarter with SEK 280 million in cash and an additional SEK 120 million available under our credit facility, bringing total available funds to SEK 400 million. Operating cash flow was positive SEK 21 million, which is encouraging given the ongoing buildup of inventory during the transition of our new Sweden-based supply chain. While our revolving credit facility remains in place to support working capital needs, our positive operating cash flow meant no additional drawdowns were needed in Q3. Cash flow from investments amounted to minus SEK 61 million, resulting in a total cash flow of SEK 44 million for the quarter. As Christoffer alluded to, during the summer, we implemented strict cost discipline in response to the temporary slowdown in lung sales and the delayed heart regulatory approval. Combined with the completion of important CapEx investments made in 2025, we now approach '26 with a cost base well in line with both our financial resources and our growth outlook. And with those final remarks on cash flow, I will hand back over to you again, Christoffer. Thank you. Christoffer Rosenblad: Thank you so much. I don't know if people hear me. I will try to continue to talk on outlook, and we turn to Page 27. So that's the outlook for this and next year. To start with, we continue to work close to competent authorities in Europe with the aim to obtain a CE-mark for heart, that is priority number one. We will also have a clear priority on -- with the recent reorganization and new partnerships in the United States, we will focus on increasing EVLP adoption through a combination of service models and staying close to customers. In parallel, we will increase our service offering to better tail customer needs, especially offering NRP procurement from an increased footprint in the United States. Liver Assist in Europe saves hundreds of lives every quarter. We will support clinicians to increase that number through this year and next year. And lastly, in the U.S., we will prepare the heart regulatory file for submission to the FDA. And in parallel, we will strengthen the U.S. field force to enable a successful heart launch and enable a strong lung and kidney business until we see that heart launch. And going over to Slide 28, which is the long-term outlook, and it's a repetition from all the quarterly calls. But we have seen a demand of 10x of today's supply. We also see a sales value of machine perfusion that is approximately 10x versus static cold perfusion. Machine perfusion and service model have proven to increase the number of organs to be used for transplantation, especially in the fast-growing DCD pool; and the main growth driver of superior clinical result for machine perfusion. And the fact that service model reduce complexity and time for the transplant clinics. Hence, machine perfusion and service models on normal and DCD growth will drive growth in the near future. And so in conclusion, we see a long-term case that is intact. XVIVO has a unique and proven product platform. We are committed to execute our strategy to one day accomplish that no one will die waiting for an organ. And with that, we turn to Page 29. We hope that you still hear us and that we can hear your question. Thank you for listening. And with that, we open up the lines for questions. Operator: [Operator Instructions] The next question comes from Simon Larsson from Danske Bank. Simon Larsson: First question from my end on the lung business and the sequential dynamic that you're describing here. If I'm understand you correctly, there was no destocking in the quarter. Should we view that as customers having fully burned through their stock at this point? That's the first question. And then the second one relates sort of to the communication around your confidence in a stronger Q4. Is this growth coming predominantly from the 3 new accounts that just went live here? Or is it something else that you're seeing for Q4 lung particularly? Christoffer Rosenblad: Thank you so much for your questions, Simon. To start with, I would say, normalized stock level is probably a better word regarding what we know is that we saw no signs of destocking this quarter. So -- and what from we heard, it's normalized stock levels that's -- that all we can conclude. In terms of going into Q4, it's anecdotal, but we -- and it's not the full picture, but what we have seen is that waitlists have started to build up and those high-performing clinics, which we've seen a higher activity in the first 3 weeks in October in some clinics than we have seen in all of September. So it's anecdotal. But we feel that it's talking to larger clinics in the U.S., we feel that they are more positive now than we have seen at the beginning or especially Q3-Q4. But we don't know where the market growth will go to be truly honest, that's something we have to see at the end of Q4. Simon Larsson: Makes sense. Maybe staying on lung for one more question. Do you expect any type of impact on the U.S. EVLP business from TransMedics and their next-generation OCS lung trial? From what I understand, the recruitment will potentially start here in Q4, and it's a pretty big scope of lungs enroll that they are aiming for anyways. So what do you hear from your customers in the U.S., are they going to participate, et cetera? And what do you hear? Christoffer Rosenblad: To be truly honest, we heard very little from customers regarding the trial. We heard more on the heart side, to be truly honest. It might have an impact. It is to be seen. We don't know that yet. Typically, what we have seen earlier is that an increased interest in machine perfusion will hopefully also lead or has historically at least led to an increased activity as well. So the market has grown further. So it's to be seen. It would be speculative. But we haven't heard -- I haven't heard from one lung customer that they will participate at this stage. Simon Larsson: Okay. Sounds reassuring. The final one from my end on liver. Obviously, you're taking sort of a strategic review here of the go-to sort of pathway forward for the liver trial in the U.S. Maybe sort of provide -- and, of course, you can't really maybe comment at this point, but maybe a 510(k) pathway could be sort of, something that you're looking into. Is that correct way of thinking about this? Christoffer Rosenblad: Yes. I mean there are three main pathways to enter the U.S. market is 510(k) -- 510(k), de novo, PMA and -- typically. So we will investigate and have a dialogue together with the FDA what is the best pathway forward, also talking to our customers what is the most preferred. If we will find that a faster process is possible, we would, in dialogue with customers, decide on way forward. We'll have to come back later when we know more. So we decided today that we owe it to ourselves, we owe it to our patients and our customers to at least investigate this before we walk ahead. Simon Larsson: Yes. So it's not possible at this point to say anything about how this could affect sort of time to market or potential pricing? It's too early, I assume. Christoffer Rosenblad: Correct. It's too early at this stage to know that. Operator: The next question comes from Ulrik Trattner from DNB Carnegie. Ulrik Trattner: And a few questions on my end and potentially starting off where we ended last question there on liver. And just assuming -- now just assuming a 510(k) route, which would be faster, obviously, for you going to market. This is a similar route of you in kidney. But are you seeing a pitfall of going down such a route with not having a sort of U.S. clinical data on the product given sort of the anecdotal evidence that patients or clinics have been reluctant to adopt your device prior to having real U.S. data? Christoffer Rosenblad: Yes. I mean the straight answer to that question is yes. I mean, we learned through experience that we need U.S. data either way. So no another pathway. We need solid U.S. data to be able to convince U.S. clinicians and OPOs. So that's correct. Ulrik Trattner: And if we were to move to the next regulatory filing of heart study results could be announced Q2 '26. And I assume you then aim to file directly and then a 90-day sort of filing process for 510 -- for approval. So that would assume the heart product on the U.S. market by Q4 of next year. Is that a fair assumption? Christoffer Rosenblad: No. And the reason is I expect there to be an expert panel meeting that would add at least 180 days because they have to call for the panel, et cetera. That is our expectation. But this is what I expect. So we don't know for sure. But I would expect this being first of kind and the groundbreaking technology we are putting into our regulatory timelines that there will be expert the panel review from -- for the heart technology. So there will probably be a longer time line than you said due to this reason. Ulrik Trattner: So similar to that of the XPS system, sort of. Christoffer Rosenblad: Yes. Which is also groundbreaking and changed the paradigm of lung transplantation and now we aim to change the paradigm of heart. So then we assume that the FDA want the second opinion. But we'll come back when we know more, Ulrik. Ulrik Trattner: And just on the Continued Access Program updates where you have activated a few centers. Just to clarify, you have approval for 60 transplantations to be performed and then you can renew that. Is your estimation that you will do 60 transplants over -- like including Q3, the next 3 quarters? Or how should we view that? Or is there some misinterpretation on my end there? Christoffer Rosenblad: We see that, that once they get started they get easily used and addicted to the heart technology. So that estimation would depend, of course, how many we get from activated to actually including patients, and we saw that we have one clinic now doing 9 in a very short time frame. But our estimation is that we will get more clinics in to be active in the continuous access protocol, and that will hence lead to a fairly fast inclusion. We knew from the original PRESERVE study that it took 9 months for the study to be up and running and fully up and running, so to say. So we don't know. And also to be clear, it's always up to the FDA if they want to prolong a continuous access protocol. But seeing the interest from our clinicians, I hope that the FDA want to accommodate, but I want to be clear that it's their choice and not our choice. Ulrik Trattner: Sure. And on TransMedics running another sort of U.S. clinical heart trial, is there any sort of competition among patients or this potentially would slow down number of patients that are actually running your heart device? Christoffer Rosenblad: The estimation we see now is no. I mean, 60 patients and hopefully prolonged are very few patients considering the potential of the XVIVO heart technology. So I would say that the cap on the number of patients will be the defining factor on how many we can include into the continuous access protocol and not so much what competition are doing or anything else. Ulrik Trattner: And just to clarify as well, are you allowed under the CAP program to combine your heart device with NRP? Christoffer Rosenblad: Yes, we were allowed also in the original PRESERVE study, including 141 patients, we were allowed to include any extended criteria heart, which is the DCD heart. So we included direct procurement, we included NRP from DCD and long preservation time and other reasons for any heart to be extended criteria. Ulrik Trattner: And last question on my end and potentially the most exciting one, at least what I think. These perfusion technicians, 170-plus, can you give us some more granularity on what this means? Where are they located? Is this a replication of what Lung Bioengineering is doing? How will you support clinics? And we've also heard comments here in the last few quarters on a lot of transplantation clinics taking the XPS program in-house and kind of builds to your comment on high interest of starting up new EVLP programs. But if you can provide us some more granularity on this, that would be great. Christoffer Rosenblad: Yes. Great. Great. No, it's not really Lung Bioengineering having a fantastic service, is not a replication of that just to be clear. But 2 things have happened this year. One is the reduction of NIH grants in the beginning of the year, which has -- there is a resource -- lack of resources in many clinics, especially academic larger hospitals. That has happened. The other thing is that TA-NRP has grown significantly this year compared to previous year, which has damaged a lot of lungs. So this has led to 2 things. One, the interest for clinicians or bigger clinics to start their own EVLP program to actually take care of those lungs that are coming from TNRP or otherwise being marginal or extended criteria. And we also see an increasing interest from OPOs that they have got the contact from their -- yes, nearby clinics and said, can you perform EVLP on all those lungs. Now we are really happy with the hearts when we do TA-NRP, but the lungs are potentially destroyed that we don't know. So those things have happened. In parallel, we have got more and more questions from our organ recovery service that we like you, but can you please include NRP into your service model? So for that reason, we scanned the market and wanted to find a great partner. And I think we found the best of the best with -- they have 175 perfusionists on the roster strategically placed, very much in line with what you saw on one of the slides when we increased our footprint from our organ recovery service. And they saw the same need as we did, but from the other side that they saw an increasing need for EVLP, they saw an increased need for NRP. But they were lacking products and surgeons. So it's really a great marriage if we get this to work. It's a perfect match where we can fulfill our customer needs with a high level of quality and a high level of customized service. So we can support both OPOs who are in need of improving their program and improving the number of allocated lungs, and we can support clinicians with NRP going out, so they don't have to take their really, really good surgeons that should actually do transplants. They don't need to send them out in the middle of the night to do NRP, et cetera. So we hope that this will be -- this is the start of something that can become great, and we hope that it will become as good as it promise right now to be over time. Ulrik Trattner: And just one follow-up there. Are these 175 perfusionists, are they lung specialized? Or are these agnostic to both Thoracic and Abdominal? Because I know sort of the most sort of pressing service here going forward will most likely be in heart in order to expand your footprint in the U.S. Christoffer Rosenblad: True. No, they are typically agnostic to organ. I mean, they are specialized in perfusion and very good in perfusion of all organs, so to say. It should be mentioned that today out of 175, I think it's 75 are fully trained on NRP. And we are, as we speaking, training as many as possible on EVLP. So we have -- so everyone should also be trained on EVLP. Operator: The next question comes from Jakob Lembke from SEB. Jakob Lembke: Yes. First question on heart and the process to get it approved in Europe. If you can give an update sort of is the file at review anywhere right now or is the ball in your court or what can you say? Christoffer Rosenblad: Right now, we are in, let's call it dialogue phase to fully understand what needs to be amended/improved in terms of evidence. So we are trying to fully understand together with regulatory authorities in Europe. So that's where we are right now. Jakob Lembke: But you still feel fine about the previously communicated time line? Christoffer Rosenblad: Yes. That has not changed. Until further knowledge it has not changed. Jakob Lembke: And then if you can also give some more details about the U.S. approval process for heart, sort of what are the milestones or sort of key dates where you need to submit to the FDA and so on in order to sort of assume the time line where you are approved in the beginning of 2027? Christoffer Rosenblad: I think we -- to start with, we need to finalize the clinical file, which will be important. In parallel, we are preparing the animal file and product file to hand in aiming in Q2 next year. Then the time line will be harder to predict from our side, and we need to come back with an update on more expected time lines after that because it depends very much on the route forward that the FDA chooses. So it's partly out of our hands. But they need to review the documents and make sure that they are on par for calling to an expert panel meeting, then they need to call for expert panel meeting and it has to go through that, et cetera. So we estimate from handing in the file that there are at least 12 months process, but that is an estimate from our side, and we need to come back with more granular data when we hear more back from the expectation on process forward from the FDA. But at this stage, it is our estimation and not something the FDA has told us. I want to be clear with that. Jakob Lembke: But you will hand everything in to them by Q2 2026? Christoffer Rosenblad: Yes. That is our aim. And I will come back if there's any change to that time line, but I will come back with more guidance if we change that. But that's our internal time line at this moment. Jakob Lembke: And then just a final question on lung and the EVLP sales in the quarter. If you just could elaborate sort of the trends across the different parts of the business, speaking of the large U.S. customer, other U.S. customers and rest of world? Christoffer Rosenblad: Especially for Q3 or more overall? Jakob Lembke: Yes. What you saw here in Q3? Christoffer Rosenblad: In Q3, we saw, in general, a quite weak quarter. We saw a few customers who had lower EVLP activities, very few of them, so to say. I think it's only 2 that dragged down the overall number. As I said earlier, going forward, we see more customers coming on board with especially the new ones from the first half of the year are now trained and at least 3 out of 4 are fully trained and up and running. So we see -- and we see that from a few that were a little bit lower in Q3, we can see that they have come back now in early October. So that's the picture we see right now at least. I see we are 1 minute past 3:00, so I don't know how many questions we have. Operator: The next question comes from Maria Vara from Stifel. Maria Vara Fernandez: I'll be very quick considering, yes, it's already a long call. All right, so maybe just a quick follow-up on the rate of enrollment and activation of the centers within the CAP program. You mentioned that it took 9 months to get up and running all the centers involved in the pivotal study. But I was wondering why it's taking in a way some time to activate the centers from the CAP? My feeling is like some of them should be part of the PRESERVE study. Could you maybe clarify if that's not the case? And if there is any hurdles that you're seeing in terms of the activation, whether these centers already have, for example, TransMedics technology? And what is the overall demand there? What's happening? Christoffer Rosenblad: Thank you. Great question. I mean many of them, yes, they were part of the PRESERVE trial. So that is correct. I think, unfortunately, the continuous access protocol is viewed as a completely new trial. And what has taken time is mainly after reduction of resources, especially going into research at the beginning of the year, it has taken longer time than we earlier anticipated to get through the red tape in each and every clinic. And everybody has been -- when I talk to surgeons, they are really eager to start. But, let's say, hospital system behind them has had a challenging time adjusting to the new level of resources, especially when it comes to research, which has hampered the uptakes, so to say. But we do expect that -- we do feel there is a great interest, and we do expect that, that will translate over time into -- everybody has to be retrained and recertified, et cetera. But over time that will translate into more and more clinics coming up and running also into the continuous access protocol. Maria Vara Fernandez: Okay. That makes sense. And in terms of the clinical data, do you plan to use this data from the CAP program into the filing of the FDA? Or that's something that is not on your mind at this moment? Christoffer Rosenblad: Yes. I mean, as far as continuous access protocol, let's say, the 1-year follow-up will not be that easy to accommodate to the FDA, but the data will absolutely be used from a safety data point. So it will be used as confirming what we saw in the original trial PRESERVE. Maria Vara Fernandez: All right, that's clear. And maybe just a last question on the liver and redesigning the regulatory pathway. I'm aware that there hasn't been any specific guidance on time to market, but obviously, this will shift things. And based on my estimates, we could have expected some kind of launch maybe in '27. However, that might seem unlikely, even though you could have another route, which could be quicker. Any thoughts here that you could share on time to market for liver? Christoffer Rosenblad: I think to start with, yes, that sounds ambitious. I agree with that. At this stage we don't know, to be very clear and honest. But as soon as we do know, we will communicate with everyone, preferably during one of those calls. And hopefully, we can conclude with the FDA or at least get some guidance from the FDA before the Q4 report in end of January when we release that one. Of course, with the U.S. administration being in shutdown mode, it's hard to predict if we can accommodate that time line, but we will do our best from our side at least. Operator: I hand the conference back to the speakers for any closing comments. Christoffer Rosenblad: Thank you so much for listening in to us today during the Q3 report, and I will just quickly go through to the last page, yes. And I hope to see you for the year-end report 2025 that we will have the conference call on January 27, 2026, and you also see the other interim reports for next year on your screen in front of you. But thank you very much for listening in. Thank you for good questions, and see you in approximately 3 months.
Operator: Good morning, ladies and gentlemen, and welcome to Tractor Supply Company's conference call to discuss third quarter 2025 results. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow. At that time, we ask that all participants limit themselves to one question and return to the queue for additional questions. Please note that the queue for our question and answer session did not open until the start of this call. Please be advised that reproduction of this call in whole or in part, is not permitted without written authorization of Tractor Supply Company. And as a reminder, this call is being recorded. I would now like to introduce your host for today's call, Mary Winn Pilkington, Senior Vice President of Investor and Public Relations for Tractor Supply Company. Mary Winn, please go ahead. Mary Winn Pilkington: Thank you, Alyssa. Good morning, everyone. We appreciate your time and participation in today's call. On the call today, participating in our prepared remarks are Hal Lawton, our Chief Executive Officer, and Kurt Barton, our CFO. We will also have Seth Estep, Rob Mills, John Ordus, and Colin Yankee join the call for the question and answer portion. Following our prepared remarks, we will open the floor for questions. Please note that a supplemental slide presentation has been made available on our website to accompany today's earnings release. Now, let me reference the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. This call may contain certain forward-looking statements that are subject to significant risks and uncertainties, including the future operating and financial performance of the company. In many cases, these risks and uncertainties are beyond our control. Although the company believes the expectations reflected in its forward-looking statements are reasonable, it can give no assurance that such expectations or any of its forward-looking statements will prove to be correct and actual results may differ materially from expectations. Important risk factors that could cause actual results to differ materially from those reflected in the forward-looking statements are included at the end of the press release issued today and in the company's filings with the Securities and Exchange Commission. The information contained in this call is accurate only as of the date discussed. Investors should not assume that statements will remain operative at a later time. Tractor Supply undertakes no obligation to update any information discussed in this call. As we move into the Q&A session, please limit yourself to one question to ensure everyone has the opportunity to participate. If you have additional questions, please feel free to rejoin the queue. We appreciate your understanding and cooperation. We will also be available after the call for any further discussions. Thank you for your time and attention this morning, and now it's my pleasure to turn the call over to Hal Lawton. Hal Lawton: Thank you, Mary Winn, and good morning, everyone, and thank you for joining us today. Before getting into our results, I want to thank our more than 52,000 Tractor Supply team members. Their commitment, hard work, and passion for life out here continue to set us apart by delivering legendary service. They build the trust and loyalty that define our brand, and their dedication to our lifestyle remains the foundation of our leadership in rural retail. The Tractor Supply Team delivered a strong third quarter in line with our expectations, driven by ongoing share gains in our consumable, usable, and edible businesses. Agile execution through an extended summer season and healthy transaction growth that was supported by our consistent focus on value and service. Our view is that our third quarter results largely mirrored the broader US consumer environment, augmented by some share gain. We saw a strong start to the quarter with spending trends moderating into September. This pattern aligned with what we observed across the retail landscape and, in our case, was amplified by two key dynamics. First, the tailwind of an extended spring and July. And second, the headwinds of unseasonably warm weather in September and the absence of emergency response. So let's start with a few top-line sales highlights from the quarter. First off, we grew net sales 7.2% to a third-quarter record of $3.72 billion. Comparable store sales increased 3.9%, driven by a balance of transaction growth of 2.7% and average ticket growth of 1.2%. And importantly, we had positive comps in all three months. Positive comps in 11 weeks, a flat comp in one, and negative comps in only one week. We are particularly pleased to extend our track record of comp transaction growth, a hallmark of Tractor Supply and a strong signal of the health and engagement of our customer base. Our customers remain loyal and connected to their lifestyle, continuing to shop with us across categories and channels. And so let's turn to some customer engagement metrics, which remain a clear strength in the quarter. First, customer satisfaction remains strong, with scores continuing their positive trajectory, marking a record 17 quarters of consecutive improvement. Additionally, we achieved record Q3 highs across some key customer metrics, including total customer count, Neighbors Club membership, reactivated customers, and retention rates. Neighbors Club continues to be a powerful differentiator and represents over 80% of our sales. We saw gains in member retention and spend per member, and our Hometown Heroes program continues to attract new customers. We're also making progress on how we serve customers using data. With the implementation of our new customer data platform last year, our team is now able to better personalize offers and messaging, helping us deliver more relevant and engaging experiences across channels. Now let's shift to category performance in the third quarter. In line with recent quarters, the consumer remained discerning in their spending with categories that offer newness, strong value, and needs-based continuing to outperform. Our comp sales growth was driven by strong seasonal performance in spring and summer products, along with continued momentum in our core year-round Q categories. As we move from the second quarter into the third, seasonal categories strengthened meaningfully after a more modest first half. We benefited from the bathtub effect of the extended summer season. We believe this was about a 50 to 60 basis point contribution to the third quarter that would have historically been in the first half. As it relates to seasonal, the team did a great job capitalizing on the elongated summer season. Whether through strategically positioned inventory, enhanced financing offers, or targeted labor investments across the company. Our merchants to our store teams, to our supply chain, the organization leaned in to capture every single sales opportunity at a great example of that execution was in our tractors and riders category, which delivered another strong quarter. Our industry-leading lineup of zero-turn mowers, combined with disciplined inventory management and effective merchandising, continue to resonate with customers and drove share gains in this category. In the quarter, additionally, other categories in seasonal that saw standout results were lawn and garden sprayers and chemicals and power equipment, parts, and accessories. In our hallmark area of Q, we saw stronger than average growth in livestock, equine, poultry, feed and supplies, and wildlife supplies. In wildlife supplies, we continue to expand our position as a destination for outdoor enthusiasts across gun safes, deer, corn feeders, hunting blinds, attractants, trail cameras, and more. Our customers are responding to the depth of the inventory and the newness that we're bringing into the category, including the launch of the Field and Stream brand. We now have nearly 50 SKUs in this brand available in-store and online, with a robust pipeline in development. This launch strengthens our position as the destination for the out-here lifestyle. In discretionary and weather-dependent categories, particularly those in the fall season, such as recreational vehicles, grilling safes, and generators, sales continue to lag, reflecting both the cautious big-ticket consumer and the absence of storm-related activity this year. As it relates to big-ticket, overall, the strength in tractors and riders offset the softness I just mentioned in discretionary and emergency response categories, resulting in essentially a flat comp performance for the quarter. Finally, in companion animal trends remained stable, but below company averages. The consumables business remains flattish, with seasonal strength in animal health, and we have seen some sequential improvement in pet supplies and equipment as well. We also continue to execute well across our strategic initiatives and operational priorities. Digital sales grew at a low double-digit rate, representing a notable sequential improvement from the second quarter. Nearly 80% of online orders were fulfilled by our stores, highlighting the strength of our local network and store base. Same-day delivery and delivery from store outperformed, reinforcing the convenience and reliability of our model and the value of the final mile capabilities that we're building out. Peasants by Tractor Supply marked its 20th anniversary, and congratulations to that team. It highlights the differentiated pet specialty model out in rural America. Our distribution centers delivered another strong quarter of productivity gains, supported by disciplined execution and efficient inventory flow across the network. This execution helped ensure we remained in stock on the product. Our customers count on, particularly with the extended seasonal demand. Turning to pet pharmacy, we continue to see steady growth in orders and customer adoption. Each week we're seeing an increase in Neighbors Club subscriptions of prescription and over-the-counter products, leveraging our Alivet acquisition, our customers continue to engage with our suite of pet services, which also includes pet washes and vet clinics. On the real estate front, we remain disciplined and confident in our growth strategy. We opened 29 new Tractor Supply stores in the quarter, bringing our year-to-date total to 68. New store productivity continues to perform very well. Our pipeline of 2026 and into 2027 remains robust, with a significant runway for low-risk value, creating organic growth ahead. We also continue to invest in our existing store fleet. We now have 55% of our chain in the Project Fusion layout, and nearly 700 garden centers. These are capital investments that provide a multi-year runway for growth and extend the terminal value of our stores. They help us be more relevant to both our core customers and our new customers, allowing us to garner a greater share of their spending and be the dependable supplier for their lifestyle. Finally, we're making solid progress on advancing our life out here. Strategic initiatives with a focus on direct sales and final mile. These initiatives strengthen our foundation for long-term growth and relevancy to our customers. To summarize, the third quarter demonstrated the strength and consistency of our model. Healthy customer engagement, strong execution, and continued progress on our life out here. Strategy. As we look ahead, we believe it is appropriate and timely to narrow our fiscal 2025 guidance. This guidance reflects our year-to-date performance and outlook for the remainder of the year. We remain excited about our strategy and our ability to deliver long-term value for our shareholders. And with that, I'll turn the call over to Kurt to provide more detail on our performance and outlook. Kurt Barton: Thank you, Hal, and good morning to everyone on the call. As Hal highlighted, our third-quarter top-line performance aligned with our expectation each period of the quarter delivered positive results supported by consistent transaction growth throughout sustained growth in transactions remains a hallmark of Tractor Supply and a key indicator of the health of our business model. In addition, all geographic regions across the chain delivered positive, comparable sales for the quarter. These results underscore the broad-based nature of our performance and the consistency we're seeing in the business. This was especially evident in the performance of our Q categories, which outperformed the chain average and had mid-single-digit comparable sales growth every month of the quarter. While the early part of the quarter benefited from the extended spring selling season, the later portion was pressured by lingering summer heat and dry conditions. With no meaningful shift to fall weather. As far as emergency response sales, while we did not receive a significant year-over-year sales lift from emergency response last year, we did have a hurricane event in 2024 that provided some benefit to sales. This year, we had no emergency weather-related activity, which represented a modest headwind to our third-quarter comparisons. Let me add a few additional comments on our comp sales to complement Hal's remarks. The transition from price deflation to modest inflation year over year was consistent with our expectations for the quarter. Average ticket increased 1.2% driven principally by higher average unit retail. This was primarily the result of a higher but stable commodity cost environment and to a lesser extent, selective price adjustments as higher product costs flowed through our supply chain. Moving down our income statement. Our gross margin increased 15 basis points to 37.4%, in line with our expectations. This performance reflects the continued discipline of our merchant team in managing product costs and consistent execution of our everyday low price strategy. These benefits more than offset the anticipated pressure from tariff costs and higher transportation costs as we lapped last year's benefit from the opening of a new distribution center along with the modest cost increase to support our strategic investment and final mile delivery. We remain very pleased with our ability to expand gross margin in this environment which speaks to the strength of our cost management initiatives. Selling, general and administrative expenses, including depreciation and amortization, were $1,050,000,000 up 8.4% from last year. As a percent of net sales, SG and A deleveraged 29 basis points to 28.1%. This outcome was in line with our expectations and reflects a few puts and takes. There were primarily three drivers of the deleverage: First, the planned strategic investments in our business to launch initiatives such as direct sales. Second, higher incentive compensation from stronger performance primarily at the store level and the lap from last year's lower accruals. And then third, a lower benefit year over year from our sale leaseback strategy. These factors were partially offset by ongoing productivity initiatives and leverage in fixed costs from the stronger sales performance. Importantly, within gross margin and SG and A, we view our investment spending as critical to supporting our strategic priorities and long-term growth. While continuing to balance expense discipline with the opportunities ahead. Our effective tax rate decreased to 21% from 22.3% in the third quarter last year. Largely due to the timing of planned tax strategies for the purchase of federal tax credits, which we expect to normalize over the full year. On a year-to-date basis, our effective tax rate is 22.3%, just 10 basis points higher than last year's rate. Diluted earnings per share was $0.49 up from $0.45 in the prior year. Our inventory position remains in excellent shape. Our average store inventory is up a modest 3.4%, reflecting healthy sell-through and strong inventory management by the team. Year to date, we've returned more than $600,000,000 of capital to our shareholders through dividends, and share repurchases. As we look ahead, we're focused on finishing the year with the same discipline and agility that have guided our results year to date. The fourth quarter carries typical seasonal variability but we're confident in our ability to respond quickly to changing conditions and deliver within our outlook range. For the fourth quarter, we anticipate comparable store sales growth in the range of 1% to 5%, reflecting a wider set of possible outcomes given the current consumer environment. And keep in mind, winter weather is often the primary driver of our fourth-quarter business. More so than the holidays and the related gift buying. As a result of this outlook, we are narrowing our fiscal twenty twenty five guidance range. We now expect net sales growth of 4.6% to 5.6%. Comparable store sales growth of 1.4% to 2.4% operating margin between 9.59.7% and diluted EPS in the range of $2.06 to $2.13 Shifting further out, While we are not giving formal guidance for 2026 and with a caveat that we are still in the planning process and the macro environment can change rapidly, I thought it would be helpful to make a few comments about how we are thinking about next year. As we look to 2026, we expect to open 100 new stores compared to 90 this year, This increase reflects our continued confidence in the strength of our new store economics and the long-term growth potential of our model. We anticipate a consistent pace of openings throughout the year. For 2026, we are optimistic about maintaining the step up in comps that we are forecasting for the second half of this year. We expect transactions to remain a strength. With average ticket staying positive and the early benefits of our strategic investments contributing to that momentum. This level of comp sales growth should also support progress in our operating margin rate. To that end, we would anticipate fiscal twenty twenty six to be a more normalized year as it relates to our investment levels and the corresponding pressure on operating margin. This normalization provides the foundation for improved profitability. Based on our model, we see an inflection point in operating margin expected around the low 2% comp sales range. With margin rate expanding proportionally as comp sales growth increases beyond that level. Stepping back, with our peak capital investment cycle, as a percent of sales, now behind us, we believe 2026 will reflect continued P and L normalization. This progress positions us to deliver solid sales growth with margin improvement opportunity in line with our comp sales performance. We look forward to sharing our official guidance for 2026 during our Q4 call in January. In closing, we remain focused on disciplined execution and the factors within our control. Our Life Out Pier strategy continued to position Tractor Supply well to navigate the current environment maintain our industry leadership position and deliver sustainable value over time. Now I'll turn the call over to Hal to wrap up. Hal Lawton: Thanks, Kurt. As we look at the remainder of the year, and into 2026, we're focused on finishing strong. And building momentum on our investments in the next phase of our Life Out Here strategy. For the balance of the year, our priority remains on being a dependable supplier delivering compelling value and providing more meaningful in-store and online experiences. Let me share some of the key in-store and merchandising activities that we have planned. We remain excited about the continued momentum of our Hometown Heroes program, which is part of our Neighbor's Club benefits for military service members veterans and first responders. This year, in the weeks leading up to Veterans Day, we'll be executing our Hometown Heroes Days. A highlight of the event is our self-proclaimed National Hometown Heroes Day on Saturday, November 1. This day comes to life in our stores as a unique opportunity to connect with our communities in very special ways from touch a truck events to Americana themed crafts for kids, to thank you notes to our hometown heroes, and an honor wall. These types of events create a lot of energy and excitement in our stores. And if you get a chance, it's a great day to be in them. The winter and holiday season always creates a sense of fun and excitement across our as our teams showcase the best of Tractor Supply for our customers and communities. Customers truly rely on us for their winter essentials like wood pellets, propane heaters, fireplaces, insulated jackets, gloves, boots, more. In the fourth quarter, we're leaning into that responsibility with depth of inventory, the right price and fresh and trusted brands that reinforce our relevance. While holiday gets the spotlight, it's winter readiness that drives the heart of our business and where we consistently show up for our customers when they need us most. And once again, our now famous six-foot holiday rooster is capturing customer tension and social buzz a great example of the fun and discovery and retail theater that define the Tractor Supply experience in the holiday season. Additionally, in recreational products, exclusive mini bikes and gun safes position us as a destination for unique gifts at a great price. And this year's Tool Shop event brings outstanding value to our customers with leading brands and exclusive TSC offerings in power tools, accessories, and storage. This event highlights us as a gifting destination for the homesteader lifestyle. Our holiday sets always bring energy and excitement to our stores, But as I said, what truly drives our business in the fourth quarter is the weather. And when winter weather arrives, our customers know they can depend on Tractor Supply. In addition to strong merchandising and store execution in the fourth quarter, our teams remain focused on setting up the Life Out Here 2,030 initiatives for success as we head into 2026. From localization and direct sales to Pet and Animal Rx, to Final Mile exclusive and private brands and retail media the team is fully engaged. Executing detailed roadmaps that will drive growth, and long-term value creation. To close, we operate in a large attractive market that rewards consistency, connection and authenticity to a lifestyle. Our investments in our new store base in our existing stores, in our technology, in our supply chain, and in our talent are strengthening our competitive advantage, and enabling us to consistently gain share. Combined with strong new store returns, ongoing rural migration, and disciplined expense management, we believe we are well positioned to deliver long-term value for our shareholders. With that, let's open up the call for questions. Thank you. Operator: We will now begin the question and answer session. The first question is from the line of Steven Forbes with Guggenheim. Please go ahead. Steven Forbes: Good morning, everyone. Hal, curious if you can give us an update specifically around the direct sales rep build-out and maybe how many you plan to have in place by year-end. What will the final mileage coverage be? Percentage of the store base and then lastly, just like how should we be thinking about the benefit of the incremental sales potentially offsetting the initial startup costs, right, associated with the initiative next year. It sort of sounds like you're implying that there's a potential sort of net benefit to margin next year as this program ramps and you start getting the benefit of sales flow through. Hal Lawton: Good morning, Steven. And thanks for joining us on the call and thanks for the question about direct sales. I will give a couple of high-level comments and then turn it over to John to provide further detail. But at the highest level, what I'd say is we remain incredibly bullish and confident in our direct sales initiative. It's off to an excellent start. Right on top of the expectations that we set at the beginning of the year in terms of rollout. Sales rep ramping, the sales attributed to that ramping, etcetera. As we've been clear, this year, there was some expense investment that we've made in that business, to get it launched and ramped, that's embedded in the guidance, that we've been giving throughout the year. As it relates to next year, we are looking for the initiative to self-fund itself. So there would be no further incremental investment, into the initiative as it's ramping now and starting to self-fund. I'll turn it over to John to give some of the highlights on the number of reps we've hired recently and over the last nine months and, how they're doing on sales and what our outlook for next year is. John Ordus: Yeah. Thanks. Hey, Steven. Good morning. Our direct sales business continues to scale rapidly with reps covering we're over 300 stores now. I think it's 312 as of today. Our big barn customers are comping at nearly 50% our direct sales specialists working directly with them, and we're selling over $2,000 a week now in sales. So it could and continue to ramp pretty fast. We're taking that legendary service that our stores do a great job in, and we're taking it out to the Big Barn customer. I'll give you just a quick example of a recent customer. So a customer in the Florida market was buying feed somewhere else after three visits, and it normally takes about three to four visits for us to complete that sale. That customer decided to move to us. They're buying eighty bags of feed, now two skids of feed. Buying them every other week, and we're able to create that relationship and an ongoing relationship. And then we'll continue to build on that basket as we go. Our team builds these relationships with our customers, and our specialists have over ten years, on average ten years of experience in this industry, and a 100% of them live the lifestyle. So we're very pleased with the people we've hired. We're very pleased with where we're at. We've done four cohorts now, four training classes. The first, obviously, class April, and that's starting to ramp up faster. And we're seeing that ramp as each week as that class ramps up. To answer your question on specials, we're at 48 specialists right now. Continue to look at markets this for the remainder of this year where we'll have modest growth with another eight to 10 reps. And as we get to next year, we'll continue to follow the final mile team. As they grow out there, we'll let them get established and then we'll come in a little bit behind them, and then we'll start doing direct sales in those same markets. Average ticket continues to be strong, about seven times the company average, and we're very pleased with what we're seeing in the departments that are doing that are driving the sales are the departments that we thought they would. Feed, fencing, and equine feed being the big one. Steven Forbes: Thank you. Thank you. Operator: The next question is from the line of Michael Lasser with UBS. Please go ahead. Michael Lasser: Good morning. Thank you so much for taking my question. The question is on any changes you're seeing around the consumer behavior lives in the life out here environment. Especially because the perception is that trends have slowed quarter to date and folks are wondering, is that due to just the weather or is there something more that's going on? And then as part of it, you were helpful in giving some color on the contribution from your initiatives $200,000 in incremental sales per week, If you could build on that and give us a sense for how you think about that contribution as you move into next year across all of the initiatives that you have in place? Thank you very much. Hal Lawton: Hey, Michael, and thanks for joining the call today, and good morning to you. I'll start out first just on the state of our consumer. Our consumer remains strong, resilient. You know, we had exceptional customer metrics in Q3. Whether it relates to engagement and their shopping patterns or whether it relates to overall customer satisfaction. changed dramatically as we've moved into Q4, very much steady as she goes. I'll highlight a couple things on that. As we all know, the core component of that is our Q business. Our Q business trends, and that's the fundamental underpinning some foundation of our business. Certainly would acknowledge that the first couple of weeks here, three weeks or so of October have had unfavorable weather for us, but it's, the last few days started to get cool across the country, and we feel very good about the outlook for, for the balance of the quarter. That's reflected in our guidance of 1% to 5% comp. And as we talked about in our, prepared remarks as well, the biggest driver of variation in our sales in a Q4 is, is a winter storm. And if you go back over the last decade or so, it's about fifty fifty in those last two weeks, if you get a, polar vortex or a really, really significant cold snap. You know, you look at, like, 02/2018, I think, a great example for this quarter where started out warm in October, very similarly, our first couple weeks were tougher comps. There was a government shutdown going on, and and holiday sales that year were some of the weakest holiday sales, in the last decade, and we still put up a 5.7% comp for that year I mean, for that quarter. Because the last two weeks, we had incredibly strong winter business. And, you know, we think our guidance reflects if you go back over the last, decade plus, you know, we're right in that Our the guidance range we've given that midpoint of 3% comp is even if you exclude, like, 2021 where we had really high comps those two years, you exclude those, our center point's still right at about a 3% for comp for, for Q4. So, yeah, we feel really good about the guidance we've given in Q4. It is all about the cold weather and winter that starts to happen in December. We're really optimistic about our holiday. We've got a lot of things locked and loaded for that. Our hometown heroes event should give us the opportunity to get in the market very early in a very unique way for Tractor Supply. So just can't say enough, positive things about how we're thinking about the balance of Q4, and we feel as bullish on Q4 as we did three months ago, on our most previous earnings call. As it relates to to the comments John made on direct sales, Michael, I'd say a few things. First off, John mentioned we've got a little over 40 sales reps right now, 48 sales reps in place. I'd say, you know, 20 to 25 of them are really doing the bulk of the sales driving right now out of that first cohort, second cohort of classes. And driving that to $250,000 a week we're seeing right now. And we're ramping sequentially every single week. So we feel really good about, the continued benefit that that's gonna drive for us into next year, and we've always talked about 2026 would be when you'd start to see, the impact of the initiatives in our results. At our next earnings call, we certainly will be providing guidance for '26 and and more detail on how the initiatives layer into that guidance. But no doubt, direct sales, you know, will be a complement and a driver of our growth year. Thanks so much for the question, Michael. Michael Lasser: Thank you very much. Operator: The next question is from the line of Kate McShane with Goldman Sachs. Please go ahead. Please ensure your line is unmuted. Kate McShane: Sorry about that. We wanted to ask a few more questions around pricing and tariffs. The color you gave around ticket was helpful. How should we be thinking about ticket in Q4, especially when it comes to like for like price increases. And just when it comes to the change that we saw the narrowing in the top line of guidance today, how much of that is because of the change in terms of what you're expecting to flow through in terms of price? Seth Estep: Hey, Kate. This is Seth. Thanks for the question. For tariffs and kind of pricing and as we look ahead, would just take a step back first and just say, first and foremost, that you know, I've just really highlight to the team that we have the tools and the team in place and have done a really nice job up to this point. To navigate. And at this point, we're about halfway through the initial incremental tariff impact kinda year over year as it's kind of flown through to the p and l. We have taken some price where we have needed to here and there. Where we have, we have not seen a lot of elasticities yet. It has driven a little bit of AUR, but not a lot of elasticities. You know, we think about a look ahead, I would just say our top priority really is to continue to be that advocate of value for our customers. You know, our guidance implies that, we're gonna continue to navigate the costs that flow through to the P and L in Q4 as a result of these tariffs. Where we do take price, we're gonna continue to be surgical. We do have a portfolio approach. As you know, Q is such a big part of our business. 40% to 45%. You know, and you think about that and mostly domestic based on that. You know, it continues to be operating within kind of a a lot in line with, where we are kinda today and foresee that kinda going forward. So as we think about price, as we look ahead, again, we're gonna continue to navigate You know, our focus, again, is on value perception. It's on managing margins. And at the end of day, we're gonna continue to make sure that we are priced right to make sure that we continue to take market share. Operator: Thank you. The next question is from Scott Ciccarelli with Truist. Please go ahead. Scott Ciccarelli: Good morning, guys. So Kurt provides some comments on '26 So when you guys look at next year and the OI margin expansion you referenced, is the potential on the 2% plus comp coming from SG and A leverage? Is it coming from growth? Is there a mix Can you just provide any more color or clarity around the thought process around that? Thank you. Kurt Barton: Yes, Scott. What you heard from me in my remarks, I'd summarize by saying we expect and see momentum in our gross margin expansion. In 2026. The pressures on SG and A that you saw this year, we we had said we were going to make a very purposeful investment to launch final mile and direct sales and that was gonna put 15 to 20 basis points of pressure on operating margin in 2025. As you heard Hal mentioned just a second ago, the next cohorts in the 2026 launch we anticipate paying for itself, and there's no incremental pressure on SG and A. So between that and some of the transitory type items that were pressured this year, SG and A has less pressure in 2026 as we see it today and allowing us to be able to leverage at a lower, more normalized comp rate as I mentioned in that low 2% range. And just as an example for Q3 and even our expectation for Q4 of this year, with twenty basis points of pressure on initiatives, on year over year pressure from incentive comp just compares, and even some timing on the benefit or the pressure on sale leaseback you you look at the core of the business, and SG and A is in a really good shape. And it's really another great example of of how at this point, we can leverage on SG and A at a lower comp rate and be able to grow operating margin if we achieve that low to mid 2% range. And it's really about being able to move past the investments, and, and and I hope that helps in regards to seeing the potential for next year. Scott Ciccarelli: Thank you. Operator: The next question is from the line of Steven Zaccone with Citigroup. Please go ahead. Steven Zaccone: Hey, good morning. Thanks very much for taking my question. I wanted to ask on the same store sales growth. So to follow-up on Michael's question earlier, The fourth quarter, why does the low end of the guide include a one comp? You know, quarter was back to algo. So just help us understand why there's a wider range for the fourth quarter what gets you to the low end versus the high end? And then as we think about '26, thanks for the preliminary views, is there anything to be mindful of first half versus second half? Just since inflation was a factor in first half versus second half of this year? Hal Lawton: Good morning, Steven. As it relates to Q4, it's really just reflective of the range of outcomes that we see in the fourth quarter as we've mentioned previously, kind of dominantly based on weather. I think if you go back and look at our kind of ten year trend on the fourth quarter, that's it's kind of the range to that we've seen historically in the in this quarter. And and, anyway, so I'd just say that that's kind of reflective of of what we're seeing. The second thing I'd say as it, relates to next year there's really not a lot ins and outs on the sales side for next year. You know, a little bit of maybe of Q3 benefit that I referenced in my earning scripts that might flow into Q2. But other than that, I think the sales should be pretty straightforward probably got a little more AUR benefit in the first half of the year than the second half of the year. At least what we know now. Kurt mentioned, we've got a DC opening, next year. That's got a little bit of a start up cost that'll impact operating margin in the first half, but we get the the cost of goods benefit on that on the second half, from the new store from a new discount we get with our vendors for opening up a new DC. That should pretty much, wash itself out for next year just between the two halves a little bit. So, you know, I'd say nothing nothing too out of the ordinary next year. I think that's that's one of the big things to Kurt's prepared remarks we're trying to get across was it's a we expect it to be a very much more of a normalized year than we've had in the last five or six years. Whether that's across our p and l, whether that's across commodity deflation, inflation, etcetera. Steven Zaccone: Thank you. Operator: The next question is from the line of Zach Fadem with Wells Fargo. Please go ahead. Zach Fadem: Hey, good morning. Kurt, on your 26 comments, maybe we could talk a bit more about the comp building blocks. Maybe we talked a little bit about direct sales. Maybe we could touch on Alivet. And curious how you think about other things like commodity inflation and tax refund stimulus? And adding this all up, is it fair to anticipate a return to comp algo in 2026? Kurt Barton: The information that I've shared thus far is about the the the length of what, at this point, I think it's appropriate to share on thoughts for 2026. It's really been intended to say, the p and l is more normalizing And at a run rate relatively consistent with what you're seeing in the second half of this year, there's an opportunity for margin inflection. Certainly will be able to share some of the details on how we build up to our guidance range for comp sales in the back half of the year. Things that we've said thus far that I'll just reiterate that it's important to understand, we see AURs continuing to be in a positive scenario. The back half of this year, and going into 2026. Transactions continue to be a core foundation for comp sales growth, and we anticipate that for 2026. So in general, the consumer continues to engage in the lifestyle. We have a solid demand for our core business. We anticipate transactions and ticket to both contribute. Strategic initiatives which just launched this year including Ally Vet, We ant we're excited about the momentum. We anticipate that each of them will give some contribution. But I would just say at at this point early in each of those stages, those contributions are important to be able to show the acceleration, the momentum of the business, but won't be the the key drivers of the comp sales growth. And we'll give you more information on what our range is and what the key contributors are in our January call. Zach Fadem: Thank you. Operator: The next question is from the line of Chuck Grom with Gordon Haskett Research Advisors. Please go ahead. Chuck Grom: Hey, good morning guys. Thanks very much. Maybe a question for Seth or John or maybe Given the increasing tariff drop, curious if you're making any changes to your seasonal assortment for the holidays, some other retailers have talked about swapping out certain products. And I guess if so, how that supplementing of assortments could impact sales or gross margins here in the fourth quarter? And then just one quick one follow-up for Kurt. I think historically, your leverage gets you about 15 bps above or below. Is that would that still be the case based on that low 2% potential comp next year? Thank you. Seth Estep: Hey, Chuck. This is Seth. I'll start, and then I'll kick it over to Kurt for your second question. Hey. Hey. For holiday, I would just say, you know, going back to post the April announcements of the tariffs, the team did a really great job. Analyzing all the programs that were set aside for the back half, looking at where we thought, you know, there could be elasticities or tariffs could come in. And went went right away to kind of adjusting potential buys and things of that nature. I would tell you that, like, there's not a significant meaningful amount of updates and shifts that occurred other than maybe going from direct importing some products to finding domestic supply and demand, looking for products that had other countries and origins of supply, I would just say that the team did a really nice job pivoting to those other countries of origins as well taking advantage of opportunistic buys so that we can make sure that we have a really compelling offer as it comes and we look ahead to holiday. So, you know, we're we're really confident when we look ahead and be able to manage not only tariffs, but also being able to offer, that kind of assortment that our customers expect for us around this time of year. I'll kick it over to Kurt and let him go to the second question. Kurt Barton: Yeah. Chuck, the you're going back to my comments about the over moving beyond the peak investment cycle gives us the ability at lower comp rates more historical tractor supply norms to be able to have some level of inflection in operating margin. When we gave our long term guidance, we said, you know, we we generally look in this guidance range to be able to grow our operating margin five, 10, 15 basis points annually. And as we are able to achieve comp sales above that inflection point, I believe that scenario is very much in play for 2026. Operator: Thank you. The next question is from the line of David Bellinger with Mizuho. Please go ahead. David Bellinger: Hey, good morning everyone. Thanks for the question. I want to ask you about the hunting supplies expansion. We've noticed rollout of ammo dens in the ammunition category as part of our checks. Can you help us size the revenue opportunity in the the potential comp uplift there? How many stores can this reach? And any early reads from your core customer? Thank you. Seth Estep: Hey, David. This is Seth. Hey. Thanks for the question. Hey. I would I would start with just saying that, you know, wildlife and recreation supplies have been a core kind of category growth strategy for us. If we go back even over the last five years, and we continue to be really, really pleased with the growth of the categories and those items as we're looking at those in the store. So when it goes directly to ammo, I would say ammo for us was just kind of a natural extension, to that kind of outdoor wildlife and recreation category. You know, we are the market leader in safes. We are growing significantly in, call it, feed and attractants. When you look at those categories, ammo is kinda like that next, iteration of q when you think about that wildlife category for us. Today, I would tell you we're in roughly about half of the chain we've ramped that recently where we started with a small pilot, and we're pleased with the initial results. We also have it online. And I'd say for a little bit for the foreseeable future, would be in about that kind of store count as we kinda go into 2026 and we continue to manage that out. So, again, ammo is kind that natural extension to it. I would just say more broadly, you're gonna continue to see us go deeper and deeper in the wildlife and outdoor recreation categories. Because not only has it been a key growth driver for us in the business for the last five years, but as we look ahead. And that's part of the things that you're seeing with us with the Field and Stream partnership that we're launching. We're having those new exclusives. Kinda coming out. And for us, we're looking at that as, like, what's that kind of next category of growth similar to what we've seen over poultry kind of over the course of over the last five years, ten years, etcetera. So thanks for the question. Thank you. Operator: The next question is from the line of Chris Horvers with JPMorgan. Please go ahead. Chris Horvers: Thanks. Good morning and thanks for taking my question. So a couple of follow-up on the top line You talked about 50 bps to bps of Spring seasonal demand, springsummer shifting into the third quarter. Also talked about some fall headwinds. So was that 50,000,000 to 60 sort of a smaller tailwind as you think about how it played out in September? And then as you think about the ticket component of comp following up on an earlier question, into the Seth, you mentioned you're about halfway through rolling out pricing. But also into the fourth quarter, your mix goes more highly towards imported goods. So would you think that ticket could perhaps be up 2.5% in the fourth quarter or maybe a little bit more given the mix shifts? Thanks so much. Kurt Barton: Hey, Chris. It's Kurt. In regards to the the ticket question, we anticipate that our ticket will have a similar, maybe slightly higher impact on the fourth quarter. For some of the things that you mentioned. The the ticket had minimal impact this quarter on mix in well, including big ticket. So, ticket is is benefiting from the stable commodity market with some slight increase in the input cost, including tariffs. That may moderate up a bit in the fourth quarter. We've always said that in this quarter, there's volatility in regards to elasticity as well. So some of that in, includes for ticket, how much impact may be in the basket, etcetera. So we look at both transactions and ticket being a key contributor to the fourth quarter and maybe maybe more outsized on ticket in the fourth quarter than it was the third quarter. And transactions will move in regards to demand for the business And particularly, as Hal mentioned earlier, the demand related to cold winter weather, impact. So look at it look at it that way in regards to the the benefit. And then, remind me the first part of your question, Chris. Chris Horvers: Was, yeah, Kurt. The, was whether you think that 50, 60 basis point lift from the shift from 2Q to 3Q on the seasonal business, do you think it was less of a tailwind considering what happened in September? Or is that sort of your view of the net impact of weather in this in the third quarter? Kurt Barton: Yeah. You let me I'll just step back on the on the third quarter in general And we often say is is the quarter favorable or unfavorable weather related? And third quarter overall was favorable from a weather perspective. And there's been some puts and takes in there, but if it's, you know, relatively a a point of comp benefit from a good solid weather condition in the third quarter, that's a pretty good range to look at it. Within there, Hal mentioned that areas on a delayed start to the second quarter and then the bathtub effect, some of that is what fell into July that may often be know, part of the second quarter. But overall, particularly July and August, we're set up as a a favorable, solid third quarter. And then on the tail end of it, you had a, you know, a headwind on there. But we do overall look at the third quarter as a a solid, good, favorable weather con you know, condition type quarter. Thank you. Operator: The next question is from the line of Robert Ohmes with Bank of America. Please go ahead. Robert, please ensure your line is unmuted. Robert Ohmes: Sorry about that. Sorry, just two quick questions. Maybe how can we get an update on retail media for Tractor Supply? And then another question for the team would just be, I think you guys on the the the release you put out mentioned softness in the select discretionary categories. A little color on that. Was it apparel? Sounds like it wasn't big ticket overall, but would love to get any color on that. Thank you. Hal Lawton: Hey, Robert. Thanks so much for the question today. I'll take the second one, and then I'll toss it to Rob to share some details on direct sales. I'm sorry, on retail media. As it relates to the, softness in discretionary, really, not much difference in what we saw in Q3 than what we saw in Q1 and Q2. The seasonal big ticket certainly continues to resonate with customers when there's a need. They're purchasing We saw that in July and August with riding lawnmowers, as we called out. But on the flip side is if there's not a big driver of demand right now, we still see customers being a little bit cautious in their purchase as a big ticket. And and for us, those are things like, say, dog kennels and crates, It could be it's things like, that we've called out also, like trailers, and gun safes. Some of those, everyday bigger ticket businesses that we sell just a little bit of kind of, cautiousness from the consumer on that. It's been that way all year, and I think what we were trying to call out in Q3 is that the strength in riders offset the weakness there. Also, the weakness we mentioned in the last couple weeks of emergent response, you can imagine, we sold a lot of generators in weeks '3 as it relates to the trends we saw in the first half. Rob Mills: Alright. And good morning, Robert. This is Rob. Hope all is well. Hey. So first, from a retail media perspective, we're continuing to make really strong progress. You know, we entered this year with retail media with two primary objectives. One, to expand our partnerships and ultimately drive revenue. And we're on track for this year to deliver a triple retail media revenue growth year over year. So we're very pleased about that. We're doing that by expanding the partnership count over 80%. Our average partner revenue is up by nearly 50%, and we're introducing new products and capabilities to our partners such as know, branded pages, off-site products, and expanding our in-store, display meet retail media offerings. You know, we're really early still into retail media. I would call it kinda say the first inning, but we're really pleased with the progress the team's made. Have extreme focus. We have strong, we, have strong value proposition back to our partners. Really focusing on the footsteps in the rural market area, And in '26, where we're gonna double down, expanding our vision to more of the self-service capabilities, the model, related to more product placement, related to ads, as well as products in general. So with these expansion, the momentum that we're seeing in our partnership as well as just continuing to put the focus on our value proposition, we feel we're well positioned going into '26. We're we're very pleased to team's done a great job. Operator: Thank you. The next question is from the line of Peter Benedict with Baird. Please go ahead. Peter Benedict: Hi, good morning guys. Thanks taking the question. I guess I'll ask on on AI, just maybe an update on what you guys are doing in that area. And what your kind of outlook is for how you're gonna layer it into Tractor Supply? Thank you. Hal Lawton: Yeah. Hey, Peter. Thanks so much for the question on AI. We've got a lot of exciting things going on on that front, and I'm gonna break it into into three buckets. Enterprise level software. The second is custom built what now we call, off the shelf enterprise software. Second, call custom built enterprise software. And then the third, would talk about is around agents and automation. First off, on on the enterprise kind of purchased software, all of our vendors that we work closely with are now rolling in AI modules AI analysis, AI capabilities, you know, whether that's in ERP ERP systems, whether that's in replenishment systems, marketing, etcetera. So we are, fast adopters there where appropriate. Obviously, with, clarity of understanding of functionality and security. On the second one, as, in terms of custom build, we talked about that several times in the past. Those, software systems applications that we built out we continue to scale. We continue to refine. And they continue to and they become more and more key parts of just how we operate every single day. So whether that's Heygura, which is increasing in its use whether that's tractor vision, in terms of our customers, you know, calling out when customers need help in areas that our team members might have visibility to them, or whether that's in CorSo, which drives day to day operational So those are just three examples of custom built applications that are scaled out now and continue to ramp in their impact and use by our team members. On the third one around, kind of automation and agent build out. Over the last six months, we've done a, enterprise integration with OpenAI. We now have over 1,200, I think, 1,500 users that now have, OpenAI enterprise account. That's integrated with our Snowflake data lake. And what that allows us to do now is to start, really across the organization building agents to automate and make things, simpler and faster. An example of that, would be in, say, our fast team, where in the past, when a, FAST team member would finish a planogram reset, they would take a picture. They would send it to their district manager, district FAST supervisor. They would review it and provide manual feedback. We've now built up the capability where when that picture's taken, AI assesses the picture and gives immediate feedback to the team member, and our district FAST supervisor only has to get involved with escalation And so, you know, just makes everybody's job more efficient and allows us to execute faster and kudos to the team across, you know, really all dimensions of our organization for embracing it and driving that that productivity enhancements that it can provide. Mary Winn Pilkington: Alyssa, we'll got time for maybe just one more quick question. So let's see if we can slip one more in. Operator: Great. Thank you. Our final question will come from the line of Spencer Hanis with Wolfe Research. Please go ahead. Spencer Hanis: Good morning. Thanks for the question. I just wanted to ask on store growth. Stepping up for next year. Where do you see most of that growth being centered? Is it new or infill markets? Then how are you thinking about the cannibalization from that growth and then the returns on those? Those stores as well? John Ordus: Yes, thanks for the question. Appreciate it. So on new store growth, first, I'd just say as we look backwards, last eighteen, twenty four months, there were some questions around our new store productivity being lower and we talked about was a lot of noise in there. And as we said then, ex the noise, we've been running pretty consistent. And we continue to be pretty consistent. The new store productivity numbers of late continue to show that our new store productivity is running strong and consistent. New stores are performing above pro forma. We are site selection and model is the best we've ever had. Our pipeline is strong. The real estate construction team are doing an excellent job continuing to build out these stores in the right locations. We know that cannibalization we can build out markets. We can grow the overall market and we're seeing cannibalization numbers come in even lower than what we predict them to be. So we we know that the growth's out there. We see growth across the entire United States. But a lot of our growth will continue to be in the West as we're opening a new DC out there. Idaho, we'll continue to grow stores up there as well. Well, Mary Winn Pilkington: Alyssa, I know we've hit the top of the hour, so that will wrap our call. I'm around anytime anybody needs anything at all. So thank you all for joining our call today. Operator: Thank you. This will conclude today's conference call. Thank you all for your participation. You may now disconnect your lines.
Henrik Høye: Hello and welcome to the presentation of quarter 3, 2025 results for Protector. As always, I want to start with who we are and a small recap of what we do, this morning with all employees. The topic has for some time been the challenger. And it's, to us, very relevant with new technology and AI and a more uncertain future when it comes to what we -- or how we should do what we do. So what we have done lately is to involve all employees in exploiting the opportunities with AI. And we've done that through giving access to an enterprise model through Google to absolutely everyone. So it gives the opportunity to generate agents and use AI as we know it through ChatGPT and other types of platforms. But what we want from it is to make sure that everyone understands the value of data because when you use AI with poor or little data, then you get the wrong results. And data is our currency. It is 1 out of 2 targets we have for 2025 for the company. And we say -- we practice saying that it is our job to invest that data and create value by understanding our risks and making profits out of that. And some of the activity we've done is, as you have most likely heard, challenging to quantify in an actual return. But obviously, there are efficiency gains that you get immediately from usage of AI. But our focus is more to see if we can solve the more complex tasks. So focusing on really challenging AI and the creation of agents and support to solve what we either have seen as too capacity requiring or too complex to solve ourselves. And what we see is that we get these efficiency gains. So we can -- we've made some agents and some functionality that reads through health documentation for personal lines or employee benefits in Norway. It takes 5 hours normally to read through it and get something out of it. Now it's a few minutes. We do that for incoming e-mail. It makes it a lot more efficient. And that's interesting but that's something that will happen. So in our opinion, that's not where our focus should be. Our focus should be in seeing if we can get better results. And it is something interesting around the fact that you will accept a poorer accuracy from a human than what you will accept with AI. And what we can see is that we get very high accuracy with very little effort, for instance, on what we call preunderwritings, we get a tender, get lots of information from the broker and then we run it through a process that evaluates 7 criterias. And in order to decide whether we should spend time on it and evaluate it further and price it and quote it or not. And it is obviously also a start of the underwriting process. And we had one target and that was to increase the quote rate. So meaning that we should actually quote more than what we have done because sometimes it is noise in the decision of whether to quote or not and some kind of assumption from an underwriter that this is going to take a long time or since I've seen it previously, it is a bad risk, which is not necessarily the case. It needs to be based on data. And we've increased the quote rate in the U.K. from 38% to 44% through using an application that we've designed on AI. And that's to us being the challenger. And then this -- what we do becomes old very quickly as the technology develops. And we are not spending any time in predicting what this will look like in the future because I don't think that we are any -- or have any edge in that. But what we do know is that we're not taking advantage of a fraction of what we can do today. So we still have a lot of investment to do when it comes to utilization of AI and actually using data or investing data as our currency. And we've discussed different ways of investing that time. We could have set up some expert center of excellence groups and see if we could find something genius through those groups of people who know the technology and know the business. But we have decided that Protector is -- and we get some kind of -- I've never used our -- and I've used our values and our culture a lot in my decision-making every day but I've never used it as much as now because it is more uncertain. And due to who we are, people who have a common set of values who should make decisions all of us because that's what best-in-class decision-making is. We have decided that we will include absolutely everyone in it but also that the only focus of our leadership development program that starts now in the first quarter of 2026 is AI. The previous decision, not too long ago, was data because that has been a focus. But then we have realized that now it is about AI because it will include data. And we need to make all our leaders, there are 140 leaders in Protector today, responsible for taking that ownership of utilizing AI because the fact is it is here and we are not utilizing even a fraction of it. So that's been part of the topic. And in order to do those things, we have also decided that for the first time in many, many years, all Protector employees will get together. So in March, we will get all Protector employees together in Norway at a place that is big enough to house close to 700 people. And we will have workshops to decide together with everyone and prework before we go there, who we will be and where we want to be in 2030. So -- which could be an exercise that we did in the management group and we did as leaders but we want to include everyone in that. It's a complicated resource requiring -- task to do that well. And I don't know if we're going to do it well but at least we have decided that going forward, both because we are growing, becoming more people, more countries and getting a bigger risk or having a bigger risk of becoming like everyone else, which is, in my opinion, the biggest risk of Protector. We need to invest more in this and in our people. So that's how we -- that's the angle that we take to AI. And unfortunately, we don't have a lot of exciting demos and value creation documentation to share with you. But a lot of it is happening. And we are investing, which you have also seen in our cost ratio and which I will come back to. But then let's get over to the results. So the quarter 3 results are very strong on the profitability side. As always, I get back to normalizing that and explaining the underlying realities. We have a weak growth in quarter 3 and I'll get back to that as well. So -- and then the investment result is in absolute terms, poor and also that I will explain further when I get into that. On the side of that, the transfer deal of the portfolio on Danish workers' comp that we previously expected to be finalized in quarter 3 is -- and it was due to subjectivities and that is mainly the authorities in the different countries is now expected to complete in quarter 4. So volume. And I think that this is, in many ways, where we have spent more time this quarter because this is not anything close to what we have had previously in percent. It is the smallest quarter. It's 12% of the volume totally in Protector. So there is some volatility in it. But the composition is some underwriting discipline, which we should have. Profitability comes first. So we've lost some large clients, some of which we wanted to lose. So we actually priced them out. Some have been -- we haven't managed to match the price, which is fair. And then there is this normal churn where we don't manage to renew all the clients. And then there are some technicalities in this where inception dates moved from -- it was -- the volume incepted quarter 3, 2024 and then they've moved the inception date to another. We mentioned this in the quarter 1 presentation that we had some volume there that moved to quarter 2 and quarter 4. And there's some of that. But it's also -- so it's a mix of that, discipline and some technicalities but also some realities. And the reality is that, in particular, in the U.K. market, we don't get support from high inflation -- inflationary increases on the prices anymore. So the property market, which is our biggest product, is in a softening cycle. So the rates are going down. And then we don't get that -- and we get very high churn if we continue to increase prices and we don't need it, as you can see on the profitability side in the U.K. So that's a reality and we have talked about that before as well. I forgot to say that it's better if we have questions during the presentation then all of them are saved for the end. So please raise your hand and I guess you'll get a microphone if you have questions along the way here. So -- and the market situation in the different areas is interesting to say something about in quarter 3. And there is not anything very special from what we have communicated previously. So the softening property market in the U.K. and that's both corporate and public sector and housing makes it harder to retain the clients at the same rate levels and makes it harder to win new business. In the Nordic countries, it is no real change in the market situation. So it's still a rational market. But obviously, we don't get that support from the same inflationary increases also there. And our new sales in quarter 3 are on the low side. We've missed out on also some of the larger opportunities that sometimes come our way and now not -- I wouldn't read too much into that part of it because it doesn't look like a trend. So that's quarter 3. Any questions to quarter 3? [indiscernible]? Unknown Analyst: [indiscernible] I guess, I have 2 questions, Henrik. First, could you give a bit more flavor on the U.K. real estate statement you have on one of the bullets here to make us understand a bit more. And the second question is that you have seen so far EUR 460 million in France. Will that figure increase through quarter 4? Or is it kind of the final volume that you will see in entering January 1? Henrik Høye: Yes. I can do that. So I was just wondering if there were any more questions on quarter 3 because I was going to get to those 2 about France. Get the microphone and can run a bit now. Thomas Svendsen: Thomas Svendsen from SEB. So questions to the U.K., it has been -- the combined has been stable at around [ 80% ] for several quarters. So what is your assessment? What is sort of the new level of combined ratio there? Henrik Høye: On new sales? Thomas Svendsen: On new sales. Henrik Høye: No, I think that on the corporate, so commercial sector, we basically target below 91% and have been doing that for some time but we've been able to get rate increases in renewals. And so not a lot of difference on the corporate commercial sector. We've been quite stable there. But obviously, in the public sector and housing, where we haven't had a lot of competition, we have not targeted a lower combined but we have been able to increase our margin and still win business. So then I think that for new sales, I would say that we will close in towards 91% combined ratio on our new sales over time. But that market will fluctuate and have volatility. Ulrik? Ulrik Zürcher: Ulrik Zürcher, Nordea. You say that it's softening a bit in the U.K. Should we read anything into that into the renewal next year, has an impact on growth expectation? Henrik Høye: Yes. It has been softening for some time on the property side. If you read the big reports of property and property rates in the U.K., you'll see that there was quite significant rate reductions in that market. But that doesn't mean that we come from those extremely high levels on everything. So I wouldn't read too much into it. We see that we can be -- we can still be competitive in the U.K. property market. But the kind of 2023 -- 1st of April 2023 situation is not the case anymore. So it's more like a normal... Ulrik Zürcher: Yes. But we have to counter like something is the same, borough, like public market but then we also need to the new market, the real estate. So I'm just -- they're -- you're not saying there's any reasons why you shouldn't have very potentially high growth in U.K. next year in new business or... Henrik Høye: No. So -- and then I can come to that because that's interesting. In a market like the U.K. So we've -- we're in the corporate sector clients with GBP 50,000 and more annual premium and that's where we started. And we're in -- we've also entered what we call the mid-market between GBP 20,000 and GBP 50,000 approximately annual premium. So we're starting to get some kind of traction in that market. And then we've had public sector and housing the whole time. And that's where we have a fairly high market share. So we are a top 3 player there. There's still opportunities but the real opportunities lie in the commercial private space. And there, we will find pockets and segments that are fairly big pockets because it's the U.K. and the U.K. real estate is one of them. And there's 2 reasons why we are entering that market now. One and the most important one is that we have hesitated entering that market because of extremely high commissions. So there's been commissions between 30% and 40%, not only to the broker but also to the property administrators. And the value chain is not very transparent. We don't want to be part of that type of a value chain. And in addition to that, the volatility in those -- or fluctuations in those commission levels means that cost ratio -- cost advantage is not that important because it's -- a lot of it is with the brokers and the administrators. Now the authorities have put a focus on it. So the commission levels are coming down. So that market is more professional. It suits Protector in a better way. And then we have achieved the A rating, which is important in that sector because the banks who finance the properties, they require it in their contracts. So then we get an access to that market. So we've spent some time getting to know the brokers who operate in that market. So the large players -- the largest broker players in that market gathering data. And it's always a milestone to win the first client in the segment that has a new product. So the new terms and conditions and it is accepted by the market when you win the new client. So this is a big market. It's bigger than GBP 1 billion. That's our risk appetite. So that's basically what we will -- what we think we will quote on. So that's a big opportunity. And then on France, it is the same thing. We need to say something about what we know and what we know is the tender volume. It will [indiscernible] not stop there. So there is still volume coming out but we know -- this we've known for some time that the tender volume is quite -- is a high number for 1st of January '26 because we do pipelining together with the brokers. But then the ones that they don't know about will come out throughout quarter 4, especially on the motor side, which is 50% of this and -- but also on the public sector and housing side. In France, they have something they called failed tenders. So if a tender doesn't meet the criteria, then they put it in a failed category and then they can go out and negotiate those contracts. And they have budgets on -- so they -- most of them fail because of a budget that is too small on the premium. So -- and if it doesn't meet, then they have to, so they're required to cancel it. So they will come out. A few of those will come out as well. Ulrik? Ulrik Zürcher: Just one follow-up. You forgot a bullet point because you forgot to put in your expected win rate. Henrik Høye: And you can estimate and guess as much. I'm sure that we could probably be slightly more accurate than you but we don't know what the market is. And there is actually a -- so there's actually a reason for why we -- why I don't even want to indicate anything there because we -- from the beginning, which is right to do, we have been a bit more restrictive on terms and we have slightly higher margins on what we quote in the beginning. And it should be like that because we both need to get confidence in what we look at. And the first ones that come out have had slightly poorer data than what we require. And then we need to test the market. So we know very little about the quotes that are out in the market now because the ones we have sent out and have some feedback on, they are not representative for the majority of them. [indiscernible]? Unknown Analyst: Regarding the U.K. real estate market, you have won the first client now in the third quarter. Last time you presented, you said that you expected the first client to be on board at the earliest April 2026. I have in my notes. What has happened and has the process speed up? Henrik Høye: I think it's a combination of things. We -- so the reason why we said 1st of April was that we didn't believe that we were able to -- we were going to be able to collect this -- enough data to quote in that market before that batch 1st of April inception. And then we also know that we needed a different kind of process -- underwriting process and using technology has made it easier to create those models. So we have, in our IT systems today, 60% of the code is AI generated. But on the underwriting side, I'd say that probably at least 2/3 of the code is AI generated on our modeling. And that gives a huge advantage in developing these models. So we can make one version, benchmark it with another one. And then so we can create a lot of different models and benchmarks them with each other without being delayed in the process. So that's that. And then we've also got -- managed to get traction with at least one of the brokers earlier than what we expected. They were a bit skeptical in the beginning because there are many competitors in this market and it's a commodity and it's a -- so -- but then they've understood that we have an edge and have something to bring to the table. So then they have started to send us. So it's actually a case where we've said no to quote cases because we are not ready. Unknown Analyst: But is 1st of April also very important in this segment as the other in U.K.? Henrik Høye: 1st of April is because of some kind of a strange financial year setup there, is important in all segments but not at all like public sector. So it's more spread out in the real estate. But we don't have all the data. So we don't exactly, know exactly know how it's spread out. But it's less dominant 1st of April in real estate. Okay. So that's, volume. Again, so if you look at it, on the face, adjust for large losses and runoff compare the quarter 3 figures there to quarter 3 last year, you see a very similar number on the loss ratio. But the underlying realities are slightly better than that in '25 relative to '24. We have had large losses on the property side only in U.K., Sweden and Norway in quarter 3, not in the other countries. So then you understand that they are artificially low in Denmark, Finland and France to a certain degree. But France, as I said last time when we had black figures on the combined ratio, it's very early and I wouldn't read much into the loss ratios in France for quarter 3. So that's on the large loss side. Runoff gains in all quarters. We had a question around our practice of best estimate reserving, which we follow and which is correct, both on the case side and on the actuarial side. But obviously, following a period of time when there's been more uncertainty on the inflation, which I have mentioned before, there is a higher probability of some runoff movements and uncertainty sometimes makes us a bit more conservative. So I think that it's slightly higher probability that you get gains than losses for some time after a uncertain inflation period. So that shouldn't be too much of a surprise either. And then there was a big storm that mostly hit in Norway but also a little bit in the U.K. and Denmark. And for the Norwegian part of this, this is quarter 4 numbers. It is -- it doesn't make a big difference, as you can see, if you try to calculate those numbers and especially with the reinsurance side of it. So we get our share but the Natural Perils Pool is reinsured with a quota share this year. So it's not a very large number, some few tens of million Norwegian kroner approximately is what that will have an effect. So one large loss. Yes. So any questions on the claims development? I've touched upon some of these points that you could potentially see here, both on the runoff but also on the volatility for large losses. I think that still it's important not to kind of look for trends in large losses because this is about very few losses and it's very volatile. So I would still look at around 7% as a normalized level. When it comes to the cost ratio, it is up exclusive of commissions by a bit more than 1 percentage points for quarter 3. And there's been a development in the share price. We've talked about this before. And only that is -- so if you correct for that relative to quarter 3, this is real cost. So it's about the salaries for some key people that have been part of a bonus scheme for some time that follows with synthetic shares that follow the share price. And when there is a lot of movement there, it does affect. But if you correct for that, you're basically at the same level. And then France was booked on the other expenses row before. Now it's in the cost ratio. And so that's a bit more. So it's slightly lower if you correct for those 2. I don't think it's very important to correct for any of them because the important message I want to give and what we talk about with the employees is that we are in a position now where we have a lot of development opportunities on the volume side. So we've opened a new market. U.K. is still -- there's a lot of opportunities. And even in the Nordics, there are a lot of opportunities on facilities and the property side. So we're investing in creating. It's a great time to invest in creating better data and preparing ourselves for the future in utilizing AI. So let's do parallel processes where we create AI functionality that can do exactly the same as the process today and then we benchmark. That costs some resources and we could have been more efficient today and I've talked about that before. I still mean that. We have overcapacity and we're not stressing in taking out those efficiency gains at the moment because that's probably the wrong decision. Any questions on the cost side? [indiscernible]? Unknown Analyst: Not on the cost side but on AI. You are using a lot of time talking about AI and I understand you are putting a lot of effort on this. Regarding your competitors, how are they using the same tool? Do you have some indication or... Henrik Høye: Right now I think it's much better that we spend our time on how we can utilize it. But obviously, we should learn from successes and mistakes out there. So we need to look out, out the window as well. And -- but I think what we do see is that lot of our competition, they focus that on their customer experience and because of the consumer -- the weight of the consumer segments in their companies. So it's a lot about improving the customer journey or whatever they call it, which is not very relevant for us. And I also -- what I do hear and see is that it is a lot about efficiency. So it's automation, which is not what AI is -- that's not our focus at least. That's a bonus and it will happen. So let's not stress about getting some efficiency gains because we're all becoming more efficient every day and you are, I'm sure. So that's not the main aim of this. It's the quality. And automation and robots and that is something we could have done a long time ago. So that's not really about AI. But I think the focus is -- we hear that the focus is a lot around that. So to the investment side, I'm not planning on spending a lot of time here but please come with questions. So in absolute terms, poor equity results. And then we've done a -- so we've accumulated profits or own funds in the different currencies and countries as that has come in. And now we've moved that equity home. That increases the running yield on the interest rate, the bond portfolio slightly because we get better yield in the Norwegian bonds than what we have on average for the rest. And then on the underlying realities for our papers or the companies in the equity portfolio, it is a -- so we have some IT consultancy where there is some poorer underlying development. And other than that, it's a good development. So in total, we characterize that as okay. So it's not like it's just volatility there but we haven't changed any strategy. And 1 quarter is a short time. A year is a short time, as we've said many times on this area. No losses in the bond portfolio. Capital position is -- so, yes, so there's no -- if you look at the other income expenses row here, you see that it is a high increase. That is due to the increased debt that we have, the Tier 2 debt that we have increased during 2025, so the interest rates there. Other than that, nothing special. And then this is slightly new in how we present it. The biggest element that you can see here is on the market risk, on the solvency capital requirement on the market risk, the [NOK 558 million that is on the orange box is due to the -- to moving the equity from the branches to Norway that decreases the requirement on the market risk. But on the other side, we get less diversification. So -- but there is an effect there on the solvency, which takes the requirement down. And the solvency position is very strong. And we still see obviously some geopolitical uncertainty in the world. And then in spite of what you see on the growth side for quarter 3, we see a lot of opportunities. When that volume will come in, that I don't know because that's dependent on the market. But we see a lot of opportunities and we have the data and we are quoting and we're comfortable with the quotes we send to the market. So we still believe that over time, the growth journey of Protector will continue. And therefore, it's good to be on the solid side since there is some volatility in that. And so that we don't have to do stupid things or the wrong thing either on the insurance or the investment side in the future. Yes, Ulrik. Ulrik Zürcher: You have a Tier 2 bond that's up in December, right? Henrik Høye: Yes. Ulrik Zürcher: Will you refinance that? Or will you cancel it? Henrik Høye: So we will continuously look to what we can utilize because there is a -- so now we're not able to utilize and partially because the requirement has reduced, right, from taking the equity on. So we'll continuously monitor how much we can utilize. And there are also limitations on how much we can take in. So it may be that we wait. But most likely, we won't renew it in December. December is also a poor date. So it's better to have it at a different date but that's a small part of it. But we'll assess that going forward. And then we'll most likely renew it or fill up with something in 2026 on that. Is that an okay answer, detailed comment? Ulrik Zürcher: Yes. Because it's a bit important when we judge your like actual solvency now. It's like that bond is that, [ i.e.,] because now you're not utilizing, so you could pay that back and then you can utilize what you have or you're very forward leaning on growth, so you need... Henrik Høye: Also that's, so in general, what we will aim to do is to have what we can utilize. So that's where it will be. And then you probably in a good market, be a bit ahead of that curve rather than behind it. So I spent more time here on this than I usually do and we do that in the organization as well. But when it comes to the quarter 3 results, this is the same slide as I started out with. So any further questions outside of what we have covered so far or anything that we have online? Unknown Executive: Yes, we have a couple of questions. Some of them have been dealt with already. But continuing on the capital situation, which is assumingly very strong and the potential for high growth in France, given the numbers. Could you say something about how much of that volume we will win, how much that will kind of consume of capital? So how much will NOK 1 in growth consume January 1? Henrik Høye: I can't give an exact answer. But today, we -- I guess it's about 30%. So 1 unit is 0.3%. And then there is something on the -- especially on the cat side, natural catastrophes that will make a difference because France is a different geographical area. So we will get diversification. So a property will -- in France consumes less because we have a lot of property pounds and property kroners. So that's -- so yes, it consumes slightly less on the property side, not on the motor side. Any other questions? Thanks for coming. Thanks for listening. Unknown Executive: Thank you.
Vesa Sahivirta: Good morning, everyone, and welcome to Elisa's Third Quarter 2025 Analyst Meeting and Conference Call. I'm Vesa Sahivirta, Head of Investor Relations. And here together with me is a very familiar team, CEO, Topi Manner; and now for the last time, CFO, Jari Kinnunen, who will leave us in the end of the year. We have also our incoming CFO, Kristian Pullola here, but now he is in the audience still. Next week, by the way, we are in a roadshow together with Kristian and Jari. But now going through the agenda of the day and following the normal practice, we start the presentation followed by Q&A. And now I give word to Topi. Please go ahead. Topi Manner: Thank you, Vesa, and good day, everybody here in the room. And those of you who are joining remotely. Welcome to this earnings call also on my behalf. I understand that there are quite many quarterly reports today in the Nordics as well as throughout Europe. So let's jump right into business and try to be relatively condensed with the presentation so that there will be time for Q&A. In terms of the highlights of the quarter, the revenue of Elisa increased with 4.6%. That was very much driven by the international software services as well as mobile service revenue. The mobile service revenue landed at 3.3%, that was supported very much by the 5G upselling and also the introduction of security features to our mobile plans. And then pointing to other direction was especially the competition in the 4G category of mobile subscriptions. In international software services, our revenue increased with 53% roughly. The comparable organic growth was 3%, impacted by some project delays related to the tariff-related uncertainties in the global market. EBITDA was up with 3.7%, solid as such. What was very, very good to see is that the comparable cash flow grew with more than 12% from the Q2 level, which was already an all-time high level. This was on the back of the increasing EBITDA, strict CapEx discipline and also the net working capital management. In Finland, the post-paid churn increased to 22% or a bit more than 22%, indicating that the competition was quite intense during the quarter. Post-paid subscriptions decreased by 20,000 a bit more. Of that, close to 6,000 were related to machine-to-machine and IoT subscriptions. There is some quarterly fluctuation in this one. In Q2, we won quite a bit of post-paid subscriptions, especially in the corporate side of the business. And therefore, it is useful to take a little bit longer perspective on this. The fixed broadband subscription base increased by close to 5,000 and the fiber-related revenue starts gradually to pick up. So if we look at our revenue in total, it was indeed supported by the international software services and mobile service revenue. What was also good to see is that the fixed service revenue turned to growth during the quarter. That was impacted by some customer wins in the corporate networks in that side of the business. And then as mentioned, also the fiber-related revenue is starting to pick up and then being visible this quarter. EBITDA landed at EUR 214 million. Mobile service revenue, as mentioned, was 3.3% in terms of growth, supported by the introduction of the mentioned security features. And that particular change, that offering change has been well received by customers. We have now enrolled something like 600,000 customers to this offering, and that was supporting the MSR growth. The churn number was especially, as mentioned, impacted by the competition in the 4G category, especially in the low-speed tiers of the 4G category. And we saw some campaigning basically throughout the quarter in this one. So then looking into the various business areas that we are having. The Consumer business was impacted by the mentioned mobile competition. Revenue up 0.9%, EBITDA up 0.4%. Corporate business on its turn had a strong quarter, revenue increased with 5.6%, especially boosted by the price increases in the corporate side of the mobile business. The mentioned fixed service revenue contributed positively also interconnection and roaming. And EBITDA grew with 3.6% in the Corporate business. So a good quarter for that segment. In International Software Services, our EBITDA during the quarter improved with EUR 5 million. And if we look at the first 9 months of the year, profitability-wise, we are now effectively in breakeven for the first 9 months in that business in terms of EBITDA. And that is ahead of the fourth quarter that typically is the strongest quarter in software business in terms of revenue and in terms of EBITDA. Then this morning, we announced that we are introducing a transformation program to accelerate the implementation of our faster profitable growth strategy. So coming back to our strategy, the one that we communicated in our Capital Markets Day in March, simplicity and productivity is very much a fundamental of that strategy. Simplicity and productivity is enabling the growth in our 4 growth pillars, namely 5G & Fiber, Home Services, Corporate IT & Cyber and International Software Services. We have been working with simplicity and productivity with continuous improvement measures in the past. And now we are accelerating the implementation of that. With the aim to simplify our operations, improve agility and speed of decision-making in the company and with that, enable growth. And at the same time, we are taking swift action to improve the cost competitiveness of our business in the current market environment. With the transformation program, we are aiming for EUR 40 million of annual cost savings during the calendar year of '26. And with these measures, we ensure that we will achieve our midterm revenue and EBITDA targets, the ones that we set for ourselves in the CMD. So when we look at that what the transformation program includes, it will be about organizational streamlining, delayering the organization. It will be very much about process simplification, process optimization, also cross-functionally within the organization. It will be also about scrutinizing our outsourced services, most notably the use of IT consultants in the organization, renewing our software development model. And then we are resetting our procurement effectively and finding efficiencies in the procurement space of the company. In the organizational streamlining, in the changes related to the way of working, we will be utilizing more and more automation and AI, and that is an element that is embedded in the transformation program. But as stated, the bottom line is that this is in line with our communicated strategy, accelerating the implementation of the strategy. When we look at the mobile business in a bit more detail, the 5G upselling continues with the trend that we have seen in the past. I mentioned upgrades related to security features are supportive of the mobile service revenue. As stated, we have now enrolled something like 600,000 customers, and that enrollment rollout process will continue in phases in cohorts during the course of this year but especially going into '26. We have been also launching new types of security features, scam call blocking for foreign numbers being one of the examples, and that has been now well received by customers. And the initial take-up rate is encouraging. We also had a nice opening with private 5G standalone networks with slicing technology in one of the ports in Finland, where we are able to serve our customers with the kind of technology, standalone slicing technology that our local competitors do not have at this point of time. So a good reference case for similar opportunities in the future. When we look at the fiber business, as mentioned, we are starting to see strong revenue momentum in that part of the business. And our accelerated network construction is being continued as we speak, all within the 12% CapEx to sales envelope that we are having. Then just quickly looking into the digital services. In the Home Services space, we introduced a new Elisa original service called Icebreaker and the international distribution actually for that one has started well in a number of European countries. In terms of Home Services, in energy solutions for households, our home battery solution now has a coverage of 70% in Finland. We are very -- in very initial stages of the rollout, but we have clearly proven the product market fit, and therefore, an encouraging outlook for this solution for '26 and onwards. In Corporate IT & Cyber, we are clearly very competitive on the market in terms of our cyber offering. And one of the examples is that in cybersecurity, one of the biggest retailers in Nordics, Kesko chose us as their cybersecurity provider in Finland, Sweden, Denmark, Norway, the Baltic countries as well as Poland. So yet again, a good reference case for the future. In International Software Services, in that side of the business, we -- our aim has been to grow more than 10% organically. There, the tariff-related concerns have resulted in some delays of customer projects that have been impacting especially the license and service revenue part of the business. And therefore, when we look into the Q4, when we look into the likely realization of the project, we expect for full year an organic comparable growth between 5% and 10% in this part of the business. However, an important indicator in software business, of course, is the recurring revenue. And the recurring revenue during the quarter grew with 13%, double digits and the year-to-date number is 15%. The share of recurring revenue is increasing all the time in the total revenue of ISS. An interesting individual reference point is in our energy flexibility solution called Gridle, previously called Distributed Energy Storage. And there, we signed a first grid scale battery solution with energy company City of Vantaa for 10 megawatts. So an interesting reference point opportunity to scale for the future. And then finally, when we look at our outlook and guidance for this year, we will keep our guidance in terms of revenue and EBITDA intact. The bottom line being that with the transformation program, we will be accelerating the implementation of our strategy. And with that, I will be handing over to Jari. Jari Kinnunen: Thank you, Topi. Let's first look at the profit and loss. Q3 continued with good trends, growth trends, solid growth in revenue as well as in EBITDA. Revenue, EUR 25 million increase, 4.6% growth in Q3. If you look at behind the revenue growth levers, overall good development in service revenues, 5.8% growth in service revenues. Mobile services increasing with EUR 9 million, both Consumer and Corporate Customer segment growing 5G customer base increasing and changes in the service offering, security features and price changes in that change all contributing to that 3.3% mobile service revenue in Q3. Fixed services growing EUR 3 million, fixed broadband, especially fiber broadband connections growing also in Corporate segment, corporate networks and related security services contributing to growth. Negative impact in traditional fixed voice services. Domestic digital increase was EUR 2 million. IT services in Corporate segment contributing slight decline in Consumer segment, digital services. International software services increased with EUR 12 million. Acquisitions and sedApta, first consolidation impacting approximately EUR 11 million to acquisitions impact and comparable growth at 3%. Equipment sales flat like was the interconnection and roaming and other. All in all, organic growth totally was at 3%. EBITDA 3.7% growth to EUR 213.5 million. EBITDA margin was strong 38.1%, EBIT 1.9% growth to EUR 138.6 million. EBIT margin was 24.7%. EPS was growing 2.3% to EUR 0.64. In Estonia, improvement both in revenue growth as well as in profitability and revenue was growing 2%. Mobile and fixed services developing positively and negative impact in equipment sales. EBITDA increase was strong 9%, driven by service revenue growth as well as cost efficiency measures. In mobile, post-paid subscriptions, slight decline 1,200, pre-paid base minus 200. Churn came slightly up from Q2, still relatively low at 9.4%. Then CapEx, reported CapEx was EUR 81 million, excluding licenses, lease agreements and acquisitions, the guided CapEx at EUR 65 million and in line both Q3 and year-to-date guided CapEx in line with 12% from sales. Main investments continuing in 5G network as well as fiber network and IT investments. In Q3, cash flow continued good development like has been in the previous quarters. Comparable cash flow was growing 12% as a result of higher EBITDA, lower CapEx as well as lower paid interest. Net working capital change was positive, however, slightly less positive than a year ago. Year-to-date cash flow -- comparable cash flow growth is at 10% through higher EBITDA, positive net working capital change and lower investments and negative impact through financial expenses. Cash flow conversion was improving and EBITDA cash flow conversion at 70% in Q3. Then if you look at the balance sheet and capital structure in line with the medium-term targets, net debt to EBITDA decreased from Q2 to 1.7x. Equity ratio increased from Q2 to 35.7%, and return ratios continue to improve. Return on equity was at 30.7%. Return on investments improved to 18.6%. And in terms of financing, average interest for interest-bearing debt continues same level as was in the previous quarter at 2.5%. And now I give word to Vesa, please. Vesa Sahivirta: Thank you, Jari. Now we move on to Q&A part. And first, we ask if there is any questions from the audience? No, we don't have. So we go to the conference call lines and ask first question from the lines, please. Operator: [Operator Instructions] The next question comes from Andrew Lee from Goldman Sachs. Andrew Lee: I had 2 questions. The first one was just on your adjustments in guidance on the cost-cutting side of things. So 2 incremental things you said today is one that you're raising your cost-cutting expectations to offset mobile service revenue growth weakness and also macro uncertainty weakness. But at the same time, I think what you're saying is that you're seeing a macro improvement in your fixed business. So with your cost savings to offset macro weakness, are you being conservative in your outlook on macro weakness, i.e., assuming it goes -- gets worse again or doesn't continue to improve? Or is there something else going on there? Just a little bit of help in terms of what's changing versus where you're adopting a conservative approach would be helpful. And then second question is just on your mobile service revenue growth, which is, I guess, the big negative surprise today. Could you just give us a bit of a sense of the mobile service revenue growth trend in Q4, just so we can get a sense as to how badly things have deteriorated in terms of the competitive environment versus what you were saying by sticking to the guidance at Q2? Topi Manner: Thank you, Andrew. If I start on the first one, yes, the transformation program that we introduced aims to have EUR 40 million of annual savings during the calendar year of '26. And when we come back to the macro and especially the impact of macro to fixed service revenue. During the quarter in the Corporate business, we had a handful of very good customer wins that contributed to the fixed service revenue growth. And also the fiber pickup starts to be visible there. I think that these are more micro examples in a sense that they are telling about our competitiveness in terms of fixed service revenue. If I look at the sort of near term for the next couple of quarters in fixed service revenue, I think that we will be seeing some quarterly fluctuations still. And I wouldn't yet say that there has been a macro trend change in this one. But when we look further to late '26 and 2027, we do see that in the fixed service business, there is a possibility for additional growth, revenue and profitability growth in terms of data center connectivity, data center fiber connectivity. So I just want to check whether that addresses at least part of your question? Or did you have something else on mind on that? Andrew Lee: Yes. No. Thanks, Topi. That was great. Can I just -- just as a follow-up, can I just check that EUR 40 million, is that a net benefit that we can just add on to the EBITDA line? Or is that a gross benefit? Topi Manner: Yes. Related to the cost? Andrew Lee: Exactly, yes. Topi Manner: So the bottom line with the transformation program and with the annual cost savings is that with this transformation program, given all the changes in our business, we aim to achieve our midterm targets, the ones that we communicated in CMD last March. Andrew Lee: Okay. I thought you said that you're accelerating it earlier on in the call. Maybe I misunderstood that comment on the... Topi Manner: Yes. We aim to achieve the midterm targets, like I stated, we are accelerating the implementation of the strategy, accelerating the implementation of the enablers for [ growth ]. And then the second part of your question, I guess, was related to the mobile service revenue and the competitive landscape that we are seeing on the market. So on that one, the outlook that we have for mobile service revenue development as of now is that during this calendar year, it will be low to mid-single-digit MSR growth. And as stated, what we have seen now lately is intense competition, more intense competition in the -- especially in the 4G category of things. At the same time, when we look at the total market, the 5G upselling continues. Our bundled offering related to security features has been well received on the market, and we will continue that rollout, and that will be supportive of mobile service revenue. So you need to look at both high end and the low end of the market in order to understand the full dynamic. Andrew Lee: And how should that play out in Q4? Should we see any kind of material difference to the growth trend you saw in Q3 and Q4? Topi Manner: When -- I mean when we look at now the competitive situation, Q4 is a bit more challenging before the cost savings kick in at the start of the year from Q1 onwards. Operator: The next question comes from Owen McGiveron from Bank of America. Owen McGiveron: It's Owen McGiveron from Bank of America here. On the elevated post-paid churn in Finland, could you just give us a few more details on the moving parts there? How much is hard bundling contributed to the churn? And is it all or the majority from this more competition in the 4G offerings? Topi Manner: Yes. I think that what we are seeing is that the market is more diverse than it has been in the past. So if we look at the high end of the market, 5G category of business and especially if we look at those cohorts of customers to whom we have been rolling out the new offering with the security features. I think that, that has proceeded well. As stated, we have now rolled out 600,000 customers approximately to the new offering. And when we look at the churn of those customers isolated, that has met our expectations or actually has been a little bit below our expectations. So that means that we do see that customers understand the value and there's a possibility for us to continue expanding that offering. At the same time, at the other end of the market, where consumers are more price sensitive and more prone to be attracted by 4G offerings, then there we see price competition and campaigning. And that has been one of the drivers or the main driver behind the increased churn number from Q2. Owen McGiveron: Okay. That makes sense. And just a very quick one on the high bundling cohort rollout. In seasonally more competitive Q4, should we expect a slowdown in the rollout of your security offerings to customers? Or do you think you can continue at a steady pace? Topi Manner: I mean if we look at the rollout schedule for the remainder of the year, the original plan was already that Q4 will be calmer in terms of that rollout. So the rollout pace will pick up in '26. Operator: The next question comes from Andreas Joelsson from DNB Carnegie. Andreas Joelsson: Just 2 questions from my side as well. First of all, the delayed projects in the International Software business, how should we view that? Is it more cancellations of orders? Or do we expect that to come back in the near term? And secondly, the cost reduction program usually come with a cost. So what kind of restructuring costs should we expect from that and when? Topi Manner: Absolutely. So if I take the first one and Jari, you take the second one. So on the first one, in the International Software Services, this is really a delay. So no cancellation of projects. It is a timing issue as such. I mean, typically, in a customer project, when a project starts, there's a license element in terms of revenue, then there is a certain service revenue element related to installing the software, configuring the software. And then there's a significant recurring revenue element on this one. And we are proceeding according to plans in terms of the recurring revenue part in ISS, but the delay of some projects is impacting the license and especially the service revenue part of these projects. Jari Kinnunen: And the program -- cost reduction program and restructuring charge question. So we -- at the moment, we estimate that there will be a restructuring charge, approximately EUR 20 million, and that will be booked in Q4. Operator: The next question comes from Paul Sidney from Berenberg. Paul Sidney: I have 2 questions as well, please. Firstly, on Finnish mobile, if we sort of take a step back and look what you said 3 months ago, you said that Q2 all price increases have landed well, customers have valued the offering of the new services. What's really happened in the past 2, 3 months to change the competitive dynamics so quickly? Just to get a better understanding for that, please? And then secondly, given the competition is mainly at the bottom end, you mentioned 4G. Is there any measures you can take to accelerate the migration to 5G? And also, are you confident that this elevated competition level won't spill over into the 5G market as well? Topi Manner: Yes. So I mean, if we look at what we said about the introduction of the bundled offering with the security features, not that much has changed between Q2 and Q3 on that category of the offering. We have been moving forward with our original rollout schedule and customers understand the value. We see that the take-up rate of those individual security features is increasing among our clientele. And as stated, that whole initiative is supportive of our mobile service revenue growth at this point of time. What we are seeing is in the market is that especially in the lower end of the market, speaking of predominantly 4G, 4G subscriptions. The competition has been tighter as the churn figure indicates during Q3, there has been campaigning ongoing. When we sort of slice and dice that a bit, one new mobile virtual network operator started during the quarter, Giga mobile in September. That individual player has not impacted the market that much. So the competition in the 4G category is very much between the traditional 3 big players on the market. For us, our stance in this one is very, very clear. We will keep our market #1 position. We will keep our market share in mobile subscriptions. And with the transformation program, we are improving our cost competitiveness on the market. Paul Sidney: That's great. Can I have a quick follow-up, Topi? Would you consider cutting price at any stage looking forward if the competition levels remain? Topi Manner: Sorry, Paul. Now I missed some of it. So could you please repeat? Paul Sidney: Apologies. It was just a follow-up. Would you potentially consider cutting price looking forward? Or is that not an option? You want to continue to compete on quality? Topi Manner: Yes. We will be a responsible market leader. So we are not fueling the price competition on the market. So we will be a responsible market leader. At the same time, we will keep our market share. I repeat, we will keep our market share. So we will be responding to the price competition if needs be. Operator: The next question comes from Ajay Soni from JPMorgan. Ajay Soni: The first one is just around that this 4G low-speed area where you're seeing more competition. I was wondering if you could give us an indication of what portion of your customer base is within that. Obviously, you highlight within the slides, it's around 37%. I think that's for the market, which is below 200 megabits. But what about for you guys specifically within your customer base? And the second question was just a quick clarification. The workforce reductions of -- or the EUR 40 million savings that you expect in '26, do you expect that full run rate to come from Q1 '26? Topi Manner: Good. So if -- Jari, you take the last one. So I mean, when we look at the various segments of the market, and now, of course, I'm simplifying quite a bit. But our -- we are not disclosing the number of 5G penetration. We are disclosing the number of high-speed penetration, more than 200-megabit penetration where we have all of our 5G customers and then we have some 4G customers. But if we look at the high end of the market and we include all of the 5G subscriptions to that one, we are closing in on 50% of the market in that one. And then the sort of most price-sensitive customer group is not half of the customer base, it's less than that. We are probably talking about roughly 30% plus/minus of the client deal. Jari Kinnunen: And regarding EUR 40 million cost savings, majority of that comes through personnel reductions. There are other parts, however, on that. And we estimate that from the beginning of the year in Q1, we have a majority of the savings already coming in. Topi Manner: And still coming back to the mobile competition and the overall dynamics of the market. I think that it is worthwhile to say that we have been seeing times of a bit more intense competition also in the past. If you look at the past 10 years, there have been quarters -- individual quarters when the churn has been on 22% level like now. So the competition comes and goes as such and is of volatile nature. And I think that if we take sort of a mid- to long-term perspective to our market, this is an effectively a 3-player market in terms of mobile services. And we don't think that the underlying rational nature of the market has changed. Operator: The next question comes from Abhilash Mohapatra from BNP Paribas. Abhilash Mohapatra: Sorry to come back to the transformation program, please. But it's just interesting that you've put a very explicit number around the cost saving of EUR 40 million linked to the headcount reduction. Just trying to understand, is that -- I mean, is it -- should we be reading something into that, that -- that's the sort of headwind that you're expecting in your business elsewhere due to a combination of all those things you talked about, like sort of mobile competition, macro pressures, and that's why you're looking to do this? Or was this always a part of the Capital Markets Day sort of strategy and you've just now taken this moment to announce this program. How should we be thinking about that, please? Topi Manner: If I start on this one, and Jari will continue. So it's more the latter of what you have stated. So if you come back to our strategy in Capital Markets Day, simplicity and productivity has always been part of our plans. We have factored that into our midterm targets in terms of EBITDA. We have been working with simplicity and productivity for long with continuous improvement measures. If you look at what we did during '24, there were some productivity measures visible during the calendar year of '24. Now since the Capital Markets Day, we have been working with issues like finding efficiencies from procurement. We have been looking into automation and AI possibilities, cross-functional synergies within our organization, possibilities to delayer in the organization. And now the time has come to accelerate the strategy implementation. And at the same time, there is an element of taking swift action to improve the cost competitiveness in the current market environment, but in this order. Jari Kinnunen: Yes, I can literally repeat the -- the accelerated growth strategy that we presented besides the concrete growth levers for revenue, important part of that strategy is and also as we presented in the Capital Markets Day, is the productivity cost efficiency development. So it's an elemental part of that strategy. And we will continue also beyond this program to build productivity. Operator: The next question comes from Artem Beletski from SEB. Artem Beletski: So I joined the call a bit later. So maybe those have been answered but still coming back to competition situation and the increased intensity during Q3. Could you maybe comment on churn profile, what you have seen during this quarter? So has there been a gradual pickup? Or did it really increase during September months? And maybe how do you see the development in early part of Q4? And the second question is relating to EUR 40 million program. So in the past, you have been doing this type of efficiency actions, but you haven't really been quantifying those ones. So could you maybe provide some color how this EUR 40 million program could be compared to what you have been doing over past years? And maybe just in terms of cost inflation. So could you maybe comment what you see on that front? Just trying to extract what could be the net figure in terms of these actions? Topi Manner: Okay. So if I quickly start on the churn profile. So looking into Q3, I think that we saw the 4G category competition to pick up in July and basically continue throughout the quarter. And then, of course, there was some campaigning also in September. So basically something that was across the quarter as such. Now looking into Q4, typically, we see campaigning in Q4 during the Black Friday weeks of November and then a calmer period before that. So if we look at sort of very tactically the sort of short-term sort of patterns in terms of churn, I think that, that is playing out as of now. And then remains to be seen that what happens in November related to Black Friday weeks. Jari Kinnunen: And to cost efficiency development plan and this program. Yes, it's true that we've been doing that also, of course, in the past, increasing productivity, cost efficiency. We did some reductions also last year in employee numbers. And in different times, these opportunities mature, and there are several levers below that automation, AI among the others. And like mentioned already, this is part of the -- a very central part of the strategy that we introduced earlier this year, and we will continue with the productivity development also going forward and beyond this. Topi Manner: And if you look at this transformation program, I guess that in the nature of things that we will be implementing, if we look at the things that we did during '24, we basically did continuous improvement within the verticals of the organization. In this transformation, there will be also horizontal end-to-end process optimizations and streamlining of those processes, also seeking synergies between business areas, business areas and the tech ops part of the organization. And with that, there's a bit more transformational element to what we are doing right now to give you a bit of flavor of the nature of things. Operator: The next question comes from Siyi He from Citi. Siyi He: I have 2, please. The first one is following up your comments on the cost cutting earlier. I think looking at the past, it's probably one of the rare times we see that you announce a major staff reduction. Just wondering if you could comment on the current negotiation progress with the unions. And if you could -- in what areas if mobile, ISS, we see most of the staff reduction from your program? And the second question is if you could talk about the market position in B2B. I think in mobile; you showed some decline in mobile ads in B2B. But I think last quarter, you mentioned that have won some contracts. Just wondering how should we square your comments from last quarter and this quarter's performance? Topi Manner: Okay. Thank you for that. So if I take the staff implications first and how they will be divided and distributed within the organization. I mean, the overall estimated number of job reductions within the company will be 450 of that, 400 will be associated with our businesses and functions in Finland, namely Consumer business, Corporate business, corporate functions and the tech ops part of the organization. And then that also means that in Finland, the union dialogue is important that has been initiated. We have a good tradition for collaboration in that space, and then we will be proceeding with that when we implement these changes during the weeks to come during the remainder of this year. And then coming back to your other question about the B2B and the customer wins. Yes, during Q2, we won significant new customers, especially for our IT business and sort of all-around customers in B2B in a sense that they would be having connectivity services like corporate networks, cybersecurity and IT services. And the sort of takeover of those services has partially commenced and will continue during Q4, but it is not in any material fashion impacting the Q3 numbers yet. Operator: The next question comes from Terence Tsui from Morgan Stanley. Terence Tsui: My question was just again on this cost-saving program. Just wondering why you haven't been a bit more ambitious. I think some of your Nordic peers have been a bit more aggressive in taking out their headcount. From my calculation, it's roughly about 7% of the headcount. So just wondering why didn't you see scope for maybe a bit more aggressive cost cutting, please? Topi Manner: I mean if you look back a bit and include the sort of continuous improvement measures that we did during the '24 -- calendar year of '24. During that year, we reduced some 300 people in terms of staff. And then when you calculate the impact of the transformation program now into it, then that total number is quite equivalent to what we have been seeing some of the other players doing. Then I think that there's a difference in terms of how we have been doing it. We have been doing it predominantly with continuous improvement measures and now also figures of the cross-functional sense of this -- or cross-functional nature of these initiatives, introducing this transformation program to accelerate the implementation of the strategy. So we have been implementing it in and designing it in a little bit different way. And then, of course, there has been this strong culture of continuous improvement in the company for a long time. And therefore, we have been cost efficient previously as well. Operator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments. Vesa Sahivirta: Thank you for your questions and participating in this call. And now I give the closing remarks to Topi, please. Topi Manner: Thank you for all of you for participating this earnings call. And before we close, I would just like to acknowledge Jari and his great contributions to the company during the 25 years that you have been serving as the CFO. So I don't know whether it's 100 quarters or even more than that, but many, many quarters. So your contribution has been invaluable. So thank you for that and all the best for the future. Jari Kinnunen: Thank you, Topi, for kind words and small correction. Of course, CFO knows the numbers. So it's been 20 years as CFO. Topi Manner: Yes, 25 years in the company. Jari Kinnunen: 25 years in the company. Topi Manner: That's correct. Jari Kinnunen: It's been -- yes, great journey and of course, a great development over the years. And I'm very privileged and grateful that I've been part of that journey and worked with great colleagues in the finance team, in the management team all over the Elisa and of course, with you, Topi, and before that long years with Veli-Matti. And with this audience as well, there has been great cooperation and interactions over the years and big thank you for all for that. And I'm very please -- pleased that I can hand over this responsibility to Kristian going forward and the company is in a great position to continue value to customers and especially also to the shareholders going forward with the strategy in place, with the culture in place and great people in the company. So thank you very much. Topi Manner: Thank you for participation. Vesa Sahivirta: Thank you and until the next time. And next week, we are on the road with Jari and Kristian, so we'll meet you where we are. So until next week. Thank you. Topi Manner: Thank you.
Operator: Greetings, and welcome to the MaxLinear Q3 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Leslie Green, Investor Relations. Leslie Green: Thank you, Alicia. Good afternoon, everyone, and thank you for joining us on today's conference call to discuss MaxLinear's third quarter 2025 financial results. Today's call is being hosted by Dr. Kishore Seendripu, CEO; and Steve Litchfield, Chief Financial Officer and Chief Corporate Strategy Officer. After our prepared comments, we will take questions. Our comments today include forward-looking statements within the meaning of applicable securities laws, including statements relating to our guidance for the fourth quarter of 2025, including revenue, GAAP and non-GAAP gross margin, GAAP and non-GAAP operating expenses, GAAP and non-GAAP interest and other expense, GAAP and non-GAAP income taxes and basic and diluted share count. In addition, we will make forward-looking statements relating to trends, opportunities, execution of our business plan and potential growth and uncertainties in various product and geographic markets, including without limitation, statements concerning future financial and operating results, opportunities for revenue and market share across our target markets, new products, including the timing of production and launches of such products, demand for and adoption of certain technologies and our total addressable market. These forward-looking statements involve substantial risks and uncertainties, including risks outlined in our Risk Factors section of our recent SEC filings, including our Form 10-Q for the quarter ended September 30, 2025, which we filed today. Any forward-looking statements are made as of today, and MaxLinear has no obligation to update or revise any forward-looking statements. The third quarter 2025 earnings release is available in the Investor Relations section of our website at maxlinear.com. In addition, we report certain historical financial metrics, including, but not limited to, gross margin, income or loss from operations, operating expenses, interest and other expense and income tax on both a GAAP and non-GAAP basis. We encourage investors to review the detailed reconciliation of our GAAP and non-GAAP presentations and the press release available on our website. We do not provide a reconciliation of non-GAAP guidance for future periods because of the inherent uncertainty associated with our ability to project certain future changes, including stock-based compensation and its related tax effects as well as potential impairments. Non-GAAP financial measures discussed today are not meant to be considered in isolation or as a substitute for comparable GAAP and GAAP financial figures. We are providing this information because management believes it is useful to investors as it reflects how management measures our business. Lastly, this call is also being webcast, and the replay will be available on our website for 2 weeks. And now let me turn the call over to Dr. Kishore Seendripu, CEO of MaxLinear. Kishore? Kishore Seendripu: Thank you, Leslie, and good afternoon, everyone. We are excited about our strong Q3 2025 results and the strengthening momentum of our overall business over the last 12 months. Our Q3 2025 revenue of $126.5 million represents 16% sequential and 56% revenue growth year-over-year and drive a substantial increase in non-GAAP net income, both sequentially and year-over-year. Our focused investments in data center, optical interconnects, wireless infrastructure, PON broadband access, Wi-Fi 7, Ethernet and storage accelerator products are enabling us to lay the significant groundwork required for broadening customer traction, new and increased content opportunities and sustained growth in 2026. In our infrastructure end market, in Q3, revenues were up 16% sequentially and up 75% on a year-over-year basis. We also expect strong revenue acceleration in 2026 as new design wins begin to ramp across our portfolio. In high-speed data center optical interconnects, we are on track to deliver $60 million to $70 million in revenue in 2025 and accelerating growth in 2026. As evidenced, our Keystone PAM4 DSP family is now qualified at several major data centers in the U.S. and Asia for 400-gig and 800-gig deployment starting 2026 as part of their AI infrastructure build-out. We also made significant progress with our Rushmore family of PAM4 TIAs and 200 gigabit per lane DSPs for 1.6 terabit interconnections and are on track for production ramp in 2026. Rushmore advances our DSP road map and provides foundational technology for emerging optical connectivity trends such as active electrical cable, LROs, LPOs and co-packaged optics for 200 gigabit per lane and 400 gigabit per lane implementations. In wireless infrastructure, we expect increases in carrier CapEx spending to drive demand later this year and throughout 2026. Our Sierra 5G wireless access single-chip radio SoC and our millimeter wave and microwave backhaul transceivers and modems are seeing a significant increase in design activity and customer traction. In Q3, 2 major North American telecom providers launched new Sierra-based 5G macro remote radio unit products, which will continue to ramp through the end of 2025 and in 2026. At the IMC conference earlier this month, we also jointly announced and showcased Pegatron's next-generation 5G Open RAN macro radio unit powered by our Sierra product. As we look ahead, we project sustained growth in 5G wireless access and backhaul as the needs for cloud and edge AI functionality continue to grow in 2026 and beyond. Beyond wireless infrastructure, within our infrastructure category, we continue to see strong design win success for our Panther family of hardware storage accelerator systems-on-chip solutions across Tier 1 network appliance and cloud service providers. In Q3, we announced our Panther 5 storage accelerator that delivers ultra-low latency, 450 gigabits per second throughput and PCIe Gen 5 connectivity. The announcement coincided with a joint keynote address with Advanced Micro Devices at the FMS 2025 Storage Conference on the transformation of enterprise data storage. Panther delivers significant advantages over traditional software-based compression, including a 4x improvement in power savings and more efficient usage of CPUs and CPU cores and AI accelerators. Moving to broadband and connectivity. We saw another exceptional quarter of growth for the combined portfolio of fiber PON, cable DOCSIS and Wi-Fi solutions, driven by the early increases in service provider CapEx spending that has contributed to continued booking strength and incremental demand. Broadband was up 80% year-on-year and connectivity was up 50% year-on-year. This quarter, we are beginning ramp of our single-chip integrated fiber PON and 10 gigabit processor gateway SoC plus tri-band Wi-Fi 7 single-chip platform solution with a second major Tier 1 North American carrier. In cable broadband, we are seeing the initial commercial rollouts of DOCSIS 4.0 led by smaller MSOs. We expect DOCSIS 4.0 ramp to accelerate in 2026, which in turn drives content opportunities for our Wi-Fi 7 and Ethernet solutions. In the Ethernet market, we continue to see the adoption of our innovative high-functionality, low-power consumption 2.5 gigabit Ethernet switch and PHY portfolio into commercial, enterprise and industrial applications. This market continues to grow as demand for higher data rates and increased bandwidth intensifies and 2.5 gigabit Ethernet is well positioned to bridge the gap between gigabit Ethernet and costly higher-speed options of 10-gigabit Ethernet. In conclusion, in the last 12 months, we delivered significant and sustained improvement in our business, driven by strong revenue growth, growing profitability and positive cash flow generation. Through our strategic investments in high-value end markets such as high-speed data center optical interconnects, wireless infrastructure, multi-gigabit PON access, storage accelerators, WiFi connectivity and Ethernet, we're driving strong product traction with Tier 1 customers and partners. Our success in these areas, combined with the incremental tailwind from the ongoing recovery in our core markets, strongly positions MaxLinear for exceptional growth in 2026 and beyond. With that, let me now turn the call over to Mr. Steve Litchfield, our Chief Financial Officer and Chief Corporate Strategy Officer. Steven Litchfield: Thank you, Kishore. Total revenue for the third quarter was $126.5 million, up 16% from $108.8 million in the previous quarter and up 56% from $81.1 million in the third quarter of 2024. Infrastructure revenue for the third quarter was approximately $40 million, broadband revenue was approximately $58 million, connectivity revenue was approximately $19 million and our industrial multimarket revenue was approximately $9 million. GAAP and non-GAAP gross margin for the third quarter were approximately 56.9% and 59.1% of revenue. The delta between GAAP and non-GAAP gross margin in the third quarter was primarily driven by $2.6 million of acquisition-related intangible asset amortization. Third quarter GAAP operating expenses were $113.2 million and non-GAAP operating expenses were $59.5 million. The delta between GAAP and non-GAAP operating expenses was primarily due to stock-based compensation and performance-based equity accruals of $32.5 million combined, restructuring costs of $11.3 million and acquisition-related costs of $9.6 million. GAAP losses from operations for Q3 2025 was 33% and non-GAAP income from operations in Q3 was 12% of net revenue. GAAP and non-GAAP interest and other expense during the quarter was $2.1 million and $1.8 million, respectively. In Q3, net cash flow provided in operating activities was approximately $10.1 million. We exited Q3 of 2025 with approximately $113 million in cash, cash equivalents and restricted cash ahead of our 2025 plan. Our day sales outstanding was down in Q3 to approximately 39 days. Our gross inventory was approximately flat versus the previous quarter with inventory turns improving to 1.8x. This concludes the discussion of our Q3 financial results. With that, let's turn to our guidance for Q4 of 2025. We currently expect revenue in the fourth quarter of 2025 to be between $130 million and $140 million. Looking at Q4 by end market, we expect to see some seasonal moderation in broadband and connectivity coming down from Q3, but expect growth from infrastructure and the industrial multi-market. We expect fourth quarter GAAP gross margin to be approximately 56.0% to 59% and non-GAAP gross margin to be in the range of 58% and 61% of revenue. We expect Q4 2025 GAAP operating expenses to be in the range of $92 million to $98 million. We expect Q4 2025 non-GAAP operating expenses to be in the range of $57 million to $63 million. We expect our Q4 GAAP interest and other expense to be in the range of approximately $2.2 million to $2.8 million. We expect our Q4 non-GAAP interest and other expense to be in the range of $1.9 million to $2.5 million, with FX volatility being the primary risk. We expect a $2.5 million tax benefit on a GAAP basis and a non-GAAP tax provision of approximately $2 million. We expect our Q3 basic and diluted share count to be approximately 87.5 million and 91.1 million. In closing, it's gratifying to see some strong improvement in our business over the past 4 quarters, marked by continued growth in customer orders, expanding traction across product portfolio and our solid return to profitability. Our focused investments in strategic high-growth areas such as optical, high-speed interconnects, wireless infrastructure, storage, Ethernet, WiFi and fiber PON gateways are beginning to generate exciting business opportunities that we expect to further grow in revenues in 2026. This reinforces our confidence in our sustainable growth and profitability into '26 and beyond. With that, I'd like to open up the call for questions. Operator: [Operator Instructions] Our first question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Congratulations for the results. So I had a question for you, Kishore. So with the Q4 guidance, the company is pretty much tracking to 30% year-over-year growth in '25. You did say you expect exceptional growth in '26 and beyond. I know you typically don't give guidance, obviously, more than a quarter out, but can you maybe put some context on that comment in relation to the about 30% that the company is going to grow here in '25? Kishore Seendripu: Thank you, Tore. Obviously, 2025, if you compare it to 2024, was exceptional growth overall and the return to profitability now is pretty solid. So -- and that's quite a significant growth in the overall in the semiconductor company. You look forward, if you look at the Street numbers, they are about 20%-odd into 2026. And that, I think, is about 2x what the industry is expecting. Having said that, we have a lot of optimism based on the design win activities across our product portfolio, be it infrastructure, inside infrastructure, the optical customer wins and the timing of the volume ramps. And then we have our wins in wireless infrastructure. Those are accelerating and also our storage accelerator business. We do expect broadband to moderate somewhat. If you look at how strongly broadband has grown as the recovery has set in, but we still see growth with taking market share in these areas. So overall, we try to be very cautious because a big part of the growth is coming through the infrastructure markets, and these are pretty large complex systems and there's a lot of customer concentration in some of these big markets. So we are just -- we are being conservative, but we also are, at the same time, displaying optimism in terms of the sheer breadth of the acceleration that we are seeing based on design win and customer activity and what I call booking strength that we are seeing. So I would like to tell you more, but at this point, let's continue to deliver the numbers is the way I look at it. Tore Svanberg: Yes. No, that's fair. And as far as the infrastructure segment, so obviously, we know what's going on, on the data center side and the optical business you have there. But I think the one with the more surprising thing is all the strength that you're starting to see on the wireless side. Obviously, you have some company-specific product cycles there, but it also sounds like the service providers are starting to spend some more CapEx again. So just hoping you could add a little bit more color there. And how should we think about the wireless part of the infrastructure segment for calendar '26? Kishore Seendripu: Absolutely. I do see the wireless infrastructure, there's -- the telecom operators are beginning to spend on their infrastructure now. So I know 3 years ago, that was the topic du jour, but really now they're spending coming from a period of lean investment and we are seeing a lot of traction for our Sierra product line. And we are the only single-chip solution provider for the remote radio units for the RAN network. So we're getting pretty strong traction. And I talked about -- and the quality of the product speaks for itself with the 2 big North American telecom operators who are actually Q3 qualified it are in the ramp phase. Now how much do we expect it to grow? If you combine our millimeter wave, microwave backhaul infrastructure and wireless access is still in its initial ramp with Sierra. I think we see a pretty strong growth, maybe in the same order of as optical, let me put it that way, in the same order of magnitude. But I do want to emphasize this point, right, is that infrastructure is a category where MaxLinear now you're seeing is getting substantially as a big percentage of overall revenue. That was the growth that we had invested strategically for the last 5 years. And now I still remain by my position that in the next 2 to 3 years, this infrastructure revenue should be in the $300 million to $500 million range. And I feel really very proud of our team that we stick with the plan and they're executing to it. Operator: Our next question comes from the line of David Williams with Benchmark Company. David Williams: Congrats on the really strong progress here. It's great to see. So if you kind of think about the optical side of the business and the strength that you've had there, you've got some qualification. You talked about some ramps. Just kind of wondering if you maybe could give us some insight into how you think that will trend for next year? Could it be another doubling of that revenue or maybe how do you think about just that infrastructure piece or the optical piece in infrastructure? Kishore Seendripu: I would like to say everything is a possibility given where the traction is right now. But we have also seen movements in the shifting of where we think a certain particular data center is going to ramp or a large enterprise customer. Currently, a big part of the revenue in this year on the optical -- the data center connectivity is coming from 400 gigabit solutions, but now towards the end of the year in '25 and into 2026, 800 gigabit is beginning to grow. So that kind of gives you a sense of our momentum in terms of which data centers what we are tracking. And I feel that the 800 gigabit side, we are not any different than any -- and the normal course of where the data center guys are in terms of the various rollout. So I think I would have liked to see even more traction than I'm speaking about, but I am also now -- while we are very proud of where we are, but we battered against pretty entrenched 2 other competitors, and that's taken a while to start cracking open, and it is definitely cracked open. And as far as OEM is concerned, all the major OEMs, we are part of their solution portfolio. And I hope we are their favorite one, and if not today, in the future, right? That's our goal here, okay? David Williams: Perfect. And then maybe, Steve, just kind of thinking about the gross margin guidance. I think just the 30 basis points there that you're guiding to, it would imply maybe a 64%, 65% type of incremental margin. Does that seem fair? And what are maybe the moving pieces there for that margin improvement for next quarter? Steven Litchfield: Yes, David, I think we're kind of finally starting to see things improve a little bit. I mean, as revenue really starts to ramp back up to some more material levels and naturally the mix, as we've talked about a while, I mean, you're seeing our infrastructure business continue to grow at a faster rate than the rest of the business, has a little higher gross margin mix. And so pleased with the progress. Looking into next year, hopefully, we can continue to see that. Kishore Seendripu: And the growth is picking some momentum and the lead times on the fabs that we have dramatically increased as well. We're not the only one looks like who needs capacity. And the fabs have been increasing prices as well. And so we are not where we wanted to be on gross margins, but all the good work our team does seems like the fabs are consuming it. So yes, we are making good progress, but not as much as I'd hope on the gross margin front. Operator: Our next question comes from the line of Joe Quatrochi with Wells Fargo. Joseph Quatrochi: Maybe another one on the data center optical side. Just trying to take another stab at your expectations for '26. I mean, we've seen a lot of -- a number of AI data center announcements over the last few weeks. Just curious how your visibility or pipeline of opportunities has changed since a quarter ago. Kishore Seendripu: Look, a quarter is a long time, but also it's a very short time in the data center world, right? These interops, one of the biggest learnings for me is the interops always take longer than they tell you and they're always juggling their current build-outs versus qualifying new players. So having passed the threshold with the major data centers on the interops, it has a way of generating its own momentum of MaxLinear's product. So naturally, you can tell by our tone, we are very, very excited and we're getting a lot of what I call pull now in terms of design win activity and such. So obviously, we're feeling very, very better. And like I told in response to Tore's question, we feel very, very good. And the growth that we expect for optical or wireless infrastructure is of the same order and infrastructure will grow very, very nicely next year. Joseph Quatrochi: Got it. And then on the broadband connectivity side, I appreciate that it's typically seasonally down in the December quarter. Any sort of help in just terms of kind of framing this year relative to normal seasonality, just given I think there's been some inventory kind of things at play there? Kishore Seendripu: Okay. So maybe Steve will give you a little bit more color. Normally, we see seasonality that sometimes December sometimes is the Q1. So we have always had an uncertainty for the ones who have followed us historically. So I would say this year is a little bit different in the sense the core recovery was happening. But the big growth came through what I'd call cable recovery. And -- but we are winning designs on the PON side. We're very excited about the major telecom provider. Hopefully, you'll get one of our boxes at your home, so to speak. So PON is poised for very strong growth, but we do expect moderation. Look, we grew 80% year-over-year. So I think by any means, the broadband market is not naturally that kind of a growth vehicle, but it will moderate. Steven Litchfield: Yes. I think the only thing I would add, Joe, is maybe speak a little bit broader in '26 and '27. I mean, we are seeing nice CapEx spends over the next 2 years. You're seeing the telco guys rolling that out right now. We're certainly participating, as Kishore stated. And that's exciting because it's new business for us. At the same time, you still got kind of this DOCSIS upgrade that's happening and has a meaningful content improvement, and that's going to start kind of late '26 and even into 2027. I think some of the cable operators have been delayed a little bit with some of the amps and the node upgrades that are happening. So maybe to the earlier point, yes, a little bit of moderation in the short term with regard to seasonality, but I think our outlook continues to be strong over the next couple of years. Operator: Our next question comes from the line of Tim Savageaux with Northland Capital Markets. Timothy Savageaux: My congrats as well on the strong results. I kind of want to come back and touch on a couple of questions that have already been asked. But -- and I guess it has to do with the accelerating growth commentary, which I don't know if that first comment was relative to the entire business, '26 over '25, but I think I definitely heard that comment made with regard to the optical data center piece. I just wanted to kind of clarify that and get, I guess, a little more color on where you guys are headed with those comments. Kishore Seendripu: So clearly, it's not related to where the business was '24 versus '25. It's really related to the new opportunities that we had in front of us. Obviously, the new opportunities will grow much faster than what the overall business that it's pointing to based on Street's numbers around 20% growth or so for the company. So the acceleration we're talking about is really in terms of the various opportunities here, okay? The first one is the data center connectivity, then I told wireless is in the same order, infrastructure. And then we have storage accelerators. Those are all brand-new or exciting data center type-driven markets. Those are where the exciting growth is, very, very strong growth, well above the company's overall growth rate. Then we said broadband will moderate to its potentially normal level. But within broadband, with the puts and takes, PON is going to grow strongly because there's a large North American operator coming online. And so those are the buckets I would look at as strong growth opportunities that are accelerating. And at the overall company level, that translates to a pretty robust growth that I referred to earlier. Okay? Timothy Savageaux: Yes, okay. Let me try one more time. So if we take AI optical in particular, somewhere in the middle of your range. And I'd be interested as an aside as to whether you have any thoughts about the higher or low end of that $60 million, $70 million range as we stand here in October. But assuming we're mid-range, that's 80%, 90% growth, something like that. So accelerating growth there would be up toward triple-digits. And from an absolute dollar standpoint, I think what you're telling us is that growth you should see on the wireless side as well. I want to make sure I got that right. And I have one more very quick one. Steven Litchfield: Yes. So Tim, since nobody likes Kishore's answers, I'll try. Joking aside, look, I think we're very excited about the outlook on the infrastructure side. I mean, optical is clearly where we've been spending a lot of time and efforts. And we're seeing that potential that you're referring to, I think we're having a great year this year. It's very back-end loaded. And looking out into next year as these new data center wins ramp into production, yes, I mean, these numbers go up meaningfully and we're very excited about that. Are there other pieces in infrastructure that continue to do well? Yes, absolutely. And we're excited about those also. But data center is going to lead the way from a growth number, nonetheless. Timothy Savageaux: Great. And that's actually very relevant to my very brief final question, which is on the Q4 guide. Looks like infrastructure is doing most of the work there, maybe up 20% plus sequentially. Could you break that down between optical or wireless or any other big drivers for that sequential growth in Q4? Steven Litchfield: Yes. Look, it's a good question. I guess, I would just say with regard to some of that end market guidance. So you're right, infrastructure is the biggest contributor in Q4. I think that was, for the most part, expected that you would see that particular end market growing the most. I mean, some of the moderation that we spoke of earlier on broadband and connectivity is modest. I mean, indeed modest. It's not that big. Industrial multi-market is on the mend, I would say, and we're starting to see some improvements there. But I'll keep from going into specifics on all the line items that drive infrastructure growth. But suffice it to say, we're very excited about some strong back-end and infrastructure growth that will lead to nice revenues in 2026. Operator: The next question comes from the line of Christopher Rolland with Susquehanna International Group. Christopher Rolland: Congrats, guys. So this one is probably for Kishore. So Kishore, I felt like I sensed a bit of hesitation to really extend yourself in the optical guide or comments for next year. You did mention stuff like competition, and there's a lot to this beyond just kind of pure DSP performance, like laser availability and/or bundling and other dynamics. So I was wondering if you could kind of expand a little bit more there on your outlook and what gets you to like a hyper growth outcome for next year for MaxLinear versus like just a solid growth outlook? Kishore Seendripu: That's a very complicated question with lots of dynamics there. I would -- yes, availability will be a big issue, whether it is optics or silicon even, for example, that's a big factor. And the other factor is also the timing of our wins and when they translate to actual revenue growth. So at this point, our growth assumptions are based on what's already started ramping, right? So based on that, I can qualify that it will be very solid growth, very solid growth. Hyper growth is a very hyperbolic question. So it will take things that are already ramping to be much more -- we get even more share than we planned for is one way to look at it, okay? So whatever growth we are referring to, we are not referring to based on many more new design wins, right? We can only project growth based on what we have won and what has started ramping, okay? So I think that kind of sets the stage. So hyperbolic growth would be based off getting much more share than we thought and solid growth would be based on the shares we assume at this stage in our play in the data center, okay? Christopher Rolland: Perfect. And then also probably following up on your broadband comments. Just as we -- you had some comments around DOCSIS 4 as well. Like is this going to be a big driver of new upgrades here and for this business finally or do you think like the fiber opportunity and growth there is more meaningful for you guys as we look forward? Kishore Seendripu: As the Professor always said, it depends. It depends on a number of things. One of the things that it depends upon is DOCSIS 4.0 ramp. And clearly, the main players have delayed their DOCSIS 4.0 ramp because the network upgrades that they planned for, they have sort of slowed down for whatever reasons, right, due to the complexity of it or not. So that could make a huge meaningful difference on the cable growth. So that brings the question, as you rightly pointed out, on the fiber side. So we have a lot of North America operator ramping. We are winning a bunch of shares right now and the timing of those. So at this point, when I think of broadband, there are 2 factors that would make for a meaningful broadband growth and not overly moderated as we were alluding to. One is the DOCSIS 4.0 ramp and rollout. And we are very confident of the North American telecom operator ramping, the second one, the big one. And there are a couple of others that if the timing is right, that could also set up a nice growth for broadband. Operator: Our next question comes from the line of Ananda Baruah with Loop Capital Markets. Ananda Baruah: Congrats on the steady progress here. It's good to see. Look, this is a bigger picture growth question. We're all thinking the same way. Let me just ask you this, Kishore. Coming out of COVID, you've put up a good growth year coming out of COVID, not dissimilar to 2025, the growth rate. And then you had an amplified growth rate coming off of that year as well with the first year coming out of COVID off of a negative comp, too. So the similarities, I think, is why people are probably focused on it. What would be the things -- are there any meaningful differences with the business? Any meaningful differences with the supply chain? Any meaningful differences with inventory right now that would have the pattern coming out of this time around be different than COVID? Obviously, I understand COVID was unique, but the growth rates are actually similar. And you guys have more incremental punchy opportunities, market opportunities that you've been preparing for coming out of this pause than you actually did back then. So let me ask that. And then I have a quick follow-up as well. Kishore Seendripu: Ananda, let me try to take a stab at your question. There's a fundamental difference between what we are talking today versus what you saw in the COVID phenomenon, as I call it. That was a very broadband-driven growth. And now it's really infrastructure being a huge part of the growth. And secondly, as always, these events happen, businesses change, legacy businesses. And so right now, the infrastructure growth, there are components of it that are really primarily brand new revenues. And they have a huge TAM and massive TAMs, much more than anything we were looking at before, where our share of that market is very tiny. So there's a large growth in front of us as we become successful and continue in our strategic focus and investments. That's, I would say. Secondly, the inventory situation is totally different. Nobody is doing excess stocking whatsoever, right? So now we are in a place where sell-through and sell-in, if you will, are kind of in balance equilibrium, let's call it, right? So there's no unusual sort of events of that nature. So on the supply chain side, it's dramatically different. There are geopolitical issues that are in play now. And then there's a large dependency on the foundry choices one can have in the SoC markets versus non-SoC markets. So very, very different. And the advanced nodes are much more entrenched now than they used to be before. So if you look at 16 nanometer and beyond, it's all FinFET-based versus previously it was older nodes than 16 nanometer. So I just want to leave it there. And the fabs have now completely muscled on their pricing power. So you have to be incredibly more innovative to maintain your margins than it's not a one-trick scenario that you can charge margins because you were there at the right time for the right market. But if you're going to be a company like MaxLinear across portfolios, you really have to have a sustainable, consistent execution and value proposition to maintain or grow your gross margins. I would say that with the comprehensive color. Okay. So let me allow you to ask your second question. So let's see, maybe Steve is better positioned for that. Ananda Baruah: Awesome. That's awesome. Yes, just real quick on neoclouds. With more hyperscale workloads, AI workloads moving to neoclouds, large AOIs moving to neoclouds, does that necessitate you guys -- this is really an infrastructure question, a DSP question. Does that necessitate you guys having to broaden out your relationship set to participate in those? Just what's -- fill out that sort of whole paradigm for us, that would be great. And that's it for me. Kishore Seendripu: Okay. That's a very, very broad generic question, right? We have to broaden our relationships, but we also have to deepen our relationships which is a very challenging proposition. Unless you are in the revenues, conversations get -- are difficult. Now that we are in the revenues, those conversations get -- it's like a natural spontaneous defrictionization of the system. So what I would call acceleration. I'm just worried about acceleration word, but yes, I'll use it here. So as we start generating revenue and win their confidence, they naturally lead to more dialogues. That's just part for the course. So where you're successful, you have more and more conversations and you can broaden those conversations. Where you're trying to get in, you really have to narrow and deepen those conversations first because the general question to you is, prove yourself first before you want to talk about everything in the world. So that's the -- but that's pretty standard in the new market and the data centers are much more challenging because they are a well done to themselves. So that's how I would describe it. And the amount of money you have to spend on marketing and support and all is incredibly higher even before you have any revenue. So that's been the other mitigating experience trying to get into these markets. Operator: Our next question comes from the line of Quinn Bolton with Needham & Company. Quinn Bolton: I guess, maybe I'm a little just thick headed, but I just wanted to come back on the broadband comments. You're talking about moderating or a moderation in that business. Are you talking about the growth rate is going to moderate from something like 80% year-on-year to a lower percentage, but still growing or are you talking about the business actually potentially declining next year? And if it declines, is it simply just maybe normalization in cable, the DOCSIS 4 ramp really not ramping until late calendar '26. And so the moderation in cable kind of offsets the growth in PON. Is that the right way to be thinking about it or do you think the overall business just still grows. It's just not going to grow at 80%? Kishore Seendripu: Quinn, nobody accused you ever of being thick headed. I just want to clarify that first, okay? The second part of it is you're absolutely right. We're talking in absolute terms and not in percentage terms. We don't see overall decline. But on the broadband side, we just see sort of growth through the next year, so to speak, range we are thinking about. Can it grow? I think it was asked by Chris Rolland that you've got the fiber PON design wins that are in place and the DOCSIS 4 ramp has to set in to see some good growth beyond this year. That's fairly correct. So Steve, do you want to add anything more? Steven Litchfield: No, no. I mean, look, the moderation comment is around Q4. That was the guidance. We just talked about Q4. We haven't given any guidance beyond that. But my comments about the market and the CapEx spend, I mean, kind of to Kishore's point, PON is picking up. There's lots of great opportunities. These are all market share gains for MaxLinear, a market we haven't been in. So really exciting times from that standpoint. And then I think the excitement around DOCSIS is a 50% content increase, right? So you got the DOCSIS rolling out. We're shipping products this year, but it will kind of pick up next year and even into 2027. So that content increase is exciting. Quinn Bolton: Got it. Makes sense. And then maybe a longer term question for you, Kishore. I think it's pretty well known that optical modules are somewhat supply limited in the near term by supply of EML lasers. You mentioned silicon as a potential constraint as well. And I think your Keystone product being manufactured at Samsung instead of TSMC, where all your competitors manufacture their DSPs. How much of an advantage do you think that could become if the market for 3 to 5 nanometer stays tight? Kishore Seendripu: Our Keystone, I think it is public information is the first -- probably the only 5 nanometer CMOS solution for 100-gig lane product that's in production. And our Rushmore, which is the 1.6 terabit solution, 200-gig per lane is in Samsung. So that gives you some level of natural diversification because the biggest demand between 800-gig and 400-gig and 1.6 terabit will center around those 5 nanometer node process. And the tightness comes in, in the supply there because there's a lot of GPU vendors, et cetera, that are really in mass production in 5 nanometer and moved into 3 nanometer moving there. So these are the 2 nodes that are the most highest occupancy where scale is super, super important for getting more capacity. So while that was a generic comment, it also shows that we have to be cautious about growth. We are constrained the what I call the hyperbolic growth. There are all kinds of factors. So it should help in the long run, but in the short run, we are in production in 5 nanometer with our Keystone product line, and that's the node we are in. And we're very happy with the support we are getting, of course. Will we need more? There is more growth that just comes our way? Absolutely. It's very hard to plan at this point because everybody has allocated the capacity and then you have to fight for the extra, if you will. Operator: Our next question comes from the line of Richard Shannon with Craig-Hallum. Richard Shannon: A couple of questions here. First one is probably for Kishore on DSP here. On the last earnings call, you talked about the potential with your Rushmore family to potentially have some level of incumbency being the first one to be a supplier in any one particular situation. Wondering if that's playing out here. You're expressing certainly a lot of enthusiasm for how things are going there. I would love to get a sense of the degree to which that is happening or you think there's a good chance of it happening? Kishore Seendripu: So obviously, we talked about Keystone, which is what is driving the revenues, the Keystone family of products. But Rushmore is our 200 gigabit per lane that we demoed at OFC. As you are all aware, the incumbent announced that product maybe a few months before us, and so they're a little bit further along. But our product is highly more differentiated is our view and our belief. So we hope to be -- we not hope. We know we'll be in production in 2026. But at this point, we are not baking any revenues associated with, in my mind, based on what we have been through on the 200-gig per lane. And there's also a rollout issue on 1.6 terabit at the data centers as well. That's really -- 800-gig is not fully rolled out yet, too. I know we like to get ahead of it and focus on road map. I think there's time for 1.6 terabit and -- but we're in a very good place. So Rushmore, yes, best case will be the end of '26, but I'm not -- I'm being realistic. And -- but Keystone, Keystone, Keystone. Rushmore would be -- is a good plan for '27? Absolutely. Okay? Richard Shannon: Okay. My second question in an effort to express some love for all of our children. Let's ask one quick question here on the industrial multi-market business here. Obviously, it's come down a lot the last few years. It looks to be kind of bumbling along the bottom here so far this year. How do we think about the potential scale of this business in the next 1 to 2 years? Is this something where you're applying much effort here from a product and sales and marketing point of view to grow it nicely or is this just more of an afterthought relative to some of the other dynamics in your business? Kishore Seendripu: Look, there are some business, how much of a money you put in, they take their own time. So I would call that we are doing what I'd call sustainable growth rate investments as you should in this marketplace. I think the big hit happened because of geopolitics issues and then -- and generally, in the industrial market space itself, it's distant memory now, but we lost significant revenue when we were hit with the expiry of our licenses for the government to ship to certain customers in Asia. So the drop was associated with that. And then at the same time, when the market went down, we exercised pricing discipline to maintain a healthy gross margin business. So you could argue that some of those are very deliberate decisions and some of them were really, really -- we were recipients of things out of our control. Having talked to you about investments, even on our industrial multi-market investments are really, really focused around edge, cloud, data center level of investment. There's a lot of new ways of doing old things inside a data center. I don't want to get into the details into that stuff. And those are giving us opportunities to reposition our portfolio and investments really focused on edge and cloud data center. And we are investing in those elements of it. As a company, our focus right now is a huge focus is on the hugest dollars that are going are really on the edge and enterprise and cloud infrastructure and they consume so many components even in the industrial analog space, and that's where our focus of our investment is. So in short, we are investing, right? That's the statement. Operator: Our next question comes from the line of Karl Ackerman with BNP Paribas. Karl Ackerman: I have 2 as well. First question, as we think about your ability to see the broadband segment revenue returning to $100 million a quarter, could you help us frame the opportunity from your -- I guess, your gateway opportunity within that now that it is broadening beyond the single carrier today? Steven Litchfield: Well, okay, a couple of things. So the PON business is new for us, right? This business has been growing over the last, call it, 1.5 years. We've gotten a lot of traction. Kishore spoke earlier about the 2 big North America guys that are now using our products. So that's very exciting. But we have several other customers that we're either in production with or designed into on the PON front. If you -- maybe I'm not sure if this is exactly your question, Karl. But if I think of content opportunities inside of the gateway from a dollar constant standpoint, a PON gateway or even a cable gateway, I mean, you're talking could be $40 to $50 of content. A lot of that comes from WiFi, Ethernet, the SoC itself. So those are the bigger drivers. We continue to see content increases. So that's a big part of the opportunity. It's not necessarily just about unit growth or share gains, which we're seeing both of right now and expect to see over the next 2 years. But then that content gain is, I think, the other big driver of revenue. Karl Ackerman: Got it. Understood. Shifting gears a bit, could you speak to the breadth of design engagements you have in optical DSPs for 800-gig? And second, when should we expect the revenue from 800-gig to cross over your revenue from 400-gig? Kishore Seendripu: Okay. Let me try to answer the question on the breadth of design engagements. There is -- the breadth of the design engagements from our point of view, from our -- where we are is really all the OEMs or module makers, if you will, we're engaged with all the major module makers in Asia and in America, whether they're headquartered or not. And so that's a massive engagement across all variations and configurations of not just transceivers, but beyond optical transceivers. And so you have to take that into perspective. Now if you go to the data centers, every data center has got their own road map and time line when they're transitioning. For example, Google is well gone beyond 800 -- that's well past loss, let's call it that. We never even engaged with them. I don't think anybody else is engaged except one player. And then there's NVIDIA, which is a whole different new magnitude and size of themselves. We are not participating with that. We talked to you about -- then the remaining guys are going at their own different cadence on and they're lagging, if you will, in the terms of the deployments. So each engagement, how broad it is, it depends on when you ask the question. At this point, we are engaged with them. Where are we shipping? That's a subset of the hyperscalers between the U.S. and Asia. Operator: Our next question comes from the line of Suji Desilva with ROTH. Sujeeva De Silva: Congrats on the progress here. Kishore, you talked about DOCSIS 4 having adoption delays or push-outs. Are there technical issues that you could talk about in a little detail to help us understand what is maybe gating larger flagship adoption of DOCSIS 4? Kishore Seendripu: Okay. Great question. No news. It's as expected versus what you guys think it should be. We know the cable world incredibly well. As I suspected, as we told that there will be a lot of DOCSIS 4.0, but most of the deployments will be Ultra DOCSIS. So because the network upgrade, whether it is the node, whether it is the amplifiers in the amps in the system, it's a lot of work. And they just have stability issues in the network to get there. So it's a very slow process. And so they're doing the incremental approach where they hurry us all to invest and be ready, but the deployment is taking the way it does. So that's the only reason. And so I still will conjecture that Ultra DOCSIS 3.0 will be the massive deployment. And yes, that would be one statement. And that will go across continents. It's not just -- because you just want to keep in mind, 4.0 is a very North American phenomenon. So Steve, do you wanted to say something? Steven Litchfield: No, I was just -- it was 3.1. You said 3.0. It might have been 3.1. Kishore Seendripu: Okay, great. Sujeeva De Silva: Okay, great. And then perhaps for Steve, any update on the arbitration? I know that we're approaching the time for that to commence. Steven Litchfield: Sure, sure. Yes, no big update. I think we're on track, arbitration this quarter. So -- but that's going to extend next year. So hopefully, we see some resolution sometime in the first half of next year. So on track. I think we're feeling very positive about it. Operator: Our last question comes from the line of Tore Svanberg with Stifel. Tore Svanberg: Yes. Two quick follow-ups. I promise real quick. First of all, so when I look at your various segments, it looks like broadband right now is running about 10 percentage points above infrastructure. But given the moving parts in calendar '26, it sounds like infrastructure will potentially be slightly bigger as a percentage of revenue. Do I sort of have that direction right? Kishore Seendripu: Well, so certainly, I think we've been consistent in saying infrastructure is going to be quite a bit bigger, and I think it's on its way. I think you're heading in the right direction. Tore Svanberg: Very good. And then the last one for you, Steve. So OpEx is coming in a little bit higher than where it was. I mean, obviously, your revenues are $6 million higher for Q4. So that's probably expected. But I was just wondering how we should think about OpEx, especially in relation to the restructuring you had early in the year. Does OpEx come down a little bit in the first half or is this sort of the new baseline? Steven Litchfield: Yes. So I think we feel -- so you're right, it was a little bit higher in the quarter and the guidance a little bit higher as well. I mean, look, you can see the revenue ramps that we guided to or we delivered and guided to. I think as you look into next year, that's going to continue. And so I think we've got a lot of big customers that are asking, hey, we need software, we need platform support. Those are the type of efforts that we have to make. And so there's probably a little bit of an adjustment there versus what we had started the year at. I wouldn't say there's much. I think you -- I think as you look into next year, you start to see some nice operating margins developing throughout the year, and we're really starting to see the leverage in the model that we're excited about. Operator: I'd like to turn the floor back over to Dr. Kishore Seendripu for closing comments. Kishore Seendripu: Thank you, operator. And also, thank you all to those who joined this Q3 quarterly call -- earnings call. There are a number of investor financial conferences that are both in person and virtual that we'll be attending this year and the details of which will be posted on our Investor Relations page. So we look forward to seeing you there, and thank you for joining today as well. And yes, with that, happy Halloween guys. Okay. Talk to you later. Thank you. Bye. Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
Operator: Good day, and thank you for standing by. Welcome to PLS September 2025 Quarterly Activities Report. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, PLS Managing Director and CEO, Dale Henderson. Please go ahead. Dale Henderson: Thank you, Maggie. Good morning, and good evening. Thank you for joining us today. I'd like to begin by acknowledging the traditional owners on the land in which PLS operates. Here in Perth, we acknowledge the Whadjuk people of the Noongar Nation. And we also recognize the Nyamal and Kariyarra people on whose land our Australian operation is located in the Pilbara region. We pay our respects to their elders, past and present. Joining me today is Flavio Garofalo, our Interim CFO; and Brett McFadgen, our Chief Operating Officer. We are also joined by other members of our senior team. This call will run for approximately an hour. We'll begin with the presentation on our September quarter performance, then move through market commentary before finishing with Q&A. We'll address questions submitted via the webcast at the end of the session. Now starting with some opening commentary. The September quarter delivered a strong start to FY '26, demonstrating the benefits of our expanded operating platform and our contact ore focused operating strategy. We've continued to build on the momentum from a transformational FY '25, demonstrating resilience and operating discipline through stable production of just under 225,000 tonnes of spodumene concentrate, improvement in lithium recovery to deliver a record quarterly average of 78% lithium and a 13% reduction in unit costs to $540 per tonne FOB. These results highlight the continued optimization of the P850 operating model and the benefits of our deliberate strategy to increase contact ore feed to maximize unit cost reductions. They also affirmed that the Pilgan Plant is now operating in steady state, delivering the scale, efficiency and cost performance we envisaged when we embarked on our expansion journey. Pricing conditions improved materially with a 20% uplift on the prior quarter, contributing to a 30% increase in revenue to $251 million. As the largest 100% owned and operated hard-rock lithium producer, every price improvement flows directly to PLS' bottom line, providing strong leverage to any recovery in lithium pricing and reinforcing our position as a sector's pure-play leader. Underlying operating cash flow remained positive after adjusting for customer receipt timing, and we closed the quarter with $852 million in cash, maintaining a strong balance sheet and significant flexibility to invest through the cycle. Now let's please turn to Slide 2. Beginning with a reminder of our strategy. Our strategy is underpinned by a clear vision to create sustainable value for our shareholders while strengthening PLS' position as a leading long-life and low-cost producer in the global lithium supply chain. Turning to Slide 3. PLS is the world's largest independent hard-rock lithium producer. That independence remains one of our greatest strengths, giving us agility and responsiveness needed in a fast-changing global market. Our foundation asset is a high-quality, long-life Pilgangoora operation in Western Australia. Through our P680 and P1000 expansions, we've established a leading low-cost processing platform that delivers greater scale, efficiency and operational flexibility, firmly positioning PLS at the lower end of the global cost curve. Beyond, beyond Pilgangoora, we are continuing to build a truly diversified growth platform with downstream exposure through our POSCO joint venture in South Korea and early-stage international optionality through the Colina project in Brazil. Importantly, our balance sheet remains exceptionally strong with $852 million in cash and $625 million in undrawn cash (sic) [ credit ] facilities, providing the flexibility and confidence to invest, grow and lead through all stages of the lithium cycle. Turning to Slide 4. Some of the key highlights for the quarter include production of 224,800 tonnes, up 2% quarter-on-quarter, reflecting strong operational recovery and consistent plant performance as we operate the expanded Pilgan Plant at a steady state. Unit operating costs, as mentioned, a 13% reduction to $540 per tonne FOB, delivering clear cost leadership and highlighting the operational leverage of our optimized production platform. As it relates to pricing, a 20% uplift in realized pricing and a 30% increase in revenue, resulting in positive cash margin even as we continue to make modest investment in our growth and improvement programs. Importantly, this performance marks a disciplined and confident start to FY '26, validating our strategy of building scale, efficiency and flexibility to capture margins through the cycle. Now with that, I'll now hand over to Brett to take a deeper look at the operation. Brett McFadgen: Thank you, Dale. If we move to Slide 5. Starting with safety, our 12-month rolling TRIFR was 3.08 at the end of the September quarter. We also achieved 2.95 quality safety interactions completed per 1,000 hours worked, well above our target of 1.6, demonstrating strong leadership engagement in promoting a positive safety culture. This outcome reflects the ongoing work we're doing to build and strengthen our safety culture across the site. While this improvement is encouraging, we recognize there's always more work to do to ensure every team member goes home safe and well after every swing. Moving to Slide 6. The September quarter delivered strong disciplined operational outcomes across mining, processing, cost and sales performance. Total material moved increased due to improved operational efficiencies. The transition of the mining fleet to the owner-operator model is ongoing, supporting greater cost control and flexibility. Processing. Lithium recovery of approximately 78% demonstrates the sustained benefits of the P1000 expansion and the reliability of our processing platform. Our operating strategy of maximizing contact ore feed through effective utilization of the ore sorting capability is delivering expected unit cost benefits. The proportion of contact ore processed will be progressively increased over the remainder of FY '26 to leverage our ore sorting capability and maximize unit cost reductions. Together, these initiatives across mining and processing continue to unlock more capital efficiencies and lower unit operating costs. A unit FOB cost of USD 540 a tonne or USD 353 a tonne delivers a 13% reduction on the June quarter, a significant improvement driven by scale, efficiency and our optimized operating model. While the Pilgan plant now operating in steady state, we've delivered on our vision of a larger, more efficient and lower cost operation. The expanded platform provides us with a greater operational flexibility, improved resource utilization and the ability to adapt to changing market conditions. Most importantly, this transformation positions us to capture margin through the cycle, enabled by industry-leading ore sorting technology, improved efficiency and strong cost discipline. Thank you. I'll now hand back to Dale. Dale Henderson: Thanks, Brett. Moving now to Slide 7. PLS has built a portfolio of strategic growth options designed to drive long-term shareholder value through flexibility, diversification and market responsiveness. The Ngungaju processing plant remains in care and maintenance for FY '26, providing immediate low capital restart capability when market conditions improve. This is a unique source of latent capacity and optionality within our portfolio. Our P2000 feasibility study is progressing well, assessing the potential to expand Pilgangoora's production capacity to more than 2 million tonnes per annum. Study outcomes are expected in FY '27 with the development timing dependent on successful technical results, funding readiness and, of course, a sustained improvement in lithium pricing. In Brazil, drilling continues and study optimization work is advancing with outcomes targeted for the June quarter '26. This program will help define the development pathway for the Colina project and strengthen our presence in one of the world's most prospective emerging lithium provinces. Together, these initiatives demonstrate a balanced portfolio-based approach to growth, leveraging Tier 1 assets, global reach and disciplined capital allocation to create value and optionality through the cycle. Moving now to Slide 8. Our chemical strategy continues to advance, providing exposure to value-added lithium chemical products and enhanced supply chain diversification. As it relates to P-PLS, our joint venture continues to make steady progress with customer certifications. Production has temporarily moderated to batch processing, reflecting near-term softness in the South Korean battery sector following reduced U.S. EV incentives and higher tariffs during the quarter. Encouragingly, P-PLS, our joint venture, is receiving interest from a number of new customers across existing and additional geographic regions, particularly those seeking to diversify lithium chemical and battery supply chains outside of China for EV mobility and energy storage applications over the medium term. Moving to midstream. Construction of our Mid-Stream Demonstration Plant remains on schedule with completion target for the December quarter this year. This project will provide valuable technical data and commercial insight to inform future midstream participation opportunities. Lastly, relating to our Ganfeng partnership, work on the joint -- downstream partnering study with Ganfeng has progressed during the quarter. More than 1,000 industrial sites have now been assessed with detailed evaluation continuing on a select few. We are in discussion with Ganfeng to extend the agreement's sunset date to December '27, providing additional time to assess market conditions, shortlist sites and the overall investment case. Together, these initiatives demonstrate a measured capital disciplined approach to downstream integration, building capability and partnerships today that will position PLS for greater diversification and value capture across the lithium supply chain in the future. Now with that, I'll now hand over to Flavio for an overview of our financial performance. Flavio Garofalo: Thank you, Dale. Good morning, and good evening to everyone joining us today. Please turn to Slide 10 for a summary of the group's key financial metrics for the quarter ended 30 September 2025. The September quarter delivered strong financial results, demonstrating the operational leverage of our optimized Pilgan plant across all key metrics. Group revenue of $251 million was 30% higher quarter-on-quarter, driven by a 24% increase in average realized price to USD 742 per tonne for SC5.3% and stable sales volumes. This demonstrates our ability to capture improved market pricing while maintaining operational consistency. On the cost side, FOB unit operating costs decreased 13% to $540 per tonne, with CIF unit cost also down 11% to $645 per tonne. This improvement reflects the benefits of higher production volume and scale efficiencies delivered through our expanded platform, along with ongoing optimization initiatives. Our cost reduction focus is now embedded in the culture at PLS and is driving strong performance across all areas. We closed the quarter with a cash balance of $852 million, providing financial flexibility for strategic opportunities and maintaining our balance sheet resilience. Turning to Slide 11. Slide 11 shows a cash flow bridge for the September quarter. During the September quarter, our cash balance declined by $122 million from $974 million to $852 million. This reduction was primarily driven by capital expenditure of $78 million and working capital time effects. Working capital movements included approximately $50 million in customer receipts due in the early December quarter and $32 million in final pricing adjustments on the June quarter shipments. Cash margin from operations of $8 million was supported by improved pricing, but impacted by these timing effects. Cash margin from operations less mine development costs and sustaining CapEx was negative $19 million. The capital expenditure was $78 million on a cash basis and $55 million on an accrual basis, comprising infrastructure and projects of approximately $28 million, mine development of $20 million and sustaining capital of $7 million. Despite these working capital impacts, our balance sheet remains robust with total liquidity of $1.5 billion, positioning us well to navigate the current market conditions and invest strategically through the cycle. I'll now hand back to Dale. Dale Henderson: Thanks, Flavio. Turning to Slide 13. Global geopolitical dynamics continue to highlight the strategic importance of secure and resilient critical mineral supply chains. PLS is actively contributing to the policy discussions, from recent participation in the Austrade Critical Minerals Delegation trip to the U.S. to consultations on the proposed strategic reserve and through direct engagement with policymakers in Canberra. Next week, I'll represent PLS at the APEC CEO Summit in South Korea. This is another opportunity to help position Australia as a reliable low-cost supply of critical minerals to global markets. We welcome the Commonwealth government's continued commitment to developing Australia's critical minerals sector and will contribute to -- and we will continue to contribute to the policy discussions shaping its long-term success. Australia has an incredible opportunity to expand its role in the global lithium and energy transition supply chain. But the race for market share is well underway. Other jurisdictions are moving fast with coordinated policy and public investment to attract capital and downstream manufacturing. To remain competitive, Australia must match that ambition through targeted investment and shared infrastructure that lowers the cost for all across the industry and helps secure our position in this global race. Turning to pricing. Conditions remain volatile but improved from the prior quarter with both spodumene and lithium carbonate spot prices recording double-digit gains. During my recent visit to China last month, every one of our customers reiterated confidence in the long-term outlook and expressed strong interest in securing additional supply from PLS. That continued demand and engagement underscore confidence in the sector's fundamentals and the prospectivity of our product supply. Moving to Slide 14. Now turning to demand. Lithium fundamentals remain robust. Global EV sales continue to expand, up around 9% quarter-on-quarter and 26% year-to-date, with penetration now approaching 30% globally and more than half of all new vehicles in China being EVs. Battery energy storage installations are also accelerating, up nearly 40% year-on-year, strongly supported by China's rapid renewable energy build-out. From a policy perspective, China's supportive regulatory framework continues to underpin domestic storage growth. While recent U.S. tax credit changes may create short-term noise, this doesn't alter the long-term global demand trajectory. In short, the demand story remains intact and PLS with its 100% ownership model and strong balance sheet is positioned to capture full benefit as markets recover. Moving to Slide 15. Battery energy storage is now the fastest-growing segment and lithium demand rising just 3% of total consumption in 2020 and around 17% today according to BMI. BMI's latest forecast projects about 323 gigawatts of new BESS installations in calendar year '25, 50% growth year-on-year. If achieved, this is an extraordinary growth rate. China remains the main catalyst. In September, the National Development and Reform Commission released a major action plan targeting 180 gigawatts of a new type of energy storage by '27. This represents more than USD 30 billion in new investment and 140% increase from China's installed base at the end of calendar year '24. At the same time, a second demand driver is emerging, the rapid build-out of AI and data center infrastructure. These facilities require large-scale instantaneous power support, making grid-connected BESS a critical enabler of reliable infrastructure. Recent announcements from Google, NVIDIA and Meta illustrate this trend with each committing tens to hundreds of billions of dollars to new AI-driven data center capacity. McKinsey & Company recently projected that global data center investment will reach nearly USD 7 trillion by 2030 with more than USD 4 trillion allocated to computing hardware. That level of capacity -- sorry, that level of capital intensity underscores how central data center resilience and therefore, dependable power and storage is becoming to the global economy. Together, policy-driven renewable storage expansion and the digital infrastructure boom are expected to contribute significantly to continued growth in lithium demand, a dynamic that reinforces PLS' long-term opportunity to supply and partner across the global energy storage value chain. In summary, BESS or B-E-S-S demand is being driven by 2 significant emerging drivers: one, aggressive renewable energy storage policy, particularly in China; and two, the rapid expansion of digital infrastructure. Together, these forces are reshaping the energy and technology landscape, underpinned by strong long-term fundamentals for sustained lithium demand. The broader lithium market continues to demonstrate resilience and depth with total demand growing at around 30% CAGR since 2020. This, of course, is driven by accelerating electrification across mobility, energy storage and emerging technology sectors. While regional policy changes may create short-term noise, the global trajectory remains firmly positive. For PLS, this environment reinforces the strength of our strategic positioning and customer relationships across key markets, giving us the agility and confidence to navigate near-term volatility while capturing long-term value as the industry expands. Lastly, for my closing comments, I'd like to leave you with a few key reflections. The September quarter marked a strong and disciplined start to FY '26, confirming that the expanded Pilgan plant is operating in steady state with improved efficiency, lower cost and consistent performance. Financially, the business remains robust. Underlying operating cash flow was positive after adjusting for sales timing impacts, demonstrating our ability to generate cash even in a volatile pricing environment. We remain on track to deliver our FY '26 guidance, reflecting the strength and resilience of the platform we've built. Near-term pricing remains volatile, but the long-term fundamentals are unchanged. Structural growth drivers from electrical vehicles to stationary energy storage continue to strengthen and current prices are not -- and current lithium prices, I should say, are not incentivizing new supply, which suggests tighter markets ahead. With a scalable technology-enabled operating base, a strong balance sheet and a globally diversified growth portfolio, PLS is well positioned to lead through the cycle and capture value as market conditions improve. As the largest 100% owned and operated hard-rock lithium producer, every price improvement flows directly to our bottom line, providing strong leverage to any recovery in lithium pricing. Our confidence is anchored in what we can control, disciplined execution, operational excellence and strategic agility, the hallmark that define PLS and make us a partner of choice in global supply chains. Now with that, I'll hand back to Maggie to open the floor for questions. Thank you, Maggie. Operator: [Operator Instructions] Our first question comes from the line of Jon Sharp from CLSA. Jonathon Sharp: First question is just on the uplift in recoveries. You averaged -- in FY '25, you averaged 72% this quarter. We saw quite an uplift to 78%. You've recently commissioned the ore sorters. Can you just quantify how much of that improvement was directly attributed to the ore sorters versus anything else? And do you expect recoveries to continue to rise potentially into the 80s percent as you sort of iron out any issues with those ore sorters? Brett McFadgen: Yes. Thanks, John. It's Brett here to answer that question. And yes, the recoveries have been attributed to the work that we did with the P1000 and the P680. So ore sorting plays a tremendous part in that, but it's not limited just to the ore sorting. That's been the big lever, but the site team and corporate technical team have been working on a range of initiatives through the rest of the circuit there that are working in combination with the ore sorting. What we will be doing, though, in the next quarter and then in the next half is increasing our contact ore ratio and really leveraging the ore sorting circuit just to try to flex that cost in the mine right through to the mill and get those cost efficiencies. So recoveries are always a big focus of us, but I wouldn't be expecting them to get into the 80s we are getting closer. And certainly, with our geometallurgy work, we're well on track to make the most out of our recovery circuit. Jonathon Sharp: Okay. Just second question, I know you've answered this before, just on Ngungaju. And I know you've said that you expected to remain in care and maintenance in FY '26. But can you just remind us of what price signal or duration of price strength would trigger a restart there? Dale Henderson: Yes, John, thanks for revisiting that one. So we haven't given a price guidance around that. But really, the way we -- what we need to see is obviously a considerable lift from current pricing, probably something north of USD 1,200 per tonne. But more importantly, we want to make sure that, that's sustained. But as I say, we haven't picked a threshold value on that. Operator: Next question comes from Hayden Bairstow from Argonaut. Hayden Bairstow: Great operating result. I just wanted to touch on the ore sorter a bit more. Can you sort of give us some rough metrics when you run 1 million tonnes through that, are you getting a modest grade uplift as well into the process plant. So what does that -- what does the 1 million tonnes through the ore sorter provide you with feed for the actual mill? Dale Henderson: Yes. Thanks, Hayden. That's a -- yes, that's quite a complex question that I could sort of say depending on what we're feeding it. But that is a large part of the work that we're doing with the geometallurgy to make sure that we're getting that blend right. So we're maximizing those ore sorters, and we're getting the cleanest feed that we can through to the plant. So it's not always a strict percentage, but what we're doing is really looking at what's coming out in the mine plan, how do we optimize that through the ore sorters and make the best feed for the plant. Hayden Bairstow: Yes. Okay. Brilliant. And then just on the product grades moving around a bit. Just keen to sort of understand who's taking all the product at the moment. I presume there's a little bit of spot sales going on. But is the movements in the grade reflecting who you're selling it to each quarter? Or is it just more what's coming out of the back end of the plant? Dale Henderson: Yes. It's more of the latter. It's not related to customer requirements. And as it relates to where is the flow of sales going to. At this moment in time, it's largely offtake, while we had a little bit of spot, but not a lot. But yes, the grade fluctuations are not driven by customer requirements. Operator: Next, we have Rahul Anand from Morgan Stanley. Rahul Anand: I've got 2 questions. Look, the first one is on POSCO and your P-PLS JV. Obviously, you've pared back some of the volumes going into that contract to [ 150 ] this year, just given the ramp-up in demand for hydroxide, as you've mentioned in the release. That contract sits at over [ 300 ] going into future periods, [ 315 ] to be precise. So just wanted to understand the makeup of that contract. Is that take-or-pay? Is there flexibility within that? And I mean, how are you thinking about that option that you have coming up to buy into that plant? That's the first one. I'll come back with the second. Dale Henderson: Yes. Thanks, Rahul. So as it relates to the offtake requirements, we -- and across all of our offtakes, we finalize sort of the year ahead in advance of the year we're heading into. So we do that across the board, including with our joint venture partner: P-PLS. So -- as sort of outlined in the release, so we've adjusted those volumes for the year ahead. And of course, bearing in mind that there's sort of 2 things at play. This is about bringing online and introducing a whole new chemical facility in a new market. So as per our releases, there's been a lot of development around qualifications, which a lot of that is sort of serving into new growth markets, in particular, the U.S., that's part of it. The other part, which is less of a bearing is obviously ramp-up progress, which we're quite comfortable with. But it's really those 2 things which are guiding volumes. The team is in the thick of the planning process right now for the budgets and outlook for next year. So there could be some further adjustment to come. As it relates to the equity election option that we have coming up to go from 18% to 30%, the timing of that is not due until July next year, which in the lithium industry is a very long time away. So between now and then, we'll continue to monitor the market and take a view of what we want to do close to the time. Rahul Anand: Got it. Okay. Look, -- and just on the second one, I wanted to touch a bit more on the recoveries. I guess, the missing piece of the puzzle here is obviously the head grade that went into the plant for ore processing, and I think that's what Hayden was alluding to as well in terms of his question. Are you able to give a bit of a color perhaps on how that plant grade changed given the elevated recoveries because obviously, just trying to figure out sort of how the recovery performance goes for the rest of the year. You flagged that recoveries will reduce. So I just wanted to kind of square that circle, if that's possible. Brett McFadgen: Yes, sure. The head grade, we weren't high grading, just to make that clear that, that was not an intentional high grading of the mill feed. Mill feed was no different to it has been and also just part of the mine plan. The recoveries will take a slight impact, but mainly for the -- more of the contact ore that we're intending to feed over the next quarter. We really need to maximize those ore sorters to take as much of the contact ore around the main ore body as we go through our mine rather than stockpiling it and rehandling it later. So that's the bigger impact to the recoveries. Dale Henderson: I might just add to Brett's commentary in the space. Look, obviously, an absolutely cracking lithium recovery result. And as mentioned, a record for us. And as to how that got achieved, there's actually multiple processing levers, which have been worked on simultaneously by Brett's team. And across several, we've had fantastic progress. And it's a real credit to Brett, his team, the operating team and the projects team. And just to rattle off a few, as it relates to the processing plant, the ore sorting, of course, gets a lot of focus, but it's not just that. There's a series of online analyzers at the front of the circuit, the back of the circuit. Separate to that, the team has been working on different reagent regimes. There's also different monitoring systems in the float circuit, some optical type gear, which has been deployed. There's been further work around tying mineral variation, in particular, crystal size and grind size in the circuit and a new level of sophistication has entered the operating strategy. So the sum of all of these things is contributing to the improved results that you see. And if I just circle back to the idea of to what extent did you scale up contact or not, that answer is complicated, and it depends where you're at in the mine plan. It also depends what stockpiles are available or not available. So in short, it's a complex equation with a lot of subcomponents summing through to the result that you see. So I appreciate that's a longer explanation, but this is the art and the science that the team have been working on for years. Operator: Next, we have Austin Yun from Macquarie. Austin Yun: Really good operational results against the backdrop of a tightening lithium market. Just a follow-up question on the Ngungaju plant. In update, you expect the plant to remain in care and maintenance in the financial year '26. I'm just keen to understand the rationale and thinking behind it. Does that mean you don't believe the price is going high up and fast enough in the next 9 months. So the base case is care maintenance? Or it's actually because you believe you can squeeze a bit more from the current Pilgan plant given the good performance and also really well. I'll circle back. Dale Henderson: Sure. Thanks, Austin. Thanks for your question. And the short answer is no. I wouldn't read through. That's our view of the market outlook. Austin, as you know, lithium market has got an ability to surprise is what we've seen historically. Given these incredible growth rates, we could well see a pull-through and a rapid turn. All of that's possible. We've seen it before. In which case, we will respond accordingly. So if the market turns rapidly and we think it's game on, well, of course, we'll flick the switch. We'll bring Ngungaju back to life, and our shareholders will enjoy the benefit of that. So yes, so don't take a read through in terms of that type of guidance. Austin Yun: The second one, just a quick one. It seems like lithium is a hot topic and part of the critical minerals discussion. And do you as Pilbara Minerals expect any support funding or other forms from the U.S. or anything you could share on your recent trip to White House? Dale Henderson: Yes. So as it relates to our engagement and as I mentioned in our notes, we have been contributing inputting into a number of processes, and we'll continue to do that to support the government's thinking. But it's too early to take any view of where that all heads. Yes, a number of the avenues federal government is exploring. I think they're still really at the early stages of working through what type of support they would like to deploy. But certainly, PLS is at the table and contributing to that. And [ as Brett ] noted, we're at pains to reinforce the need for shared infrastructure. We think this is utterly critical for Australia to become more competitive. When I say shared infrastructure, it's about shared port facilities, shared by all to lower the cost for all. It's about shared power, network power to lower the cost for all. Putting in place these types of infrastructure, that's the role of government. That's what we need to do. So that's top of the list as we advocate the government about the right types of support. Operator: Next, we have Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: Thanks for the update. Obviously, great to see some of the early efficiencies of the mine coming through. I won't belabor the point on the feed grade. I assume that's just going to average down with the mine grade and contact ore strategy. But if I can pick up the P-PLS points, what are you now budgeting in terms of FY '26 hydroxide production relative to that offtake revision? Is it sort of 40% to 50% utilization going forward? Dale Henderson: Yes. We'll be able to give you a clear answer on that next quarterly update because the refinement of the calendar year plan for next year, the teams and the thick of it. But you can take an assumption based on what we've committed in the release of the 155,000 tonnes. Hugo Nicolaci: Got it. So in terms of any further losses in the JV or further contributions into it to consider, that's probably something for next quarter as well? Dale Henderson: Yes, correct. That will flow from the budget process. And look, as it relates to the medium- to long-term outlook, we are very happy about the strategic rationale and our sort of positioning with that hydroxide facility. And you can appreciate, particularly given the rise of our almost aspiration for critical mineral security, we think our joint venture with POSCO puts us in a very, very unique position. So in terms of where we're at today, we're very comfortable about that strategic positioning. And of course, we've got some good runway just to see how the next 6 to 9 months go. So very happy with our involvement there with P-PLS. Hugo Nicolaci: Yes, makes sense. And then maybe just one on -- given the price volatility in the quarter, how should we think about any provisional pricing impacts that come through this quarter? Dale Henderson: Do you want to take that? Flavio Garofalo: Yes, I'll take that. Yes, in terms of -- we've obviously seen an uplift in pricing in that September quarter. We will expect to see some gains, which will flow through to the December quarter, which obviously we'll benefit from. During the September quarter, as mentioned, we took a $32 million hit, which was provided for in the June accounts. So we had that number there. So moving forward, I think we want to see some benefits coming through. Hugo Nicolaci: Got it. So in terms of just the timing of when that price peak, you don't have some unwind of that going forward? Flavio Garofalo: No, we'll expect to see some of that come through in the December quarter. But yes, essentially, most of that will crystallize in the early part. Operator: Next, we have Levi Spry from UBS. Levi Spry: Can I just explore these many discussions you're having with government bodies and things like that on strategic reserves and potential government support. What role, if any, do you think floor pricing could play? Obviously, the context is MP and that obviously seems to be getting a bit more airtime. But in your discussions, what role do you think it could play? Dale Henderson: Yes, Levi. So at this stage, we've just been inputting our ideas to government and in particular, the group task with thinking through the strategic reserves. So they're very much in input mode. And of course, they're taking views around for pricing and what could that mean and the pros and cons. And as to yes, the idea around full pricing. Look, devil is in the detail. And I think if deployed the right way, there could be positives, but equally, there could be bad unintended consequences if not rolled out the right way. And I appreciate there's others in the market who have been vocal about that. And of course, that's all going into the thinking though as government considers what support they'd like to deploy. But as I say, for us, we've been very much advocating for the shared infrastructure aspect. We think that's a very clear cut, sensible investment case and hard to dispute. Levi Spry: Yes. Okay. And maybe I should know this, but what's the timing of all this coming to a head. Dale Henderson: That's in the government's hands. They haven't provided publicly an outline as to their timing. So we'll wait and see. We're not holding our breath. Levi Spry: And just the last one, just to come all the way back to recoveries. Previously, you said mid-70s haven't used. So isn't this a material step up? How should we consider -- think about the long-term number in our models? Should I be tweaking it up a couple of points? Brett McFadgen: Yes, the life of mine recoveries, their levies are in the mid-70s. We've in this quarter, corresponding quarter in FY '25 is also in 75s. So we're always going to be trying to push the recoveries. It's the best lever that we have. But at the moment with all of the good work that we've done that Dale touched on, and we're continuing to lever the contact ore. That's the main variable that is going to change for the next quarter and half year. Dale Henderson: And, Levi, I'd just to add, look, maximizing lithium recoveries, this is what the team is here to do. And I love the idea that if we could eke up that long-term average expectation, that would be obviously incredible in terms of value lift and we'll be able to reset the reserve and a whole bunch of flow-ons would flow from that. So that, of course, remains the central aim. But what we need to do is we're really into the process of really starting to sweat and leverage the full power of this new platform we've built. And yes, early signs are really positive. But we're really going to get more runs on the board and get more data processed and -- but yes, it will be fantastic as we've got more runs on the board to look at resetting those long-run expectations, but too early to do that. Operator: Next, we have Glyn Lawcock from Barrenjoey. Glyn Lawcock: Two questions. Just -- maybe just on offtake and price floors. What about industry discussions? Is there any probability of price flows with industry participants rather than government? And we've seen that in the past in the lithium industry, just if they want new supply non-China, is that an alternative? Dale Henderson: But to date, I haven't heard much about around that in terms of coming together for a shared approach. Obviously, any of those discussions would have to be handled, obviously, with a great gear given various anticompetition laws depending where in the world those groups or domicile. But I'm not aware of any of those types of discussions. But I'd also add that in terms of the structure of the market today, it is very much a global market. You've got some supply from all continents in different forms. I think the probability of alignment across that supply is pretty unlikely, but you never know. Glyn Lawcock: So you don't think you could see a price floor to get Ngungaju restarted with a car manufacturer or a battery manufacturer. That's not something you contemplate. Dale Henderson: No, we would -- the door is open for that. But yes, if a buyer would like to do that, and there has been overtures of that. But I'll believe it when I see it, but the door is open. Glyn Lawcock: Okay. And then maybe just staying on Ngungaju. With all the benefits you've now seen through ore sorting, contact ore, everything for Pilgan, how much of that can you translate through to Ngungaju? Like would it be a bit of capital you need to spend? Or can -- what you've got benefit Ngungaju when you do finally come to turn it on? Just trying to think about all your learnings that you've got now, how we could do a lot better with the Ngungaju plant, get the cost down, volume up? Dale Henderson: Great question. Let me start and Brett, you might want to follow in on this one. Yes, the short answer is, yes, we are considering what knowledge transfer we could go from the Pilgan to Ngungaju plant. And we have been sort of waiting to sort of ramp up the Pilgan and start to sort of sweat the asset for the purpose of really being able to have confidence in what the benefit delta is. And so we're increasingly moving to a position where we can start to do the evaluation on the investment case at Ngungaju. But given those units and the materials handling complexity, it's not straightforward to augment that into an existing circuit. There's a lot to sort of work through. So it's complex and there's capital intensity involved. So there's a fair bit to work through to work out, is it worth the investment? Glyn Lawcock: Yes. Is there a time line. Dale Henderson: There's not a time line at the moment. But the other thing, Glyn is that a lot of the downstream benefits that we're seeing with the ore mineralogy and the flotation chemistry is directly applicable to Ngungaju. And so we can transfer that knowledge straight in there and obtain the benefits. And that's the beauty about having the 2 plants side by side is that we can leverage what we learned in one take directly into the other. And yes, we certainly -- there'll be some significant benefits that we can directly transfer from the Pilgan expansion. Operator: Our next question comes from the line of Daniel Roden from Jefferies. Daniel Roden: Just wanted to, come back to the recoveries. And I think I just wanted to labor the point and clarify that the recovery that you're reporting doesn't account for the ore sorting losses or rejects. And I guess, how should we be thinking about accounting for this? So if I look at your numbers, if I'm just taking your reported mines and your reported mills, if I forecast that out and take your numbers into -- over the next -- into perpetuity, would there be a disconnect there? And I just see my, I guess, ROM stockpiles build because it's not accounting for, I guess, the ore sorting losses. And so, I guess, where I'm trying to get at is the ore sort of? What's the reject recovery factor that we need to be? What are the guardrails that we need to be assuming there? Brett McFadgen: Yes. Thanks, Daniel. The -- I guess, those guardrails are ever changing at the moment as we're leveraging up the contact ore. So the level of rejection is highly dependent on what level of that contact ore that we put in the front end of the ore sorters. That material actually goes back to -- into the mine. So it's prior to the crushed ore stockpile. So the feed grade that we report there is from the crushed ore feed grade forward. So it's pretty hard to kind of give a number at the moment, particularly since we're ramping up the contact ore. So it's -- yes, it's a bit of work in progress at the moment? Dale Henderson: Yes. So just to clarify, so there is -- from a financial modeling perspective, the lithium recovery is what we've been able to recover from the mine of what's in situ. Now the fact that we've added ore sorting or various other process leaders does not change that methodology. And the whole idea of ore sorting is it's really for 2 aims, just enable more extraction and enable more concentration to maximize lithium recoveries. So yes, is there some additional exit streams? Yes, but this is all for one aim is actually to improve that value. So you don't need to allow for any additional complexity in terms of how the mine was modeled pre-ore sorting. Hopefully, that clarifies. Daniel? Daniel Roden: No, definitely. Just -- I think I'm just being conscious that we're not on a forecasting perspective over accounting for [ ROM stockpile ] build is kind of where I'm coming from. But maybe just bringing it back to you, you kind of mentioned that, I guess, from next quarter, you're going to start increasing that contact ore feed. How should we think about that in terms of, I guess, fresh ore mining volumes? Are you going to be leveraging your stockpiles a bit more and decreasing, I guess, mining activity from next quarter? Or is that more contact from the fresh ore feed that you're going to leverage on? Dale Henderson: Yes, it's more of the contact ore from the fresh feed around the peripheries. So as we get further down in the central pit over in our East pit, we start to get more of that contact ore. So rather than stockpiling it, we're intending to use it, which will allow us to get the economies through the mining fleet as well. Daniel Roden: Okay. Perfect. And if I can, just one more for me. But with regards to the P-PLS, what's the utilization being there? And I guess if you run it at full noise, like how close to nameplate would you be running out? Dale Henderson: So from memory, Daniel, on that one, the first train that brought up on has been brought up to close to full utilization and whereas the second train that have been purposely moderating it as a function of the sales changes. So I have to double check on this. I'm pretty sure both in terms of the sort of throughput rate of being run up to full throughput. But as I say, the utilization levels are just different at the moment. Operator: Last question from the audio before we move on to the webcast. We have Matthew Frydman from MST Financials. Matthew Frydman: Can I ask a question on the cash burn during the quarter? Obviously, you ran ahead of guidance in the quarter, but you're highlighting that you're expecting upward unit cost pressure from here. And obviously, the cash position went backwards. So just wondering if there's any further step change necessary in your view to stem that cash burn outside of waiting for prices to improve, whether that maybe looks like a further change to the P850 operating model, whether there's any sort of discretionary CapEx that you can take out across the various project streams? Or are you happy to operate at kind of steady state as you've outlined and use your cash balance and your debt liquidity as required to continue funding operations? Flavio Garofalo: Matthew, thanks for your question. Look, the cash burn for the period was really a function of cash flow timing. As I pointed out, we had some provisional pricing adjustments, which we actually booked $40 million for in the year-end accounts. We crystallized $32 million of that in the September quarter. And then we had high receivables at the end, which didn't come through of $50 million. So it was purely a timing impact for the period of the September quarter. Moving forward, we don't expect any material changes. So it's just purely a function of timing between the quarters. Matthew Frydman: Yes. Okay. I mean your cash margin from operations was negative, understanding that there were some receivables, but you're going to get receivable movements from quarter-to-quarter. And obviously, there was growth capital spend, interest and leases and other spend, which obviously weighed on that cash balance to bring it down by $122 million quarter-on-quarter. So it's not necessarily a problem that isn't going to repeat in future quarters outside of price. So just wondering if you guys are happy for that situation in terms of continuing to lean on your existing balance sheet and liquidity or whether there's any other further step changes operationally to deliver? Flavio Garofalo: Yes. I think just to add to that, obviously, as part of our cost smart measures, we'll have further cost discipline and cost reductions moving forward. And we'll be very disciplined in terms of managing our cash balance as part of maintaining our strong balance sheet moving forward. And there are some other opportunities in terms of timing from a capital perspective that we will look at. And we'll obviously look at this through the lens of the lithium price as we move forward through to the December quarter as well. Dale Henderson: And Matthew, probably just add a few points a good one and although there's some enthusiasm returned to the sector of late, at the end of the day, the price appreciation we've seen is still well below the long-run requirements of the industry. And so depending on which analyst you choose, that range is from USD 1,000 per tonne to USD 1,600 per tonne with an average of about USD 1,300 or so. Of course, the prevailing price is well below that at this time. So for PLS, what we've done is we set the business up for this low-cost environment. So to your question, we're comfortable with the way we've configured the business. We've optimized for lowest cash burn here maximizing contact ore. We've got a very strong balance sheet, et cetera, et cetera. We are set up to last a longer storm if that is to eventuate. However, of course, given the strong growth signals, et cetera, et cetera, where this tightness is coming, and that's what really sets up what we think is the big opportunity for our shareholders. Operator: Now I'll pass to James for webcast questions. James Fuller: Okay. Thank you. Dale, some questions online here. Does collaborating with Ganfeng for the study on downstream processing rule out the U.S. as a possible site for projects? Dale Henderson: The short answer is no. As a large operator with an incredible unallocated profile ahead across our Australian asset and Brazil asset, we're able to do multiple downstream collaborations if that's what makes most sense to our shareholders. And we're not ruling out any jurisdiction or counterparty. James Fuller: Dale, what is your response to Trump's Critical Minerals deal with Albanese? Could it help sustain Australia's position long term as the world's largest lithium producer? Or are there still challenges to that? Dale Henderson: Look, I think the announcements that we're seeing between the President and our Prime Minister are incredibly encouraging. At the end of the day, the lithium industry is still young. It needs to grow significantly to support the growth needs globally. And therefore, multiple supply chains need to be built out to serve the world. So this type of government-to-government collaboration is fantastic to see, and we need more of it to not only for lithium, but other key critical minerals. James Fuller: Okay. Dale, what do you mean by targeted investment is needed by government? How would you like that investment to be targeted? I think that's referencing infrastructure. Dale Henderson: That's right. Targeted is not a polite way of saying, don't blow money on the wrong things. So for us, it's about investing in shared infrastructure to lower the cost for all, which makes Team Australia more competitive on the global stage. James Fuller: Okay. In regards to Ganfeng JV, what possible countries that we're looking at and any idea on ballpark capacity? Dale Henderson: So as it relates to what possible countries, of course, we've got a view around what's near the top of the pile. And within that, there is some Asian countries, some Middle East. But I would also say that other parts of the world may welcome into the picture depending on whether the government comes through with larger support or not. So for this reason, we've been deliberately not guiding one area over another because as you've seen in the media, it's a bit of a moving feast. Different support regimes are coming in, and that could really tip the scales from one prospect to another. James Fuller: Okay. Great. With consistent requests from customers to secure additional supply and a strong demand going forward, is PLS considering more sales on a spot market? Dale Henderson: Yes. So in terms of our realized price, in terms of the market structure today, I think we're achieving the best of both worlds. And the offtakes, of course, provide long-term security, but the pricing that's used to derive those sales actually comes essentially from the spot market. But we also sell spot sales. And the reason we do that is that supports price discovery. So one supports the other effectively. And we've taken a portfolio approach there where we're largely weighted to offtake, which gives us security with the strongest in the supply chain, whilst also doing a little bit of spot for price discovery. James Fuller: Okay. Is there any serious threat from African supply? Dale Henderson: The jury is not out on that. Look, there's a big game being talked from certain areas. In terms of the work we've done understanding that area, the low-cost operations are few and far between would be our view. But further, there is an overlay of risk depending on which country you're speaking to. And we've seen time and time again, different impediments arise, which debilitate those operations and really jeopardize some of those investments and continuity of those operations. And it's for these reasons, we've not sought to look in that direction in terms of our own growth profile. But bringing back to home. At the end of the day, we view this market as a globally competitive market. What we keep focused on is making sure we continue to improve such that we move to the left of the cost curve and position ourselves as one of the best in the business. James Fuller: Okay. Thank you, Dale. That's the last of the questions. Just a reminder that the presentation is available on our website, and the webcast recording will be available via our website within a few hours. Dale Henderson: Great. Well, thank you, everyone, for dialing in today. The September quarter was an incredibly strong start to this financial year, building on the FY '25 year, which was obviously a transformational year for the business. We look forward to updating you again next quarter. Thank you for your time. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.
Denise Reyes: Good morning, everyone, and welcome to Nemak's Third Quarter 2025 Earnings Webcast. I am Denise Reyes, Nemak's Investor Relations Officer, and I am pleased to host today's call along with Armando Tamez, Nemak's CEO; and Alberto Sada, CFO, who are here this morning to discuss the company's business performance and answer any questions that you may have. As a reminder, today's event is being recorded and will be available on the company's Investor Relations website. Armando Tamez, our CEO, will lead off today's call by providing an overview of business and financial highlights for the quarter. Alberto Sada, our CFO, will then discuss our financial results in more detail. Afterwards, we'll open for a Q&A session, which participants may join live or submit written questions via the Q&A function. Before we get started, let me remind you that information discussed on today's call may include forward-looking statements regarding the company's future financial performance and prospects, which are subject to risks and uncertainties. Actual results may differ materially, and the company cautions you not to place undue reliance on these forward-looking statements. Nemak undertakes no obligation to publicly update or revise any forward-looking statements, whether because of new information, future events or otherwise. I will now turn the call over to Armando Tamez. Armando Tamez Martínez: Thank you, Denise. Hello, everyone, and welcome to Nemak's Third Quarter 2025 Earnings Webcast. This quarter, our top line remained stable compared to the same period of last year, supported by the continued resilience of the automotive industry. EBITDA declined 15% year-over-year, ending the quarter at $143 million. This change is primarily explained by a high comparison basis in the same quarter of last year when we benefited from one-time commercial adjustments as well as the typical seasonality of the third quarter, when summer shutdowns and major maintenance activity take place. While these dynamics were particular to this quarter, for the full year, we expect to achieve the high end of our EBITDA guidance, at $600 million with capital expenditures totaling $290 million. Our focus remains firmly on executing our strategic priorities and positioning the company for long-term value creation. In line with this commitment, we recently announced the agreement to acquire the Georg Fischer Casting Solutions' automotive business, a milestone that will mark an important step forward in strengthening Nemak's capabilities and a significant advancement in our strategic journey. Georg Fischer is an outstanding player in the industry and its capabilities are expected to be highly complementary to Nemak. This transaction is well aligned with our strategic focus and technical strengths in lightweighting. It will enhance our business profile and be accretive from both a commercial and operational standpoint. It will also expand our innovation platform and extend our reach in R&D, particularly in high-pressure die casting technology. Additionally, we will be able to broaden our product offering, particularly in high complex aluminum and magnesium parts for the e-mobility, structure and chassis application segment, which continues to offer ample potential for future growth. From a geographic perspective, the integration of Georg Fischer Casting Solutions will increase our footprint in Europe and China. The transaction perimeter includes: 2 manufacturing plants in Austria, 2 in Romania, a tool shop in Germany, an R&D center in Switzerland, 3 plants and a tooling shop in China and 1 facility currently under construction in the United States. This new plant will be dedicated to highly engineered structural components, and it is expected to begin operations during the second half of 2026. In addition to footprint diversification, this transaction will provide a valuable entry point to serve important Chinese OEMs, including BYD, Denza, Geely, Hongqi, Li Auto, Nio, Xpeng and Zeekr among others. Beyond the opportunities with new Chinese customers, this acquisition will also positively impact business with our existing Western customers. This includes Audi, BMW, Jaguar-Land Rover, Mercedes Benz, Porsche, Stellantis, Volkswagen and Volvo, among others, reinforcing our commitment to serve a diverse and globally-recognized customer base. As part of this transition process, we're eager to welcome a highly skilled and experienced management team, along with a dedicated workforce of approximately 2,500 employees. We look forward to the integration phase ahead and the opportunity to combine the strengths of 2 competitive and complementary cultures. The transaction remains subject to customary regulatory approvals across the various regions involved. While we expect to close by the end of the year, the timeline continues to follow the procedures established by the respective regulatory bodies. Moving on to commercial activity. During 2025, we have secured $250 million in awarded business across all our regions, 80% in the ICE powertrain segment and the remainder in the e-mobility, structure and chassis applications segment. These new programs will mostly reuse existing assets, deploying capital efficiently while continuing to deliver high-quality, cost-effective solutions to our customers. The new contracts also highlight the ongoing relevance of the ICE powertrain segment, whose lifecycle has been extended due to the current electric vehicle adoption trends. In line with this, we have also experienced robust demand for V8 and I-6 engines in North America. In other recent developments, I am proud to share that 4 of the 10 vehicles recognized in the 2025 Wards Auto Best Engines & Propulsion Systems include components manufactured by Nemak. This recognition reflects the trust that leading OEMs place in our technology as well as our ongoing contribution to efficient, high-performance propulsion systems. Notably, this year, hybrid powertrains dominated the list, underscoring the growing relevance of electrified solutions. Moving on to innovation. The integration of artificial intelligence is becoming increasingly essential to our efforts in this area. At Nemak, we are successfully embedding AI into our business practices to enhance decision-making and operational efficiency. A clear example of this is the evolution of our patented NORIS system, which stands for Nemak Online Realtime Information System. This system has been running successfully for over a decade as [indiscernible] information system. Recently, we introduced NORIS GPT, a new AI-powered layer that significantly enhance the system capabilities. Our manufacturing processes involve managing a wide array of variables and parameters. NORIS GPT enable us to quickly turn data into actionable insights, combining this enhanced information with domain expertise to deliver real business outcomes. This advancement reflects our ongoing commitment to innovation and our ability to leverage cutting-edge technologies to heighten our competitive position. Turning to our sustainability agenda. We continue to make meaningful progress in advancing responsible practices across our operations. Our commitment to the Aluminium Stewardship Initiative remains strong. And this quarter, we achieved 2 additional certifications under the performance standard at sites in Europe. In addition, our melting center in Mexico was certified under the Chain of Custody Standard. This is a key milestone in producing certified alloys for our casting facilities in the country. These milestones demonstrate our continuous commitment to integrating sustainability across our value chain. Moving forward, we plan to have the majority of our sites certified in the near future. This concludes my remarks. Thank you for your attention. I will now hand the call over to Alberto. Alberto Sada Medina: Thank you, Armando. Good morning, everyone. I will begin with an industry overview of the regions where we operate, followed by a discussion of our consolidated and regional financial results for the third quarter of '25. During the third quarter, the top line remained stable at $1.2 billion, on the back of sustained pricing and a favorable product mix. EBITDA decreased by 15% due to the effect from commercial negotiations in the third quarter of 2024, which elevated the comparison basis and extraordinary expenses during the period. During the quarter, we generated positive free cash flow on the back of operating results and a prudent approach to capital expenditures. In turn, this allowed us to maintain our net debt-to-EBITDA ratio at 2.5x. Turning to the automotive industry. During the third quarter, light vehicle sales in the United States showed a 5% year-over-year increase on a SAAR basis to 16.4 million units. This was mainly due to a pull-ahead effect prior to the phase out of the Inflation Reduction Act EV incentives and tariff potential impacts. Light vehicle production grew 3% year-over-year to 3.9 million units, driven by sustained demand. On a SAAR basis, light vehicle sales in Europe grew 2% year-over-year to 15.7 million units. OEMs continue to introduce less expensive trims, therefore, improving affordability. Light vehicle production in the region remain at 3.4 million units, similar to the same period of last year. In China, light vehicle sales on a SAAR basis increased 7% year-over-year to 28.6 million units, propelled by trade-in programs and government incentives. Light vehicle production increased 2% year-over-year to 7.4 million units, driven by stable domestic sales. In Brazil, light vehicle sales decreased 1% year-over-year and production increased by 3%, driven by export activity. Moving to Nemak's results. During the third quarter, Nemak's volume was 9.6 million equivalent units, in line with the same period of last year. Volume was driven by stronger production in North America and partially offset by lower production in Europe. Revenue was $1.23 billion, stable when compared to the same period of last year as updated pricing and the appreciation of the euro offset the absence of the one-off effect from commercial negotiations in '24. During the quarter, EBITDA was $143 million, a 15% decline year-over-year. This was due to the lack of commercial negotiations versus the same period of last year and launching expenses associated with the ramp-up of volumes and mix changes in certain platforms. In turn, the unitary EBITDA margin was $15 per equivalent unit. Operating income decreased to $26 million from $73 million in the same period of last year. The decline was mainly attributable to lower EBITDA and impairment charges of $17 million related to non-operating assets, primarily in North America. Net income increased to $25 million from $5 million in the same period of last year, reflecting lower net financing expenses and a favorable tax effect from foreign exchange movements, particularly the appreciation of the Mexican peso against the U.S. dollar, which more than compensated for lower operating income. The combined effect of disciplined execution and reduced financial expenses and capital expenditures allowed us to generate during the quarter, a free cash flow of $18 million. This is aligned with the business seasonality and our expectations for the year, and places us in a good position to continue reducing our leverage. In turn, by the end of September, net debt was $1.59 billion, $173 million lower than in the same period of last year. This is a testament to our disciplined capital allocation and operating efficiency, which more than offset the foreign exchange impact on our balance sheet from euro-denominated liabilities. Looking forward, debt reduction remains a key priority. At quarter end, the net debt-to-EBITDA ratio was 2.5x compared to 2.9x at the end of the third quarter of last year. Conversely, the interest coverage ratio was 4.9x compared to 5.0x in the same period of 2024. Our cash position at the end of September was $328 million. Capital expenditures during the quarter totaled $70 million, 27% lower than the same period of last year, in line with our disciplined investment strategy that prioritizes projects with adequate profitability. Moving on to the regional results. In North America, revenue rose 2% year-over-year to $651 million, supported by higher volumes. EBITDA decreased 14% to $67 million, mainly due to the absence of prior year commercial negotiations and additional costs associated with the volume ramp-up of specific platforms. In Europe, lower volume drove the 4% decline in revenue to $401 million. This decrease was partly offset by improved pricing and depreciation of the euro. In turn, EBITDA decreased by 26% to $50 million, mainly due to the lower volume and the absence of one-off customer payments following commercial negotiations on inflation compensations in 2024, which more than offset the benefit from the appreciation of the euro. In the Rest of the World, revenue increased by 3% to $175 million as lower volume was more than offset by an improved product mix. EBITDA of $26 million was 11% higher, driven by performance and product mix improvements. In relation to the acquisition of Georg Fischer Casting Solutions' Automotive Business, the enterprise value is $336 million. At closing, we will cover a payment of $160 million with existing cash. The remaining of the enterprise value is structured through a combination of holdbacks not related to performance, but subject to the absence of contingencies as well as a portion of assumed operating and financial liabilities. This portion of the transaction will be funded by a vendor-financing agreement. Overall, we continue to focus on maintaining profitability even when facing a very dynamic landscape in the automotive industry. We believe the diversification and potential synergies of the Georg Fischer acquisition will lead us to strengthen our value proposition. In conjunction with our customary disciplined execution, we believe these measures will enhance our business profile, delivering value to our stakeholders as we continue to make strides in our commitment to deleverage and create sustainable value for the future. I will now turn the call back over to Denise. Denise Reyes: Thank you, Alberto. We are now ready to move on to the Q&A portion of the event. Denise Reyes: [Operator Instructions] The first question is from Jonathan Koutras from JPMorgan. Jonathan Koutras: So, I have 2 questions on my side. The first one is on the recent developments on the supply chain side. There was the fire at the Novelis aluminum plant in New York last month, impacting Ford, which is an important client for Nemak. The question is, if you expect any impact or headwind in the fourth quarter volumes stemming from this aside from the typical seasonality? And the second question, Alberto flagged on the $17 million impairment in non-operating assets in the quarter. So just wondering if this is still related to the recent investments on the EV side and if we should expect a similar impairment in terms of magnitude during the fourth quarter or not? Armando Tamez Martínez: I will answer the first question related to the Novelis fire. Certainly, we have been in conversations with most of our customers that were, let's say, supplying metal sheet, aluminum metal sheet from Novelis. So far, we have not seen any volume reduction that has affected us. Actually, we continue with very strong volumes in North America. Our customers, in conversations with them, are telling us that they have other sources. Novelis is a supplier of the Detroit 3 and other OEMs. They told us, in the conversations that we have had with them that they have other suppliers and that they are looking how to expedite also the rebuild of the facility that was affected by this fire in the New York state where the plant of Novelis was located. But so far, we have not seen any effect. We will monitor this very closely. And in the event that we see any type of volume reductions, certainly, we will take the necessary steps to align our cost structure. Alberto Sada Medina: And related to your second question, Jonathan, related to the impairments. Yes, as you correctly pointed out, these impairments are related to assets, most of them associated with projects on the EV side that have not been used to the extent possible. And going forward, I mean, we will continue reviewing our asset base to make sure that we have the right accounting for all the assets that are currently being used. And those that will have no use would certainly be written off as we negotiate with our customers for compensations in that case. We review that, I mean, all the time. So, we will report in due course if we have more impairments to do in the fourth quarter. Denise Reyes: We have another question from Stefan Styk from Barclays. Stefan Styk: This is Stefan from Barclays. I have a few, if you don't mind. First one is, can you quantify the specific EBITDA impact this quarter from last year's commercial negotiations that you didn't have this quarter? Alberto Sada Medina: Well, yes, as highlighted, last year, particularly the second half was heavily influenced with commercial negotiations. And as we discussed, I mean, those were very intense processes with our customers that we concluded along the year. So, part of that was reflected on the third quarter of last year. Unfortunately, we cannot provide specific numbers on the potential benefit from those claims as those were confidential negotiations with our customers. But I can tell you, as indicated that -- yes, a portion of the difference between last year and this year is associated to that comparable that is favorably reflected on the third quarter of last year. We also experienced a little bit of additional costs in certain operations, particularly in North America, which also explains part of that difference. Stefan Styk: Okay. On the acquisitions front, just curious how you're thinking about the EBITDA contribution on a run rate basis after you close? I think you disclosed historical EBITDA figure with the purchase memo. But should we expect it to be above or below this? And what sort of ramp-up period are you expecting for integration after closing? Armando Tamez Martínez: Yes. Thank you, Stefan. As we have indicated already, we're in the process of getting all the necessary approvals by the different antitrust places. And once we get the full approval, which is expected to be at the end of this year, and this is what we are getting from our legal staff, once we have this -- let's say, complete approval on this acquisition, we will provide a guidance of the combined 2 companies, the Nemak and the new Georg Fischer acquisition. We expect to have that one, let's say, available to share during the first conference call that we will have scheduled for January. Stefan Styk: Okay. And then if I could just sneak in one more. On the new business that you disclosed, the $250 million in annual revenue going forward, can you give a bit more color on the contract structure on the volumes there and the length of the contracts? And then that's all for me. Armando Tamez Martínez: Yes. Approximately out of this $250 million worth of new business, 80% is related to extensions and new contracts or volume increases on the ICE or internal combustion engine platform. Those are very interesting contracts. And the interesting part is that we will use existing assets to produce these parts. And this is related, Stefan, to the change, especially here in North America related to the slowdown of the electric vehicle adoption. And some of our customers are increasing, let's say, production of big ICE and hybrid vehicles, and this is why we're getting additional volumes. And as I indicated, the beauty of this is that most of that will be absorbed with existing assets without any additional CapEx. And in the contracts, certainly, we're signing an extension and also with the new pricing that will be beneficial for Nemak. Denise Reyes: The next question is from Alfonso Salazar from Scotiabank. We'll move on with the next question. The next question is from Alejandro Azar from GBM. Alejandro Azar Wabi: I think I have 3 or 2 if I may. On the transaction with GF Castings, if you can give us a little bit more color on the contingencies, after you mentioned you are going to pay $160 million when the transaction closes and the rest over a 5-year period related to some contingencies. If you can give us more color on those related to what is? And my second question is also on GF Castings. If you can -- if the contracts that you're acquiring from this company have similar terms to the ones that you have in Nemak, I mean, pass-through, et cetera? And the third one would be, with this transaction, how does your capital allocation priorities change, thinking specifically on the refinancing or the maturing of the bond, if I'm not mistaken, that you have in 2028? And those are my 3 questions. Armando Tamez Martínez: Let me respond to first question, Alex, related to the structure of the acquisition of Georg Fischer. As you correctly pointed out, and as I indicated before, we are due to pay $160 million upon closing, upon getting the approvals from the regulatory agencies. And after that, we have a combination of -- a structure, which is a combination of holdbacks, vendor financing and assumed liabilities from the operation. So, it's a combination from all of those elements. I cannot disclose you all the elements because of confidentiality restrictions with the seller. But what I can tell you is that related to those contingencies, those are the type of elements that you normally have on an agreement, which have to do with unknown items or things that have not been adequately reflected on the structure or on the due diligence that may pop up in the future. So, I would say it's nothing different than what you would expect. And the structure certainly allows us to do an efficient execution of any contingency if they materialize. Alejandro Azar Wabi: And those contingencies have a 5-year, let's say, period? Alberto Sada Medina: Yes, what we have is 5 years. If any of the identified, let's say, conceptual contingencies materialize in the 5 years, we will deduct part of that from the pending payment. If they do not materialize, we'll pay them back to the seller. Armando Tamez Martínez: Related to the contracts, as it's normal practice when we're making an acquisition is that we are not allowed by the antitrust authorities to take a deep look at the contracts. However, in conversations with the management team from Georg Fischer, certainly what they are indicating is that they have similar contracts to the ones that we have in which they are getting the contracts for the lifetime of the vehicle line on the products that they are getting and also normal payment terms, not only in Europe, but also in China. This is what they have shared with us without getting into any specifics. Once we get, let's say, the approvals, certainly, we will take a look at all the specific commercial contracts and compare those against us. And certainly, if we see any difference, we will address those directly with the customers. Alejandro Azar Wabi: Okay. My worry was actually on China. Armando Tamez Martínez: Normally, in China, for the benefit of all the entire supplier base is that the Chinese government implemented a new policy in which the maximum payment terms now stands at 45 days, which is normal for China. As you know, we have already operations in China, and these are the normal payment terms that we have. And even with the Chinese customers, they have, let's say, similar contracts to the ones that we have with Western customers. Alejandro Azar Wabi: Okay. And on the capital allocation priorities? Armando Tamez Martínez: On the capital allocation, one of the things that we are expecting, Alex, is that since the 2 combined companies, once we get the approvals from the regulatory authorities is that we will use existing assets to reduce significantly the CapEx going forward. And in some of the due diligence that we have made, we have seen already the opportunities that eventually once we get the approval, we will capitalize in reusing existing assets and try to go forward, at least in our projections to reduce significantly the CapEx going forward, so that the company will generate higher free cash flow and we will be able to reduce our leverage sooner than originally expected. Alejandro Azar Wabi: Okay. Can I make one more question? Armando Tamez Martínez: Yes. Alejandro Azar Wabi: From your press release, you mentioned, if I'm not mistaken, it was 2024 or 2023 that Georg Fischer generated $91 million in EBITDA terms. I'm just curious, I understand that that $91 million does not include some plants in the U.S. So, is there any way that you can share with us that plant, how much of the production of Georg Fischer represents? Or I'm trying to get the potential from that point, let's say, like that. Armando Tamez Martínez: Yes. Just clarifying, Alex. Today, Georg Fischer is building a new facility in the state of Georgia. This is a state-of-the-art facility. Actually, we have visited all the facilities, and we were very impressed. This is a brand-new greenfield facility built in the state of Georgia to support one very important German OEM. And certainly, that facility will be operational in the second half of 2026. In this transaction, we excluded, or they excluded out of the deal a few facilities, 1 iron casting that was located in Germany that is not part of the deal and 2 small plants located in Italy that were for a different industry that -- those were not part of the transaction. Once we get the approvals from the regulatory bodies, we will be able to share exactly what is the projection on the EBITDA of the combined companies, Alex. Denise Reyes: There are no more live questions. We will now move on to the written question. We have 2 questions from Alfonso Salazar from Scotiabank. First, how do you see the outlook for Europe in 2026? And second, given the risk of a strict control of rare earth exports from China, how is Nemak and its main customers preparing for potential bottlenecks? Armando Tamez Martínez: Yes. Thank you, Alfonso. Certainly, this is new information that our customers are trying to, again, understand if there is any potential implications. I think they are trying also, as we speak, to look for alternatives for these semiconductors. And so far, I think that we have not seen a major effect related to this at this point in time. But certainly, we will monitor this very closely. And as always, part of our operational model, in the event that we start seeing a decline in volumes, we will immediately align with the normal cost reduction activities that we have as part of our business model. Denise Reyes: Thank you, Armando. There are no further questions at this time. And with that, we conclude today's event. I would just like to take this opportunity to thank everyone for participating. Please feel free to contact us if you have any follow-up questions or comments. This does conclude today's earnings webcast. Have a good day.