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Operator: Good morning, and thank you for standing by. Welcome to the Madrigal Pharmaceuticals Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I'd now like to introduce Ms. Tina Ventura, Chief Investor Relations Officer. Please go ahead. Tina Ventura: Thanks, Marvin. Good morning, everyone, and thank you for joining us to discuss Madrigal's third quarter 2025 earnings. We issued a press release this morning and posted a slide deck that accompanies this webcast on the Investor Relations section of our website. On the call with me today is Bill Sibold, Chief Executive Officer; Dave Soergel, Chief Medical Officer; and Mardi Dier, Chief Financial Officer. They will provide prepared remarks, and then we'll take your questions. Please note on Slide 2, we will be making certain forward-looking statements today. We refer you to our SEC filings for a discussion of the risks that may cause actual results to differ from the forward-looking statements. With that, I will now turn the call over to Bill. William Sibold: Thanks, Tina. Good morning, and thanks for joining us. We have delivered another excellent quarter as we continue to execute on our strategic priorities. We're maximizing the value of Rezdiffra and building our pipeline, which sets us up for continued value creation. Rezdiffra is quickly becoming one of the most successful specialty launches in the industry with sales now annualizing at greater than $1 billion in only its sixth quarter of launch. More than 29,500 patients are being treated with Rezdiffra and more than 10,000 healthcare providers have prescribed it. We've made great progress on our 2026 payer contracting strategy for first-line access. Our new U.S. Rezdiffra patent was listed in the orange book. It extends Rezdiffra's value into 2045. And we're expanding globally with our launch in Germany following European approval. On the pipeline front, we're advancing our Phase III MAESTRO-NASH outcomes trial in F4c, where we could once again be first to market this time for compensated MASH cirrhosis. We look forward to sharing more from our F4c open-label cohort at AASLD later this week. We're executing on our Rezdiffra combination strategy, where we completed the transaction of our new oral GLP-1, and we continue to evaluate opportunities to add additional assets to our pipeline through business development. So today, we'll focus on our 2 key priorities, our top line and our pipeline. Starting with Rezdiffra's third quarter performance on Slide 4, we delivered net sales of $287 million, up 35% quarter-over-quarter. The significant demand we're generating is driven by the positive response to Rezdiffra from prescribers and patients and the strong execution by our team. As shown on Slide 5, we ended the third quarter with more than 29,500 patients on Rezdiffra, up from more than 23,000 patients at the end of the second quarter. This number represents patients actively on therapy accounting for any discontinuations. As we've discussed since the beginning of our launch, we've been steadily adding patients each quarter, and we expect that to continue going forward. It's incredibly gratifying to see Rezdiffra already making a meaningful difference for so many patients. But what's most exciting is that we've only just begun. More than 90% of our 315,000 target population remains untreated. That leaves tremendous room for growth driven by Rezdiffra's highly differentiated profile and our clear first-mover advantage. Moving to Slide 6 and our continued progress on physician penetration. As I've said before, building a strong prescriber base early in the launch is one of the best indicators of long-term success. That's why the pace of adoption has been so encouraging. This quarter, we hit another launch milestone, more than 10,000 prescribers. This breadth achieved this quickly is at the high end of the benchmarks we track, and it reflects the work we've done to wire the system. Looking ahead, our focus will increasingly shift to depth. This metric is already tracking at the high end of best-in-class launches. We're also continuing to enhance our targeting. While our efforts have mostly centered on hepatologists and gastroenterologists, we're seeing growing interest from endocrinologists. These are specialists with a deep expertise in metabolic health who are interested in Rezdiffra's mechanism and its potential in MASH. In response, we've expanded our field team to further target this group. These efforts substantially started in the fourth quarter. On Slide 7, let's take a look at how we see the MASH market evolving. We see clear parallels between MASH and other large chronic disease markets like IBD, rheumatoid arthritis and psoriasis. Each of these evolved into multibillion-dollar categories through continuous innovation driven by new mechanisms and tailored treatment regimens that address diverse patient needs. We believe MASH will follow that same path. Today, this market is still in its early stages, essentially where those categories were 2 decades ago, but with one important difference, Rezdiffra's profile. As an effective liver-directed well-tolerated oral medicine, it far surpasses that of the other first-to-market products in those diseases. We believe this gives us a durable advantage and a unique opportunity to lead and shape the market's evolution, first with Rezdiffra and next with the pipeline we are building. So, we welcome new entrants to this evolving market. Wegovy's recent approval in MASH adds momentum to a market that's just starting to take shape. As seen on Slide 8, our focus remains on the 315,000 diagnosed patients with moderate to advanced fibrosis. Novo is targeting a much larger population, which will raise awareness and drive more screening, diagnosis and treatment. As a reminder, GLP-1s aren't new. They have been available for over a decade and are already used to treat the metabolic comorbidities that oftentimes accompany MASH. As we've reported, about 50% of Rezdiffra patients are currently on or have previously been on a GLP-1. We also understand the limitations of GLP-1 monotherapy in MASH. Few patients reach and sustain a therapeutic dose and tolerability remains a real challenge. Real-world data show that 70% of obese patients discontinue within 1 year. New data to be presented at AASLD show similar discontinuation rates in patients with MASLD. So, looking ahead, we expect Rezdiffra to benefit in 2 ways: as first-line therapy in a market that will expand and from the high real-world discontinuation rates of GLP-1s. We're in a strong position and are confident in Rezdiffra's growth potential going forward. As we've already mentioned, it's Rezdiffra's best-in-class profile that gives us such strong confidence as summarized on Slide 9. It is a liver-directed medicine that delivers consistent efficacy across F2/F3 fibrosis, BMI, genetic makeup in patient subtypes, including those with type 2 diabetes who comprise approximately 60% of the MASH population. It's also simple to use. It's a once-daily, well-tolerated pill with no titration requirements. That simplicity matters to providers, to patients and ultimately to adherence. We continue to see strong adherence consistent with other well-tolerated oral therapies. The seriousness of MASH and Rezdiffra's compelling profile continue to resonate with payers. Our objective is to provide first-line access to patients, preserving treatment choice for patients and providers, and we're pleased to share an update on Slide 10. We're making great progress with our payer negotiations for 2026, which to date have resulted in contracts for broad first-line access, no step edit requirements and improvements in utilization management criteria that are better aligned with clinical practice. Overall, the dialogue has been collaborative and productive and discussions are progressing really well. Payers understand the seriousness of the disease, the unique clinical value of Rezdiffra and the importance of access and choice for patients and providers. We've already achieved favorable outcomes with several national payers, while continuing constructive dialogue with others. We're encouraged by the progress and expect contracts to be finalized by the end of the year, covering the vast majority of commercial lives. Gross to net management remains a core component of our strategy and guides how we approach payer contracting. We started contracting in April of this year. And as we've said, it wasn't everywhere and wasn't all at once. In fact, through the third quarter, contracting had a minimal impact on gross to net, reflecting our disciplined approach. Now that we expect to have payer contracts finalized in the fourth quarter for either an immediate or a January 1 implementation, we expect the fourth quarter gross to net to be at the midpoint of the 20% to 30% range we had previously discussed. Starting in the first quarter and continuing throughout 2026, we expect our gross to net impact to be in the high 30% range, which is consistent with other innovative multibillion-dollar specialty medicines. So objectively, we're in a great position. We are executing on one of the most successful specialty launches in the industry with less than 10% of our target market treated, the growth opportunity ahead is substantial. We have taken a thoughtful approach to contracting, which provides for outstanding patient access and durable long-term growth. In short, this strategy paves our path to peak sales. Beyond the U.S., we are expanding access to Rezdiffra as shown on Slide 11. We're taking a focused country-by-country approach in Europe and launched in Germany at the end of September. Just like in the U.S., the team is wiring the system for a first-in-disease launch. This requires educating physicians on the risks of MASH and the urgency to treat. We are also driving change in clinical practice to develop processes for patient identification, diagnosis and use of noninvasive tests. This work happens practice by practice to help develop the infrastructure for sustained adoption. The team is off to a great start, and we anticipate our efforts will start to make an impact in 2026. Now I'll turn it to Dave to discuss the second pillar of our strategy, expanding our pipeline to extend our leadership and build long-term value. Dave? David Soergel: Thanks, Bill. It's an incredibly exciting time to be at Madrigal. Over the past 6 months, I've had the opportunity to work closely with this exceptional team. And the more I dug into our programs, the more energized I've become about what we're building. We're not just advancing a pipeline, we're laying the foundation to transform how MASH is treated. As shown on Slide 12, we already have a robust clinical program for Rezdiffra. Our Phase III MAESTRO-NASH outcomes trial in compensated NASH cirrhosis or F4c, is expected to read out in 2027. Positive results could make Rezdiffra the first approved therapy for F4c and support full approval in F2/F3. Our ongoing Phase III MAESTRO-NASH trial in F2/F3 MASH is expected to read out in 2028 and would also support full FDA approval. Beyond Rezdiffra, we're building a pipeline through our business development efforts. To date, we've added an oral GLP-1 now called MGL-2086, which we intend to develop in combination with resmetirom to deliver a best-in-disease, well-tolerated oral combination. As we think about how to build our pipeline further, we're looking for mechanisms that fit scientifically, strategically and commercially, those with complementary biology and combination potential. Continued success in treating patients will come from combining mechanisms and tailoring treatment regimens to specific risk factors, much like what we've seen in other chronic complex diseases. With Rezdiffra's patent protection into 2045, we can be thoughtful and disciplined and build the right kind of pipeline that will define the future of MASH care. The combination of our oral GLP-1 and THR beta agonist is a great example of this approach to building the pipeline. For MAESTRO-NASH, we know that even a modest amount of weight loss enhances resmetirom's efficacy. So unlike incretin monotherapies that strive for double-digit weight loss, we've seen that as little as 5% weight loss can enhance Rezdiffra's efficacy in MASH. This will allow us to dose escalate the MGL-2086 component of the combination with the goal of optimizing both efficacy and tolerability in a once-daily oral pill. It is also important to note that with the combination, patients would be on an effective dose of resmetirom on day 1 as the MGL-2086 dose is being adjusted in contrast to injectable incretin monotherapies that require a lengthy titration period. On Slide 13, we see how these mechanisms could work well together. GLP-1 works from the outside in, improving systemic metabolism, insulin sensitivity and weight loss. Rezdiffra works from the inside out, reversing hypothyroidism in the liver, restoring mitochondrial function and increasing fat processing through beta oxidation. The combined mechanisms lead to lower levels of inflammation and inhibition of stellate cell activation and downstream fibrosis. By combining these complementary mechanisms, we expect to see greater reductions in both liver fat and fibrosis. We plan to start a Phase I trial for MGL-2086 in the first half of next year. Next, let's move to our Phase III MAESTRO-NASH outcomes trial in compensated MASH cirrhosis or F4c on Slide 14. People living with F4c MASH today have no effective treatment options that prevent progression of their disease to decompensated cirrhosis. Our 2-year open-label extension data presented at EASL earlier this year demonstrates sustained efficacy of Rezdiffra in this population and supports our confidence in the ongoing MAESTRO-NASH outcomes trial. Knee liver stiffness decreased by 6.7 kilopascals at 2 years, a statistically significant reduction from baseline. More than half the patients achieved at least a 25% reduction in liver stiffness, a level tied to improved outcomes. And 65% of patients with clinically significant portal hypertension or CSPH, at baseline moved to a lower risk category by year 2. CSPH is a key driver of the most severe outcomes of cirrhosis and marks the tipping point into decompensated disease. Improvement in CSPH suggests Rezdiffra could delay or even prevent life-threatening complications. We'll be presenting new data from this 2-year open-label F4c cohort at AASLD later this week, as noted on Slide 15. And what I'm really excited about is that this data shows promising efficacy in even the most advanced F4c patients who are on the cusp of progressing to liver decompensation. This is the first time any data will be shown in such a severe population, which gives us additional confidence in our outcomes trial. Also at AASLD from our Phase III MAESTRO NAFLD-1 trial, we'll highlight how F2/F3 patients progress when Rezdiffra treatment is interrupted, demonstrating the importance of staying on therapy. We'll also share multiple posters that examine early real-world experience with Rezdiffra and the burden of uncontrolled MASH across health systems. In total, MASH will have 15 abstracts, including 2 oral presentations and 2 posters of distinction. With that, I'll hand over to Mardi. Mardi Dier: Yes. Thank you, Dave. Turning to Slide 16 and a summary of our financials. Third quarter 2025 net sales totaled $287.3 million, up 35% from the second quarter of 2025. This was another strong demand quarter. As Bill mentioned, we're making great progress with our contracting discussions for continued broad first-line access to Rezdiffra in 2026, with no step-through requirements and improved utilization management criteria. As a reminder, there are several components to gross to net, including commercial rebates, government rebates, co-pay assistance costs and channel distribution costs. Across the board, the team has done an exceptional job managing these dynamics, and we're seeing minimal impact through the third quarter of this year. As certain contracts take effect in the fourth quarter, we anticipate a step-up in the gross to net impact to the midpoint of our 20% to 30% range, resulting in a full year average near the low end of that range, a great outcome for 2025. Looking ahead to 2026, we expect the full effect of our payer agreements to begin January 1, bringing our total gross to net impact into the high 30% range, consistent with specialty medicine analogs. As noted, we are confident that we will continue to steadily add Rezdiffra patients, and we expect robust net sales growth for Rezdiffra in 2026 and beyond. R&D expenses for the third quarter of 2025 were $174 million compared to $68.7 million in the third quarter of 2024. The increase was primarily due to the one-time $117 million expense associated with the global licensing agreement for MGL-2086. This was expensed in the third quarter and will impact fourth quarter cash flows. SG&A expenses for the third quarter of 2025 were $209.1 million compared to $107.6 million in the third quarter of 2024. The increase primarily reflects the annualization of higher commercial investment to support the Rezdiffra launch. Looking ahead, we expect fourth quarter R&D expenses to be modestly higher than third quarter levels, excluding the third quarter one-time expense for our oral GLP-1 and expect fourth quarter SG&A expenses to continue to increase quarter-over-quarter as we continue to support the launch of Rezdiffra. Turning to our balance sheet. We ended the third quarter of 2025 with $1.1 billion in cash, cash equivalents, restricted cash and marketable securities. The increase reflects the $350 million initial term loan under our senior secured credit facility, a portion of which was used to repay all outstanding obligations under the Hercules loan facility, offset by the funding of operations. With this strong cash position, we continue to be well resourced to support the ongoing launch of Rezdiffra and advance multiple pipeline programs. With that, on Slide 17, let me briefly recap our third quarter progress where we remain focused on our top line and our pipeline. We are driving strong performance in our sixth quarter of our launch with Rezdiffra now annualizing over $1 billion in net sales and expect continued strong growth in 2026 and beyond. More than 29,500 patients are on therapy, and we expect to continue to steadily add patients going forward. We've reached another major launch milestone with greater than 10,000 prescribers. Our payer discussions are progressing very well, and we expect continued strong access for patients in 2026, and we're working to further expand our pipeline to solidify our leadership in F2 to F4c MASH. And now I'll turn the call back over to Tina and open up the Q&A session. Tina Ventura: Thanks, Mardi. Let's move into the Q&A portion of the call. Marvin, please go ahead and provide instructions for the Q&A session. Operator: Our first question comes from the line of Yasmeen Rahimi of Piper Sandler. Yasmeen Rahimi: Congrats to a great quarter. Team, with AASLD right around the corner, would love to learn sort of how this 2-year data, especially the NIT-driven responses could further derisk MAESTRO-NASH outcome, which is reading out in 2028? And also maybe also some color on what visibility do you guys get in terms of that it's on track based on event rates to come in at that time point? And I'll jump back in the queue. William Sibold: Yes. Thanks for the call. And look, we're really, really excited about AASLD. I'll tell you, we're just coming off of the ACG meeting in Phoenix. I guess it was just last week. And what a difference a year makes when you think about the progress that we've made with the gastroenterologists. I mean a year ago, people didn't know about NITs. They were still putting their pathways in place. And now we're seeing that Rezdiffra has really moved to being the foundational therapy standard of care with that audience and a lot of positive feedback. So, we're headed into the Super Bowl this week with AASLD. We're really excited about it. We have a lot going on. But maybe, Dave, do you want to provide a little bit of context around some of the data and so forth? David Soergel: Yes. I think your question, yes, had to do with the data that we're reading out at AASLD and how it reflects on MAESTRO outcomes. Is that correct? Yasmeen Rahimi: That's correct. David Soergel: Okay. Great. Yes. So, as we presented at EASL and as we showed in the presentation, we have an open-label cohort of individuals from the MAESTRO NAFLD study where we've been able to show sustained efficacy of Rezdiffra in this cohort, both on liver stiffness and on a variety of biomarkers, including LFTs and so forth. So, at AASLD, we're looking more deeply into this cohort and examining some of the more severe patients within this cohort and understanding whether Rezdiffra's efficacy in this group as well. And what we see is really exciting and gives us a lot of confidence about, about MAESTRO outcomes. And so the reason why this is important is because when you think about MAESTRO outcomes and you think about this open-label cohort, the patient populations are really very similar. So, the baseline characteristics are similar. And so when we see efficacy in the open-label group, it gives us evidence and a lot of confidence that the outcomes trial will end up being positive as well. Operator: Our next question comes from the line of Jay Olson of Oppenheimer. Jay Olson: Congrats on the quarter. Can you talk about the pros and cons of combining resmetirom with MGL-2086 versus some other oral GLP-1 like orforglipron? And then any other potential mechanisms beyond GLP-1 that might be synergistic with resmetirom? William Sibold: Jay, thanks for the question. Just for clarification as well, our oral GLP-1 is an orforglipron derivative. So, we were very, very specific in the criteria that we had for selecting a oral GLP-1, and we wanted to be in an orforglipron derivative. But maybe, Dave, do you want to talk a little bit about it and a little bit about the future mechanisms and just how we're thinking in general about potential combinations? David Soergel: Yes. So, I mean first, the GLP-1 mechanism and why one would combine resmetirom with the GLP-1. So, what we know from MAESTRO-NASH from the 52-week experience in MAESTRO-NASH is just a little bit of weight loss enhances resmetirom's efficacy. So, we see better antifibrotic effects with resmetirom in people who lose as little as 5% of their body weight. So, it's a natural sort of extension of that to consider combining with the GLP-1 that can produce a bit of weight loss, have some metabolic benefits and enhance resmetirom's efficacy in a fixed-dose combination. So that's the rationale for combining with the GLP-1. But your point is a great one. There are other mechanisms that may also be attractive to combine resmetirom with. And there are multiple pathways in this very complex disease of MASH that lead to hepatic steatosis, fibrosis and ultimately poor outcomes in patients. So, as we've said before, we're looking at pretty much every mechanism of action to potentially combine with resmetirom where there's a good scientific rationale for it and where we believe that the combined efficacy is going to be an advantage to patients. So, we're casting the net wide, and we're looking for the best opportunities. William Sibold: Yes, Jay, and just also a little context as well here. With the IP to 2045, that gives us time to really thoughtfully think about building this pipeline. We're not in a rush just to try to fix a problem of a pending patent cliff. We can thoughtfully think about building a franchise that's durable because starting with the 2045 IP for Rezdiffra. Thanks for the question. Operator: Our next question comes from the line of Michael DiFiore of Evercore ISI. Michael DiFiore: Congrats on the continued progress. Just 2 quick one for me. In light of the recent M&A in the space, I would love to get your thoughts on Madrigal's future competitive positioning and market access once large pharma inevitably bundles their MASH assets, if approved. And the second question I have is just any thoughts on Sagimet's plans for testing denifanstat with Rezdiffra. I realize your priority is focusing on the combination therapy with your own GLP-1, but would Madrigal be open in principle to combinations such as this? Or is this just too early at this stage? William Sibold: Yes, Mike, thanks for the question. Let me start with that one. We don't know what Sagimet is doing. We haven't spoken with them, don't know any of the plans. So, is it a combination that makes sense? Maybe, but we're not involved in that and don't really know. So that's all I'll comment at the moment there. Look, the recent M&A really for us is a validation of the MASH market. Ultimately, what we see happening in these markets, and we talked about IBD, RA and psoriasis. You would have -- and we're a little bit like that where you have a company shows that there is a market and an attractive opportunity. And then the investment in innovation, science and ultimately more products really accelerates. And that's what we think is going to happen in MASH. We're leading the way in this case. Now the recent moves of the big pharma to get an FGF21, we think validates that. And we're excited about it because that means there's going to be more attention on the space, which ultimately leads to greater diagnosis, treatment. And with the profile that we have with Rezdiffra, we think it ultimately favors us. So we -- in creating our market access strategy, we've taken a very long-term approach, just like we did from day 1 when we announced approval of the product, you almost have to start with 2045 where Rezdiffra's IP goes out to, that we're going to have F4c, that we're going to have a pipeline and there's going to be other products that enter. So, everything has been thoughtfully designed with that end in mind to preserve the most value for not only Rezdiffra, but for our franchise of the future. So, we feel we're in a really strong place. Now Dave just talked a little bit about F4c. We're really excited about the data that we've seen, and we're very confident about hitting in our MAESTRO-NASH outcome study, which we are reading out in 2027. Of course, we've got to read out. It's an event-driven study, and we'll anticipate those results. We think that from a competitive perspective, our data is going to be the leading data in that space with that population so that we will be the leaders not only in F2/F3, but from F2 to F4c. So all of this is thought out. We're thinking of things in the long term. We think of that how we build a pipeline, how we evolve gross to net and how we interact with the community. Let me just be crystal clear. Our goal is to not be leaders in the short term, but to have long-term leadership in MASH. Operator: Our next question comes from the line of Akash Tewari of Jefferies. Akash Tewari: So, we're hearing feedback that Rezdiffra's adherence rate is meaningfully higher than the kind of 40% to 60% your team cited for drugs in this category, more in the order of 80% plus. Can you confirm that? And then also, how should we think about Rezdiffra net pricing? I know you've talked about -- we've heard GLP-1 players talk about mid-single-digit net price declines annually. Is that a similar dynamic for Rezdiffra? Or should we see stable net pricing after you get into like the high 30s range on gross to net next year? William Sibold: Thanks for the question, Akash. Look, first of all, on the adherence, I think what we've said about -- at the 1-year rate, well-tolerated orals are in that 60% to 70% range. So that doesn't -- that hasn't changed our view. And we are -- the data that we have today, remember, there's still only so many patients that are getting to that 1-year mark that we are similar to well-tolerated orals. And like you, we've heard very positive feedback from a lot of clinicians that are treating patients and seeing very strong adherence. And I think that again goes back to the profile of the product. So, all encouraging and as we would expect. To the question of gross to net and what we would expect to see. Look, I think that you looking ahead to the future, gross to net only goes in one direction, right? And the difference after '26, you don't have this 0 to contracting effect. After '26, we'll have contracting right now, we're going to be bidding on 2027 Medicare. We have some Medicare in place for '26. So, you expect to see some future decline in gross to net because that's just what happens. But again, we had this effect of 0 to contracting in -- as we enter 2026. So, look, we think that we are in a really great place. Our strategy is for broad first-line access, no step edit and improved utilization management criteria. That was the goal. That's what we're achieving. So, we're really, really excited about where we are entering 2026. In fact, I would say, in my experience, I really believe that this is as good as you could possibly be for a product of this stature at this point in launch. In fact, I would go as far as to say, I think this is the best market access from a criteria perspective and everything that I've seen with any of the launches that I've done. Operator: Our next question comes from the line of Thomas Smith of Leerink Partners. Thomas Smith: And let me add my congrats on the really strong quarter. Another one on coverage. I appreciate the high-level comments here on the payer contracting efforts, I think everyone saw the recent Aetna formulary coverage decision. Could you just comment specifically on that and the potential impact of noncovered decisions? And then any comments on kind of where you are with respect to the contracting for commercial lives next year? Is there an explicit goal or expectation for what percent of commercial lives you think will continue to have that broad first-line access to Rezdiffra for 2026? William Sibold: Yes. Thanks, Tom. Maybe I'll start there. Look, we're expecting broad commercial live coverage. So, we feel really good about that at this point. As it relates to Aetna, let me start with Rezdiffra wasn't on formulary in 2025, and it's not again in 2026. So that is really no change. So, we don't expect to see a meaningful impact here. It will be available through prior authorization or medical exception. And so that's not a practical change in access for patients. And our Madrigal patient support team are really experts at helping patients navigate and helping practices navigate through that. So yes, no change, no effect. Operator: Our next question comes from the line of Andrea Newkirk of Goldman Sachs. Andrea Tan: Bill, recognizing it's still early here, but just curious if you've observed any signs of Novo's marketing campaign broadening the pool of addressable patients to date. Do you still believe that 315,000 patients is the accurate number for Rezdiffra's target population? And then, Mardi, if I can just ask quickly, just in the context of the successful launch that you've seen to date, how are you thinking about the path to profitability from here? William Sibold: Thanks, Andrea. Well, look, this is the first quarter where we've had Novo in the market. And you saw that we continue to steadily add patients. And I think by all measures, had an absolutely outstanding quarter. So, 3 months in, we haven't really seen too much. We know that they seem to be educating PCPs and trying to drive diagnosis, which we think is ultimately great for patients in the market. We're starting to hear some practices say, and this is very anecdotal at this point that they are reporting more referrals that are coming in. But it's a little early to quantify if there is additional growth to the market as we get through the end of the year and be able to do a more proper analysis, we'll come back with any real growth rates. Now the 315,000, great question. Look, let's just remind people, the 315,000 are the diagnosed patients in the 14,000 prescribers that we're targeting. And we know that we have patients that are on Rezdiffra now that weren't part of that 315 that they were newly diagnosed. And we also know that the diagnosis rate at the moment remains quite low. Originally, we saw it as around 10% diagnosis rate. So, we know that there are more prevalent patients out there. And I think what we will see and what we're excited about is having somebody else that is going to help us carry the load of increasing diagnosis. It's not something that's been a focus of ours. It still remains not a focus of ours. But when we have somebody else who needs to have literally millions of patients that are diagnosed in order to serve their needs, that ultimately helps us. That's why we said in the script, it's also -- it's the 315,000 that we win from and the increased diagnosis and ultimately people that can't tolerate or have an effect with a new competitor that will ultimately come to us. So, a little early to quantify. We'll do so in later quarters, but we see some signs that we're starting to see additional growth. Novo, we just don't really have a lot of information, haven't seen them too much out there. But clearly, they are there and starting to drive a little bit more diagnosis. Mardi Dier: Great. Yes, go ahead. Yes. Thanks, Andrea, for the question on the path to profitability. And our focus right now and into 2026 is really focused on driving our top line and then building out our pipeline, which Dave described. That's going to be our focus going forward. It doesn't mean profitability won't happen at some point. But again, we're focused on the top line and building out R&D and continuing to support our efforts in building out the MASH -- our leadership in MASH. Operator: Our next question comes from the line of Andy Chen of Wolfe Research. Unknown Analyst: It's Emma on for Andy. Rezdiffra uptake has been strong so far, and you mentioned the strong 60% to 70% adherence rate. I know it's still very early days in the launch, but I guess how do these dynamics inform your view of the drug's chronic use potential and just steady-state demand over the long term? William Sibold: Thanks, Emma. Look, I think that this is where we win. We have a profile once-a-day pill that is well tolerated and the feedback, some have reported extremely high adherence rates. So, we feel extremely well positioned for this to be a long-term chronic therapy. It's really one of the exciting parts of Rezdiffra. And as I said, versus other categories, which have become really multibillion over $20 billion categories, the profiles, especially the profiles initially of products to launch were kind of hairy, right? They just -- they weren't orals. They had tolerability issues, sometimes safety issues. We feel that we have got -- and you've heard me refer to it in the past as what I believe is kind of like a holy grail profile. That's something which is where we win in this category, frankly. At the end of the day, profiles matter. This is a product which is really designed for chronic use. So, we feel really good. David Soergel: Can I just add on one thing. The other part that also, of course, matters is sustained efficacy. And I think what we're showing at AASLD gives us a lot of confidence in the sustained efficacy of resmetirom in this group. And in fact, what we show in the F2/F3 population is that if you come off of therapy, you have reversion of your disease, which is, of course, a big challenge. So, I think those 2 facets, both the efficacy, sustained efficacy and the sustained tolerability are 2 big. Operator: Our next question comes from the line of Ritu Baral of TD Cowen. Ritu Baral: I wanted to ask, well, 1.5 questions. One on this growth forward given the 2 strategies, Bill, that you outlined, one, sales force expansion and marketing to the endocrinologists. But at the same time, you mentioned that you want depth in the going-forward marketing strategy. So, can you help us reconcile the 2 and what sort of metrics and current targets for depth that you hope to report and how GLP-1s figure into all this? And this is a very quick e-mail that we've been getting from clients. We're having a problem sort of stretching the patient numbers with the revenue numbers. Are there any elements to either stocking or Europe or some other aspect of those numbers that need to be addressed in our models to reconcile everything reported this morning? William Sibold: Yes. For the quarter, nothing to do with inventory, nothing to do with Europe. I mean, just to be crystal clear, U.S. demand is the driver of the success for the quarter. So let me take that one. Next, let's talk about growth going forward and your question about how do we manage expansion, if you will, of into endocrinology and death otherwise. We can walk and chew gum at the same time, so to speak. We have to continue to be building for the future as well. Remember, we've got 20 years ahead of us from an IP perspective. So, we are going to look for where to currently focus and where do we want to explore. And that's exactly what we're doing here. We've already from -- and you know we've been always looking at a basket of products in the last 10 years that have been great specialty launches, and we look at each metric, and we're kind of at or near the top on a number of those. Breadth, we're doing great as well. But you need to continue to grow your depth of prescribing, right? I mean we have 10,000-plus prescribers. Now your next step, and I consider that like a checkmark, now you go deeper and deeper into that set of core physicians, which are gastroenterologists and hepatologists. Now the pursuit now of the endocrinologists, that we had endocrinologists targeted as part of the 14,000. But what we've seen is additional endocrinologists have come forward and said, "you know what, I'm still seeing a lot of MASH and would like to learn more about Rezdiffra. So, there was enough interest that we said, let's put a dedicated team on that opportunity. Just to give you a sense, it's not a huge number. It's a couple of thousand physicians that we add to the target list. And that can be handled with a very concentrated dedicated effort. And we'll see how that evolves. And one of the interesting things is, as you talk about GLP-1s, if GLP-1s were truly solving MASH, there wouldn't be a need in this prescriber group that uses GLP-1s predominantly that another product would be needed. So, I think that, that is a very good sign for us as well that GLP-1s aren't the solution. They've been on the market for over 10 years. You've got a specialty that uses them, and they still are looking for Rezdiffra. So, we're putting an effort there. So, this is a little bit of a -- we have our present focus, which is driving breadth, and we are starting with these endocrinologists, which you have to wind the clock back to even before '24 because they're not familiar with NITs. They're not -- they don't have their system wired at all. So that's going to take a very long time for them to really get catch up to where gastroenterologists and hepatologists are now. But we think it's worth effort, resource, and we think there's promise for the future there as well. Operator: Our next question comes from the line of Jon Wolleben with Citizens. Jonathan Wolleben: Bill, wondering if you could comment a little bit as we look down the road at expected GLP price erosion how that might affect access and payer decisions for Rezdiffra? William Sibold: Thanks, Jon. Well, look, I think if you -- I'll take you back to the comments that we made on the call that in January, we would expect to be in the high 30% range. That is in the presence of a rapidly, I would say, eroding gross to net of GLP-1s. So, we believe that we are well positioned for the future. As I said, gross to net only goes in one direction. But I think you have to start with the problem that we're trying to solve. This is an expensive disease. I think if you take a look at ICER recently commented again on products that they have recently reviewed. And we're seeing that once again, Rezdiffra is highlighted as a product that is looked at as cost effective and really is offsetting the very costly disease without intervention. So, I think that you have to start with the problem you're trying to solve. This is an expensive disease. I think payers understand that. Certainly, the system is starting to understand that. So, you're always going to have products that have different prices within the category. And we've seen even with the categories that I mentioned today, IBD, RA and psoriasis, there's huge variability. But there's a need for more than one medication. There's a need for multiple mechanisms, and you ultimately have to try to solve the problem in front. And we, through an independent third party, ICER, have proven twice now about the cost effectiveness of Rezdiffra. Operator: Our next question comes from the line of Prakhar Agrawal of Cantor Fitzgerald. Prakhar Agrawal: And congrats on another strong quarter. So, appreciate the clarity on the gross to net for 4Q and 2026. But maybe if you can talk about your expectations for 4Q growth and comfort around 2026 consensus estimates with this set? And maybe second question, what percentage of Rezdiffra volume currently is Medicare? And how are you thinking about the implications of semaglutide IRA pricing decision on the long-term prospects for that channel? William Sibold: Great. So let me just give you -- I'll give you the quick answer on what the distribution is. We're anticipating it's 50% to 55% commercial, 30% to 35% Medicare and then about 10% Medicaid and other. We're still -- remember, we're at less than 10% penetration here. So that's going to evolve a little bit in time, but we're staying in that range at the moment. Maybe, Mardi, do you want to talk about Q4? Mardi Dier: Yes, definitely. Hi, Prakhar, thanks for the question. So, listen, we've had a great 2025 so far in fourth quarter. We expect that to continue in terms of steadily adding patients, really sort of the driver for our business. We don't see any change there. We did have a very high base in our revenue coming into third quarter that was very much patient demand. We did have some favorability in gross to net, which we discussed in a high demand quarter from an inventory standpoint. So, we're in a very strong position. But going into fourth quarter, working off that base and taking into effect that there's fewer selling days in the fourth quarter in general, and that as we discussed, the gross to net begins to -- we'll see the commercial rebating starting to take effect in the fourth quarter. So, we'll be at the midpoint of that 20% to 30% range. All that put together, we think we'll see high single-digit growth quarter-over-quarter going into the fourth quarter, but still a very strong quarter. And of course, we're on over $1 billion run rate in revenue. So fantastic. William Sibold: And Prakhar, maybe just one comment there as well. I think more and more the measure turns to patients and patients being treated. And as you can see, we are doing really, really great in our steadily adding patients, and that's something that is going to, we've said, remain to be steadily adding in the future and feel really, really great. Again, where we are, it's less than 10% penetration. There's a ton of patients that are out there that still need to be treated, and that represents a great opportunity for us. Mardi Dier: Yes. And I just wanted to come back to 2026 that Prakhar asked about, too. So again, everything Bill just said for the steadily adding patients, we see that going into 2026 as well. So steadily adding patients, we anticipate and we said in the script, robust net sales growth in 2026. But if you think about -- just think about the phasing, right? So we're going to have the impact of the gross to net starting in January right at the beginning of the year. So you're going to see that step up from the contracting and we will be in the high 30s. And of course, we always have the Q1 effect on top of that, right? So, in terms of the phasing, you'll see some of that play through in 2026. But net-net, we see robust growth going into 2026. Operator: Our next question comes from the line of Srikripa Devarakonda of Truist Securities. Srikripa Devarakonda: Congratulations on the quarter. I was wondering if you can talk a little bit on the expected cadence for EU launch and how that -- when we think about 2026, that might add to the growth? I know it takes time for EU launches. And also the SG&A that was reported, does that include sales force in Europe? Or should we be thinking about slight increase in SG&A over the next several months to reflect sales force on the ground in Europe? William Sibold: Mardi, do you want to take that first? Mardi Dier: Yes, I'll definitely answer the SG&A question first, and we can talk about just EU launch in general. So, SG&A for building out Germany, right? So that where we're only launching there as of right now is included in our SG&A expenses. And you'll continue to see that included in SG&A. But as we said, when we move into country by country, we're going to be very disciplined, and we look at a 2 to 3-year positive contribution metric for each country. So, the spend will increase with Europe. But again, we're mindful with each country. And then just the EU launch, let's just talk about that. I'll start and Bill, I don't know if you want to add? But we did start launching in the third quarter, but really, we were just testing the channel. So just de minimis amount of revenue for 2025, we believe, and where we said we can start that -- we can start seeing some impact in 2026. So, I would say the robust sales growth that we're talking about 2026 is by far and predominantly the U.S. sales growth and adding patients, which we've discussed. And Europe, again, it's going to play out. It is slow. We have to build the system. We have to wire the system in countries in Europe. It will just be Germany next year. So it will be -- it will add, but not a significant amount. William Sibold: Yes. I think that's really, really great comment. It is Germany right now, and we're really excited. I mean, first of all, we've hired an outstanding team there. The team is great. The feedback that we're getting is that MASH is -- needs to be treated. It's prevalent, very similar to the U.S. in that sense, but it takes time, right? You got to wire the system. It's practice by practice, it's prescriber by prescriber. And we're taking all the steps in the usual next countries to look at as well. We've started putting teams in place that are evaluating the market and our launch strategy there. And again, just absolutely high-quality team that's in place. So, we feel really good about the long-term prospects, but we also know that there's a lot of wiring to do, and we've got to navigate the reimbursement process in each country, which takes some time, but we got a great team to do that. Operator: Our next question comes from the line of Kaveri Pohlman of Clear Street. Kaveri Pohlman: Congrats on the progress. Are there any systemic differences or challenges in insurance approval rates for Rezdiffra depending on whether the prescription comes from an endocrinologist versus a hepatologist or gastroenterologist. And maybe just like a connected question to that. Besides the clinical data that you showed on Slide 14, is there any real-world evidence that you have collected or showing that Rezdiffra can prevent or delay the progression of F4 cirrhosis perhaps based on the feedback from its current use by physicians? In other words, is there like any evidence leading to the preference of Rezdiffra or GLP-1s in F2/ F3 MASH patient? William Sibold: Yes. Thanks for the question. Maybe starting there. We're seeing more and more real-world evidence that's coming to life. Some of it will be presented at AASLD this week or this week into next week. And we expect as more patients start to hit the 1-year mark and beyond that there will be more. Anecdotally, we're hearing really, really great feedback. When you launch a product, you never know what's going to happen in the real world. You have your clinical data and you're not sure what real-world experience is going to be. So far, the anecdotal feedback has been extremely strong by prescribers, and they're seeing effects on, obviously, liver fat. They're seeing effects on fibrosis and all the other myriad of other things, LSTs, lipids, et cetera. So, we're really excited about the real-world evidence reading out. And we've done work with claims databases, et cetera. So more to come, but early indicators are extremely strong. So really excited about that. To your first question, it really is payer to payer about, this is this utilization management criteria, who can prescribe, et cetera. And for the most part, it is -- it refers to specialists. And in the specialists, that can be hepatologists and gastroenterologists. And then in some cases, it may or may not name endocrinologists. So, it's usually either a requirement to be prescribed by a specialist or in consultation with a specialist. But again, that's something which really varies on a plan-by-plan basis. We don't see that as a any kind of a hindrance now. And remember, our focus is the specialists. We believe Rezdiffra should be prescribed by these specialists. Now in time, that may change, but we think that this is a very serious disease. It is a very serious disease, and we want to have the specialists get experience with Rezdiffra in treating these patients before it would ever extend beyond that. And that's crystal clear we make that crystal clear with payers as well. That is our intent. Tina Ventura: Great. Thanks, Bill. And thank you all for your time and interest today. This now concludes our call. A replay of this webcast will be available on our website in approximately 2 hours. Thanks for joining us. Operator: Ladies and gentlemen, thank you for your participation in today's conference. You may now disconnect. Have a wonderful day.
Operator: Welcome to Nuveen Churchill Direct Lending Corp's Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. I would like to turn the conference over to Robert Paun, Head of Investor Relations for NCDL. Robert, please go ahead. Robert Paun: Good morning, and welcome to Nuveen Churchill Direct Lending Corp's third Quarter 2025 Earnings Call. Today, I'm joined by NCDL's Chairman, President and CEO, Ken Kencel; and Chief Financial Officer, Shai Vichness. Following our prepared remarks, we will be available to take your questions. Today's call may include forward-looking statements. Such statements involve known and unknown risks, uncertainties and other factors and undue reliance should not be placed thereon. These forward-looking statements are not historical facts but rather are based on current expectations, estimates and projections about the company, our current and prospective portfolio investments, our industry, our beliefs and opinions, and our assumptions. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control and difficult to predict. Actual results may differ materially from those expressed or forecasted in the forward-looking statements. We ask that you refer to the company's most recent filings with the SEC for important risk factors. Any forward-looking statements made today do not guarantee future performance and undue reliance should not be placed on them. The company assumes no obligation to update any forward-looking statements at any time. Our earnings release, 10-Q and supplemental earnings presentation are available on the Investor Relations section of our website at ncdl.com. Now I would like to turn the call over to Ken. Kenneth Kencel: Thank you, Robert. Good morning, everyone, and thank you all for joining us today. Today, I will start by discussing our results for the third quarter. And then I'll discuss current market conditions, our origination activity, portfolio positioning and our forward outlook. Following my comments, I will hand the call over to Shai for a more detailed discussion of our financial performance. This morning, we reported net investment income of $0.43 per share during the third quarter compared to $0.46 per share in the second quarter. Gross originations totaled approximately $29 million in the quarter compared to $48 million in the second quarter of this year. Similar to the prior quarter, the decline quarter-over-quarter was intentional as we continue to operate towards the higher end of our target leverage range. As I will discuss later in my prepared remarks, the Churchill platform continued to see strong asset growth and new originations during the quarter. Our investment portfolio remains healthy, and our portfolio companies continue to perform well. Largely due to the strength of our Senior Loan Investments. Net asset value was $17.85 per share as of September 30 compared to $17.92 per share as of June 30. The modest decline quarter-over-quarter was primarily due to due to a slight decrease in the fair value of certain underperforming portfolio companies. Turning to the current market environment. M&A activity continued its positive momentum in the third quarter, building on the rebound in market sentiment that began towards the end of the second quarter. Investment activity has now returned to a more normalized level, following the pause in activity after a Liberation Day. Stabilizing market conditions and renewed sponsor confidence in the macro environment contributed to increased transaction execution. During the third quarter, the Federal Reserve began an interest rate cut cycle with a 25 basis point cut in September and another 25 basis point cut in October, with further rate cuts anticipated but not guaranteed. Against this backdrop, with a predominantly floating rate portfolio, NCDL and other private credit funds are interest rate sensitive. Partially offsetting this dynamic NCDL has the benefit of a floating rate debt capital structure as well as a lower interest burden for our portfolio companies. We believe the latter should drive growth dynamics as portfolio companies will have more capital and cash flow to reinvest into growth areas of their respective businesses. In addition, a lower interest rate environment typically encourages increased M&A activity due to lower financing costs for private equity-backed businesses. Despite the potential for further rate reductions, we continue to see an attractive risk-return profile for private credit and direct lending, especially on a relative basis compared to other fixed income asset classes. We also witnessed significant market volatility in private credit funds, particularly BDC stock prices over the past several weeks, following significant media attention given to two large bankruptcies. We want to make it clear that NCDL and any other Churchill vehicles do not have any exposure to either of these two investments, Tricolor and First Brands. We also do not see any evidence of broad-based challenges across our portfolio. At Churchill, we focus on sponsor-backed businesses with significant equity cushions. And we have long-standing experience focusing on less cyclical, more defensive end markets that demonstrate resilience across market cycles. As we continue to end the year strong and look towards 2026, we remain optimistic about the long-term prospects of the company given our positioning as a leader in the core middle market. Our long-standing performance track record, deep network of sponsor relationships and extensive LP commitments across the broader Churchill platform, and we remain intensively focused on continuing to invest in high-quality assets and deliver attractive risk-adjusted returns to our shareholders. Now turning to our investment activity. As I mentioned earlier, our pipeline for new deal flow started to increase and returned to a more normalized level in June of this year, following the temporary pause in April and May. During the third quarter, we continued to see an increase in transaction activity, particularly new deals for high-quality assets that are in resilient nontariff exposed sectors. At the Churchill platform level, the number of deals reviewed in the third quarter increased 22% from the second quarter of this year. And in the first 9 months of Churchill closed or committed $9.4 billion across 265 transactions, driven by a record-setting first quarter and a resurgence of activity in the third quarter. During the third quarter at NCDL, we continue to reduce allocation sizes to new deal flow, primarily due to the fact that we are operating at the high end of our target leverage range. With that said, we continue to benefit from attractive opportunities and activity at the Churchill platform level. Although the percentages of allocation to junior capital and equity were higher during the quarter, we remain focused on senior lending, which represents approximately 90% of the fair value of the overall portfolio. We also remain focused on the traditional core middle market, benefiting from our differentiated sourcing and long-term track record. We continue to target companies with $10 million to $100 million of EBITDA, which we believe helps insulate us from the more aggressive structures and loosening terms prevalent in the upper middle market and broadly syndicated loan space. It is our view that risk-adjusted returns in this segment of the market remain among the most compelling in private credit, particularly for scaled, highly selective managers with deep private equity relationships. We see the core middle market as a durable opportunity to generate great long-term value and enhanced portfolio diversification for our investors. In terms of our portfolio and credit quality, the continued strength of our portfolio reflects healthy overall performance from our borrowers as well as the quality of deal flow we've experienced over the last several years. In addition, our rigorous underwriting High level of selectivity and focus on diversification have been critical to minimizing losses and generating strong returns across multiple market cycles. That same discipline extends to today's shifting macro landscape. As of September 30, our weighted average internal risk rating was 4.2, versus an original rating of 4.0 for all of our investments at the time of origination and our watch list remains at a very manageable level of approximately 7% of fair value. Credit fundamentals within the NCDL portfolio remains strong with portfolio company total net leverage of and interest coverage of 2.3x on traditional middle market first lien loans. These metrics are a direct result of conservative structuring, and relatively low attachment points that we target when underwriting new transactions. NCDL had two new nonaccruals during the third quarter, which were relatively smaller positions in the portfolio. Despite the slight increase in nonaccruals this quarter, we believe our percentages continue to compare extremely well versus BDC industry averages. As of September 30, nonaccruals represent just 0.4% of our total investment portfolio on a fair value basis and 0.9% on a cost basis. We believe the strength of our platform, including experienced workout and portfolio management teams will continue to drive favorable results. Portfolio diversification remains a key focus of ours within our overall investment portfolio. This has been achieved with a continued high level of selectivity, facilitated by the significant proprietary deal flow our sourcing engine is able to generate from the breadth and depth of our PE relationships. As of September 30, we had 213 companies in our portfolio, and our top 10 portfolio companies represented less than 14% of the total fair value. This diversification is critical as we seek to maintain exceptional credit quality and originate additional attractive opportunities. From a forward-looking perspective, we continue to have an optimistic outlook for private credit based on significant tailwinds to our business. We are encouraged by the steady growth in our pipeline and the quality of businesses seeking financial solutions. Following a period of uncertainty and volatility in the markets driven by Liberation Day in which investment activity and deal flow came to a pause, we've experienced a resurgence of M&A activity leading to the buildup in our traditional middle market pipeline. Additionally, we believe corporate management teams are now more focused on long-term strategic initiatives and investing in their businesses for sustained growth. This, coupled with an interest rate cut cycle will lead to increasing deal flow and financing opportunities in 2026 in our view. We believe we remain well positioned due to our scale, our differentiated sourcing as an LP in over 325 private equity funds. And our nearly 20-year track record of investing across interest rate and economic cycles. And now I'll turn the call over to Shai to discuss our financial results in more detail. Shaul Vichness: Thank you, Ken, and good afternoon, everyone. I will now review our third quarter financial results in more detail. During the third quarter, NCDL reported net investment income of $0.43 per share compared to $0.46 per share in the second quarter of 2025. The decline was largely due to lower interest income driven in part by the two nonaccruals we added in the quarter. . Total investment income declined slightly quarter-over-quarter to $51.1 million in the third quarter compared to $53.1 million in the second quarter of this year. This was largely driven by the modest decline in the size of our investment portfolio and a modest decline in portfolio yields as a result of underlying loan contracts resetting to lower base rates. At September 30, our gross debt-to-equity ratio was 1.25x compared to 1.26x at June 30. Our net debt-to-equity ratio net of cash was 1.2x compared to 1.21x at June 30 of this year. In October, we paid a regular dividend of $0.45 per share, which equates to an annualized yield of approximately 10% on our quarter end net asset value per share. For the fourth quarter, we have declared a $0.45 per share quarterly dividend, which is consistent with prior quarters. Our total GAAP net income in the third quarter was $0.38 per share compared to $0.32 per share in the second quarter of this year. Our third quarter net income included $0.05 per share of net realized and unrealized losses primarily due to a decrease in the fair value of certain underperforming portfolio companies, partially offset by the realization of an equity investment in the gain. Our net asset value was $17.85 per share at the end of the third quarter compared to $17.92 per share at June 30. NCDL's investment portfolio had a fair value of $2 billion at September 30, consistent with the prior quarter. Gross originations totaled approximately $29 million and gross investment fundings totaled approximately $36 million compared to $48 million and $81 million of gross originations and gross investment fundings, respectively, in the second quarter of this year. During the third quarter, repayments totaled 3%, which is lower than our long-range assumption of 5% per quarter. We had full repayments on four deals totaling $42 million and partial repayments for another $18 million. On a net basis, we saw a reduction in our funded investment portfolio of approximately $25 million. This reduction was intentional as we redeployed capital received from repayments with a view towards maintaining leverage at the upper end of our target range. As we look forward, we expect to continue to redeploy capital received in connection with repayments into traditional middle market transactions across the capital structure. At the end of the third quarter, our total investment portfolio consisted of 213 names compared to 207 names at the end of the second quarter. We continue to remain highly focused on portfolio diversification with the top 10 portfolio companies comprising only 13.6% of the fair value of the portfolio. Our largest exposure is only 1.6% of the total portfolio and our average position size remains at 0.5%. Diversification continues to be a key focus of ours within the investment portfolio. In terms of deployment and asset selection, our new originations during the quarter were weighted towards senior loans with $22 million out of the $29 million of gross originations deployed into this strategy. The balance was deployed into subordinated debt and equity during the quarter. Our focus on the traditional middle market segment will benefit NCDL shareholders, we believe, as we see meaningfully higher spreads and tighter documentation terms in the traditional middle market compared to the upper end of the middle and BSL markets. Spreads on new investments during the quarter were slightly down from the prior 2 quarters, with the average spread on first lien loans at 470 basis points compared to 480 basis points in the first 2 quarters of the year. Our weighted average yield on debt and income-producing investments at cost declined to 9.9% at the end of the quarter compared to 10.1% at the end of the second quarter. This decrease in yield was primarily due to overall tightening of spreads in newly originated investments as well as lower base interest rates. In terms of portfolio allocation, at the end of the third quarter, first lien loans represented approximately 90% of the total portfolio, while junior debt and equity comprised approximately 8% and 2%, respectively. Our allocation strategy remains unchanged as we continue to target 85% to 90% senior loans with the balance allocated to junior debt and equity. Turning to credit quality. We continue to be pleased with the health of our investment portfolio. Although we placed two smaller investments on nonaccrual status during the quarter, the overall performance of our portfolio companies continues to be strong. At the end of the third quarter, NCDL had three names on nonaccrual, representing just 0.4% on a fair value basis and 0.9% at cost. This compares to 0.2% on a fair value basis and 0.4% at cost at the end of the second quarter. Our weighted average internal risk rating was 4.2% at September 30, and out watch list consisting of names with an internal risk rating of 6 or worse, remains at a relatively low level of 7.3% at the end of the third quarter, in line with the prior quarter. And finally, our conservative approach to underwriting is highlighted by our weighted average net leverage across the portfolio of 5x and interest coverage of 2.3x at the end of the third quarter. With respect to our capital structure, on the right-hand side of our balance sheet, our debt-to-equity ratio at September 30 is relatively unchanged quarter-over-quarter at 1.25x compared to 1.26x at June 30. And on a net basis, was 1.2x at September 30, net of our cash position at quarter end. As we spoke about on prior calls, our goal is to redeploy capital received from repayments and maintain leverage towards the upper end of our target range of 1 to 1.25x debt to equity. Lastly, as discussed, our focus for the near term is on optimizing the asset mix within the portfolio and actively reinvesting cash received from repayments and sales into high-quality assets. I'll now turn it back to Ken for closing remarks. Kenneth Kencel: Thank you, Shai. In closing, we are pleased with our financial results and the performance of our portfolio during the third quarter. As we enter the last 2 months of the year and look towards 2026, NCDL remains well positioned with respect to our experienced investment team, high-quality diversified portfolio and strong capital structure. And we continue to remain optimistic about the long-term future of the private credit markets and NCDL's long-term success based on the successful track record of the Churchill platform and operating across various market conditions and cycles. Additionally, with NCDL's shares trading at a material discount to our net asset value, and around a 12% annualized yield. We continue to view the shares as an attractive investment opportunity. Thank you all for joining us today and your interest in NCDL. I will now turn the call over to the operator for Q&A. Operator: [Operator Instructions] Our first question is from Brian McKenna with Citizens JMP. Brian Mckenna: Okay. Great. So just on the few nonaccruals in the portfolio today, I'm curious, when were these investments made? And I guess, looking back to the time of underwriting, what's changed relative to those initial expectations? And why did those assets ultimately underperform. Shaul Vichness: Brian, it's Shai. So just a couple of things on the two new nonaccruals. So I think as we've spoken about in the past, just in terms of the names that are on the nonaccrual list and sort of trying to draw through lines in terms of themes, I would say, fairly difficult to do that just given the idiosyncratic nature of some of these and as they pop up. And in terms of these two names that were placed on nonaccrual, you heard Ken speak about them on the call, just in terms of the size of the position is relatively small speaking to the sort of diversification points across the portfolio. Both of these positions were junior capital names that were placed on the nonaccrual list this quarter. One of them is in the automotive sort of market accessory segment. And the other one is in essentially the freight sector. So it's a training business and recruiting business for truck drivers. So again, no real theme to draw in terms of the two new nonaccruals. In terms of when the investments were made again, they have been in the portfolio for a couple of years now. So the decline and just sort of the trend, I would say, on the one hand, the overall freight reception and just sort of what we're seeing and we've had another nonaccrual and restructuring in the portfolio in the same industry. I would say that's sort of the theme there. And then the other one, it's really just a function of softness on the top line in terms of the performance there. And both of these investments were made actually in 2021. So they've been around for quite a bit. and the decline got to a point now where we felt it was appropriate to place them on nonaccrual status. Brian Mckenna: Okay. That's helpful. And then just on the workout process more broadly, how long does it typically take to restructure a loan in the portfolio and then ultimately get to a resolution. And then can you just remind us what the historical recovery rates for your business look like? Shaul Vichness: Yes. I can come on both. So just in terms of the timing, it's obviously going to vary depending on the severity of the situation and sort of the engagement with the private equity sponsor and the ultimate prospects for recovery of the underlying business. So it's a tough one answer in terms of how long does it take. But clearly, it can be a few month process. It can take as long as a year to sort of work through the restructuring and then the timing to recovery is clearly going to be market and company-specific in terms of how well that takes. So it's sort of a tough one to vector in on a specific time line. And then in terms of the recovery rates in the portfolio, again, they tend to vary depending on the situation and depending on our spot in the capital structure. So for senior loans. We have a number of instances where recoveries have been in excess of par. We have others where they've been in the 70s and 80s and others that have been lower for junior capital, I would say it tends to be a bit more binary right, the situation works out or it doesn't and we tend to be sort of in that fulcrum security where we're then riding the equity upside in the future. So again, it's going to be variable. But obviously, recoveries, you'd expect them to be higher on senior loans than on junior capital. Brian Mckenna: Got it. Great. And then just maybe one more for Ken here on the stock. So trading at 80% of NAV, leverage is at the upper end of the target. You already repurchased $100 million of stock. But what else can you do? And I guess, what is the leadership team focused on in order to improve the valuation. And then I think the market is telling us that maybe you should think about cutting the dividend or reevaluating that. So I guess, why not reset the dividend a little bit especially given the two rate cuts we just got one at the end of September, 1 in October, and that would just put you in a position to comfortably cover the dividend, you'd likely create some incremental book value then maybe you have a little bit more capacity to buy back the stock at what I'm sure you think are really attractive levels. Kenneth Kencel: Yes. No, look, from a business and an investment standpoint, the most important thing for us is to stay focused on continuing to originate and invest in high-quality assets. We've done that consistently over a 20-year period certainly more recently now with NCDL. We actually feel very, very good about the overall quality in our portfolio and the level of new dealer and investment activity. I will say from a from a pricing perspective, while we obviously saw spreads tighten, maybe not as dramatically as the BSL market over the last 12 to 18 months. things have. In terms of spread tightening, we've seen that slow down quite a bit. Spreads seem to have settled in at that kind of SOFR 450, 500 range, which has been good to see. But deal activity overall, the quality of the opportunities we're seeing to invest in, the level of M&A activity, all the fundamentals that we can control, we feel very good about those fundamentals right now. Deal activity quality of opportunities we're seeing, ability to stay highly selective, underlying pricing dynamics. So while obviously, base rates have come down and certainly albeit more slowly than expected, we would continue to see base rates we would expect to continue to see base rates come down. From a quality perspective, from a sourcing standpoint, all the fundamental dynamics we feel very good about, including the underlying portfolio quality. In terms of leverage, we have, Shai, I don't know if you want to speak I'm happy to speak to it. And I think we alluded to this on the last call and obviously, this earnings cycle and last, it's been a topic of conversation in terms of sort of where our earnings going across the industry. And as we commented last quarter, and I think we reinforced that this quarter, we felt good about our ability to continue to earn, again, within $0.01 or $0.02. Obviously, we under-earned by $0.02 this quarter our dividend of $0.45. But again, within a range, and there were some reasons for that, including the two nonaccrual names that I alluded to in terms of reducing our earnings for this particular period. But again, looking forward in the current base rate and spread environment, we continue to feel good about our ability to essentially earn plus or minus the $0.45, and that's something that we will continue to evaluate as we go forward. As I commented last quarter, we did talk about the fact that we do have spillover income from prior periods that provide one lever that we can pull in terms of continuing to maintain that dividend for the near term. But again, your points around what do we do going forward? Do we consider additional share buybacks, et cetera, are things that we absolutely talk about. I think when we think about that program, obviously, we did put in place the roughly $100 million program at the time of our IPO. We've since exhausted that. And really, our focus going forward is on growing the BDC, not continuing to reduce the amount of equity outstanding and reduce the share count. So again, these are all the things that we're thinking about, and we'll continue to eat them going forward. But as Ken said, we feel very good about the quality in the BDC, its ability to continue to generate earnings going forward, and that's really our focus. Yes. And certainly, I'd be remiss if I didn't say we're certainly looking at the share price relative to NAV, we certainly feel that the shares are undervalued. We think there's a tremendous amount of value creation that continues to go on within the portfolio, the quality, the fundamentals, et cetera, we don't think are reflected in the share price. Operator: Our next question is from Finian O'Shea with Wells Fargo Securities. Finian O'Shea: Hey, everyone, good morning. question on the portfolio outlook. I think early in the remarks, you mentioned lighter allocation based on the being fully levered, seeing if that also implies a subdued repayment outlook? Shaul Vichness: Yes. Fin, it's Shai. Yes, so when we think about the repayments, I mean, what we saw in this most recent quarter, they were running at 3% relative to our long-range assumption of 5%. So again, I think that's really a function of essentially mix and really timing because as Ken alluded to, and we're seeing it every day just in terms of the level of deal activity across the platform, M&A has certainly picked up and sponsors are feeling good about transacting in the current environment. So our expectation is that, that repayment rate would continue close to our long-range assumption but the fact that it was at 3% this quarter, it was closer to 5% the prior quarter. So again, just the fact that we are in an environment where deal activity is picking up. We're not changing our view on repayments going forward. What we will do though is, again, be sort of dynamic about how we're investing out of the BDC. So to the extent that we get incremental repayments and we get those proceeds in, we'll look to redeploy them as quickly as possible into attractive investment opportunities, and that's what we've done and what we do. And that's one of the benefits, obviously, of being part of the broader platform. We have access to that deal flow. And as we have capital available, we're going to deploy it into attractive transactions. Kenneth Kencel: Yes. And I would just say, look, from our perspective, keeping the portfolio fully deployed is not a challenge at all for us right now relative to the deal flow platform-wide, we've obviously trying to maintain investment activity in every deal, so that we've got a position in every deal as we're making investments so that we can do the follow-on and make ourselves avail ourselves to the add-ons and other opportunities in those companies. So we want to be in them at the time of sourcing. But on an overall basis, I don't see any challenge whatsoever maintaining full investment at NCDL. And to the extent we have repayments increase for various reasons, there's been no challenge for us in terms of keeping it fully invested. Finian O'Shea: That's helpful. And just a follow-on -- piggybacking the dialogue with Brian on the stock price. Curious as to what you're hearing on -- just hit on, you have a pretty big and successful nontraded BDC. So you're very present in that market. How much of a thing is it I know it's very recent, of course, but with a lot of public BDCs trading where they are, do you feel a lot of retail shareholders in the wealth channel. Is it either a discussion? Or is it perhaps should I buy the public on or any color you could give us on that? . Kenneth Kencel: Yes. We've certainly gotten that question a number of times because they're obviously looking at the tremendous discount in the public. So it's a good question, Fin. While it's come up, it hasn't been a major theme. But certainly, at an individual level, you look at the fact that the private BDC obviously issue shares at NAV and the public BDC is trading at a significant discount. I think it just highlights the value proposition and the return dynamics and the opportunity in the public BDC, the fact that you can buy the public BDC, the publicly traded BDC at a 15% or 20% discount to NAV, I think just highlights what a great opportunity it is right now. And -- but we've gotten that question a handful of times. It hasn't been a huge amount of focus, but we've definitely been asked the question. And we try to be very straightforward on it, and that is that it is tremendous value at the current trading level. No question about it. Operator: Our next question is from Doug Harter with UBS. Cory Johnson: This is Cory Johnson on for Doug. I know you spoke about the repayments. And long term, I guess you don't expect there to be much of a difference from your long-term assumptions. But over the next quarter or 2, would you expect perhaps more elevated repayments and is perhaps the current government shutdown delaying some of the repayments that you might have been seeing in the last quarter or this coming quarter? Kenneth Kencel: No, in fact, I would say there's an interesting dynamic. If if we were, which were not heavily invested in kind of broadly syndicated loans, that market is primarily a refinancing market. So as rates come down, you might see more pressure in either BDCs or funds that are really oriented toward that market. In our world, since we are much more heavily oriented towards traditional middle market, the primary driver of activity is new deals, right? So we get a refi when a company in our portfolio is refinanced because it's sold as opposed to going out and proactively refinancing itself. . So I would say in that regard, a solid level of new deal activity, we've already been seeing that consistently over the course of the year. So I would not expect to see any material change in kind of the trends we've been seeing around our repayments, again, primarily driven by new deal activity as opposed to suddenly seeing an acceleration as a result of being driven by reductions in underlying base rates. That's really not as big a factor for us. maybe as some other funds that are more focused on the BSL world. Cory Johnson: Got it. And then just the last question. Are you seeing like any additional competition from perhaps tools coming down in market and playing a bit more in the core middle market or just any changes in the competition landscape recently? Kenneth Kencel: We really haven't. It's interesting. I get that question a lot. Institutional investors ask that we get this from new folks as well. The reality is that we're not seeing the private credit firms that are focusing historically more on BSL or those large $1 billion-plus transactions come down market nor are we seeing the new entrants really being able to step up and underwrite $400 million, $500 million, $600 million, $700 million, $800 million transactions, which we obviously can do. So I think in that sense, we're relatively insulated from pressure from the top or even pressure from the bottom, right? The new entrants are primarily playing in that lower middle market where they can deliver a $50 million, $75 million solution. And at the larger end, those folks to continue to focus on larger buyouts, refinancing activity and playing as an alternative to an underwritten and syndicated BSL transaction. So we're operating, we think in a relatively insulated part of the market where, frankly, relationships are driving that deal flow. And partnering with a lender like us or one of our peers is a very important decision for driving the underlying growth in the space. So market timers or firms that are coming down for a period of time and then maybe bouncing back up into their core market, not as appealing to the private equity firms that are looking for long-term partners to finance those businesses be available to finance add-ons and really act as a financing partner for a more extended period of time. And I think that's where we really benefit. We've been in the core middle market now for 20 years. If you look at our top sponsor relationships, we've done dozens and dozens of deals with those firms. And as a result, they come back. They come back based on the relationship about based upon the history and it's much less likely that they're going to tap a firm that's really more of a large cap player, recognizing that those firms tend to come and go in the core middle market. Operator: Our next question is from Arren Cyganovich with Truist Securities. Arren Cyganovich: Just touching on the health of the portfolio overall. Your nonaccruals ticked up, it's pretty modest. I think your costs are still below 1%. So it's obviously not a big challenge. Maybe you could just talk a little bit about the portfolio companies and how they're performing from maybe a revenue and EBITDA growth standpoint and how those trends are moving throughout the year. Kenneth Kencel: The story there has actually been very solid. Now remember, our overall criteria when we underwrite and invest is we are looking for market leaders we are looking for businesses that are in noncyclical industries. So we're typically not looking at restaurants and retail and oil and gas and chemicals and anything that has an underlying cyclical dynamic to it. We're also not investing in businesses that fundamentally don't have those underlying solid growth characteristics. So given that, given the world that we play in business services, health care services, software we've continued to see solid single-digit growth in both revenues and cash flow for our portfolio. That's probably down a bit from where it was a couple of years ago. We were seeing numbers in the kind of 20% range. But still very respectable and very consistent. So we feel good about the underlying growth in the portfolio. And again, I think it's reflective of not just organic growth and the fundamentals of the businesses we finance, but also the fact that when we do a deal, the vast majority of those transactions the private equity firm that's acquiring the business has already come to the table with a plan to grow it either through geographic expansion, product expansion, smaller strategic M&A the large percentage of our portfolio, those are the types of businesses we're financing. And that's also reflected in the fact that in many cases, we're doing a delayed draw term loan to actually put in place a facility to finance that growth. So I think the nature of the space we play in and the types of companies that we finance is going to give you an ongoing kind of built-in growth rate in that kind of call it, 5% to 10% range. And then where you're getting even stronger growth economically overall you see numbers that are closer to 20%. But certainly, we feel very good right now that kind of core growth rate in that 5% to 10% range. Arren Cyganovich: Yes, I appreciate that. And I wouldn't expect that you'd have hotline growth rates? Just want to make sure that they're not deteriorating any notably. It sounds like everything is good there. Kenneth Kencel: No, I was just going to say maybe going I was just going to say that I think as I mentioned earlier, a lot of it gets to the types of businesses we are financing. We're typically not great fans of financing kind of static companies, if you will, where the credit metrics might look okay, but the fundamentals are it's not really a great business. It's okay. The numbers are all right. The coverage numbers look okay, but you're not seeing any real fundamental growth. That's not typically the types of businesses that we would be all that excited about financing. So yes, all the credit metrics have to be there, but we want to be financing businesses that have solid underlying growth fundamentals. And I think that's reflected in our portfolio. Arren Cyganovich: Yes. And maybe touching on the origination side. You mentioned deal pipelines pretty strong heading into the quarter. what's the mix of that? And maybe you could talk a little bit about the quality of what you're seeing come to you from the various sponsors. Kenneth Kencel: So I think that -- well, it's interesting. If you look at our deal activity, for example, July, August, even through September, we were actually setting records across the platform for deal activity, right? I don't think anyone would expect August to be a record month. Typically, that's a slower period of time, end of summer. But we were extraordinarily active. In our case, we would see -- there were weeks where we were seeing 3, 4, 5, 6 investment committee memos a week right? So we were actually scheduling additional meetings of the IC in order to keep up with the level of activity. So I think that's been surprising. We certainly expected that deal activity would begin to come back as you saw rates stabilize and begin to come down, and we certainly did see that. Liberation Day was a bit of a pause in those dynamics. But starting really in June and July and going on through the summer and early fall, the quality has been quite good. overall spreads have stabilized in that kind of 450 to 500 range. underlying fundamentals quite good given the pressure on private equity to drive some realizations, we've seen a fair amount of GP-led transactions. And we have our own views as to what GP-led transactions we like and don't like. I think we like to see if there is a GP-led deal, we like to see the private equity firm roll there, carry in continue to be significantly supportive of the credit and the transaction. So we do look at those. But overall, the deal environment right now is quite good. We feel quite good about the quality. We feel quite good about the relative value. We're still getting in that 9% range for new transactions. So risk-adjusted returns, we think, very attractive relative to where they've been historically, and we still feel very good about the deal environment I didn't -- we haven't talked about it on your questions, but I mentioned it in the part of my prepared remarks, the reality is if you look at those situations like Tricolor, First Brands or even the more recent announcement on the, HPS transaction, the reality is that we see those as very idiosyncratic. Certainly in a number of those cases, there's elements of fraud. I'd also say -- and I was talking to an investor about this earlier in the week. If you look at the nature of those deals, they were essentially bulk purchases of assets in a portfolio. So that's a very different business than asset base but also just buying blocks of receivables or financing large blocks of receivables very, very different business than ours where we are financing one deal at a time, right, doing our diligence, doing our homework, fundamentally assessing the business the underlying structure, the underlying fundamentals. So we're going to stay focused on traditional core middle market directly originated transactions in that $50 million to $100 million EBITDA range where we think the risk-adjusted returns are attractive. Structures have maintained a reasonable underlying dynamic, and that's where we're going to be. So we're not going to venture into some of these other more so areas of lending that have created some of the problems. And moreover, there's certainly no evidence in our portfolio today that those very isolated situations really have anything to do with the types of lending that we're doing today. Operator: With no further questions at this time, I would like to turn the call back over to Ken for closing comments. Kenneth Kencel: Great. Well, thank you all again for joining us. I appreciate your interest in the business. Obviously, we're very proud of our performance this quarter. We continue to stay focused on delivering excellent risk-adjusted returns for our investors. And that concludes the call, and appreciate you joining us today. Operator: Thank you. This does conclude today's conference. You may disconnect at this time, and thank you for your participation.
Operator: Thank you for joining the Greenlight Capital Re Limited Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It's now my pleasure to turn the call over to David Sigmon, Greenlight Re's General Counsel. You may begin. David Sigmon: Thank you, Kevin, and good morning. I would like to remind you that this conference call is being recorded and will be available for replay following the conclusion of the event. An audio replay will also be available under the Investors section of the company's website at www.greenlightre.com. Joining us on the call today will be our Chief Executive Officer, Greg Richardson; Chairman of the Board, David Einhorn; and Chief Financial Officer, Faramarz Romer. On behalf of the company, I'd like to remind you that forward-looking statements may be made during this call and are intended to be covered by the safe harbor provisions of the federal securities laws. These forward-looking statements reflect the company's current expectations, estimates and predictions regarding future results and are subject to risks and uncertainties. As a result, actual results may differ materially from those expressed or implied. For more information on the risks and other factors that may impact future performance, investors should review the periodic reports that are filed by the company with the SEC from time to time. Additionally, management may refer to certain non-GAAP financial measures. The reconciliations to these measures can be found in the company's filings with the SEC, including the company's Form 10-K for the year ended December 31, 2024. The company undertakes no obligation to publicly update or revise any forward-looking statements. With that, it is now my pleasure to turn the call over to Greg. Greg Richardson: Thank you, David. Good morning, everyone, and thank you for joining us. Q3 2025 was a mixed quarter with an exceptional underwriting result, offset by investment losses. Overall, we reported a net loss of $4.4 million in Q3 2025, which brings our year-to-date net income to $25.6 million. Fully diluted book value per share decreased 0.4% in the quarter to $18.90 and increased 5.3% for the first 9 months of the year. We reported our best quarterly combined ratio of 86.6%, translating to a record $22.3 million of underwriting income. This result was driven by a combination of the strong underlying profitability of the book assisted by a benign cat quarter. We would be remiss not to comment on Hurricane Melissa. There are strong historical ties between the Cayman Islands and Jamaica, and our hearts are with all those who have been affected by this incredibly powerful storm. As a reinsurance professional that has closely monitored hurricanes for nearly 30 years, I was impressed by and grateful for the forecasters and their models in predicting both the erratic track and extreme intensity of Melissa. While property is fixed in place, people can get out of the way of the path of the storm with this information. The forecasters certainly saved many lives as a result. From a financial perspective, Melissa is a fourth quarter event. It is early days, but we do not expect a significant loss to Greenlight Re given positioning in the cat space and the fact that it missed the Southeastern United States. We have been confident that our underwriting portfolio is positioned to deliver a strong underwriting return. So it is encouraging to see that reflected in our results in Q3. Our open market book delivered an 84.5% combined ratio, while our innovations book delivered a 96.7% combined ratio. Both segments showed meaningful premium growth. Growth in open market was driven by our funds at Lloyd's book, modest property and financial lines growth, offset by declines in casualty based on underwriting actions discussed last quarter. For our Innovation segment, a good portion of our accounts incept in the second half of the year, and we can see evidence of previously anticipated organic top line growth beginning to emerge. Unfortunately, our investment performance for the quarter was a loss of $17.4 million. There are 2 main components of this. Our investment in the Solasglas portfolio was down 3.2% in the quarter. David will provide more color on this in his remarks. In addition, we suffered a net unrealized loss of $11.3 million on our innovations investment portfolio. The net unrealized loss on our innovations portfolio was primarily driven by a $16.4 million write-down of our highest valued investment. Our innovation investments are generally illiquid, and we revalue them as soon as we believe the valuation may be impaired or when a new funding round closes. This particular situation is idiosyncratic in that the lead investor was able to secure a new round of equity financing at a substantial discount due to a debt refinancing that fell through at the last minute. We still believe the company's prospects are bright and the financing removes an overhang from the investment. While this write-down in Q3 is disappointing, I would highlight that we hold our innovations investments for the long term, and we are focused on realized gains and the associated underwriting and fee income opportunities generated from these investments rather than mark-to-market gains and losses. Further, this position was outsized from a carried value perspective due to prior upward adjustments based on previous financing rounds. Currently, we have no single investment valued at more than $10 million and only 3 investments valued at over $5 million. So the risk of a similar write-down on a single investment going forward is mitigated absent an industry-wide event. We are now focused on 1:1 renewals. While the market is clearly softening, we believe rates and terms will remain attractive for our open market reinsurance business. Consequently, we expect to renew most of our non-casualty business and perhaps grow somewhat. As noted previously, our innovations book is less susceptible to the supply-demand pressures of the reinsurance market. We anticipate continued strong organic growth from our existing innovations clients and attractive new business opportunities. Now I'd like to turn the call over to David. David Einhorn: Thanks, Greg, and good morning, everyone. The Solasglas fund returned negative 3.2% in the third quarter. The long portfolio and macro contributed 1.7% and 3.3%, respectively, and the short portfolio detracted 8.1%. During the quarter, the S&P 500 Index advanced 8.1%. The largest positive contributors were long investments in Gold, Green Brick Partners and Core Natural Resources. The largest detractors included a short position in a profitless financial services company, a short basket of homebuilder stocks and our long position in Kyndryl Holdings. Gold is the largest positive contributor as its price rose 17% over the quarter. Green Brick Partners shares also advanced 17% during the quarter as the market's expectation for lower rates lifted homebuilder stocks. While the company continues to execute well on its regionally focused strategy, we remain cautious on the broader housing market and have maintained a nearly fully hedged position by shorting a basket of national homebuilders. This hedge basket offset most of Green Brick's positive contribution during the quarter. Core Natural Resources shares advanced 20% during the quarter, recouping some of its decline from the first half of the year. The company announced significantly improved quarterly results, including an increase in free cash flow. Core used the majority of this cash flow to repurchase shares under the $1 billion share buyback program it announced earlier in the year after successfully completing its merger with Arch Resources. In addition to the homebuilder hedge basket, the largest detractors for the quarter included a short position in a profitless financial services company that transitioned from a near-term bankruptcy candidate to immune stock and our long position in Kyndryl Holdings. Kyndryl shares declined 28% during the quarter, giving back some gains after the company posted a less exciting quarterly update than its previously recent couple of quarterly results. Earlier in the year, we established a new large position in a stub created by being Long Fluor Corporation and short NuScale Power. More recently, we established a new medium-sized position in Pacific Gas and Electric. Fluor is a global engineering and construction company. In the spring, Fluor experienced a slowdown in capital spending from its customers due to tariff uncertainty, which we expect to reverse and for the business to return to growth in 2026. Away from its core business, Fluor holds approximately a 40% stake in NuScale Power, a small modular nuclear reactor company. Fluor's stake is worth nearly $5 billion pretax, which represents over 60% of its market cap. Fluor has announced plans to divest its holding and use a significant portion of the proceeds towards share buybacks. Pacific Gas & Electric is a California-based regulated utility that transmits and distributes electricity and natural gas. While the company was not exposed to January's catastrophic L.A. wildfires, its earnings multiple collapsed to below 10x on concerns that the California Wildfire Fund, an important defense against wildfire-related damage claims that its shares with Edison International will be depleted. We invested with a view that the legislature is likely to put in place funding support and make further wildfire risk reform a priority. We have since seen progress in these initiatives and expect PG&E to re-rate closer to the nearly 18x average peer multiple. In our view that outside of the boom surrounding a handful of AI and AI adjacent companies, most of the rest of the economy is floundering. In the midst of this excitement, we are simply not comfortable underwriting a long investments within the AI ecosystem and have decided for the most part, not to participate. Unfortunately, it has been difficult to make money on the long investments outside of this small cohort of stocks. Our net exposure ended the quarter at about 25%, up from about 2% at the end of the second quarter. Solasglas returned 1.6% in October, bringing the year-to-date return to 1.2%. Net exposure in the investment portfolio was approximately 20% at the end of October. Now I'd like to turn the call over to Faramarz to discuss the financial results in more detail. Faramarz Romer: Thank you, David. Good morning, everyone. During the third quarter of 2025, Greenlight Re reported a net loss of $4.4 million or negative $0.13 per diluted share compared to a net income of $35.2 million or $1.01 per diluted share during the third quarter of 2024. The total underwriting income was $22.3 million, resulting in a combined ratio of 86.6%, which was 9.3 points better than the same period last year. This included 8 points of improvement due to lack of cat losses in the quarter and 6 points of improvement related to underlying current year attritional loss ratio. We had 50 basis points of reserve development during the quarter compared to 3.7 points of reserve releases in the third quarter of last year. Our net investment loss was $17.4 million compared to $30.3 million of investment income in the third quarter of 2024. As Greg mentioned, most of the investment losses related to Solasglas and innovations. However, these losses were partially offset by other investment and interest income of $8.9 million. I will now break down the third quarter results by segment, starting with the Open Market segment. The Open Market segment reported a pretax income of $27.9 million, composed of underwriting income of $22.2 million and investment income of $5.6 million. For the quarter, the Open Market segment grew net written premiums by 9.5% to $140.4 million, while net earned premiums grew by 14.1%. The increase was driven primarily from growth in the funds at Lloyd's business and the Financial, Property and Specialty lines from a combination of new programs and growth in underlying premium volume on renewing programs. These were offset by the casualty premiums decreasing during the quarter as a result of our decision earlier this year to nonrenew most of the open market casualty book. The open market combined ratio for the third quarter improved by 10 points to 84.5% compared to 94.5% for the same period in 2024. The lower loss ratio and a lower acquisition ratio contributed to the improved combined ratio. The current year loss ratio improved by 11.8 points, driven by 8.3 point improvement in attritional losses and 3.5 point improvement in event losses. The segment reported a small prior year adverse loss development of $0.9 million or 60 basis points compared to favorable reserve releases of $5.3 million or 4.2 loss ratio points in the same quarter last. The acquisition cost ratio and the expense ratio improved 2.5% and 0.3%, respectively, on the back of higher earned premiums. Overall, the Open Market segment had a strong performance for the quarter. Now let's turn to the Innovation segment. The Innovation segment grew net written premiums by 57.5% to $22.3 million during the quarter. The increase was mainly driven by Syndicate 3456 and Financial lines, partially offset by the increase in ceded premiums under the Innovations whole account retro program compared to the third quarter of last year. Net earned premiums decreased by $0.8 million, mainly driven by the increase in retro ceded premiums compared to the same quarter last year. The combined ratio for Innovation segment was 96.7% during the third quarter compared to 93.6% in Q3 last year. The composite ratio improved by 1 point to 87.1%. Favorable prior year reserve development contributed 3.1 points to the combined ratio compared to unfavorable development of 0.4 points in the third quarter of 2024. Compared to the same quarter last year, the expense ratio for the Innovation segment was 9.6% compared to 5.5% due to a combination of growth in personnel and an increase in nonpayroll-related costs for this segment. We are investing in this business in preparation for higher future premiums, leading to the higher expense ratio. We expect this to normalize as we scale this segment. While the Innovation segment is an underwriting income of $0.7 million, the investment impairment that Greg mentioned led to an overall net loss of $11.3 million for the segment. Now I would like to make a couple of quick points on capital and debt management. During the first 9 months of 2025, we have repurchased 512,000 shares for $7 million, which has been accretive to our book value per share. At the end of the third quarter of 2025, our fully diluted book value per share was $18.90, an increase of 5.3% year-to-date. During the quarter, we refinanced our term loan, replacing it with a 5-year $50 million revolving line of credit. As of the end of the third quarter, we reduced our debt leverage ratio down to 5.3% from 9.5% at the beginning of the year. Subsequently, in October, we repaid an additional $15 million and currently have $20 million of debt outstanding. We have also entered into a letter of credit facility with Citibank exclusively for our funds at Lloyd's business. In October, we issued an LLC for GBP 45 million to Lloyd's, and Lloyd's simultaneously released $60.7 million of cash, which we had previously provided for funds at Lloyd's. The new revolving line of credit and the new funds at Lloyd's letter of credit facility provides us added flexibility to optimize our cash management while further strengthening our balance sheet and improving our return on equity. That concludes our prepared remarks. The operator will now open the line for your questions. Operator: [Operator Instructions] our first question is coming from Ben Olesh from WA Capital. Unknown Analyst: This is a question to David. Could you please provide an update on the macro part of the Solasglas fund? What is your view and your position regarding to U.S. dollar, gold and short-term interest? David Einhorn: Sure. Thanks for the question. We've maintained a core position in gold that now goes back pretty much to the near the inception of the company, certainly since the IPO of the company. The gold is structured in 2 different components. One is physical gold, which we consider to just sort of be the core position that we occasionally trade around. Additionally, we buy binary digital options that are call options on rapid appreciation in gold. And those actually proved to be successful in the third quarter and also in our October results. We -- from an interest rate perspective, our position is that we are long SOFR futures out into 2026, which is essentially a view that the Fed will reduce interest rates more than the market currently expects. And finally, we maintain inflation swaps, which are a view that reported inflation over the next 2, 5 and 10 years will be larger than the amount that the market has priced in. Operator: Our next question today is coming from Daniel De Jong, a private investor. Daniel De Jong: This is more of a long-term question for David. I believe a few years ago, you evaluated the future of the company and one of the options considered given the discount to book value was closing the company. With all the work put to the company since and 7 years in a row of positive investment performance, at least year-to-date, do you see a long-term future for the company? Also, investors like Howard Marks and Warren Buffett work well past regular retirement age, could you see yourself doing that? David Einhorn: Yes. Look, I think that the company -- and we expressed this at last year's investor presentation. I actually think that the company has made enough structural improvement that we should be earning a return on equity that is greater than our cost of equity. And I believe that the shares should actually justifiably trade at or above book value as a result. It's been frustrating to us and everybody around that the shares continue to trade at a discount. But I don't believe that the solution is to liquidate the company. Were we to liquidate the company, there also would be substantial expenses that I could not quantify for you because we haven't done the exercise, but it would be unlikely that we would recognize like the full book value in the liquidation were we to go through with that. Regarding my longevity, I'm presently 56 years old, and I expect to be doing this for a substantial additional amount of time. Operator: We reached the end of our question-and-answer session, and that does conclude today's teleconference and webcast. You may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.
Operator: Good day, and thank you for standing by. Welcome to the Ferrari Q3 2025 Results Conference Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded. I would now like to turn the conference over to your speaker, Nicoletta Russo, Head of Investor Relations. Please go ahead. Nicoletta Russo: Thank you, Rezia, and welcome to everyone who's joining us. Today, we plan to cover the group third quarter 2025 operating results, and the duration of the call is expected to be around 45 minutes. Today's call will be hosted by the Group CEO, Mr. Benedetto Vigna; and Group CFO, Mr. Antonio Piccon. All relevant materials are available in the Investors section of the Ferrari corporate website. And at the end of the presentation, we will be available to answer your questions. Before we begin, let me remind you that any forward-looking statements we might make during today's call are subject to the risks and uncertainties mentioned in the safe harbor statement included on Page 2 of today's presentation, and the call will be covered by this language. With that said, I'd like to turn the call over to Benedetto. Benedetto Vigna: Gracias Nicoletta. Thank you, everyone, for joining us today. The past few months have been reach of important milestones for our company, among which the launch of the Ferrari Amalfi, the 849 Testarossa family, the first step of the reveal of the Ferrari Elettrica and the Capital Markets Day. Let's start from the Capital Market Day. On October 9, in Maranello, we gathered together and we shared our ambitions and plans for the future with investors, journalists and the entire world. In this current uncertain world, we shared an ambitious financial floor for the end of this decade, EUR 9 billion of revenues, 40% EBITDA margin and 30% EBIT margin. What did we say? What did we say at Capital Market Day exactly? Two things. We highlighted that Ferrari is a unique company, which combines 3 dimensions: heritage, technology and racing. It has a dual identity, both inclusive and exclusive capable to engage with tifosi, royalty and brand values across generations and geographies. We have set ambitions for each soul with unwavering goal to keep our brands strong for the longer term, well beyond 2030. In racing, we aim to win, we want to continue to be successful in Endurance and come back to victory Formula 1. We owe this to our P4 to fuel the passion and inclusive side of our brand. In sports cars, we continue to focus on managing and crafting the exclusivity of our product through an horizontal product diversification strategy, which ensures custody for each single model. We confirm our innovation pace. We will continue to offer our clients an average of 4 new models per year between '26 and 2030 across the 3 different powertrains: ICE, hybrid and electric to address different clients and different clients' needs. In 2022, we told you that the 2030 breakdown of powertrain offering would have been 20% ICE, 40% hybrid and 40% electric. Our plans were based on the environment in 2022 and our expectation about its evolution. Today, in 2025, we have deliberately recalibrated our powertrain offer to be 40% ICE, 40% hybrid and 20% electric. Why did we decide this? Two are the main reasons. One, market dynamics. We have always believed in electrification as an addition, not as a transition. Overall market adoption of electric technology has been more gradual than anticipated in 2022. At the same time, demand for thermal and hybrid models has been more sustained. Two, client centricity. We put our clients always at the center of what we do. We are very flexible and agile to adapt our product plans to the evolving environment, developing and offering models that best address our client needs and meet their preferences. Regardless of the powertrain, we will keep on harnessing each technology in a unique and distinctive way, enhancing the driving emotions and staying true to our belief that we have to be innovative, adapting to the changing times. That is what our founder did since 1947, when he dared to develop our first, first cylinder engine, although nobody believed in it. It's our responsibility. It's our responsibility to keep alive this will to progress. This technology neutrality approach is something we have chosen. We have planned for and invested in also from an infrastructure point of view. The e-building, our new facility in Maranello capable to manufacture the 3 powertrains is the perfect examples of this flexible approach. Our research and development efforts will not only focus on powertrain performance, but also on vehicle dynamics, experience on board and the new materials, all of which make our product unique. Moving to clients. We will continue to grow our Ferrari families, which today counts 90,000 active clients and to foster their sense of belonging in community through an ecosystem of unique experiences from track to road to brand. Lastly, lifestyle. This is the soul that is instrumental to enrich the client experience and to widen our audience beyond our tifosi and Ferrari. I personally believe the team did a great job in bringing brand consistency. We then cultivated everything I just said with the help of Antonio, and let me underline and -- let me highlight a couple of elements. One, we continue to grow our business to new heights in an organic and consistent way. We look at the 2030 target as a floor of our ambitions, always acting in the long-term interest of our brand, safeguarding exclusivity above all. The macroeconomic environment remains uncertain and extremely volatile. However, the visibility and solidity of our business model allowed us to commit to an ambitious plan of 6 years of growth, which we will execute with focus and discipline as we did for the previous one. We will continue to deliver on our promises. And then we concluded the Capital Market Day with our renewed decarbonization commitment. We have already achieved approximately 30% reduction in our Scope 1 and Scope 2 emissions and approximately 10% reduction per car in Scope 3 emission in 2024 versus 2021. We will capitalize on this achievement with a clear target to reduce our Scope 1 and Scope 2 emission by 10x in 2030 versus '21 and to decrease by 25% the absolute Scope 3 emission in 2030 versus the past year 2024. Moreover, the day before the Capital Markets Day, we unveiled the technology of our Ferrari Elettrica. This represents the first step of the wheel, which will be followed by the look and feel of the interior design concept in Q1 '26 and the complete car in Q2 2026. As a leaders, Ferrari as a leader takes its innovation responsibility very seriously. The Ferrari Elettrica is a new opportunity to reaffirm our will to progress as it has happened many times in the past with the introduction of innovative concepts such as with turbo engines, hybrid powertrain and most recently with the Purosangue, there is great anticipation to experience the driving emotion of the Elettrica. After the Capital Market Day, I met several clients in U.S.A., in Korea, in China and in Italy. And all of them appreciated the way we present the model. This is what they told me. The electric cars are generally heavy as elephants and not fun to drive. You did well to invest in active electronic system to transform the elephant in a horse and to engage the drivers with pedro shift like in all Ferrari. We are looking forward to driving it. We can continue to be innovative if we keep the pace of change and having the 3 powertrains in our portfolio is a clear advantage, especially in front of younger generations. With the first step of the reveal of the Ferrari Elettrica and unveiling in September of the 849 Testarossa, coupe inspired, we have concluded the 6 launches we had announced 1 year ago for the entire '25. I met many clients in Europe, in the U.S.A. and in China, who are in love with Testarossa. Last week in China, I met a young female client, younger than 40 years old, and she told me, Testarossa is the perfect harmonious blend of design and engineering, elegant and craftsmanship. I'm eager to own one and drive it. In the past few months, almost all range model in production were substantially sold out. The launches of the Testarossa family and Amalfi and the great traction in clients are initially contributing to the order intake. Indeed, the order book extends well into 2027. Over the next few quarters, we will have a significant change over of models. Indeed, in January '25, only 15% of our lineup was in ramp-up phase of production, while we will close the year with 35% of the lineup in ramp-up phase, and this is the result of all the activities of development that we did in the past years. Moving to the quarters, Q3 '25 saw continued growth. Just a few key numbers to highlight. One, total revenues reached approximately EUR 1.8 billion, a 7.4% growth year-over-year with flat deliveries. Two, strong profitability with EBIT of over EUR 500 million. And last but not least, industrial free cash flow at EUR 365 million. These are solid business performance. This solid business performance allowed us to revise upward the '25 guidance during the Capital Market Day in October. Our revised guidance exceeds the profitability target we had originally set for '26 in the previous business plan 1 year in advance. Moreover, the decision to complete the current share repurchase program within this year, once again 1 year earlier than planned, also reflects such progress and strong confidence that we have in the future. And now I will leave the stage to Antonio to explain the quarter in more depth. Antonio Piccon: Gracias Benedetto, and good morning or afternoon to everyone joining us today. Starting on Page 4, we provide the highlights of the third quarter, which once again delivered consistent growth and demonstrates solid progress. Product mix and personalization, along with rising revenues were the main drivers of revenue and profitability growth with shipments in line with the previous year. This resulted in a strong industrial free cash flow generation in the period. Let me underline that such results were accomplished notwithstanding the impact of the incremental U.S. import tariffs, which became visible in Q3, a greater foreign exchange rate headwinds and lower deliveries of the Daytona SP3, which was phased out in the quarter. On Page 5, we deep dive into our shipments. They were driven by the 296 GTS, the Purosangue, the 12Cilindri family, which continued its ramp-up phase and Roma Spider. The SF90 XX family increased its contribution. The 296 GTB decreased approaching the end of its lifecycle and the SF90 Spider phase out. Deliveries of the Daytona SP3 were lower than the prior year and concluded their limited series run. As anticipated by Benedetto, in the quarter, we started a significant changeover of models, which will be also visible in the next quarter. The SF90 family and the Roma were already phased out and the 296 family is approaching the end of its lifecycle. Indeed, those models will be progressively replaced starting from next year by the 849 Testarossa family, the Amalfi and the 296 special series, respectively, a record number of new models introduced at the same time. On Page 6, the net revenue bridge shows a 9.3% growth versus the prior year at constant currency. This translates into a 7.4% growth, including the headwind from currency, mainly related to the U.S. dollar dynamics. The increase in cars and spare parts was driven by the richer product mix as well as higher personalizations despite the lower delivery to Daytona SP3, which followed our plan. Personalizations accounted for approximately 20% of total revenues from cars and spare parts and were particularly relevant for the SF90 XX family and the Purosangue, also supported by the adoption of carbon and special paint. Sponsorship, commercial and brand also increased, thanks to higher sponsorships and the improved performance of the lifestyle activities as well as higher commercial revenues linked to the better prior year Formula 1 ranking. Moving to Page 7. The change in EBIT is explained by the following variances: Mix and price was positive, thanks to the enriched product mix. Indeed, despite the phaseout of the Daytona SP3, the product mix was sustained by the higher end of our product offering, namely the SF90 XX and the 12Cilindri families. The mix was also supported by the increased contribution from personalization. Please note that the impact from incremental U.S. import tariffs as well as from the update of our commercial policy in response are included in the mix and price variance. This resulted in a margin dilution at constant currency, particularly visible in the third quarter since the majority of our shipments in the United States was represented by model good price were protected under the updated policy. Industrial costs and R&D were lower year-over-year, in line with model life cycles, partially offset by higher development costs for racing. SG&A were also higher, reflecting racing expenses and brand investments. Other was positive, mainly thanks to racing and lifestyle activities. Percentage margins continued to be strong in the quarter despite the dilution from increased import duties with EBITDA margin at 37.9% and EBIT margin at 28.4%. Turning to Page 8. Our industrial free cash flow generation for the quarter was strong at EUR 365 million and reflected the increase in profitability, partially offset by capital expenditures, which were mainly focused on product development and the progress in the new paint of construction and the negative change in working capital provisions and others, mainly due to the reversal of the advances collected in previous quarters. Net industrial debt was EUR 116 million at the end of September, also reflecting the share repurchase program executed in the quarter, which is approaching its completion by year-end, as reminded by Benedetto, 1 year in advance compared to our plan as announced in June 2022. Moving to Page 9. We confirm our 2025 guidance, which was revised upwards during the Capital Markets Day on October 9 on the back of the solid business performance and reflecting improved sports car revenues, including personalization, a lighter-than-expected cost base despite a greater headwind from foreign exchange rate and increased U.S. tariffs. And with this in mind, for Q4, we project lower deliveries year-over-year, as we already told you in the second quarter call, and this is in connection with the changeover of models, as I mentioned earlier on, a positive product mix, although sequentially tighter, in line with the phaseout of Daytona and the first unit of F80, higher SG&A and a seasonal step-up in racing R&D expenses as well as higher SG&A dictated by the start of production of new models. Looking at 2026 and beyond, let me remind you that the introduction of the F80 will be gradual. As usual, it will take a couple of quarters to ramp up the production and the life cycle is expected to be around 3 years. The guidance of the F80 and the model changeover will imply a more back-end loaded 2026 and will shape the product and country mix throughout the year. Such developments are consistent with our plans to deliver in the year to come as smooth and as linear as possible expansion of our profitability in absolute terms. Be assured that we continue to execute on this plan with discipline and focus and today's strong results provide once again the evidence of our continued commitment. Thanks for your attention, and I turn the call over to Nicoletta. Nicoletta Russo: Thank you, Antonio. Rezia, we are now ready to take the questions. Please go ahead. Operator: [Operator Instructions] We are now going to proceed with our first question. And the questions come from the line of Michael Binetti from Evercore ISI. Michael Binetti: Just a couple for me. Antonio, I think you're saying that the mix impact in the second half will be a little bit better than what you anticipated. I saw that mix added about EUR 25 million in the quarter. I think last call, you said mix would be neutral for the second half. So can you just help us think what's driving a little bit of that upside? And maybe how much we can think about in fourth quarter from mix relative to the third quarter? And then I guess just as we think about the personalization comments you made about 20% now. You guided to personalization being closer to 19% longer term. It's like it's a little counterintuitive to us with the new tailor-made studios and the paint shop coming online next year. Maybe just walk us through what drives the moderation there? Antonio Piccon: Yes, Antonio. Thank you, Michael. On the first question, yes, the mix in the... Benedetto Vigna: Can you hear well, Michael? Michael Binetti: I'm sorry, what was that... Benedetto Vigna: I was saying, can you hear well? Michael Binetti: Not very well, no. Benedetto Vigna: That's why I asked you because we understood that someone was not able to listen that we hear well. I don't know if this is... Antonio Piccon: Okay. I'll try and answer. I hope you can hear me. Yes, the mix impact in the second half of the year has been slightly better than anticipated. So I remember I answered you in the second quarter call that we would have expected the mix more neutral in the second half. Now this is a slightly improved at least based on the third quarter results. And this is mainly due to personalization that remains very, very strong. With respect to your second quarter -- second question, we said we have prepared the plan on the basis of a 19% longer-term penetration of personalization. In this respect, the contribution of tailor-made and in particularly the tailor-made center, bear in mind that have been taken into consideration mostly to come closer to our clients. So the overall consideration on the penetration of personalization takes that into account with a view to be close to our clients also in countries where such tailor-made personalization are particularly relevant, such as Japan and the Western Coast of U.S.A. Michael Binetti: Okay. And can I just ask you one clarifying comment. You said the F80 will roll out over 3 years. Is that -- am I wrong or is that a little longer than the normal cadence for one of the strictly limited or supercar models like this? Is that -- and is there a strategy behind stretching that out a little longer? I would think normally would -- you'd see the bulk of those shipments in maybe 8 or 10 quarters? Antonio Piccon: [indiscernible] line with what we've been doing on the ICONA as recently, considering the overall number of cars involved and the start-up phase that is entailed by in order to get to run rate of production. Operator: We are now going to proceed with our next question. And the next questions come from the line of Stephen Reitman from Bernstein. It looks like the person just disconnected. We are now going to proceed with our next question. And the next questions come from the line of Flavio Cereda from GAM. Flavio Cereda: So my question is, I'm taking you back to the Capital Markets Day and your projections of top line growth to 2030. So a very simple question, volume price mix, volume, you got control it, mix to a point. And I was just wondering on price, your pricing power, given all that's been done and the great results that we've seen in recent years, Benedetto, where do you think you stand on this? Do you think you're coming to an end here? Or do you think there's more to come? Benedetto Vigna: Thank you, Flavio, for the question. It's not at all an end. Actually, we feel confident that with all the innovation that we have to delight our clients, we do not see any weakening in our pricing power. We will continue to offer Flavio, car with a different positioning. All of them will benefit of the pricing power because this pricing power, just to be clear, is not coming because we will just increase the price for the same, let me say, product as it is. No, we will make richer and richer innovative, more and more innovative with the product so that by delighting the client, we are confident that we will keep our pricing power. And this is what we are working on. And this is the goal of all the money that we invest in R&D, in innovation with all the team here. Flavio Cereda: So aligned to more models, fewer volumes? Benedetto Vigna: Yes. Operator: And the questions come from the line of Thomas Besson from Kepler Cheuvreux. Thomas Besson: I have 2 questions, please. First, on hybrids, I think the share was lowest in a couple of years. Is it linked with the changeover of product? Or is it driven by willingness to reduce overall hybrid share to eventually address excess deliveries in certain markets and residual values? That's for the first question. And the second, could you give us the delivery figures, please, for the Q3 data on us and what -- how many F80 you're already going to launch in Q4, please? Benedetto Vigna: Okay. So the first one, Thomas, is just depends on the offer that we have on the lineup we are offering to our clients. The number of hybrid cars that we are offering is reducing because there is a change in the model. So there is no if you want, there is no surprise over there. It's a consequence of the way we launched the car. No, that's it. There is -- don't extrapolate any trend over there, okay? And it's not related to the propulsion. The second is how many F80 -- we are planning to launch to sell? Antonio Piccon: Just the initial few units, Thomas, not its number. And I [indiscernible] 40 in the third quarter. Operator: We are now going to proceed with our next question. And the next questions come from the line of Stephen Reitman from Bernstein. Stephen Reitman: Apologies I had a problem with connection. And I apologize also if this question has been asked before because I was cut off, so I had to redial in again. So thank you for your comments about the contribution of 849 extending the coverage of your order book into 2027. I'd like to know if demand is similar for both the Coupe and for the Spider. And I know you don't comment on the order intake on a model-by-model basis. But could you talk about the level of interest you're seeing in the Amalfi? Is demand strong for the entry products as it is for your higher-end products? And my second question is regarding also on the hybrids. You've given us some detail in the past about the penetration rates you're seeing for your extended warranty program for the battery program and the like. And I think the last figure we had was running at about 15% to 20%. Obviously, that's a very good way of improving the residual values of these vehicles and making these Ferrari last being cars lost forever as your intention. So could you update us on where you are with that program? How well is it's understood? Benedetto Vigna: Thank you, Stephen, and I understand that electronics is not always working well before. That is why we manage carefully electronics in our cars. Having said that, how it's going Amalfi? I think Amalfi is proceeding better than the previous model. So this is very encouraging. The second point I can tell you is that I saw -- I was in China the 21st of October, and I saw the first 2 Amalfi sold over there to new client younger than 40 years old. I can also share with you that in order book, more than 50% of the new clients -- of the -- sorry, 40% of the people that want to buy the Amalfi are coming new to the brand. And this is, let's say, we are pleased because one of the objectives of this car was to bring on board, new to the brand. So that's the comment on Amalfi. The story of hybrid, that hybrid warranty, I think that -- I mean, it's picking up, continues to pick up. It's more than 20%. But we see one simple things. we have dealers that are able to explain it well, while we still see some dealers that have not yet explained properly. So we are in the process to retrain some of our dealers because some of them are not able to explain properly the advantage of this warranty scheme. So we see improvement, but I think there is more if all the dealers are able to explain properly. So that's on the hybrid -- side. Thank you Stephen. Operator: And the questions come from the line of Thomas Besson from Kepler Cheuvreux. Thomas Besson: I think I've already asked my question. So I think you can pass on to the next speaker. Benedetto Vigna: In fact, I was surprised. Thomas Besson: Yes, me too with. Operator: And the next questions come from the line of Robert Krankowski from UBS. Robert Krankowski: Just 2 questions from me, please. And just maybe starting with the Q3. Like I think we are expecting that it's going to be the weakest quarter in the year. So obviously, something went better and maybe we heard that it was personalization. But maybe if you could talk specifically about the U.S. Back in Q2, you mentioned that there is some change in consumer behavior because of the tariffs. Have you seen it normalizing right now after we have more clarity on tariffs? And maybe the second one also related to the U.S. Obviously, there is a lot of conversation about residuals and there is some kind of concern about potential increasing order cancellations. Have you seen any unusual or any pickup in orders cancellation in the U.S. as consumers are a bit worried about potential change in residual values in the market? Benedetto Vigna: I'll take this question, Robert. So one, in U.S., the business proceeds as usual, number one. Number two, the only difference we see in U.S. that if you compare today versus the previous call, at that time, the tariff were still at 25%. Now they are at 15%. Now it's carved out in the stone, it's 15%. So that's the only difference we see. And we have been -- you remember last time, we told you when it will become, how can I say, blessed by papers, then we will update the commercial policy, and that's what we did. That's what we did before we said the price increase up to 10% when the tariffs were 25%. And now we say price increase up to 5%. That's the only difference in U.S. Then the business proceeds as usual. Antonio Piccon: And with respect to Q3 being originally thought as the weakest quarter in the year, I think the reason is simple. We were -- the level of personalization was higher than we were expecting. So that has on the top line. And in terms of the cost basis, a point that I highlighted when we revised the guidance upward, the cost base actually ended up being lower compared to our initial expectations. Operator: And the questions come from the line of Tom Narayan from RBC. Gautam Narayan: My first one, Antonio, I think I didn't hear it, and you said it, but could you please review the bridge again from Q3 to Q4? I know the Daytona's are zeroed out, but then maybe review the -- maybe the R&D and SG&A. And then I have a follow-up. Antonio Piccon: Yes. With respect to Q4, Tom, I said that there will be lower deliveries year-over-year. That's a point that we already in the Q2 call. This is to be read in connection with the changeover models that we discussed. Then I said there will be a positive product mix, although we expect it sequentially lighter in line with the phaseout of the Daytona and the first unit of the F80. And the last point is that we expect higher SG&A and a seasonal step-up in racing expenses for development of the applications for the car as well as higher SG&A that are dictated by the start of production of the new models. Gautam Narayan: Got it. Okay. That's very helpful. And then I have a kind of high-level question. I think in the past, you said that when there's a new kind of form factor, like Purosangue was a very different vehicle than you had ever made in the past that initially, obviously, there is a -- I don't know, like a margin headwind relative to -- if it was a standard product that you've done before at the same price point. How do we think about the Elettrica from this standpoint, given that it's a completely different form factor, is it safe to say that there's a similar kind of margin headwind relative to models that you make at a much larger volume requiring less incremental new spend? Is that a safe assumption to make? Benedetto Vigna: I think, Tom, you have a good memory. That's what we said about Purosangue, but we said it when everything was announced and everything was clarified. So I don't want to look like unpolite but if you are patient a little bit, then we will be more precise on that. But before I said, like you remember, we told you everything when the shape was visible and not only the shape... Operator: We are now going to proceed with our next question. And the questions come from the line of James Grzinic from Jefferies International. James Grzinic: I guess I have really a philosophical question for Benedetto just to follow up on Flavio's. I think Benedetto, you've made it very clear that you expect a higher rate of innovation to continue to really support your pricing power for the brand -- when I consider your 2030 plan, you seem to assume that, that lever, that price/mix lever is going to be much less important than in the past. Is that -- should we be thinking that the rate of innovation in the next 5 years reduces to go hand-in-hand with that price/mix lever being less important than in the past 4 years? Benedetto Vigna: No, I think that innovation rate does not slow down, honestly. I think we have several innovation in the pocket that we plan to apply to the different cars, each one for its own positioning. And I mean if we would sit on the innovation, I don't think we would be call it Ferrari. So the reason why I was very clear with the question -- the answer to the question of Flavio Cereda is because we have several levers of innovation that go beyond the traction. There is the vehicle dynamics, there is user interface, there is architecture that is the driving trails that we feel confident that once we apply this to the different model, we will be able to delight the client and thus to use properly the pricing power because we are not -- I would like to maybe underline one point. We are not a company that is increasing the price of the same object just because time goes on. No. We increased the price of what we do because we put something more innovative in it and because this innovation is going to delight our clients. I think this is important. If you see also the way we increased the price in the past years, well, Ferrari has been unique in the sense that we have not increased the price of the same object, but we have put the innovation in the product and that because of a high degree of innovation, high degree of delightment of the client, we exerted properly the pricing power. That has been and that's going to be in this way, James. Operator: And the questions come from the line of José Asumendi from JPMorgan. Jose Asumendi: Just one question, please. I guess frequently asked the question after the Capital Markets Day with regards to, I think, very exciting future, I think right products that you're launching into the market, but they also require some investments such as the launch of Elettrica. I think some lesser investments like the paint shop and I think all the credit facilities we saw during the Capital Markets Day. The question is to create a stability of margins in the business model, how can we think about the offsetting elements, the positive contributions you're going to have in the medium term to create that margin stability? And there might be some doubts in the market about the margin stability of the business model. How can we think about that balance between investments and then the opportunities you have to maintain and create that margin stability that you've shown, I think, in the past years? Benedetto Vigna: Let me see because there was some noise just to make sure that I understood properly, José. I think that if you want this question for me, the answer is very close to the previous one. The only way -- first of all, we are living in uncertain time. Yes. There is no difference also if you want to many other cases in the history. Now the only things we can do is to make sure that we keep innovating so to offer something that is unique to our clients, unique in the performance in engineering, unique in the design, unique in the way we do it because why are we doing the paint shop? Why are we doing -- why did we do the e-building? Because we want to be unique in the way we manufacture our cars, whatever they are ICE, hybrid and green electric. Why we are showing in a multistep way the innovation of Elettrica because we want to make sure that all the work done by the engineers -- well, it's not going to be lost because there are so many new things in this car as well as in other cars that we will make sure that innovation is properly, is properly, let's say, explained to our clients. We noticed it -- let's put it this way, we noticed that for some cars in the past, there was a lot of innovation content or there were several innovation content that were not properly explained. And this is an area of improvement we have. When we do something new, even on technology, on design, on engineering, we have the responsibility to explain well to the world because behind that -- beyond that, there is the work of many people, blue collar and white collar. So this is the philosophical question or the goal of this question of this company is to make sure that on the innovation side, whatever we do is unique. And this is, if you want, the best guarantee of the long-term sustainability of what we do. That's it. I only if you are unique, we can do something that guarantees the long-term sustainability. That's the reason why we gave you a floor for the end of this decade, and we feel confident about that because of the uniqueness of what we do. Operator: And the questions come from the line of Michael Tyndall from HSBC. Michael Tyndall: Two questions, if I can. One for Antonio. Can we talk about the F1 budget for next year? So headline number, if I'm not wrong, is USD 215 million from current USD 135 million. From where you're sitting, is that just an incremental $80 million of cost or does the scope change mean that actually the impact on your P&L is considerably lower than that headline number? And then the second one is just around can you talk a bit about FX on the order backlog? What scope do you have? And how much do you really want to push in terms of trying to offset what's going on with currencies on a backlog that now runs into 2027? Antonio Piccon: Thanks, Michael. The first one really the fuel cost increase. That's an element we need to take into account. So if the F1 budget grows, this flows into our cost, and this is to be taken as a cost increase. On FX on the order backlog, based on the agreement that we have with dealers is in principle, we could change pricing with a 90 days anticipation, I guess. So that's something that in principle is possible. We decided on a country-by-country basis and depending also on the move in terms of the exchange rate on the size of the move. Operator: Thank you. Given the time constraint, this concludes the question-and-answer session. I will now hand back to Benedetto Vigna, CEO, for closing remarks. Benedetto Vigna: Thanks for your time today and also for all your interesting questions. Thanks a lot. We remain focused on executing our plans throughout the rest of this year. And also with confidence, we'll begin to build the next phase of our new business plan. It's a business plan that is ambitious, and we are highly confident that this is going to happen. We'll deliver on our promises as we already did so far. And this -- after this, I wish you a good morning or afternoon. And I thank you again for your attention and your questions. Gracias. Operator: This concludes today's conference call. Thank you all for participating. You may now disconnect your lines. Thank you, and have a good rest of your day.
Operator: Greetings, and welcome to the Hagerty Third Quarter 2025 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jay Koval, Head of Investor Relations. You may begin. Jason Koval: Thank you, operator. Good morning, everyone, and thank you for joining us to discuss Hagerty's results for the third quarter of 2025. I'm joined this morning by McKeel Hagerty, Chief Executive Officer and Chairman; and Patrick McClymont, Chief Financial Officer. During this morning's conference call, we will refer to an accompanying presentation that is available on Hagerty's Investor Relations section of the company's corporate website at investor.hagerty.com. Our earnings release, slides and letter to stockholders covering this period are also posted on the IR website as well as our 8-K filing. Today's discussion contains forward-looking statements and non-GAAP financial metrics as described further on Slide 2 of the earnings presentation. Forward-looking statements include statements about our expected future business and financial performance are not promises or guarantees of future performance. They are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For a discussion of material risks and important factors that could affect our actual results, please refer to those contained in our filings with the SEC, which are also available on our Investor Relations website and at sec.gov. The appendix of the presentation also contains reconciliations of our non-GAAP metrics to the most directly comparable GAAP measures that are further supplemented by this morning's 8-K filing. And with that, I will turn the call over to McKeel. McKeel Hagerty: Thanks, Jay, and good morning, everyone. We appreciate you taking the time to join Hagerty's Third Quarter 2025 Earnings Call. While many of us are putting away our special cars in the fall after another fun driving season, we at Hagerty are breathing a sigh of relief that 2025 was a relatively benign year for catastrophes after a challenging start with the California wildfires. As our reinsurers have pointed out to us, even in the worst of hurricane years, our book of collectible vehicles tends to significantly outperform what their models would have predicted. Our members love their cars and they will find ways to drive them to safety. Building trusted relationships with our members through the years of delivering on our brand promise enables us to develop new products such as the recently launched Safe Storage Concierge, which provides guaranteed shelters for cars in hurricane-prone areas such as Tampa and Miami. While we hope our members never need to use the program, if they do, we will be there for them, regardless of the type of vehicle that they love, leading to lower claim frequency and consistently strong and stable underwriting results year after year as we add new members. Let me dig into the highlights from the first 9 months of 2025 shown on Slide 3. Total revenue increased 18%. New business count fueled by a 13% increase in written premium and 14% growth in commission revenue, an acceleration from the first half results as State Farm policy conversions ramp up month-over-month. October came in even stronger than September, delivering the highest Policy in Force or PIF growth in our history. Earned premium in our risk-taking entity, Hagerty Reinsurance, increased 12% and membership, marketplace and other revenue jumped 54% due to the launch of our European auction business, plus growth in inventory sales and private transactions. Moving to profitability. During the first 9 months of the year, our operating margins jumped another 350 basis points, resulting in net income gains of 73% to $121 million and adjusted EBITDA growth of 46% to $153 million. High rates of compounding growth with a relentless focus on operating efficiencies are resulting in sustained margin expansion as we work towards doubling our policies in force to 3 million by 2030. Hagerty has become one of the largest MGAs in the specialty vehicle insurance business, thanks to omnichannel distribution, best-in-class service, valuation and underwriting capabilities, not to mention a brand unlike any other with a Net Promoter Score of 82 that towers over the industry's average score of 37. Our direct business is adding new members efficiently, thanks in part to our unique ability to drive a disproportionate number of people in Hagerty's funnel on the strength of the Hagerty brand and low-cost referrals. And our distribution team has been working diligently to cultivate relationships with the leading carriers in the U.S. as the majority of the specialty cars we seek to insure sit within their bundled policies. With that, we announced yesterday that we had signed a new partnership with Liberty Mutual and Safeco. Liberty Mutual is the seventh largest auto insurer in the U.S. and has built a sizable collector car program over the past decade under the Safeco brand. Hagerty will help Liberty Mutual engage and retain their customers through a combination of our excellent customer service and expertise at valuing, underwriting and handling claims on collectible vehicles. We are very excited to work closely with the Liberty Mutual team to help ramp up this partnership into 2027. Moving on to Slide 4. A reminder of our 2025 strategic priorities built around 3 themes: simpler, faster and better integrated. First is to expand our specialty insurance offerings to protect more of the collectible market, including modern enthusiast vehicles with the launch of our Enthusiast Plus program. Second is to simplify and better integrate our membership experience across our products and services, creating revenue synergies and driving cost efficiencies as we engage with our members in a unique and authentic way. Third is to expand our marketplace business internationally, leveraging the trust we have built in the United States. This includes 2 recent European auctions in Belgium and Switzerland, plus this past weekend's auction at the Wynn, Concours and Las Vegas, bringing our global vehicle value sold at Broad Arrow Live Auctions to $240 million through November 1. We are methodically building Hagerty and Broad Arrow into the most trusted brands for people to buy and sell special vehicles and live auctions work synergistically with our private sales transactions and financing business. And finally, we are investing in the technology re-platforming that will enable additional efficiency gains shown on Slide 5. Slide 6 shares details on the new fronting arrangement with our strategic partner, Markel, that we discussed in late July. As a reminder, we have been moving towards assuming more of the premium and risk associated with our high-quality underwriting and this 2% fronting arrangement would allow Hagerty to control 100% of the premium and risk commencing in 2026, a 25% increase compared to the current 80% quota share. We are excited to continue partnering with Markel as we build out our own capabilities to deliver a seamless experience for members with greater operational control, not to mention drive increased profitability from the additional underwriting and investment income. Let me now turn the call over to Patrick to share more details on our results and increased 2025 outlook. Patrick? Patrick McClymont: Thank you, and good morning, everyone. Let me dig into the third quarter results shown on Slide 7 and 8. We delivered 18% growth in total revenue to $380 million. New business count gains, combined with industry-leading retention of 89% drove a 16% increase in written premium. As expected, written premium growth accelerated in the third quarter, resulting in 2-year rate growth exceeding 30% as we ramp conversion of State Farm's 525,000 Classic policies to their new Classic Plus program, powered by Hagerty. Commission and fee revenue grew by 18% to $137 million. Earned premium increased 13% to $187 million. Our loss ratio came in at 42% for the quarter in the first 9 months of the year, resulting in year-to-date combined ratio of 89%. In Membership, Marketplace and Other Revenue jumped 34% to $56 million. As McKeel mentioned, we have quickly established ourselves as a leading auction house with unparalleled automotive expertise for our customers. We also continue to build our online marketplace, offering 240 Barn Find vehicles from the first tranche of The Generous Collection in October with more collections to follow over the coming months. Turning now to profitability, shown on Slide 9 and 10. We reported an operating profit of $34 million in the third quarter, an increase of 240% as operating margins jumped 590 basis points to 9%. G&A increased 17% due to higher software licensing costs from our technology transformation as well as the professional fees associated with the August secondary offering of shares from Kim Hagerty's estate and the Markel fronting arrangement. Salaries and benefits grew 44% due to higher year-over-year incentive compensation accruals, thanks to our strong financial outperformance this year. As a reminder, last year's incentive compensation was negatively impacted in the third quarter due to elevated cat losses from Hurricane Helene. Excluding professional fees and incentive comp, we are holding core growth in G&A and salaries and benefits to the mid- to high single digit range. This increase is due to merit and selective headcount additions to support future growth. We had a fair bit of activity on the tax front this quarter. Given the sustained improvement in our profitability, we concluded that the company will generate sufficient future taxable income to realize a portion of our deferred tax assets. As a result, $38 million of the valuation allowance was released and recorded as an income tax benefit. In connection with the release, we remeasured our tax receivable agreement liability resulting in an expense of $29 million, which was the driver of negative $21 million in interest and other income. Third quarter interest income from our investment portfolio was $11 million and interest expense was $2 million. In total, we delivered third quarter net income of $46 million compared to $19 million a year earlier, an increase of 143%. Net income to Class A common shareholders was $19 million after attribution of earnings to the noncontrolling interest and accretion of the preferred stock. GAAP basic earnings per share was $0.18 and diluted came in at $0.11. Adjusted EBITDA increased 106% to $50 million in the quarter. And we ended the quarter with $160 million in unrestricted cash and $178 million of total debt, which includes $75 million in back leverage for our portfolio of collateralized loans. Let me wrap up with our updated outlook for 2025, where we again increased full year expectations for revenue and profits shown on Slide 11. We now expect 14% to 15% revenue growth and are increasing our assumptions for margin expansion. This should result in net income of $124 million to $129 million, equating to growth of 58% to 65% and adjusted EBITDA of $170 million to $176 million, an increase of 37% to 41% compared to 2024. The net income range also includes a $6 million year-to-date net impact from the valuation allowance benefit of $38 million, partially offset by the increase in TRA liability of $32 million. In summary, we are delivering on our 2025 strategic priorities and are well positioned to accelerate profit growth and cash flow generation as we move into 2026 and 2027, fueled by high rates of organic growth in new members. Our brand strength and omnichannel distribution enable us to grow profitably during both good and bad times, making us truly differentiated from most P&C carriers, where profitability is dependent on the rate cycle. When you combine multiple growth levers with ongoing operating efficiencies, we believe we are pulling together all the ingredients necessary to create shareholder value over the coming years. With that, let us now open the call to your questions. Operator: [Operator Instructions] Our first question comes from the line of Hristian Getsov with Wells Fargo. Hristian Getsov: My first question is on the Liberty Mutual and Safeco partnership. Can you maybe provide some quantification of how much of a PIF tailwind or premium tailwind that could be for your book kind of on a go-forward basis? And in terms of like the financials, could we see something like a book roll later on in the partnership? Or I guess, how are you thinking about that long term? Patrick McClymont: Sure. Liberty Mutual and Safeco, we're excited. It's an important new partnership and it's very consistent with our overall partnership strategy, right? They chose to work with us, because they know we're going to deliver the right product for those customers. So it's an important and very consistent step in our strategy. Think of it as tens of thousands of customers. And so it's a good-sized opportunity. It's not sort of one of the State Farm type sized opportunity, obviously. And then we continue to work through the details with State Farm and -- I'm sorry, with Safeco and how we'll be working with them and with Liberty Mutual. It's a combination of -- we are doing a book roll. We're taking this business on. And so we'll be sharing some economics with them. And we're not going to give a lot of details on this because it's partner-specific. But think of it as another important step in the process as we build out the omnichannel distribution. Hristian Getsov: Got it. And then for the Enthusiast Plus rollout, any quantification on kind of like the PIF growth that's happening there? I know you're live only in a few states and it's still early on. And then I guess, sticking with that, like how should we think about like your loss ratios on a go-forward basis, given that should be a younger, newer car cohort? And how would that kind of impact your loss ratios as that kind of like becomes a bigger portion of your mix? McKeel Hagerty: Well, what we've talked about before, this is McKeel, by the way, and again, welcome to the call. As we've talked about with Enthusiast Plus, it's early days. This is built on the knowledge that we've been gaining through years of what we referred to before as our Flex Program. So we're coming to it with a lot of knowledge, but we are opening up the underwriting aperture to be able to take on more types of risk. We are live in one state. We will start rolling out new states. And as far as loss results, it's too early to be speaking specifically about it. But we're excited about what we're seeing and so far, so good. Operator: Our next question comes from the line of Charlie Lederer with BMO Capital Markets. Charlie Lederer: Just on the strong growth in written premium, the acceleration in the quarter, I guess when we back out the PIF growth, it looks like the pricing growth accelerated. Can you kind of parse that out for us? Is that State Farm-driven? Or what's causing the kind of the premium per policy or the pricing to accelerate? Patrick McClymont: Yes. So on that one, I guess we would encourage you to think about that -- think about that on a trailing 12-month basis. Our business is very seasonal. And so if you're taking kind of -- I think if you look on a quarterly basis, you've got in your -- I think in your numerator, you've got something that's a seasonal quarter number. And then your denominator, you've got something that's a much more smooth total policies in force number. So I encourage you to think about that on a trailing 12-month basis. If you do, you'll see it's much smoother than what sort of the quarterly analysis would say. What this quarter, I think trend-wise, what we're going to see over the next couple of years is that kind of metric should actually decelerate, just because of what's happening with State Farm, right? So State Farm is coming in with a lot of policies that are typically single car and they're typically a bit lower than what our core book has been traditionally. And so we may see that that kind of written premium per PIF will start to trend down a little bit, just because of that. After we get through this massive intake of State Farm, the 525,000 cars, then you'll see that return to more historical levels. It's really tough to do year-over-year quarterly comparisons. For example, last year, we were just getting going with State Farm. And so that created a little noise in the third quarter of 2024. This year, it's ramping up. And as it's ramped up, there's a pretty meaningful change in what those -- what the premium per policy is. And so it's really hard to do this sort of at the aggregate level. The general trends you should focus on is in our core traditional book. We get typically 2%, 3% price increases over the long haul, much, much lower than what you see in daily driver. And we think that's a competitive advantage. We're able to win business because of that. So we do get price increases, but typically that low single digits. I talked about State Farm, the dynamics there. And then over time, Enthusiast Plus, that will come with higher premiums per policy. This is -- will ramp up over the next few years, but that will change the dynamic as well. So hopefully, that's helpful. As always, there's mix, there's seasonality. There's a lot of things that go into a metric like that. Charlie Lederer: That is helpful. Maybe you can help us triangulate, I guess, the upside to your guide in the quarter on revenue and EBITDA. I guess, at a high level, how much was from underwriting versus marketplace? And I guess as we think about the strength in marketplace from some of the new business you talked about, how should we think about that trending from here, since there's some seasonality in that business, too, I think? Patrick McClymont: Yes. So the marketplace business, particularly live auctions and private sales, we are having a good year. It's a young business, a growing business growing quickly. And this year, it exceeded our expectations. And so that is reflected in the increase in guidance. When you think about that business heading into next year, we should continue to see growth. We're pretty close to a full calendar. And so we've got the 4 auctions domestically and 4 in Europe. We may add 1 or 2 next year. And there's always the chance that there's a single owner sale that pops up. But the event growth will -- we're not going to add 3 new auctions next year. And so what we're going to be looking for there is now we've got a full calendar and the ability to continue to drive more volume through each of those auctions. And so I'd assume the growth rate in live auctions will decelerate next year, still grow, but it will decelerate just because we're not adding to the calendar. Private sales this year was a big year. And so we've got to take a look at that. And some of that's episodic, some of that we think is sustainable and can grow. But this year was very, very strong in that regard. And that does get reflected in the increased earnings guidance. Is that helpful? Charlie Lederer: Yes. Yes. And if I could just sneak in one more. On Slide 16 of the earnings deck you guys put out, I think the chart on the right is a new slide or a new exhibit, I guess, the $35 million collectible car target market. Can you kind of talk us through that slide? And yes, I'll leave it there. Patrick McClymont: Sure. We can talk it through. It's not a new one. This is one that we've had out there for quite some time. I think the key intuitions from this, we have strong market positions in older cohorts. And so if you go back to pre-war cars, 1950s cars, 1960s, we've got good penetration in those cohorts, but still room to grow. And so we do see growth in those cohorts. And kind of with each decade, our penetration tends to be lower, right? So it's strongest in sort of the pre-war in the 1950s, still strong, but a little bit less as you get into the '60s, et cetera. We know that there's those 11.1 million cars out there. We've got those in our database. We know where they are. And so currently, we were about 14% penetrated and there are opportunities to grow that. Post 1980 and this is just when VIN numbers became industry-wide, and so it's just that's the demarcation point. Post 1980, you can see our penetration is much lower at 3.1%. We've done a ton of work on those post-1980 cars to make sure that we really understand what in that broader 35 million do we think is core addressable. And so that's that Hagerty target market. And so we think there's about 24 million vehicles that could fit for our program. And because we're so lightly penetrated there, that's where a lot of our efforts go. And that's a big driver behind the Enthusiast Plus product. We needed to be able to price for more modern vehicles that may get used more frequently and that's why we designed that new program and launched that initially in Colorado with more to come. Every decade, you end up with a certain cohort of cars that end up being collectible. That has not changed. And so we want to make sure that we've got a product in place and marketing in place that we can continue to grow with the market. Is that helpful? Operator: Our next question comes from the line of Michael Phillips with Oppenheimer. Michael Phillips: Patrick, I guess, first, I want to make sure I heard you correctly on your comments on some of the expense items, the salaries, benefits and G&A. I think you said for the 2 combined mid-single digit growth. Was that right? And if so, what time period were you talking about? Patrick McClymont: That's what it should be this year, for 2025 versus 2024. Michael Phillips: And that was the 2 combined, correct? Patrick McClymont: Correct. Michael Phillips: Okay. I guess more high level, what's -- is there any impact on the growth of your Driver Club membership in the near term maybe from adding on State Farm and then maybe also because of -- would that also be impact any growth potential, I'm thinking negative growth potential kind of headwinds to growth there because of State Farm and maybe also because of Safeco? McKeel Hagerty: Well, so great question. And the way the Hagerty Drivers Club is typically sold is it's an add-on to the policy purchasing process. So somebody comes in, they get a quote and that's the same, whether it's a direct consumer or through an agent or through one of our big partners, including State Farm. Then the second piece of the transaction is how we sell Hagerty Drivers Club, which is a $70 package with the features that we have in it. So pretty much wherever we are filling the top of the funnel and bringing it down through quote and application, we will see a lift in Hagerty Drivers Club. And our job is to make sure it's attaching well and attaching efficiently and that we can offer it along the way. The way we think of Hagerty Drivers Club, it's a product package, but it's part of our membership strategy, which is when you treat somebody like a member, they're more engaged. There's longer lifetime value and it's all part of the core strategy. So more insurance means more Hagerty Drivers Club. Michael Phillips: Okay. No, perfect. I guess is the uptick of that not the same from State Farm and possibly from Safeco, as it is from your traditional business? McKeel Hagerty: It's too -- it's too soon to say, obviously, with Safeco, as we mentioned in the beginning of that. That is a book roll strategy there. So this is not just we put a product on their shelf and they're selling Hagerty. This is Safeco, who had a collector car program and they are going to exit that program and roll that business to us, but it's too soon to know exactly how we will be attaching there as part of that kind of book roll process. With State Farm, it's obviously our biggest new thing. The process is slightly different. The attach rates have been a little bit lower than our sort of standard through the front door process, but we're endeavoring to get that up to where it matches, if that helps. Operator: Our next question comes from the line of Mitchell Rubin with Raymond James. Mitchell Rubin: This is Mitch on behalf of [ Greg ]. My first question today, I was wondering if you could help quantify the sensitivity of your net investment income to the rate cuts and if the fronting shift change is going to have any impact on your view of liquidity of asset allocation? McKeel Hagerty: The first one was investment sensitivity relative to the recent Fed rate cut is what you're saying? Mitchell Rubin: Yes. McKeel Hagerty: I don't have it in front of me. Patrick? Patrick McClymont: Yes. Mitch, appreciate the question. We have allocated most of the investments into high-grade corporate and government bonds, duration of 2 to 3 years. So it's not sitting in money market accounts. So we think we're pretty well protected there. Mitchell Rubin: And my follow-up question, you had talked a little bit about the seasonality to the marketplace. Is there any seasonality to the loss ratio and acquisition costs in the fourth quarter? Patrick McClymont: So the way we think about loss ratio, there's, of course, seasonality in the underlying business because our business is so seasonal. Typically, what -- and we talked about this in other calls, in the first and second quarter of the year, we accrue to our planned loss ratio for the year. In the first quarter, it's a relatively quiet quarter from a seasonal perspective. The actual loss activity is going to be quite low in the first quarter. In the second quarter, it's starting to ramp up as we get into season. And so typically you'll see we're going to book to plan basically in Qs 1 and 2. Q3 is the first quarter that we may make an adjustment to that, which is based upon experience, we're now deep enough into the year that it may warrant an adjustment. And then obviously, in Q3, you've got some information on cat season, not complete, but most of cat season has unfolded. And then in the fourth quarter, that's when we'll make any final adjustment. So that's our policy. So far this year, we have been booking to plan. That's why you're seeing the 42%. And then in the fourth quarter, we'll make any final true-up. Fourth quarter underlying business is one of the more quiet quarters, right? Anything that's more north, you're going to have less driving activity. People put the cars to bed for the winter and so you just see less activity. What was the other part of the question? Mitchell Rubin: Yes. That's helpful. No, that was it. Operator: Our next question comes from the line of Mark Hughes with Truist Securities. Mark Hughes: You mentioned that the October PIF growth was really good. Do you feel like sharing any specific details? And what was the driver of the improvement in the month? McKeel Hagerty: Well, Mark, you've been with us a while and it's nice to hear your voice again. What I will say is it's the State Farm flywheel beginning to really turn. We've been working on this integration for a long time. We started off the year -- we came into the year with kind of 4 states active for new business and our target is to finish -- our target was to finish the year with 25. We may be able to actually get up to 27 states. So this is what we've been planning for and the reality is really starting to hit us. So teams are excited. But normally, in this very seasonal business when things start to quiet down in October, we're really humming along. So it's an exciting time for us. Mark Hughes: Okay. Very good. In the presentation on the page where you talked about the change with Markel, you mentioned you secure expanded underwriting and claims authority. Is that just kind of an operational pro forma change? Or is there anything material to your business with, I guess, that increased authority? McKeel Hagerty: Well, some of it is technical. I mean, in reality, we've had this great close partnership with Markel for a long time. The underwriting decisions very templatized, pricing decisions really driven through the data that we were driving, all of those things through the years when it was just a quota share arrangement. By flipping this over to where we're taking 100% of the -- both the results and the risk of the program through a fronting arrangement, there are some technical new jobs that we'll be taking on as part of it. So some of it will be part of Patrick's organization on the finance side, a little bit of it will be part of Jeff Briglia's organization on the insurance side, but pretty minimal from a headcount and G&A standpoint. It's just sort of the last bits of the technical aspects of running that insurance company fully. So we've been preparing for it for months and we're ready to go. Operator: Our next question comes from the line of Pablo Singzon with JPMorgan. Pablo Singzon: My first question is on guidance. Your EBITDA range for '25 suggests something like $20 million of EBITDA in 4Q at the midpoint, which is basically flat from last year on a much higher revenue base this year, right? Is there something that would prevent EBITDA growing in 4Q, maybe some quarter-specific expenses like bonus accruals or investments or the like? Or is it just talked out, because if you look at this year, you've basically grown EBITDA dollars every quarter by at least $10 million. So anything to call out for 4Q, I guess? Patrick McClymont: No, I don't think there's anything specific. Typically, the fourth quarter is seasonally a lighter quarter for us and has tighter margins. And so it could swing around a little bit. Right now that's our best guess with how things come together. There's nothing specific that we're sort of increasing spending on. So we'll just have to see how it unfolds. Pablo Singzon: Okay. And then, Patrick, second question, just as you sort of transition to the Markel agreement and I presume you'll provide more detail on the next call, but any foreshadowing in how you think EBITDA might trend next year versus this, right? And I'm not looking for specific numbers, but as you think about like the moving pieces, right? So investment income will enter EBITDA, there will be some cost deferrals in there, right? You'll retain more underwriting income, but then you lose some on the ceding commission -- or you'll retain more higher underwriting income and I think there will be some impact on the ceding commission expense as well. So if you sort of put all those items together, any sort of like big picture way to think about how EBITDA might be different versus this year? Patrick McClymont: So we actually -- there's a fair number of things that we'll need to spend time with our investors and our analysts on that are changing for next year. So the big one is we're moving from Article 5 to Article 7. So our disclosure will be more consistent with an insurance company. And that's a result of moving to 100% of the risk and continue to grow that business. A consequence of that is, yes, we will have the investment income move kind of above the line, right, whereas now it's below the line. That's just geography. That will be hopefully pretty easy for people to get their heads around. Disclosure will look different, right? We no longer have --balance sheet disclosure looks different. So we'll spend time walking people through that. And then the change in the Markel relationship also is meaningful. And we previewed this back in August in advance of when we did the equity offering and we shared with the market sort of a page that reconciles big picture how to think about that. The key thing is on a go-forward basis, we're no longer going to have the commission income related to that activity. That still happens internally, but that gets eliminated upon consolidation. And as you mentioned, we're also now in a world where we're going to have deferred acquisition cost. So we're sorting through all those changes. And our plan is on the fourth quarter call next year we're going to -- Jay and I will work hard to create a road map and kind of walk people through exactly what the changes are. I think directionally, it all goes back to this is a business that our insurance business, putting aside State Farm, which is kind of the pig going through the snake, wonderful, beautiful pig. Putting that aside, we're going to grow in the kind of low teens written premium. And now we're going to own 100% of that business instead of 80% of that business, because of the change with Markel. Layer on top of that State Farm, you've got incremental commission activity from that. So the business is growing. We have proven that. We've been able to drive margin expansion. Those things will continue. The presentation of it is going to get complicated or different. And so we just need to walk everybody through that. Operator: Our next question comes from the line of Tommy McJoynt with KBW. Thomas Mcjoynt-Griffith: Just staying on that topic, one piece perhaps you can kind of help us drill into a little bit just is the policy acquisition costs that will start getting deferred and amortized over the policy term. Can you give us some early indications to how impactful that can be? Because it does seem like that could be a material change that could be accretive to earnings. Patrick McClymont: Not at this time. I need to make sure that we nail it all down and we're very clear on what the outcome is and share that with everybody. It's just still work-in-progress. Thomas Mcjoynt-Griffith: Okay. No problem. And then going back to the marketplace side, that business line has seen very strong revenue growth this year. Can you help us map how much of that is falling to the bottom line? It looks like the sales expense has been rising in tandem and I know there's some sort of cost of goods sold there. So I'm just wondering what are the incremental margins on this revenue growth in that marketplace line? Patrick McClymont: Yes, it's a good question. And we plan for that business to be slightly operating profit positive this year. And it's certainly more so, but that more so is measured in single-digit millions of dollars, because it's still a relatively small business. So it's definitely flowing to the bottom line, but we're not at a scale yet where you're talking about many millions of dollars. The private sale business, it's just a little bit tricky because it is so episodic. We've had a very, very good year and the team has done a phenomenal job. But when we think about what does that mean for next year, that's one of those ones that's hard to predict. The way to think about that business, though, is essentially, we're making brokerage commissions, right? Sometimes we're actually buying things and reselling those and making some merchant economics. But oftentimes, it's really just an agency trade or maybe it runs through our balance sheet, because we do actually take title for a moment in time, but we're not really taking risk. And so if you think about our auction business, where you're talking about kind of 10%-ish type buyers premium, the private sale business is not at that level. It can be high single digits, but it also can be low single digits. And so you're making those kind of fees. And then your expenses related to it, a lot of the commissions that get paid to the frontline people. And then there's some operating cost overhead associated with it. So it's a good business. On a contribution basis, it's very profitable. But right now it's -- it contributes to the bottom line, but it's not something that's fundamentally changing the outcome. Is that helpful from a framework standpoint? Thomas Mcjoynt-Griffith: Yes, that is. Operator: Ladies and gentlemen, there are no further questions at this time. I would like to turn the floor back over to management, McKeel Hagerty for closing comments. McKeel Hagerty: [Audio Gap] support. We are highly encouraged by our results over the first 9 months and we have a long straightaway in front of us. Given the long lead times in the insurance industry, you will always need to plan and think long term out as you launch both products such as Enthusiast Plus and you cultivate new partnerships, including State Farm and now Liberty Mutual and Safeco. And sustaining our double digit growth trajectory year after year requires investing in our teams and technology so that we can scale up efficiently and deliver compounding profitable growth. And that is exactly what we're doing at Hagerty. We are executing with excellence on our near-term objectives, while investing in the company to capitalize on our growth potential over the next decade. With that, we hope you and your families have a great holiday season and to consider searching through Hagerty Marketplace to find that perfect gift for your loved ones. Our team has pulled in some amazing collections and no reserve vehicles looking for the perfect owner, so happy shopping. Until then, never stop driving. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines, and have a wonderful day.
Operator: Good morning, and welcome to the TPG's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's call is being recorded. Please go to TPG's IR website to obtain the earnings materials. I will now turn the call over to Gary Stein, Head of Investor Relations at TPG. Thank you. You may begin. Gary Stein: Great. Thanks, operator, and welcome, everyone. Joining me this morning are Jon Winkelried, Chief Executive Officer; and Jack Weingart, Chief Financial Officer. Our President, Todd Sisitsky, is also here and will be available for the Q&A portion of this morning's call. I'd like to remind you this call may include forward-looking statements that do not guarantee future events or performance. Please refer to TPG's earnings release and SEC filings for factors that could cause actual results to differ materially from these statements. TPG undertakes no obligation to revise or update any forward-looking statements, except as required by law. Within our discussion and earnings release, we're presenting GAAP and non-GAAP measures, and we believe certain non-GAAP measures that we discuss on this call are relevant in assessing the financial performance of the business. These non-GAAP measures are reconciled to the nearest GAAP figures in TPG's earnings release, which is available on our website. Please note that nothing on this call constitutes an offer to sell or a solicitation of an offer to purchase an interest in any TPG fund. Looking briefly at our results for the third quarter, we reported GAAP net income attributable to TPG Inc. of $67 million and after-tax distributable earnings of $214 million or $0.53 per share of Class A common stock. We declared a dividend of $0.45 per share of Class A common stock, which will be paid on December 1, 2025, to holders of record as of November 14, 2025. I'll now turn the call over to Jon. Jon Winkelried: Good morning, everyone. Thank you for joining us today. TPG delivered strong results in the third quarter. Our total AUM grew 20% and quarterly fee-related earnings grew 18% year-over-year. The flywheels across our business continued to accelerate, led by robust capital formation across all asset classes and a record quarter for deployment. I'll spend a moment on each of these important areas. This was an outstanding fundraising quarter. We raised a near record $18 billion of capital, up 60% from the second quarter and 75% year-over-year. This was driven by a successful first close in our flagship private equity funds and strong credit fundraising, where we continue to experience a step function increase in capital formation. We've made substantial progress against our previous guidance of raising significantly more capital in 2025 compared to 2024. Year-to-date, we've raised over $35 billion of capital, which already exceeds our full year 2024 fundraising. In private equity, we raised $12.3 billion in aggregate across our strategies. This was primarily driven by $10.1 billion raised in the first close for our flagship buyout funds, TPG Capital X and Healthcare Partners III, including commitments that are signed but not yet closed. We received strong support from our existing clients who increased their commitments by 12% on average over the prior vintage. These results reinforce our confidence that TPG is positively differentiated within the private equity market where fundraising has been perceived as challenging in the current environment. Our clients continue to lean in and look for more ways to partner with us in private equity given our distinct and highly disciplined approach and consistently strong performance. As a result, we believe we are outperforming in private equity fundraising relative to the broader market and gaining share. In credit, after reaching an inflection point last quarter, we maintained our strong fundraising pace and closed $4.8 billion of credit capital in the third quarter. In middle market direct lending, we announced the closing of a $3 billion continuation vehicle, which we believe is the largest-ever private credit CV. This unique transaction enabled us to extend the duration of our capital base for a portfolio of high-performing senior loans in collaboration with several strategic partners. In structured credit, we raised $1.4 billion across the strategy and launched our new liquid securities-focused open-ended fund. And in Credit Solutions, we continued fundraising for our third flagship fund, bringing the total capital raised to date to $4.3 billion. We expect to hold a final close in the fourth quarter and for the fund to be meaningfully larger than its predecessor. Year-to-date, we've raised nearly $12 billion of credit capital in what has been a breakout year for our franchise. As a result of our fundraising momentum, we ended the quarter with record credit dry powder of over $16 billion. Credit AUM not earning fees stood at nearly $11 billion, which represents over $100 million of annual revenue opportunity that we expect to flow into management fees over time. In real estate, we held a final close for our inaugural real estate credit strategy, bringing total commitments across the main fund and related vehicles to $2.1 billion, which exceeds our initial $1.5 billion target by more than 35%. We raised approximately $1 billion of capital in the final close driven by the strength of TRECO's initial portfolio. TRECO adds to our long track record of expanding into adjacent strategies through organic innovation. Early in the current cycle, we identified a compelling opportunity to invest in real estate credit at attractive risk-adjusted returns given the significant contraction in valuations and available leverage. We're seeing our thesis prove out with a fund outperforming its initial return projections and generating double-digit cash-on-cash yields. TRECO is an important extension of our investment capabilities in both real estate and credit, and we expect to scale this strategy over time. Additionally, our fundraising success has been amplified by our increasing penetration into the fastest-growing distribution channels, including insurance and private wealth. First, we've grown our capital from insurance clients by more than 60% over the last 2 years. Insurance represented 40% of TRECO's final close and over 25% of the capital raised for our credit platform in the third quarter. We're continuing to create innovative access points and cross-platform solutions for our insurance clients. For example, we've closed more than $600 million of insurance capital in our first rated note feeder for credit solutions which we believe is one of the few rated access points for this type of strategy in the market. Second, we're making strong progress in the private wealth channel, where we raised over $1 billion of capital across our drawdown and evergreen funds in the third quarter. T-POP, our perpetually offered private equity product, continues to gain momentum of approximately $900 million of inflows since its launch 5 months ago, including $250 million in October. This accelerated pace was supported by the launch of T-POP on a leading international private bank platform in September. We are experiencing strong traction in Europe and Asia and plan to launch on several additional domestic and international platforms over the next few quarters. Private wealth is an important growth driver for us, and we remain focused on further expanding access to our products across geographies and investor types, which Jack will touch on further. Moving on to deployment. As discussed on our last call, we expected our investment pace to accelerate into the back half of the year. In the third quarter, we deployed a record $15 billion, up over 70% year-over-year, and our activity was well diversified across the firm. Our credit platform drove over half of the capital deployed during the quarter with $8.3 billion invested across our strategies more than doubling year-over-year. In structured credit, we deployed $3.6 billion of capital, half of which was driven by residential whole loan investments where we continue to be a market leader. In asset-backed finance, we closed notable transactions across several of our verticals, including nonbank credit card origination. We also completed a meaningful upsize of our joint venture with Funding Circle and Barclays in the U.K. In middle market direct lending, Twin Brook generated $2 billion of gross originations in the third quarter, our highest volume so far this year. Importantly, given the steady increase in overall M&A activity, 70% of our origination was driven by new investments, bringing the total number of companies in our portfolio to over 300. Our pipeline remains robust, and we expect the fourth quarter to be our most active quarter of the year. In Credit Solutions as spreads remain at historic tights, our flexible mandate continues to create opportunities to provide tailored solutions in the private market. As an example, last year, we formed a proprietary joint venture with Bluestar Alliance and Hilco Global to finance and acquire consumer brands and intellectual property. Our unique partnership brings together significant sector, operating and financing expertise, enabling differentiated access to attractive opportunities. This was most recently highlighted by the JV's announced acquisition of the iconic Dickies apparel brand in September. Despite some recent concerns in the broader credit markets, including certain allegations of fraudulent activity, our portfolios continue to perform well. We've maintained a disciplined and highly selective approach to credit underwriting with a focus on fundamentals and risk management. As a result, our annualized loss ratio since inception has remained stable at only 2 basis points for Twin Brook, 3 basis points for our private asset-backed credit business and less than 40 basis points for Credit Solutions. We continue to uphold the same rigorous standards as we evaluate new investment opportunities, and Jack will share more details in his remarks. Across our private equity strategies, we maintained a healthy pace of deployment with $4.6 billion of capital invested in the third quarter, up nearly 40% year-over-year. At TPG Capital, we announced the carve-out of Proficy, GE Vernova's manufacturing software business. This transaction is a culmination of the relationship we've built with GE Vernova over 7 years across both our capital and climate strategies. Proficy aligns well with our expertise in corporate carve-outs and structured partnerships which comprise 11 of the 16 most recent investments in TPG Capital. Additionally, just a few weeks ago, we announced the take private of Hologic, a leading provider of diagnostic imaging and surgical products focused on women's health, for up to $18 billion. We're excited to partner with one of the premier scaled platforms in the women's health space, which has long been a thematic area of focus for us. In tech adjacencies, we closed minority investments into several leading large language model developers, expanding our exposure to Gen AI development and providing us with differentiated insights into this rapidly evolving area of the technology ecosystem. These investments follow the innovative debt financing that our Credit Solutions business recently anchored for xAI. We continue to evaluate opportunities to capitalize on the robust growth in the space and a partner with leading AI companies across each of our asset classes. In Rise Climate yesterday, we announced the acquisition of Kinetic, a leading international operator of zero emission transport and infrastructure based in Australia. Kinetic aligns closely with our deep expertise in clean electrification and mobility and represents the second investment by our transition infrastructure strategy. In real estate, we had our most active deployment quarter so far this year with $1.9 billion invested across TPG and TPG AG real estate. During the third quarter, TREP completed the acquisition of the former Broadcom office campus in Palo Alto's Stanford Research Park. This investment is consistent with TREP's continued focus on selectively investing in office markets where we see compelling green shoots emerging, such as the San Francisco Bay Area. We believe the Bay Area is reaching an inflection point in demand, driven by the growth in AI-focused tenants. In TBG AG real estate, we've maintained an active investment pace with nearly $2 billion deployed year-to-date across our dedicated regional funds. We're identifying and capitalizing on improving supply-demand dynamics in certain sectors, including senior housing and hospitality in the U.S. and office markets in Japan, Korea and London, which have low vacancy rates and attractive rental growth. Before I wrap up, I want to share what I'm hearing from my conversations with our clients across the world and how it's shaping our business and the opportunities in front of us. In private equity, institutional clients continue to face liquidity constraints and are consolidating their relationships among fewer GPs. Against this backdrop, we believe TPG is gaining share due to the consistently strong returns we've delivered. This has been driven by our focus on investing in deeply thematic areas and partner with our portfolio companies to drive growth. Over the past decade, across our TPG Capital and TBG growth funds, more than 80% of our value creation has come from earnings growth compared to less than half for the S&P 500, where over 40% of the value was driven by multiple expansion. This differentiation is resonating with our clients and driving continued fund over fund growth across our private equity strategies. Additionally, we continue to see increasing allocations into private credit. Investors are diversifying their exposure into areas such as structured credit, lower middle market direct lending and middle of the capital structure opportunities where we built scaled investment strategies. Our clients are expanding their relationships with us across our credit platform, including through multi-fund partnerships and seeding new strategies. As a result, our credit AUM has grown 23% year-over-year and it continues to be one of the fastest growing areas within our firm. And finally, in real estate, we are well positioned to play offense with over $12 billion of combined dry powder and continued positive value creation across our portfolios. Over the past 2 years, we've capitalized on the substantial market dislocation to acquire high-quality assets that are not typically available for sale. We believe the real estate market has stabilized and transaction activity is accelerating. Our clients are expressing a growing interest in real estate as demonstrated by the success of TRECO's recent fundraise. Given the strength of our distinctive portfolios, we remain confident as we prepare to launch fundraising campaigns for several of our real estate strategies in the coming quarters. We made significant progress against our strategic priorities for 2025, and I'm pleased with the strength of our business across all key metrics. Our increased scale and diversification positions us well to deliver accelerated growth and generate long-term value for our shareholders. I'll now turn the call over to Jack to discuss our financial results. Jack Weingart: Thanks, Jon, and thank you all for joining us today. As you can see from our strong third quarter results, we've been successfully executing on our growth strategy. On our last call, I discussed several key building blocks we've been putting in place to drive our next leg of growth. These include scaling our credit platform, launching our next series of private equity and real estate funds and building on new products and businesses. Our Q3 results demonstrate that we're tracking well against these objectives. Our capital formation and credit is on pace for a record year in 2025 and credit deployment through the third quarter of nearly $17 billion already exceeds our full year 2024 total. Fundraising for TPG Capital X and Healthcare Partners III is off to a great start and with more than $10 billion raised in the first close. And we continue to expand through organic innovation. As Jon mentioned, we raised $2.1 billion of capital for TRECO, our opportunistic real estate credit fund, including related vehicles, and approximately $900 million today for T-POP, our new perpetual private equity product, which I'll expand on later. Additionally, earlier this year, we launched fundraising for our second GP-led secondaries fund which is tracking to be significantly larger than its processor. We ended the third quarter with $286 billion of total assets under management, up 20% year-over-year. This was driven by $44 billion of capital raised and $24 billion of value creation, partly offset by $26 billion of realizations over the last 12 months. Fee earning AUM increased 15% year-over-year to $163 million. These figures include TPG Peppertree, which closed on July 1 and added $8 billion of AUM and $4.5 billion of fee-paying AUM. As a result of our strong fundraising in recent quarters, our dry powder has grown to a record $73 billion. This represents a real strategic asset at a time when, as Jon indicated, our teams are sourcing very interesting investment opportunities. AUM subject to fee earning growth was $35 billion at the end of the quarter, which included $24 billion of AUM not yet earning fees. This represents a revenue opportunity of more than $220 million on an annualized basis. Our management fees grew to $461 million in the third quarter, driven by the activation of TPG Capital X and the addition of TPG Peppertree to our Market Solutions platform. We generated $38 million of transaction and monitoring fees in the quarter and $163 million over the last 12 months. We continue to invest in building our capital markets franchise. And as we look to the fourth quarter and into 2026, we expect to drive further growth in transaction fees. We reported quarterly fee-related revenue of $509 million, fee-related earnings of $225 million and a 44% FRE margin, which tracks well against our previous guidance of exiting the year with a margin in the mid-40s. Our distributable earnings for the third quarter were $230 million, which included $30 million of realized performance allocations, driven by our full exit from Sai Life Sciences, which has traded up nearly 70% since its IPO in the India Stock Exchange last December and the full sale of Samhwa, a leading cosmetics packaging company in Korea. This marks a strong first exit in TPG Asia VIII less than 2 years after our additional investment in the company and is a great outcome for our Asia franchise. I'd like to take them on explain the relationship between our monetization activity and our generation of performance-related earnings for shareholders. During the quarter, we continued to drive strong realizations across our portfolio, which increased nearly 40% year-over-year to $8 billion. The reason that PRE did not increase commensurately relates to the timing of profit allocations early in a fund's life. In addition to Sai Life Sciences and Samhwa, realizations during the quarter included early exits in several other funds, such as our highly successful sale of Elite in TPG Capital IX. These exits drove attractive profits and DPI for our fund investors, but did not result in significant performance allocations as the gains went to repay fees and expenses, which is typical for the first exits in the fund. Looking forward, this sets us up for increased performance allocations from the next series of exits in these young funds. On an LTM basis, we've generated $262 million of performance-related earnings for shareholders, which is 140% increase compared to the prior 12-month period. Our clients recognize the differentiated DPI we've delivered and we've continued to drive monetization activity since quarter end. In October, we completed our first major liquidity event in our GP-led secondaries business, TGS through a partial realization of CR Fitness, a leading fitness franchisee at an attractive valuation. Since our initial investment, our sponsor partner, North Castle and the management team have driven exceptional growth at the company, more than doubling both the number of active clubs and EBITDA. And just last night, our Rise and Rise Climate portfolio company Beta Technologies, which has developed electric aircraft capable of vertical takeoff, successfully priced a $1 billion all primary IPO. This IPO was very well received, allowing the company to upsize the offering and price above the filing range. Moving on to our balance sheet. We drew on our revolver during the quarter for several growth initiatives, including funding the cash consideration for Peppertree and seeding the portfolios for new businesses such as T-POP. We issued $500 million of senior notes during the quarter and used the proceeds to pay down our revolver. As a result, our net interest expense increased to $23 million in the third quarter. As of September 30, we had $1.7 billion of net debt and $1.8 billion of available liquidity, giving us ample flexibility to continue pursuing new growth initiatives. Given our increased diversification and strong financial profile, during the quarter, we did receive an upgrade in our credit rating from Fitch to A-. The fundamentals across our portfolios remained strong, and we delivered positive value creation in each of our platforms for the third quarter and over the last 12 months. As Jon mentioned, recently, there's been a heightened focus in the market on credit quality due to a few high-profile defaults. Importantly, we have no exposure to those events, and the underlying health of our credit portfolio remains strong. In aggregate, our credit platform appreciated 3% in the third quarter and 12% over the last 12 months. In middle market direct lending, our portfolio comprises exclusively first-lien loans with maintenance financial covenants. And we are a lead lender in nearly all of our transactions. We've built in significant downside protection and take an active approach to portfolio management. As a result, our portfolio of more than 300 companies continues to perform well. Nonaccruals remain extremely limited at less than 2% and our average interest coverage ratio has remained very stable at approximately 2x. In structured credit, our asset-based credit funds net IRR since inception remained above its target range at 13.5% and at the end of the third quarter. In addition, our flagship structured credit fund MVP continued to outperform credit benchmarks and returned 3% in the third quarter. Recent stress in the structured credit market has been evident in the subprime auto space. Several years ago, we identified weakening fundamentals in auto finance and our structured credit funds proactively rotated out of the sector. As a result, we currently have zero exposure. Looking at Credit Solutions, our funds generated net returns ranging from approximately 5% to 6% in the quarter, which far outpaced the U.S. leveraged loan and high-yield bond indices. In addition, our second essential housing fund generated a net return of nearly 4% during the quarter and more than 11% year-to-date. Turning to private equity. Our portfolio in aggregate appreciated 3% in the quarter and 11% over the last 12 months. Overall, the companies within our capital, growth and impact platforms continue to meaningfully outperform the broader market with revenue and EBITDA growth of approximately 17% and 20%, respectively, over the last 12 months. TPG's real estate portfolio appreciated 3.5% in the quarter, nearly 16% over the last 12 months. We continue to see strong performance and value creation in our data center, residential and industrial investments. TPG AG's real estate portfolio appreciated by 2% in the third quarter and 3.5% over the last 12 months. Our net accrued performance balance grew by nearly $200 million in the quarter to reach $1.2 billion, driven by our strong value creation in addition to $100 million of accrued carry acquired through Peppertree. Turning to fundraising. We raised more than $18 billion during the third quarter, including more than $12 billion in private equity and nearly $5 billion in credit. Year-to-date through the third quarter, we've raised more than $35 billion across our platforms, which already exceeds the $30 billion we raised in 2024. As Jon noted, private wealth is a strategic priority and an important growth driver for TPG. I'd like to share some additional detail on our progress in increasing our penetration within this channel. During the third quarter, we raised over $1 billion of capital in the wealth channel and approximately half of these inflows came from our evergreen solutions, which continue to gain momentum as we widen our distribution partnerships globally. TCAP, our nontraded BDC, raised $235 million in the quarter and continues to grow, reaching over $4 billion of AUM at the end of September. TCAP is actively distributed by 3 of the largest U.S. wirehouses, and we recently launched on one of the largest independent broker-dealer platforms. Twin Brook's focus on the lower middle market, conservative lending standards and high credit quality is continuing to differentiate TCAP relative to other credit options available to wealth clients. We're actively expanding TCAP's distribution network and expect inflows to continue to accelerate. T-POP, our perpetually offered private equity vehicle has been very well received in the channel, exceeding our high expectations. T-POP has raised approximately $900 million in its first 5 months, and we're experiencing increasing momentum as we grow our distribution footprint and investment portfolio. From its activation date in June through September 30, T-POP has delivered net returns of approximately 12%, and as of quarter end, provided exposure to 41 individual TPG portfolio companies. We're very focused on expanding our distribution for this strategy globally in 2026. Finally, we continue to expand our partnerships with global banks and wealth platforms, adding more than 20 new relationships in the third quarter. Additionally, we're actively structuring several innovative partnerships to extend our brand and increase the accessibility of our products for the wealth community, including in the RIA channel. We look forward to providing updates here in the coming quarters. Before I wrap up, I'd like to provide an update on our fundraising outlook. During the course of this year, as we anticipated, we've been experiencing a step function increase in the pace of our capital formation with a particularly robust third quarter, driven by the strong first close for our TPG Capital and Healthcare Partners funds. Most of the remaining capital for these funds will be raised next year. Nonetheless, we still expect the fourth quarter to be an active period for fundraising across asset classes. Looking at 2026, we expect to have another robust year of fundraising similar to this year, driven by a number of ongoing and new campaigns. In credit, we expect continued capital raising across all of our existing businesses. In addition, we're working on launching several new strategies to further expand our credit platform. In private equity, we'll continue to be in the market with our capital and climate campaigns. We expect to launch fundraising for the next vintage of our flagship Asia fund as well as our fourth Rise fund. On the real estate side, we expect 2026 to be an important and significant year for our franchise. We'll begin fundraising for the next vintage of TPG Real Estate's flagship fund and TPG AG real estate funds in both the U.S. and Asia. We also remain highly focused on diversifying our sources of capital and further penetrating the fastest-growing distribution channels. In Private Wealth, we expect to grow our distribution network in the U.S. and internationally and launch additional semi-liquid and yield-oriented products across asset classes. Additionally, we continue to organically expand our insurance relationships and evaluate broader strategic partnerships and inorganic opportunities. Based on the increased cadence and consistency of our capital formation efforts over the last few years, we've clearly been successful in expanding and diversifying our business. We're excited to continue building on this momentum and delivering differentiated results for our clients and shareholders. Now I'll turn the call back to Madison to take your questions. Operator: [Operator Instructions] And we'll take our first question from Glenn Schorr with Evercore. Glenn Schorr: I appreciate the color you gave us on the relationship between monetizations and PRE and some monetizations early in funds life. What's interesting is 69% of your net accrued performance is now in funds at 5 years are older. So I'm just curious, really good monetization backdrop according to the banks, brokers, you guys. So just how does that inform us about the realization pipeline that you're looking at given the age, timing and all the other comments? Jack Weingart: Yes, good question, Glenn. Let me start just by explaining that vintage page a little bit because I don't think we've done that in the past, and then Todd will expand a bit more on our outlook for PRE. But on that vintage chart, when we say vintage, the category vintage is before 2020 and earlier, that refers to the vintage of the fund itself not to the underlying portfolio of companies. So the biggest category there, for example, is TPG VIII, which is 2019 vintage fund. So those investments were made largely in 2021, '22 before we raised TPG IX. And then growth 5, the 2020 vintage fund, that's another big category in that kind of aged vintage bucket. And that's a 2020 vintage fund where most of those deals were done in 2021, '22, '23. So despite 2020 sounding like an earlier vintage, the vintage of the underlying investments are actually still pretty young. So that being said, that's what that page means. And Todd will expand more on our approach to monetization. Todd Sisitsky: Yes. I think just to echo what Jack said, these are a lot of newer deals. We are folks who drive growth in those investments that takes sometimes a couple of years, but we feel like we're at the appropriate cycle in terms of the liquidity in those funds. And I'd say that without repeating much of what Jack said, I do feel like DPI and liquidity has been a real differentiator for us. We approach it with a lot of intentionality. I think we bring the same level of focus and intensity that we do the investment decisions, which I think has been a differentiator for us, which is part of the reason we were net sellers in capital and growth in 2021, '22. We were net buyers in '23 when market pulled back and then net sellers again in '24. As I look forward, I feel like we are constructive on the liquidity prospects and feel like we have -- at present, we have a number of assets we're exploring liquidity around. Jon mentioned actually the majority of TPG Capital's investments in the last fund have been carved out and structured relationships. In many of the structural relationships, we actually know who the buyer of the business will be. In many of those cases, we have put call relationships, which I think is another interesting feature and a pretty unusual set of opportunities. The majority of the deals in capital over the last many years have been sold to strategics. The strategics, I think, are perking up and are active. We've also mentioned some IPO -- recent IPO as in yesterday. We've had more than 13 IPOs in India in the past few years. So we're taking advantage of those market opportunities as well. But overall, we feel good about the momentum in the portfolio. We feel good about the dialogues we're having, and we're constructive on the liquidity environment. Jack Weingart: Glenn, my comments on the call were meant to basically indicate that we are still aggressive on the monetization front. The timing issue I described is how that flows through to PRE. If the sales were made in more mature funds that had already had exits pay down the fees and expenses, which is the normal way a waterfall works, the PRE during the quarter would have been probably twice the $30 million. Todd Sisitsky: And so now eventually, we've cleared the decks. The next exit out of those funds should be -- should flow through to PRE. Operator: And our next question comes from Craig Siegenthaler with Bank of America. Craig Siegenthaler: We also have a question on realizations, but aggregate realizations, not PRE. For the first time since you IPO-ed almost 4 years ago, it is once again raining IPO and M&A announcements. If this continues, can you help us frame the level of realization potential out of your PE and growth capital businesses over the next year? And the reason I'm asking TPG this is the last time we had this backdrop in 2021, TPG was arguably the most active in the industry of monetizing. And it sounds like your commentary today is constructive, but maybe not super bullish. Jack Weingart: Maybe I'll start on that, Craig. It's Jack. The way I think about that, as you know, we don't forecast realizations and PRE for a good reason. We're going to sell companies when it's the right time to sell companies, and we have all the complicated waterfall mechanics that I just talked about. That being said, the way I think about it from the top down is our accrued but unrealized PRE performance allocation balance is now up to $1.2 billion, right? We acquired some PRE from -- accrued PRE from Peppertree. That was half of that increase. The other half was -- so we're seeing that balance start to grow again. And as you and I have talked about, one way to frame it is through a cycle, you would expect that we would monetize that balance over, call it, a 3- or 4-year time period. And the more attractive the market gets, the more we'll tend to lean into that. But the most important question is what are the underlying companies? Have we achieved our value creation plan? And is it the right thing to do for our funds and our investors to sell that business? And that will be our framework for thinking about each exit through the course of the year next year. Jon Winkelried: Craig, it's Jon. I think your interpretation of it is slightly off. I think that what -- when we were talking about this, I think what we were trying to communicate is this intentionality around what we do and how we do it. And when you look at how we built our portfolios across Capital VIII, Capital IX and now into Capital X, again, Todd just mentioned this, the dynamics of the strategic partnerships that we have in a number of cases, actually having strategics work alongside of us to know essential -- because they want an opportunity to acquire an asset. I think that what we've done is try to set up our portfolios in a way where we have multiple pathways in terms of exit opportunities. You look at the size of our companies, the size of our businesses. One of the things that we focus on, obviously, is creating value, which I mentioned in my comments, in terms of revenue growth, EBITDA growth and also trying to be intentional about where in the life cycle of that value creation, we actually start to think about selling or monetizing assets so that there is more in the tank as we think about who's ultimately going to buy the asset. And I think that if you look at our portfolios, I think we're actually overlaying that, by the way, is sort of a perspective on where valuations are. You made the point about '21, '22. We leaned in, obviously, and we sold our entire software portfolio back then because of the way we perceive valuations in the market. That turned out to be a very good decision. I would say that the -- what we meant -- what we're meaning to communicate is that we're as focused on how we think about making decisions around the buy in our portfolio as we are on the sell. And I would say that you should expect us to be active as it relates to how we think about monetizing our portfolios. And so I just wanted to clarify because I think your interpretation is a little bit off. Todd Sisitsky: Just the last thing I would add and both Jon and Jack have referenced it. One of the reasons I think we're constructive on the exits is just the strength of the portfolio performance. We have a portfolio on an LTM basis across private equity that's growing EBITDA at 20% plus and none of the platforms on an LTM basis are below 15%. They're all really performing well. And that is, of course, when we think about the strategic exits, but also IPOs, that's the best leading indicator. Operator: And we'll take our next question from Ken Worthington with JPMorgan. Kenneth Worthington: We're seeing far more concern about AI disrupting certain parts of the software technology and business services area. Two parts here. One, as you think about your investment portfolio, do you see any risks in the investment as that theme plays out? And then maybe hopefully more interesting, how do you feel about being on the winning side of this technological shift either through Peppertree or elsewhere in your various business verticals? Todd Sisitsky: Sure. Thanks for the question, Ken. We've been very early investors in AI. We started over a decade ago with C3 AI and had a number of the early predecessors to today's company as well as a number of the companies that are in the headlines today. And actually, some even limited to the equity side. Credit Solutions actually what I think is the first substantial debt investment in AI by leading the race for xAI last quarter. It helps that we're based in San Francisco. And with a good arm, you can probably hit more than half of the AI companies from our building. And we've invested significantly in AI capabilities. So we have an AI center of excellence in which our operations and business building team drive AI adoption on each of the portfolio companies. We have a lot of investments recently in AI specific human capital, the former Chief Technology Officer at Accenture, one of the co-heads of McKinsey software business. So AI is really part of everything we're doing now. It's moving quickly. It's part of every underwriting decision. Technology, in general, software, in particular, are certainly in our power alleys. I think you were specifically focused on the impact of AI there. Our software portfolio is growing earnings at 22%, 23%. And I do think it's having a meaningful impact, but that is having a meaningful in both directions. There's some real opportunities and net beneficiaries from AI. So for us, we've been spending time in areas like vertical market software, fintech, cybersecurity. We've seen that in a number of our recent investments. We've probably been a little more cautious on some of the broader horizontal themes in infrastructure software, where we see AI changing the landscape very quickly. And again, every single underwriting decision, not just in software, but particularly in software, has a high intensity focus on the impact of AI. Even in companies like health care IT, just to use one example, one of our largest investments in the last few years is a business called Lyric, which we bought out of UnitedHealthcare. It looks at 60-plus percent of the primary claims in the U.S. health care insurance industry. And so you would think as an algorithm-based business, you would have a big impact from AI. But for years and years, we have been the only ones on an aggregated basis that have a proprietary look at all that data. So AI really isn't a threat. Instead, it's an opportunity for that business to expand its footprint beyond the primary claims editing space. So it's really a very company-by-company analysis. And in the companies that I think we lean into, we really feel like it's an opportunity. To your point, AI has a huge impact on health care. It has a huge impact outside of equity in -- on the credit side as well. And we feel like we have assembled the right team and the right internal rigor to make sure that we're thinking quite dynamically and in an intentional way about how to make sure that we're on the right side of AI and then leveraging AI to drive performance in our portfolio companies. Operator: And we will take our next question from Alex Blostein with Goldman Sachs. Alexander Blostein: I wanted to spend a minute on credit. It feels like momentum in that business is finally starting to take off. We saw it with fundraising for the last couple of quarters, but it looks like deployment is also starting to catch up. So maybe spend a minute on how you see the growth evolving from here, where the incremental benefits on fundraising are coming from. And I think one of the items you highlighted also launch of new products when it comes to credit into 2026. And I was hoping you could expand on that as well. Jon Winkelried: Yes, sure. Thanks, Alex. It's Jon. Look, I think as we said in our comments, this has been the underlying thesis of when we acquired the Angelo Gordon business was that it was a platform that had a multi-strategy approach in terms of across lending, structured credit solutions, total return opportunities. And that inside of this firm, it would essentially step to the next level, both from the perspective of capital formation, but importantly, in terms of the overall ecosystem to originate and source transactions. And I would say that it's hitting on every cylinder in terms of the ability to scale the businesses. If you recall, one of the things that we said early on in the acquisition was that the businesses were out originating the capital base, essentially being undercapitalized and that's fundamentally changing now. You can see it in the scale of our capital formation across all of those businesses. You can see it in the uptick in relevance of our open-ended vehicles as well like TCAP that Jack talked about in terms of the acceleration. If you look at the inflows, for instance, into TCAP, our inflows are -- the slope of the line is steepening in terms of our inflows and the relevance of that product in the market. Same thing is happening in MVP in our structured credit business. What we've done is we have begun now also to really think about sort of the next level with respect to the various cost of capital -- the cost of capital of various investment strategies, particularly to serve our insurance company clients. I mentioned in my comments, the substantial increase in engagement with insurance clients. That is continuing -- continued in this past quarter. It's continuing again and really structuring various types of vehicles for our insurance company clients, whether they're funds of one or SMAs and moving now into things like IG risk in terms of being able to serve the insurance client across a range of assets and across a range of returns, which is obviously what is necessary in order to serve that market. We continue to have -- one of the things that we're observing in that part of the market is that I think there is an increasing awareness on the part of most of the life and annuity players in the market, but it's also getting broader than that, that not being -- not having partnerships in the alternative side of the business is very dangerous from a strategic competitive position. So as a result of that, because we don't own a captive at this time, we continue to see that dialogue increasing with respect to various forms of partnerships with a variety of different insurance clients, both here as well as internationally. And so I think that that's going to be -- I believe that what will happen over the course of the next number of quarters, over the course of the next year or so is we're going to continue to see sort of step function increases in the engagement that we have in that market. Likewise, I think we're working on expanding our capabilities with respect to the kind of retail wealth markets. And one of the things that we've been focused on is how do we access that part of the market more effectively, more efficiently in much bigger size. And Jack alluded to this in his comments, but I think that hopefully, we'll have some things to talk about over the next couple of quarters where we've had some meaningful progress and that's really all we can say about it at this time. But we're very focused on the ability to deliver return streams that, in many cases, are a combination of liquid and illiquid or liquid and alternative products. And so we're putting ourselves in a position and growing our capabilities to be able to deliver that. Lastly, I would say that other areas of growth for us there -- we've talked about this before, and I think you'll recognize this, but we have a best-in-class lower middle market lending franchise in Twin Brook. And one of the things that we have identified as a result of the sourcing capability that we have in both Twin Brook as it relates to our relationship as well as from Credit Solutions, where we're seeing larger kind of bespoke transactions and sourcing in some cases, even that's coming through relationships we have with sponsors from our private equity business, we are building into the next level of lending. We like to call it sort of graduating companies. It's a little bit broader than that, but we'd like to call it graduating companies where we have companies, over 300 portfolio companies in Twin Brook. They start life as companies that are generating $25 million of cash flow and less. And then they end up life at $40 million, $50 million, $60 million, $70 million, $80 million of cash flow, and we've been the lender to those companies for 3, 4, 5 years. We know those companies better than anyone. And so the risk dynamics of us extending into that part of the market is something that we have a reason to win. And so we are -- and we'll have more to say on this again also over the next quarter or 2, where we'll formalize this, but we are building into the next leg of growth in that, and we're already seeding a portfolio and we already have some traction with respect to some LP partners of ours that will anchor the strategy for us. But it's just a little bit too early to kind of roll it out, but we will be rolling it out over the next couple of quarters. So hopefully, that gives you a sense for sort of what the growth drivers are. Jack Weingart: I think, Alex, when you cut through all that, we're basically early in a multiyear period of growth in fee-earning AUM in credit, right? As -- you alluded to the fact that we're starting to see deployment pickup and fee-earning AUM. While that's been happening, our dry powder in credit over the past year has also increased by 35% or more percent. And as Jon said, we have multiple channels for additional fundraising and AUM growth that will flow into FAUM. So we expect the next several years to be attractive growth years for our credit business. Operator: We can move next to Steven Chubak with Wolfe Research. Steven Chubak: Can you guys hear me okay? Jon Winkelried: Yes. Can you hear us? Steven Chubak: Yes, loud and clear. So I wanted to ask on FRE margin lever. It came in above expectations in 3Q, 69% incremental margin, certainly a market improvement versus a 51% in 2Q. So while you reaffirmed the mid-40s FRE margin exiting the year, thinking about this longer term, just given prior comments supporting meaningful upside to FRE margins as the business scales, whether that higher mid-60s incremental margin is, in fact, a sustainable run rate, even with all the investments you had spoken of and how it informs your outlook for the FRE margin trajectory next year and beyond? Jack Weingart: Yes. Good question. We are reiterating our guidance to exit this year in the mid-40s. As I've said all along, that is not an end point for us. I think you're exactly right to be looking at the incremental margins in connection with growth in FRR. And we do see that to be well above the mid-40s. How far above will depend because we are investing and building what we want to grow in the next 5 or 10 years as a business. We're investing in things like building out our private wealth distribution business and many other areas. And we're going to continue to invest in our business. That being said, I would expect continued FRE margin expansion in the next couple of years. We have not yet given guidance on when we might get, for example, 50%. But 45% is a step along the way. Operator: And we will move next to Brian Bedell with Deutsche Bank. Brian Bedell: Great. Maybe just to go back to your comments on fundraising outlook. Great to see the really strong momentum here. I think, Jack, you mentioned '26, you obviously expect to be a robust year similar to '25. Just in terms of the new funds that you're bringing to market, just wanted to -- it seems like '26 should be even stronger than '25. I just wanted to make sure if I understand that correctly. And the reason I'm asking is because I think you've got Asia coming. Real estate, obviously, is a large stem function of Rise IV is coming to the market. You still have capital in the market and then probably continued growth in credit and wealth. So I just wanted to understand if that's the case. And if I could just throw in a question on the deployment and the transition infrastructure fund with Kinetic. Is that continuing to increase that deployment capability in terms of how you're seeing that form for fundraising for the Rise Climate segment of funds? Jack Weingart: Yes, thanks for the one question, Brian. We -- look, on the outlook, I was intentional in my words. I think next year will be a continued robust year. There are some puts and takes versus this year. Obviously, we had a very large initial close for TPG Capital and Healthcare Partners. We do expect to raise some more money for that in the fourth quarter. So that next year will be likely less capital risk because we've already raised well over half of our target we will have by the end of this year. On the growth side, we had a big final close for growth earlier this year. And our growth franchise in the U.S. won't be in the market next year. On the real estate side, one of the things that might be throwing you off, I think when I talked about our flagship real estate launch being an important launch next year, the way we're currently thinking about it is the majority of that capital will probably raise the following year because we probably won't have our first close until the back half of '26. So -- and you're right that we absolutely do expect continued robust fundraising on the credit platform, as Jon mentioned. So when you cut through all that, we see some puts and takes. But this year being as strong a year as it was, up more than 50% over last year, some might have expected a step down next year. We don't expect that. Jon Winkelried: Just on your sneak in second question on deployment around TI and climate, I guess, generally. I think, first of all, we're -- across the strategies, I would say that we are seeing really unique deployment opportunities, really unique. And we like what we're seeing. We think we're going to generate differentiated returns. And again, we've said this before, but we think that across these various types of climate strategies between private equity and infrastructure that it's a generational investment opportunity, and it's a global opportunity as well. So I think that we've been quite active. Just to give -- just to put a pin in that, I think we've deployed $2.3 billion of capital this year across those strategies. And obviously, Kinetic being the most recent on the TI side, that was our second investment in TI. And so that continues to be a portfolio that we're building, and we're fundraising alongside of it contemporaneous with that. And I think when you look at the trends going on around in the world in terms of the demand for power on a global basis, electrification, colocation opportunity, storage, et cetera, we're seeing really interesting opportunities. And again, we're seeing it on a global scale. So we're very enthusiastic about what that ultimately will look like, and we're -- it's a very active strategy. Operator: And we will take our next question from Michael Cyprys from Morgan Stanley. Michael Cyprys: I wanted to ask about M&A. You guys have done a number of inorganic transactions already over the last couple of years. So just curious, as you look at the platform today, what's left to fill in to accelerate one scale or presence? Where might inorganic activity be helpful? I'm just curious what you're seeing on that front. And how do the recent transactions inform your approach as you look forward? Jon Winkelried: Yes, sure. Thanks, Michael. Look, I think, first of all, I would say that we have been -- as you know, we've been very focused and intentional about the type of inorganic activity that we've engaged in. And we feel like where we have executed, we're executing really, really well. And there's a lot -- there's -- I think you have an appreciate -- we've talked about this before. You have an appreciation for the fact that it begins with the deal and -- but that's sort of like the tip of the iceberg and most of it is underneath from there in terms of execution, integration and really making it work, cultural engagement and then growth. And we feel like we have been very successful at it, and we feel like we've devoted a lot of skills in terms of understanding how to do it. So it's something that we feel will be a kind of arrow in our quiver in terms of growth on an ongoing basis. One of the other things that I think we see happening is that because of the overall trend line in our industry, which is, I think, the kind of the bigger getting bigger, a trend towards consolidation, I think that one of the things that we see happening is we -- because of our having established our bona fides and being able to do this well, I think we are the recipient of a lot of incoming across a range of different strategies. And that is very helpful because obviously, we have a good look at what's going on. And in many cases, what we're finding is that potential targets or counterparties want to engage with us on a proprietary basis which is also an attractive way to kind of at least evaluate whether or not it's something that makes sense for us. And if so, then execute on it on terms that make sense. So we're -- I would say that our overall kind of business development effort is pretty active just in terms of seeing opportunities and evaluating them. We're going to be picky as you would expect. There are areas that I think, without getting into too much detail, I think there are areas in the market that continue to be interesting to us. Obviously -- and there's not only product strategies, but also geographies as well. I think that we're continuing to focus on how to continue to broaden our footprint in Europe, as an example. And there may be sort of opportunities there that develop for us. Nothing to do right now today, but I mean that's just an area that interests us because we are a global firm. We could find opportunities that I would describe as kind of tuck-ins or fill-ins in our credit strategy that might be interesting to us. There are areas potentially related to the build and infrastructure that might be interesting to us because obviously, we have 2 pieces to that now, TI and then also Peppertree. And I think we want to continue to think about how does that part of the market expand for us. There's a lot of interesting developments going on in the market as it relates to secondaries in our market. As the primary markets across all the asset classes grow, I think the secondary flows are going to become more and more important to the market. So that's another really interesting area. Operator: We'll take our next question from Bill Katz with TD Cowen. William Katz: I appreciate all the guidance and discussion so far. Maybe just 2 areas of growth seems still being the wealth and the capital markets areas. So I wondering if you can maybe update us on maybe where you see the incremental spend. And then on the wealth side, in particular, just sort of curious, you mentioned a number of times, new products, new geographies, maybe unpack that a little bit in terms of where you see the greatest opportunity in the near term. Jon Winkelried: Jack, why don't you start with wealth? Jack Weingart: Sure. Bill, thanks for the question. Look, wealth is a multiyear build for us, right? The starting point was launching T-POP alongside our existing products and the existing evergreen products, MVP and TCAP and getting kind of the flagship private equity product in the wealth channel on the evergreen side launched effectively. And that, as I mentioned, is off to a great start with lots of room to grow from here. The $900 million is the latest AUM number we've announced there, and we see substantial continued growth through the rest of this year and next year. Part of that growth, all of that so far has been almost entirely on 3 platforms. In the platforms in which we are selling T-POP, we are one of the most attractive or high volume private equity evergreen products, if not the most active. That -- so it's extremely well received, but we're very early in the expansion across additional distribution partners. So through the course of next year, you'll see that. You'll see us expanding partnerships to broaden out and globalize effectively the placement of T-POP. Along with that, there are several additional products that we feel like we're well suited to bring to market. The first would probably be a multi-strategy credit interval fund. We talked about how well received TCAP is as a direct lending BDC. The other businesses, as we've talked about, that we have in credit through Angelo Gordon are also distinctive businesses in structured credit, Credit Solutions, et cetera. So having a credit interval fund that much like T-POP feeds on all of our private equity deal flow that benefits from all of the flow across our credit platform, we're seeing on demand for that in early -- I'd say, mid-stage discussions with potential channel partners who want to see that product. And then the next tent pole would be in real estate. We have no nontraded REIT at this point. We have an excellent real estate business that's diversified across lots of different components. So we're in active discussions with channel partners who would like to see a real estate product from us. So that's kind of a near-term road map with more to come. Jon Winkelried: I think on capital markets, I think that you should expect that our capital markets business will continue to grow. Obviously, it's a transactional business. So the general flow of opportunities is correlated -- capital markets will be correlated to that. But one of the things that has happened over the course of -- I'm sure you've seen it in the trajectory of our revenue over the course of the last several years is that as we have been embedding our capital markets capabilities into each of our platforms in each of our product areas, we're involved in as a capital provider, as a capital arranger across almost all of our businesses now. And with the addition of our credit franchise, it's taken sort of a next step with respect to our ability to use the broker-dealer and use our capital markets capabilities to distribute and to source. So I think that our outlook for that is that as the firm grows, it will continue to grow. Operator: This concludes the Q&A portion of today's call. I would now like to turn the call back over to Gary Stein for closing remarks. Gary Stein: Great. Thanks, operator. Thank you all for joining us today. If you have any additional questions, please feel free to follow up directly with the IR team. Operator: This concludes today's TPG's Third Quarter 2025 Earnings Call and Webcast. You may disconnect your line at this time, and have a wonderful day.
Operator: Good afternoon, everyone, and a very warm welcome to the Quarter 2 Analyst Meet of Mahindra & Mahindra Limited. For the main presentation today, we have with us our Group CEO and MD, Dr. Anish Shah; ED and CEO of Auto and Farm business, Mr. Rajesh Jejurikar; and our Group CFO, Mr. Amarjyoti Barua. Once the presentation concludes, we will start with the Q&A session. Just a reminder, this meeting is being recorded. For the purpose of completeness, I wish to read this out. Certain statements in this meeting with regard to our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. With that, I now hand over to Dr. Shah for opening remarks. Anish Shah: Thank you, Divya. Good afternoon, everyone. Just before this at the press meet, I started by saying that I'm delighted to announce results for this quarter. And as many of you know me well through many, many quarters, I don't think you've heard the word delighted from me so far as yet. It's always been good, steady performance. We are doing well. We are on track. But this one is different, because we've seen all our businesses come together. And take in the challenges of the quarter, it wasn't an easy quarter overall. But despite that, I would give a lot of credit to our teams across businesses. And therefore, you also see a simplified version of a key messages page, because sometimes when the numbers say what they have to, you don't need to say much beyond that. And what you see is a strong performance across businesses with Farm profits up 54%, with Auto at 14%, but impacted by the GST transition, because a number of vehicles were not delivered from September 8 onwards, or rather delivery was postponed to October. And 14% generally is a very good number, but in the context of our overall numbers, we feel that it could be higher, and that's again because of the transition. Mahindra Finance delivers. We've been talking about Mahindra Finance for some time, and we'll give more details on that. But I look at this as sort of the end of Phase 1 in terms of what we had to deliver for Mahindra Finance and a very strong quarter with 45% operating profit growth. TechM, on track, profits up 35%. This does include exclusion of a one-off gain from land sale last year, and that is, therefore, an operating number of 35%. Growth Gems are accelerating. As you heard before, I typically don't talk much about profits for Growth Gems, because we are looking at investing in these businesses and growing them multiples and therefore, we will look at profits for a few years down the road, not today. But despite that, we've got a good outcome for Growth Gems right now. And on balance, consolidated profit is up 28%. Accounting for three one-offs, first is gain from land sale last year. Second is gain from PLI this year in this -- what was recorded in this quarter, but for prior quarters. And therefore, we've countered the prior quarters' part obviously as a one-off and are not taking that gain into account. And third is the tax payment on SML Isuzu transaction of about INR 217 crores. So, those are the three that we've taken out. And therefore, we want to show the operating profit numbers, which is up 28%. ROE annualized is up 19%. With my standard caveat, which is, please do not expect 19% going forward, it will always be in the range of 18% and could be slightly higher or below that. Consolidated numbers, revenue up 22% year-over-year. Year-to-date, up 22% as well. So, it's not just a quarter. It is performance for the year. Profit operating up 28% for the quarter, 29% year-to-date. And therefore, I want to go back to the reason for the word delighted is, this time we've got all our businesses really contributing in a very meaningful way. It's not just the numbers, it's the quality of the numbers behind all our businesses contributing that delivers that outcome. Drivers of consolidated PAT. Auto and Farm up 28%. Tractor volume, strong at 32%. Auto volumes, given the transition, a little lower at 13%. You'll see a steady margin expansion, completion of the SML acquisition. And that has driven again a very strong outcome for the Auto and Farm businesses. TechM and Mahindra Finance, both businesses that are on a track to meet peer averages and then over time, exceed peer averages. I think Mahindra Finance has completed that first phase, as I mentioned. And what you see here, again, is great results for both businesses. And Growth Gems, where we've got a 5x growth challenge, what you see is 22% increase, a one-off here, which is not a one-off we captured in our overall numbers. There was a onetime tax impact, which we've just basically shown for the Growth Gems only, and because our overall numbers are smaller. But real estate is strong. Aero has continued strong wins. The Airbus helicopter fuselage, that we will supply globally, is a big win for the Aero structures business and Accelo has continued growth momentum. Auto, a little more details on the Auto business. Revenue up 25%. As you've heard from us before, there will be a mismatch between revenue and profit growth for a few reasons, and Rajesh will cover that in more detail as well. SUV penetration from an electric standpoint is 8.7%, up 90 basis points sequentially quarter-on-quarter. And export momentum is strong. This is a growth vector for us, and we are seeing a 40% growth in exports. And hopefully, we continue to see that be a meaningful growth vector as we go forward. Market share, this is a remarkable number, up 390 basis points from a revenue standpoint year-over-year for the same quarter, literally 4 percentage points of market share gain. LCV market share, despite it being 50% plus, has increased as well by 100 basis points to 53.2%. And that has resulted in the profit numbers that we've talked about. Farm, just outstanding execution on the ground. Premium segment growth, albeit from a small base. Operational execution driving both profits and cash. You'll see the cash numbers a little later as -- presents them. And we've completed the sale of SAMPO in Finland. We continue to maintain that discipline. And what we've always said is where we need to exit a business, we will. And this is what we've done with SAMPO. And market share up 50 basis points. Farm revenue starting to deliver the potential that we've been talking about for some time, up 30%. INR 330 crores of revenue for the quarter is starting to move towards profitable -- is profitable now as well. And therefore, you see again the remarkable number of profit after tax growth of 54% for the Farm business. As you think about achieving full potential, Mahindra Finance is one where, I look at this as a breakout quarter. We've talked earlier about improving asset quality, about tighter controls and technology and data being a key part of the business. All of that is done. Asset quality is maintained steadily at less than 4.5% for GNPA. It's at less than 4%, in fact, for this quarter. Controls, a lot of work has been done, and the business has a much stronger set of controls now. We are looking to pivot to growth. Because we've got technology and data also largely in place with the UDAAN stack that we've talked about in the past going live and very strong adoption across our teams for UDAAN, which is effectively creating a whole new system architecture, a much better customer experience and a much easier process that will result in not just customer delight, but also lower costs as we go forward. And that digital transformation is done. We also see a NIM improvement this time of 47 basis points. AUM growth of 13%. This is despite not really focusing on growth for the last couple of years, but we will, as I said earlier, pivot to growth now. And that has overall resulted in a very strong number of operational performance, 45% profit after tax growth for this quarter. Tech Mahindra, on track. Gains in BFSI, Manufacturing and Retail in a tough industry. Accelerated our AI effort have launched Orion. Margin progression is on track, it has been outlined by us as well. And therefore, we feel good about where this business is and again, reflected in some ways in the operational PAT number of 35% growth. As you look at our scalable Growth Gems. Logistics, with Hemant coming in has seen just a remarkable improvement across various parameters from an operational standpoint. We will start seeing the benefits of that from a financial standpoint as well, but that will take a little bit of time, not too long. But we're starting to see some very, very strong execution. And we see the first quarter for a positive gross margin for the Express business, white space reduction, which is excess warehouse space that we had has been reduced quite significantly, not at the level where we want it as yet, but still more work to be done on that. E-commerce segment growth, revenue is up 11%. EBITDA is up 70 basis points at 5% and putting the business on a very solid turnaround track that we'll start seeing more results for. Hospitality, occupancy hurt by some of the weather-related issues in this quarter. And that's been offset by average unit realization being much higher at 85%. We're starting to focus a lot more on quality and on the average unit realization as compared to just number of members. So, number of members, you will see 1% growth, but this is a key area for us. Some geopolitical headwinds for our Holiday Club business in Finland, but it's a business that's still profitable, a good asset overall, but it's one that we feel can do a lot more as we think about holidays going to the next level. Room inventory of 5% and on balance, what you'll see here is a good, strong business that delivers very well for its customers, has a potential to grow to a lot more. And we will come back with details on how we do that in not so distant future. Real estate on a very strong trajectory. You saw GDV last year being extremely strong. That trend continues this year as well. Last year, if you remember, we had the 37-acre land in Bhandup as part of our GDV and resulting in maybe somewhere around INR 18,000 crores. I don't have the exact number, but somewhere in that range. And this year is also on a very, very strong track. So, you're seeing this business be one that has broken out again the plan for GDV growth for -- of a presales growth rather, which is a key metric from a real estate standpoint for this decade is 14x, from what we had in fiscal '20 to what we planned for in fiscal '30. And the business is still looking at how do we grow faster than that. And that's really what we've seen here. The GDV that's required for the presales growth over the next 5 years is largely in place as well, which gives us confidence that the delivery is more based on execution now, not based on external market factors. And that's what you see in the launch pipeline. In addition to that, good realization from the IC business. So, residential presales up 89%. GDV acquired up 3x, still coming from a fairly good year last year. And that brings me to the slide that you've been very used to seeing. Consistent delivery on our commitments. ROE continues to be in the range of 18%. This quarter, it's 19.4% and EPS from the time we had committed 15% to 20% EPS growth, we've delivered a 35% EPS growth. So, all-in-all, very strong execution across businesses for us, and that's where the word delight comes from. And with that, Rajesh, over to you. Rajesh Kajuria: Hi, everyone. Thanks, Anish. Just a quick look. You've seen a lot of this. I'm just going to zip through quickly. The volumes were up 32% for the quarter. Of course, we had the preponement of the Navratras. So, it's not completely like-to-like, but still a very robust growth and gain in market share of 50 basis points. The trend continues to be a strong trend with 44% market share in the first half of this year. 70 lakh tractors rolled out between the two brands, of course, over decades, but 45 lakhs for the Mahindra brand and 25 lakhs for the Swaraj brand. Both milestones got achieved between September and August this year. Farm Machinery business saw a very good quarter, INR 330 crores. Every month clocked INR 100 crores plus. So, it was a very, very strong quarter performance. And we are seeing good momentum now kicking in into the Farm Machinery business. The farm margins were very strong. Core PBIT for -- core tractor PBIT was upward of 20% to 20.6%, which is a very strong performance and something which makes us feel good about -- normally, quarter 2 is not a very strong profit quarter. It's quarter 1 and quarter 3. So, 20.6% in quarter 2 is a very strong margin performance. This is the chart we normally show you with respect to market growth, how we are able to keep a band of margin. And we've seen now consistently last three quarters of 20% plus core tractor margin. The PBIT growth has been 44%. This is consolidated with a INR 1,600 crores profit. On the Auto side, 7% growth, as Anish mentioned, impacted by complex logistic issues starting right from 15th August and then the GST announcement on 4th September, after which we completely stopped all ICE products. So, we then had a huge bundling towards the end. But as you saw, the October numbers kind of made up for the loss in September billing numbers. Very positive trend that we are beginning to see on LCVs finally. Quarter 2 saw 13% growth for us, and we gained some market share. So, as you'll see, when we come to the LCV chart, after many quarters of flattish volume, we're finally seeing growth in the segment. The volume dip in quarter 2 is a reflection of the transition of GST and the billing. So -- but overall, depending on whichever cut you look at it, we are in the mid- to high teens. So, if you look at April to September, April to October, only festival days, retail, we are in the mid- to high teens irrespective of the cut by way of how our SUV growth has happened. Revenue market share still continues to be #1, come down marginally from the previous quarter, because of the reasons that we spoke, but otherwise, a strong performance. We introduced the two new Boleros. They got delayed a little bit because of liquidation of the older versions as GST transition was happening. But the response has been very, very strong. All versions are priced below INR 10 lakhs, which is a great opportunity to create category. And with the changes that we've made, we ourselves are pleasantly surprised with the kind of response that the market has brought forth for both of these changes and both the new versions that are out there. The Thar 3-door with the ROXX interiors coming in, some minor exterior changes, also has got a very good response. And the benefits of all of these, because both of these were mid-cycle, in the middle of festival transitions, we will see the benefits of that as we move into the next quarters. We sold 30,000 electric SUVs totally cumulative till date. Very good feedback from customers, very good word of mouth, very good analytics that we now have on the kind of usage, how much of it is more than 1,000 kilometers per month usage, 20 days more per month, so on and so forth. We will put out this analytics. We were thinking of whether we should do it today, but then we said we'll reserve that for 26th November, which is the first anniversary. And we will put out a more comprehensive customer understanding with numbers. Because, these are all connected vehicles, and we have some really good analytics on how the vehicle is being used and profile of people and percentage of customers who've run so many kilometers per day, so many times in their ownership cycle. So, there's some really good analytics. We'll put that out in a comprehensive release on the 26th of November. The Batman edition has been a huge revelation and a huge learning for us. It just shows us what -- it actually came out of customers who -- when they started seeing the Black BE 6, started calling it the Batmobile. That's what gave us the idea to do the Batman edition. And then, we tied up with it. We announced it at 300. We saw the demand is going to be way more. So, we increased that to 999, which got sold in no time. So, we're in the process of completing the deliveries. And it's -- we'll talk more as we go forward, but we've learned a lot out of how to use special editions out of the Batman experience. The penetration in our portfolio is now 8.7%, which we think is a very good number at this stage of the launch with the two products that are out. This should strengthen further as we introduce and add more products into the portfolio. In the first half, we've been at revenue #1. In quarter 2, we were #2. We had a competitor who had a new product in. And you can see that there's a small gap, but we were in the quarter marginally below #1. This is the point I was making on LCV. You see a reasonably large period of time, which was flattish. And then, we've seen 69,600 volume in one quarter as a very positive turn in the segment. The auto margins are -- this is a stand-alone without contract manufacturing. The next chart will explain this as a format we put out. So, 10.3% is, we believe, a very strong performance. This is how it breaks up. So, what you see as reported is 9.2%, which is 10.3%, which is a stand-alone business. Contract manufacturing, we make INR 10 crores on the INR 2,900 crores. So, that drops it to 0.3%. And the weighted of that is 9.2%. So, we will continue to show it like this, so that you are able to see the operating auto performance without the contract manufacturing getting merged into that. We'd also said that you will see the end-to-end of the electric performance. And hence, you see Mahindra Electric as a company, which had an EBITDA of INR 173 crores in the quarter. This only reckons the PLI for that quarter. As Anish mentioned, the PLI that we got for quarter 4 of last year and quarter 1 of this year is treated as exceptional. So, this is only the quarter 2 PLI accrued, which takes the EBITDA to INR 173 crores. And we earned INR 29 crores as contract manufacturing. So, the end-to-end of that is INR 173 crores plus INR 29 crores, which is the INR 202 crores that you see up. Last Mile Mobility had a very good quarter, 42.3% market share. And as you can see, a very strong electric volume of 32,000. The Auto consolidated, you've seen this. Revenue grew 25%, PBIT grew 14%. Coming to the event on 26, 27th, so this is my closing couple of videos. We see a huge opportunity to build on the equity we have around racing. India has become much more conscious of racing. Two things that changed. One is the Netflix show on Formula racing. The second is the movie F1. Both of these have heightened awareness around racing. We had a really good season last year. We were #4 ahead of many strong pedigree brands. So, we do want to leverage this as we start the new racing season in December in Sao Paulo. So, we have a video which we've been running over the last couple of weeks, leading into the 26th event, where we will reveal some of the new livery and the prep going into the December races. So, the first video is really about that. This is on air for the last few days. [Presentation] Rajesh Kajuria: So, this is one part of what's going to happen on 26th November in Bangalore. We've also started teasing the 9S, as we're now calling it. So, the first teaser was out yesterday, which I'll play for you now. [Presentation] Rajesh Kajuria: And the second teaser is just getting out as we speak. [Presentation] Rajesh Kajuria: So, thank you. With that, I'll hand over to Amar. We're excited about 26, 27 November. Amarjyoti Barua: Thank you, Rajesh. So, you've seen this chart, but I just -- after the media interaction, I got a few questions. So, I just want to reiterate a few things about how we call out one-offs. We don't call out something we hadn't called out last year when we are doing a comparison to last year. If you look at our charts for last year, we had the INR 304 crores gain for land sales called out last year, because it was truly a one-off event and is not likely to repeat. And so, the intent of showing that again this year is to make sure you have an operational baseline to compare to. Similarly, if you see, even though there was a big PLI gain in the current year, it was offset by the tax -- one-time tax we paid on SML, which is why that is -- the net impact of that is the INR 14 crores that's called out. You will see exactly these numbers reflected next year when you see that. So, we are very consistent in this. I just want to reiterate that, because I got a lot of questions on it after the media interview. And even the criteria for calling out something as a one-off, it is not a sub INR 100 crores or even sub INR 200 crores, we would typically take something which is above INR 200 crores as even for consideration in our one-offs, okay? So, I just wanted to clarify that. This chart gives you the picture that Anish showed on one page. So, I just wanted to reiterate again the key messages there. You see the Auto growth, you see the phenomenal Farm growth. Even in Services, you can see the TechM and Mahindra Finance. And as he called out on his chart on Growth Gems, that Growth Gems and investment line item does include a onetime charge we took for Mahindra Holidays. Details of which you can see from their reports. It is a -- truly a one-time, and it is a tax catch-up that we had to do. And we have proactively done that in line with our very strong governance standards, okay? And you can see that reflected here the big contribution from Farm, but also very meaningful contribution from Auto and the Services franchise. Stand-alone results, exactly same principle. You'll see the INR 201 crores out of the INR 304 crores, INR 201 crores was land sale of what we used to call K land, which is what was reflected last year as well. So, we've called that out. And the INR 219 crores is the tax we had on the SML transaction, that is also called out. As I mentioned, again, it's one-off. So, 23% year-to-date growth in revenue, 31% year-to-date growth in profitability, excluding those two one-offs that we have called out, okay? So, clearly, very, very strong performance. This is a chart that most proud of. Because, I think this reflects a lot of effort from the teams. Because you've got to keep both in sync. You've got good profitability, but if you don't have good receivable management, payables, et cetera, you could get out of sync. And this is something which reflects the strength of the results you have seen in the first half. You can see we started the year at INR 27,000 crores. We have spent close to INR 2,500 crores on CapEx. We have done the right -- three rights issues that you're well familiar with. We've done the SML transaction, and we paid out dividends, yet the total cash balance has increased in the first half. So, it reflects very, very strong operational results of -- across the group, but a special call out also for the Auto and Farm team for what they have done on working capital management through, as Anish mentioned, some very trying circumstances that we have seen at least in the second quarter. Okay? So, I'll wrap up with that, and we'll take questions from here. Operator: Okay. We can start with the Q&A. We'll take the first question from Kapil of Nomura. Kapil Singh: Yes. Thank,s, Divya. Congratulations team, I think it was a really tough quarter. So, solid performance. My first question is on the GST cuts, if you could just share your thoughts on what is the impact across your portfolio. So, on the Automotive side, we have the 40% GST bracket and the 18% GST bracket. What are your thoughts on how the consumers are reacting? Because some of your peers have said that the industry growth may be around 6% going ahead with 10% growth in small cars and not so much effectively growth coming from SUVs. And then, some -- maybe you can share some thoughts on LCVs and Tractors also, if you feel with the GST cut there will be some impact on demand there as well. So, I'll leave it open for you to share the details across the portfolio. Anish Shah: So, just a couple start with an overall view and then go to your question specifically, and we'll request Rajesh to answer that. Overall, I think this is a very, very good move by the government. Because for the longer term, it simplifies things as well as reduces GST. And there will be, in our view, fairly strong multiyear benefits from this move. In the shorter term, what we are seeing is the fact that the strong fundamentals of the economy were waiting for some stimulus to be able to translate that into optimism from an overall feeling standpoint, which is important as well. And we're seeing that happen right now. So, that's a shorter-term impact. And for this, I talk about across the economy, I'm not talking about Auto and Farm in particular. We operate in, as you know, in 70% of India's GDP. And we're seeing that across businesses right now as a very positive thing. So therefore, for both of those aspects, we think it's a very good step forward. Yes, little bit of pain in the short run, as we talked about, but that's fine. We'll take that any time for the benefits that we are seeing here. And with that, I'll request Rajesh to specifically answer your question. Rajesh Kajuria: Yes. So, I'll -- Kapil, I'd like to walk through all the three segments, because it's important to understand each. So, in a way Tractors and LCV, I'm first taking as one bucket. Over the last 5 years, customers have seen unprecedented price increases. At least I have been -- if you go back many years, not seen this kind of a price increase in such a short period of time, huge commodity increases that happened starting 2020, more like 2021, regulation change that kicked in, especially with BS6 and then BS6.2 and multiple other regulatory costs that got added. So, customers have seen more than 25%, 30% cost increases. This was having, especially in the LCV segment, a major drag on ability to grow. Because the fleet owner or the vehicle owner was not able to pass on that on a freight cost charge to customer. So, it was creating a drag. So, I think this was much needed to as a fillip to boost demand. And it's not a small -- I mean, I don't think any OEM could have taken a 10%, 12% price correction. It was just way too much for anyone to do to, kind of, trigger upside in demand. So, as Anish said, I think this is a very significant move from overall approach to boosting growth in the economy. So, I think LCVs will -- and we've already seen that through the festival period, but we'll see a lot of the latent demand over many quarters, which didn't kick in, probably start to kick in. That is accompanied with positive mandi arrivals and many other things. But we've been talking about mandi arrivals for a while, but I think both these needed to have come together and that's happening now. So, that's a positive enabler. On the Tractor side, again, the same thing. It is very, very high cost increases on the Tractor commodity and other things. So, it's quite a substantial reduction again for the farmer. So, it is that along with the mood right now in rural, many enabling factors. So, both of these are clear category enabler. In both these segments, these are clear category enabler in place for the GST. Coming to passenger vehicles, which is everyone has their point of view on how this story will play out. Whichever way it plays out, it's going to play out for good. Now whether some subsegment gains more or less, time will tell. Every customer set is looking for something in particular to their life when they're making a purchase decision. So, when we think of what you were calling the 40% slab, so if you think of vehicles at the 40% slab, they actually start from interestingly from even as low as INR 10 lakhs. In fact, we had done an analytics of volumes that happen in different GST slabs earlier, connected to size and price. And you'll find in the 40% of -- earlier 48% slab. Vehicles as low as INR 7 lakhs is going up all the way to INR 50 lakhs or INR 60 lakhs or more. So, now for a customer who is in the INR 12 lakhs, INR 15 lakhs, INR 17 lakhs bracket, they're still paying 40% GST and they're at a certain budget. Now, they are able to move up the ladder of feature offering for the budget they already had. So, they are not first-time buyers who are going to come into the category or not based on a certain price. But what they choose to buy, they will -- they can upgrade based on a certain price. So, there may be customers who were till now not thinking about buying, let's say, a bigger SUV. But today can, because we've enabled it. And I just spoke about an example of, let's say, Bolero or Bolero Neo. If that product was INR 1.5 lakhs, INR 2 lakhs more, it may have excluded some set of customers. But today, when they've gone below INR 10 lakh, and hence, we are also able to get the on-road benefit, because, as you all know, most states have a differential road tax above INR 10 lakhs, you start getting the multiplier effect on on-road price. This, along with reducing interest rates, creates a compelling package for those who are in the mid end of the market to upgrade either from what they were buying earlier. And as some of our peers referring to that comment would say for those who are not thinking of buying a car earlier and are now thinking of buying a car. Right? So, you have a spectrum of buyers who are going to be reacting differently. For some people, it's a question of should I buy a car or not. And the size of the overall passenger vehicle market goes up, because more people have come in, over a period of time, they're going to upgrade. And while we may not get that customer into our portfolio today, they will be our customers for the future. So, I think at the end of the day, I'm sorry, I'm giving you a very long answer to your short question, but I think this is going to be good for everybody. Kapil Singh: No, that was the intent. Actually, I wanted a more detailed answer. But can you cover EVs also within that answer? Is there an impact because the differential has changed? Rajesh Kajuria: So far, we are not seeing that. I still think the EV propositions. Firstly, most of our EVs are in the big size and hence, play against the big SUVs, right? So, the gap still is 5 to 40. We were not in the 5 to 28 category. We were in the 5 to 48 category. So yes, the gap has come down, but 5 to 40 is still a very substantial gap. Amarjyoti Barua: Sure. And can I just add one thing, which is a fringe benefit of this is the simplification on the working capital side for the Farm business is pretty significant. I don't know whether that was as obvious earlier. That is a business which used to have a 12, 18, 28 kind of structure, right? And now it's far simpler for the team to manage and working capital will be better managed as a result and should free up some as well. It's a big benefit. Kapil Singh: Yes. Sir, second question is on the CAFE norms. We saw some changes in the draft, particularly, I was a bit surprised to see lower credits for EVs than what was originally being proposed. Where are you placed on this? What is the EV penetration required now? Is this draft final? Do you need hybrids in your portfolio as well as you move forward? And also, if you can share some color on festive bookings since your portfolio is under transition, probably if you can share some numbers there would be helpful. Anish Shah: I'll just start again by saying that we don't believe the draft is final. There are a number of inputs that have been sent after that across the industry and SIAM also has sent or is sending a set of inputs on that. And our sense is the government will look at all of those before finalizing it. Rajesh Kajuria: So the fundamental word draft means it's not final, and we treat it as such. So, we -- there is a process of dialogue and discussion, which is on, which was the purpose of the draft. And that process is right now under discussion. In either case, as we've said, we will be ready to do what we need to do manage customer expectations and part of that is managing CAFE norms. I think the journey on CAFE is a while away. We feel comfortable that with what is likely to be an outcome, not necessarily the current draft and its process, we will be able to have enough EV in our portfolio along with any other fuel types that are needed to be able to meet the CAFE norm. So, that's the direction towards which we are working. But the draft is far from final. Kapil Singh: And sir, on the festive? Rajesh Kajuria: On the festive, I, in a way indicated that, Kapil, while I was presenting. So, there are multiple ways to cut it and everybody is cutting it in the data in different ways. There isn't any one simple way to look at it. So actually, we have eight cuts of whichever way you want to look at it. The reason I'm saying that is, this time, the first 7 days of Navratri were way better, because the period before Navratri, customers were not really buying at all. Compared to normally, pre-Navratri, you had Shraddh, but South was buying, who were not so much into the Shraddh mindset. Right? So, it's just very hard to compare anything. So, we're just looking at basically April to October as a period or quarter 2 as a period or we've also looked at only September, October. So, whichever way we look at it, we are mid- to high teens on our retails as a number. So, we are in line with what we've been thinking should be the offtake. I'm not getting into first day of Navratri to last day of Diwali, because this time demand has spilled over beyond last day of Diwali as well as we've all seen, when you look at Vahan. So, I don't think there's any one right way to cut it, and we've cut it multiple ways, but we feel overall comfortable. Given the limitations that were there of having the right product mix, because of dispatch delays and all of that. So given all of that, I think we feel comfortable about the way demand works. Not specifically reacting to bookings right now, because actually booking numbers are very, very healthy. Now it's just hard to say what of that is going to convert and we've decided not to get into sharing bookings. But booking momentum has been much stronger than retail momentum. Operator: Nitin, please proceed. Nitin Arora: Just on this consumer behavior, what you talked about, people might want to upgrade, because it's not like income is increasing. It's like the price is reducing part. How do you see that mix of -- because 1.5-liter diesel becomes very attractive, especially for the mid-SUVs versus a petrol when we look at the price bracket? And some of your competitors, especially Koreans are talking about a lot of bookings coming in the diesel in the midsize, and we have that very strong product there. So any transition, any consumer behavior you have seen a change where you see because the product is very well accepted, some market share gain can happen there, how consumer is behaving to that part, diesel versus petrol, especially in that particular segment? And second question to Anish, sir, I think as an investor, I -- 2023, I asked you a lot of questions about RBL. Anish Shah: We should have placed bets as to how soon that RBL question is going to come in. Nitin Arora: Finally, it's a very big strategy investor is there. How are you thinking about now? You already owns, I think, 60% of the bank. So just any input from your side? How you're now you're thinking about that part? So, those are the two questions. Anish Shah: So I'll start with that as a shorter answer, because as we said earlier, one of the key reasons was a treasury investment as well. We saw significant value there. And that has played out. So, if we just see the gains, it's probably more than 50%. I don't know the exact number. But for us, it is in a sense, a validation of what we had seen. And it's one that we will continue to look at as the treasury investment, make decisions on that basis from a treasury standpoint. In the previous session, with the press, I was joking and saying, someone should just do an analysis of how much timeshare this gets versus the really impact on M&M. And you'll see a huge inverse correlation from that standpoint, because everyone loves this question. So, that -- it's a good one to ask. Rajesh? Rajesh Kajuria: Your question is primarily around diesel, petrol? Nitin Arora: Diesel and petrol. [indiscernible] Rajesh Kajuria: Yes. So I'll just quickly walk through different parts of our portfolio. So, 3XO is primarily a petrol offering now more than 75%, 80% is petrol. We're not seeing -- at this point, at least, I have no input that there is a shift there towards diesel. There is a lot of shift there by way of which version becomes attractive, because as prices come down, a different version becomes attractive than what was so before the price change. So, in 3XO at least, I have not so far picked up that there's more diesel demand, because of a price drop. Though it's an interesting input, and we'll watch it on 3XO, but at least, so far, I don't have that input. On the rest of our portfolio, diesel is in the region of 70% to 75%. 25%, 30% is the gasoline. It varies from product to product. Diesel can be a compelling proposition now, because of the price drop and that puts us at a competitive advantage, clearly. So, in following up on Kapil's earlier question, different people are going to get different things out of the GST rate cut. I was earlier focusing on the ability to upgrade vertically, but an interesting perspective could be gasoline diesel as well, which will give us a competitive strength. But it's something, honestly, we'll not -- at least, we've not picked up yet, and it's some -- and thanks for sharing that. We'll watch for that more carefully. Operator: Raghu, please go ahead. Raghunandhan N. L.: Congrats on the results. Sir, firstly, on the LCV side, festive season, at least Vahan shows a very strong double-digit growth. And how do you see the full year outlook? And within LCD, for your customer set, would there be a sense on for how much of the customers would the GST be a pass-through and for how many of them would the GST reduction will actually be a benefit when they are purchasing the product? Rajesh Kajuria: Just to be clear on the second part of the question, you're talking about where they are able to get a GST set off, which is a company buying, right? That's the point. Yes. So, the second one is, let me just try and get that out of the way. For pickups, we have very reasonably large market operation buying, which are individuals are not buying in companies or small aggregators of three, four, five vehicles, who I don't think will be getting the GST tradeoff. Nal, do you want to -- you have a different take. 60% are market MLOs or whatever. So, it's a fairly large chunk, which retains the benefit. On the first question, everyone will have a different view on it. I'm sticking my neck out and saying that it's -- I think we'll -- the outlook will be a double-digit growth for the year. I think, if this momentum continues, which means not just the price impact, but there isn't too much of destruction because the late -- in crops, because of the late rains and mandi arrivals continue to be good and robust. So, the rest of the economic parameters play out the way they have played out in the last 2, 3 months, along with the rate cut. I think we'll end up the year at double digit, but some may argue that it will be high single digits. But at least, I would stick my neck out to say that, I would expect to see low double-digit growth for the category. Raghunandhan N. L.: And also on the Tractor side, now you are seeing a low double-digit growth for the full year. So, how are you seeing the mix between North and other regions, because other regions seem to be growing at a much faster pace. And also recently, there are some concerns in terms of like on the rain side, unseasonal rain side, cyclone side, anything we should read into it? So, that was the part. Rajesh Kajuria: Yes. So Maharashtra, Karnataka, in particular, have seen really strong growth this year. UP is -- UP and Rajasthan has not been all that bad, they are high single digits. So, there have been, I think, from what I remember, the 8%, 9% range. So in a way, from a market share weighting point of view, that's -- weighing point of view, that's good for, that's positive for us. These are very strong markets for both Mahindra and Swaraj, Maharashtra, Karnataka, Telangana, Andhra and so on. So, now whether this will continue, I think my sense it will continue, because some of these states were on a very low base. And including for the second half of this year. So, I would expect that this mix is not changing too much for the balance part of the year. The effect of rains, we are trying to assess. I have actually struggled to see in the past a correlation between significant off seasonal range. So often, we get this happening also in Feb, March. It's not very directly correlated to Tractor sales, it's kind of my intuitive judgment on this. But in this particular case, we need to wait and watch and see what's happening and how much damage -- the fact that there has been damage at this stage is uncommon. Normally, you get a little bit more of that in the Feb, March period, when you get the early rains and you get damage, which I have not seen too much of impact of that. Hopefully, this is not going to have too much. We are not factoring in a slowdown because of the delayed rain, which has just happened. Raghunandhan N. L.: I mean, it's delightful result. Just two, three concerns, I wanted your thoughts on that. One is that Nexperia, would it have an impact on production in Q3 or Q4. Second, on the SES refund. And third, commodity prices, precious metal has been going up. Rajesh Kajuria: Second was? Raghunandhan N. L.: SESZ refund. Rajesh Kajuria: Dealer SES? Raghunandhan N. L.: Dealer SES. Rajesh Kajuria: Yes. So, on the first one, we have a reasonably high confidence that quarter 3 is under -- fairly covered. We believe that the situation will ease out by quarter 4. If not, I'm sure you've been tracking Nexperia closely. It's a very low-value commodity kind of chip, so roughly $0.20. So, it's not hard to substitute. It's not like the semiconductor issue that was there through COVID, which were all very specialized and very hard to replace and needed extensive validation. These are more commodity-type chips. So, it's a question of finding substitutes, which -- for which we need a few weeks. We have, over the last 3, 4 weeks, already solved for many, many existing parts, which now gives us comfort that by and large this quarter is covered. Hopefully, by the time we come towards the end of November, we would have covered, with options, most of our portfolio. There is -- there are multiple stakeholders hoping to resolve this issue. It has impacted Europe OEMs quite significantly, and there's a lot of work happening between a couple of countries in Europe with China to unlock this problem. So, I don't think, as of now, we do treat it as an extreme risk and hence, extreme caution by way of mitigation. So, I hopefully, this should not be an issue. But that being said, we have to be very watchful. On the SES issue, we're just treating it right now as an issue dealers have to solve for it, sub-judice, as you all know, the FARDA has gone to the government. I mean, gone to the Supreme Court, arguing for why it can't be unilaterally discontinue. There is a valid -- they believe they have a valid case and we'll see how that plays out in court. Our view will be to wait and watch that out. In any case, it's a it's a dealer liability in the books of the dealer. Whatever we had to take by way of cost that we've incurred related to SES, we've built it in quarter 2. So, we are not carrying anything in our books over. But of course, this is a dealer point of view. Can you repeat the third question? Raghunandhan N. L.: On Material inflation, on precious metals. Rajesh Kajuria: So, precious metals had gone up. It started easing off a little bit as we all know, over the last week or 10 days. That's something that we need to watch for. Each of these are volatilities that come out of nowhere. So, we'll watch for that, is all I can say. I mean, this is all part of managing life today. You don't know what's coming at you from where. Anish Shah: Just if you don't mind me adding something on that. I just want you to although feel good that the team does have a very strong focus on this and we do hedge everything. So, there was a good anticipation by the strategic sourcing team. The precious metals will see some pressure. We have taken a hedge position from January to now, on average, three precious metals have gone up between 60% to 80%. So you're absolutely right. But we are not as exposed to this phase, because we have taken hedges. We've taken the offsetting gains for the expense that we have seen. But if, of course, the trend continues, then the hedging costs will go up and that will impact. Operator: I'll now just take a few questions online. This is from Arvind Sharma of Citi. Amar, the question is, where would PLI reflect in the stand-alone numbers? And what is the broad amount? Also, how much of it accrues to XEV 9 and BE 6? Amarjyoti Barua: So PLI actually doesn't come up in the stand-alone results because it goes into MEAL books. It is reflected as a revenue item. And the total amount for the quarter was around INR 460 crores, of which INR 150 crores pertain to INR 463 crores exactly, INR 150 crores pertains to -- INR 151 crores pertains to the quarter, and INR 312 crores pertains to prior period. That's what we have called out effectively. The tax impact of -- tax affected amount of that is what we have called out in our results. And it all is for the 9e, it's -- the 6 has not yet qualified for PLI. Operator: Okay. Next question, this is Pramod of UBS. Rajesh sir, there are three questions. Can you please share a full year guidance for SUV, LCV and Tractors? Second question, PLI by which year do you expect PLI incentives to fade for the EVs? And the third question, can you share any EV booking trend post the GST cut on the ICE vehicles? Rajesh Kajuria: Just to clarify the last question, EV booking trends or ICE? Operator: EV. Because GST has been cut on ICE vehicles, so has it impacted the EV booking? Rajesh Kajuria: Yes. So, on SUV for us, Pramod, we stay with mid- to high teens, which was what we said at the beginning of the year. We're not changing that. We believe mid-to-high itself was an aggressive outlook that we had put out, and we stay with that number. For LCV, we think it will be -- I just answered that, in a way to say, we think it will be low double digits for the full year. For Tractors, we had said in the region of 5% to 7%, I think at the beginning of the year, which we are now seeing as low double digits. So, we are upping the Tractor industry outlook from 6% to -- 5% to 7% to maybe like 10% to 12% kind of thing, so low double digits. PLI, it goes on till F '28. And we expect that will continue till then, if not longer, but hopefully, it should continue till then. The claims against PLI there's enough funds left. So, it should comfortably last us till '28. Operator: And there was one on impact on EVs. Rajesh Kajuria: Yes, the EV, it's too early to say right now, Pramod. But as you can see, even through the festival period, the overall EV segment has continued to grow rapidly with the new products coming in from competitors, the segment has continued to remain strong. And we believe that will continue, because as I mentioned, especially in the segment in which we play and some of the new products have come in, the gap between 5 and 40 is still very substantial. Of course, it has come down from 5 to 48 to 5 to 40. But 5 to 40 is still a very large gap, and we don't see that deteriorating. There have been one-off issues in Haryana, we are waiting for the EV policy to get affected, which affects the NCR region, because you have Gurgaon as part of that. So there has been an uncertainty on that. UP went through a few days of old policy to new policy. So some of the state level, things are also kind of getting clarified, which also makes a difference to on-road price. So, it's not just the GST. It's you to see it as a combination. So, the new UP policy, the benefit is only on EV and not on hybrid, which was there earlier from what came in, in October. So overall, too early to say if there is an effect, but we don't see that really having an effect on EV demand. Operator: Anish, there's a question, it stays you had expressed strong confidence that India will achieve 8% to 10% annual GDP growth. Can you please elaborate on impact of the revised GST and other government incentives and initiatives on the M&M businesses other than Auto and Farm? Anish Shah: So, not revising my 8% to 10% estimate. As I said earlier, the foundation is strong. The sentiment change with this is what we are seeing play out. And that's why we felt that the economy will grow at 8% to 10% for the next few years. M&M results as you've seen a fairly strong in this current quarter. And I can't say much for future quarters, but we will promise to deliver what is in our control and deal with things that are outside our control the best we can. Operator: There's another question there that, any further right issue capital investment planned in any of the listed or other subsidiaries in the near future? Anish Shah: There are no rights issues planned in the near future. Capital investments will be made in all businesses as we need them as part of our growth plans. Operator: Next question, this is from Chandra of Goldman. The first question there is BEV's PAC1 and PAC2. Can you please discuss how PAC1 and PAC2 mix is progressing after deliveries have commenced earlier this year? Can you also share some color on the drivers that can help raise our BEV mix towards the targeted range of CAFE 3 vis-a-vis the 8% to 10% BEV mix today? Rajesh Kajuria: PAC1 continues to be sub 10%, which is what we would desire by way of delivery. PAC2, we wanted PAC2 to be a significant PAC, because it creates the right price point, which is why we had introduced a PAC2 79, which is doing well. Right now, PAC2s are roughly 35%, 40% of each of the products. So PAC1 is sub-10%, then 35%, 40% and 50% to 60% is PAC3. Broadly that's the mix on -- to meet CAFE 3 percentage, it's going to depend on multiple things once we see the final policy get play out, whether it's going to be MIDC, WLTC cycle, whether tail pipe emissions on the WLTP cycle will be treated as zero or not. So, the percentages vary a lot. But we have new products coming in. So, the 8-odd percent penetration that has been achieved has been within 5 to 6 months of launch of being in the market with only two of our products, and there's a portfolio of products that will come. So, when we are talking about CAFE 3, we are talking about roughly 2 years away. So, we have a substantial time to get to whatever is the needed percentage from where we are today. Operator: There's another question, which says, we saw a decline in the monthly numbers for SML, last month, and a strong bounce back for the month of October. Were there any production bottlenecks or any process refinements? What was the reason for the decline in the month of September? Rajesh Kajuria: I think some of it was the transition issues around GST and getting the vehicles out, but nothing more to be read into that. Of course, the SML does very well when school bus season kicks in. So, we do see a big increase in market share in the quarters or months where school bus buying happens. They are very strong as we know, in the bus segment. Operator: Okay. This is from Gunjan at BofA. Some of these are taken. So, I'll take the ones which are not there. One, it's Tractors, solid momentum. Can you give more color on underlying trends supporting this euphoria, sustainability of this, an update on TREM 5 regulations. And the second question, how should we see the margin for MEAL trending ahead? Rajesh Kajuria: So TREM 5, Gunjan, firstly, TMA is aligned has had meetings with the Agri Ministry. TMA has also met more to kind of put reality of implications or moving to a very high level of technology from a serviceability in the marketplace. So everyone understands that implementing TREM 5 in a country like ours where you -- farmers have to have service capability or very high-end technology may not be practical. So, there is an understanding that we need the right solution for rural India, so that serviceability for farmers is not constrained. Right now, there's a dialoguing on, which is the TMA proposal to move the 25 to 50-horsepower from 2026 to 2028. That's the TMA proposal. And for the less than 25 horsepower, the date was April '26. Again, there's a conversation on to postpone that as well. Both of these are under consideration. In the less than 25-horsepower the unit cost is not that high and the technology needed is also not that hard to service. But there is a conversation on between Tractor Manufacturers Association and the rest of the stakeholders on what the implications of transitioning to TREM 5 are. On what you're calling euphoria, it has been a strong festive season for Tractors across the board. GST is, of course, one factor, but many underlying factors were building up. We've been saying over the last few quarters that the rural economy has been on a path to strong recovery. The rains have helped, reservoir levels have improved. The government spending, which is a key indicator of Tractor buying, as we've shared in the past, has been strong. Farmer terms of trade have not deteriorated. Export of crops from India have grown, which adds to cash flow to farmers. So, multiple on-ground factors have favored Tractor buying. And the GST has really enabled that process of buying. So, I think part of your question was how sustainable is that. It's really hard to give an outlook for next year, but we just stay with our outlook for this year moving up from 5% to 7% industry growth to 10% to 12% industry growth. Operator: There was another question on margin for MEAL. Rajesh Kajuria: Margin for MEAL, yes. So, margin for MEAL is going to be a series of things that kick in, which is what is the right PAC mix and pricing to enable growth in the segment. We are at that stage where we are into category creation. So, we do want to make sure that we don't lose the overall objective of driving electric vehicle penetration by way of not doing the right things that are needed to make that happen. We do have BE 6, which will, hopefully, by April 2026 meet PLI as well. So multiple localization actions are in place, which will all get executed in a way by which hopefully by quarter 1 of next year, BE 6 will also meet PLI. So that will be one positive enabler. And there is, -- some of the localization benefits also flow through to current portfolio products that are there, which is the 9e as well. So, multiple actions. But we just want to say that the -- a few quarters back, we said we will -- we have a path by which we want to go. And I think just a positive EBITDA was a very good surprise for all of you. Now we are seeing a healthy EBITDA. And we don't want to lose sight of the fact that we want to create this category and have to play a role in driving volumes in this category because that is what will fundamentally ensure long-term returns and long-term margins. So, we don't want to trade off the ability to grow for driving short-term margins. That does not mean we are not taking all actions to keep costs under control, but we do want to make sure that we are driving the adoption of the category in the most appropriate way. Operator: This is a question from BII. This is Adithya Banoth. Do you see any details on first buyer penetration for the 4-wheeler EVs? Any trends that you have noticed? Rajesh Kajuria: Sorry, I didn't understand. Operator: He's saying, details of first buyer. Rajesh Kajuria: First buyer. Okay. When we say first buyer, is that -- do you mean first-time vehicle buyer? No, very, very few. What we do see is a very substantial portion of non-Mahindra, almost 85% of our BEV buyers have not owned Mahindra earlier. So, it's a completely new target group that we're getting in. Fairly large number of multiple car ownerships, but we don't really have too much of -- never bought a vehicle earlier in our portfolio. Very small. Operator: This is from ICICI Prudential, Sakshat. He's asking, we had mentioned about three new ICE SUVs in calendar year 2026, two mid-cycle announcements and one new SUV, that was the composition we had mentioned. Does this include Bolero and Thar 3-door refresh, which we have launched recently? Can you share more details on these ICE launches in '26? Rajesh Kajuria: Unfortunately, we can't share more details. The reason we don't share more details on ICE is just so that, it doesn't look like we're evading the question is, because it does affect buying of current portfolio of products wherever there's uncertainty in customers. So, we are very mindful of that being a Core part of our product that we don't announce any new ICE product too much in advance for the year that is coming. So, we wait and wait and watch as we go ahead, but we have a couple of -- three, four interesting things happening in 2026. Nal, is that number about right? Operator: Yes. The question is also that the Bolero and the Thar 3-door refresh, was that a part of the three? Rajesh Kajuria: No. Operator: This is another question. Exports had a strong growth, both in SUV and Tractors. Which are the key markets showing high growth? Rajesh Kajuria: Yes. So for us, Auto -- firstly, on Auto exports, we're seeing very good response to 3XO both in South Africa and Australia. That's really very, very good momentum there. The 7OO is also doing decently in both these markets. So Australia, South Africa become two very important parts of the export leg. The neighboring countries, which had kind of gotten to a little bit of a slowdown for multiple reasons, money availability, so on and so forth, have all begun to open up. So, Sri Lanka, Bangladesh, all of these, Nepal as well have all opened up. We've sent our first lot of EVs to Nepal. They are on the way in this quarter. So, it seems to be very good demand. That's organically got generated in Nepal for the EVs, probably spillover out of the India story. So, that's broadly what's happening on the Auto side. On the Tractor side, the neighboring countries, again, have opened up, which Bangladesh was having a lot of issues for a while availability of LC, so on Sri Lanka had slowed down. Nepal had slowed down. So, all of those have come back. Algeria, we've started doing business. And so, that's which again was shut for a long period of time, because of the government not allowing imports in without a certain license. Most India exports to Algeria had stopped for almost 1.5 years or 2 years, which have started. By and large, covered it. Operator: Just taking this one last question. This is Amit of PhillipCapital. What is the company's strategy to grow the Farm implements business? And as this business is growing, how do we look at maintaining the margin in line with the Tractor margin? Rajesh Kajuria: Yes. Firstly, I must say that right now, the margin is not in line with the Tractor margin. We're just starting to make some money. So, we have a path to go. The competitive pool has reasonable margins. So, as we evolve our volumes, the margins should be much better than what we are making now. So, the peers that we have in that segment do make a decent level of margin. Unfortunately, there's no formulaic solution to growing in Farm Machinery. It is really to get behind the product category and then work at it and grow. One of the segments in which we haven't so far been in the past done as well as the Harvesters, which goes under the Swaraj brand. We've roughly had 4%, 5% market share. We now have an enhanced improved product, which is beginning to do well. And that hopefully will help us drive overall growth of per unit value. The harvest is about 20-odd lakhs. So, that does play a key role in driving top line. Operator: Great. Thank you, everyone. On behalf of M&M, I would like to thank you for joining us today. Please join us also for our Investor Day on 20th of November. It's a very exciting day ahead. And join us for snacks in the adjoining room. Thank you very much.
Operator: Good morning. My name is Steve, and I'll be your conference facilitator today. At this time, I would like to welcome everyone to Boise Cascade Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Chris Forrey, Vice President, Finance and Investor Relations. Mr. Forrey, you may begin your conference. Chris Forrey: Thank you, Steve, and good morning, everyone. We'd like to welcome you to Boise Cascade's Third Quarter 2025 Earnings Call and Business Update. Joining me on today's call are Nate Jorgensen, our CEO; Jeff Strom, our COO; Kelly Hibbs, our CFO; Troy Little out of our Wood Products operations; and Joe Barney, Head of our Building Materials Distribution Operations. Turning to Slide 2. This call will contain forward-looking statements. Please review the warning statements in our press release, on the presentation slides and in our filings with the SEC regarding the risks associated with these forward-looking statements. Also, please note that the appendix includes reconciliations from our GAAP net income to EBITDA and adjusted EBITDA and segment income or loss to segment EBITDA. I will now turn the call over to Nate. Nathan Jorgensen: Thanks, Chris. Good morning, everyone. Thank you for joining us on our earnings call today. I'm on Slide #3. September 2025 U.S. housing starts data has not been released by the U.S. Census Bureau. However, when comparing July 2025 and August '25 housing starts to the same periods in '24, total U.S. housing starts increased 2%, while single-family housing starts decreased 3%. Our consolidated third quarter sales of $1.7 billion were down 3% from third quarter 2024. Our net income was $21.8 million or $0.58 per share compared to net income of $91 million or $2.33 per share in the year ago quarter. As expected, in Wood Products, we experienced sequentially lower sales volumes and competitive pricing pressure in EWP. Plywood markets like other commodities continue to experience weak pricing given the underlying demand environment. In BMD, our customers' expanded reliance on us for next-day delivery service across a range of products helped to mitigate the otherwise subdued environment. Given this backdrop, we were still able to post good earnings for the third quarter. We have great clarity in our business model and the strength of our financial position and unwavering commitment to our core values enable us to remain focused on the execution of our strategic priorities. Our 2-step distribution model in tandem with our market-leading EWP and plywood franchises will continue to deliver exceptional value to both our customers and vendor partners, providing reliable access to products, responsive service and operational flexibility that are vital in dynamic markets. Kelly will now walk through our segment financial results, capital allocation priorities and guidance on our fourth quarter results, after which I'll make closing comments before we take your questions. Kelly? Kelly Hibbs: Thank you, Nate, and good morning, everyone. Wood Products sales in the third quarter, including sales for our distribution segment were $396.4 million, down 13% compared to third quarter of 2024. Wood Products segment EBITDA was $14.5 million compared to EBITDA of $77.4 million reported in the year ago quarter. The decrease in segment EBITDA was due primarily to lower EWP and plywood sales prices and sales volumes as well as higher per unit conversion costs that were influenced by decreased production rates in the quarter. In BMD, our sales in the quarter were $1.6 billion, down 1% from third quarter of 2024. BMD reported segment EBITDA of $69.8 million in the third quarter compared to segment EBITDA of $87.7 million in the prior year quarter. Gross margin dollars decreased $10.6 million from the third quarter of 2024. In addition, selling and distribution expenses increased $7.8 million from the year ago quarter, partly due to organic and inorganic growth initiatives we have executed upon in the last 12 months. Turning to Slide 5. Third quarter I-joist and LVL volumes were down 10% and 7%, respectively, compared to the year ago quarter. As expected, third quarter EWP volumes were down 15% sequentially as distribution and dealer partner inventories were drawn down to targeted levels with seasonal slowing anticipated. On a year-to-date basis, our I-joist and LVL volumes were down 6% and 1%, respectively. As it relates to pricing, competitive pressures drove sequential declines for I-joist and LVL of 6% and 5%, respectively. Turning to Slide 6. Our third quarter plywood sales volume was 387 million feet compared to 391 million feet in the third quarter of 2024. Sequentially, our plywood sales volumes were up 9% from second quarter 2025, driven by diverting less veneer into EWP production given the muted EWP demand environment and higher production rates at our Kettle Falls and Oakdale facilities. The $325 per thousand average plywood net sales price in the third quarter was down 2% on a year-over-year basis and down 5% compared to second quarter of 2025. We have to look back to second quarter of 2020 to find a lower average quarterly price realization in plywood. The longevity and levels of recent tariff announcements on plywood imports from South America remain in question and have yet to create any meaningful impact on plywood growth. Moving to Slide 7 and 8. BMD's year-over-year third quarter sales decline of 1% was driven by a 1% decrease in price and sales volumes were flat. By product line, commodity sales decreased 3%, general line product sales increased 6% and sales of EWP decreased 11%. Sequentially, BMD sales were down 4% from second quarter 2025, driven by a 2% decline in both sales price and volume. Our third quarter gross margin was 15.1%, a 60 basis point year-over-year decline. Commodity price headwinds and EWP competitive pricing pressures impacted our margins on these product lines. However, margins on general line products remained stable despite the subdued demand environment. BMD's EBITDA margin was 4.5% for the quarter, down from both the 5.6% reported in the year ago quarter and the 5.7% reported in the second quarter. Sequentially, our EBITDA margin was negatively impacted by a 30 basis point reduction in gross margins and decreased sales volumes had the effect of lowering gross margin dollar opportunity and deleveraging of our cost base. BMD's third quarter EBITDA margin is below our normalized level of earnings power, but a very good result given demand and pricing dynamics in today's marketplace. While these results reflect strong execution across product lines by our team, growth in our general line products has been a focus for us, where our proven performance and nationwide distribution capabilities enable us to provide a leading selection of general line products. The recent announcement with James Hardie is an example where we are happy to be expanding product offerings in several specific markets. At the same time, it's important to note that this announcement does not displace any existing market coverage we have with Trex. I'm now on Slide 9. We had capital expenditures of $187 million in the 9 months ended September 2025 with $99 million of spending in Wood Products and $88 million of spending in BMD. We remain committed to the capital plan presented earlier in the year with our capital spending range for 2025 at $230 million to $250 million. In Wood Products, that range includes the multiyear investments in support of our EWP production capabilities in the Southeast referenced on prior calls. The Oakdale modernization is complete, and we continue to make progress on optimization activities. Spending on the Thorsby line will largely be complete by year-end, and the line is expected to be operational in the first half of 2026. In BMD, part of our capital deployment strategy is to solidify and expand our market-leading national distribution presence. In August, we opened the doors at our greenfield distribution center in Hondo, Texas and are excited for the opportunity to better serve customers across Austin, San Antonio, Corpus Christi and the Rio Grande Valley. Looking forward to 2026, we expect our capital spending to be between $150 million and $170 million. Speaking to shareholder returns, we paid $27 million in regular dividends in the 9 months ended September 30, 2025. Our Board of Directors also recently approved a $0.22 per share quarterly dividend on our common stock that will be paid in mid-December. Through the first 10 months of 2025, we repurchased approximately $120 million of Boise Cascade common stock, which includes approximately $25 million in the third quarter and another $9 million in October. In addition, our Board of Directors recently authorized up to $300 million of common stock repurchases under a new share repurchase program. This new authorization replaced our prior share repurchase authorization. In summary, we continue to be dedicated to a balanced deployment of capital by investing in our existing asset base, by pursuing value-enhancing organic and M&A growth opportunities and returning capital to our shareholders. We are fortunate that our solid financial foundation and resilient free cash flow allow us to simultaneously advance each of these objectives. I'm now on Slide 10. Looking forward to the fourth quarter, demand weakness, trade policy uncertainties and the impact of seasonal factors will influence our financial results. Presented in the table are a range of potential EBITDA outcomes and related key driver assumptions. For Wood Products, we currently estimate fourth quarter EBITDA to be between breakeven and $15 million. We expect our EWP volumes to decline in the low double digits to mid-teens sequentially as the pace of starts moderates. EWP prices have recently stabilized, but we do expect low single-digit sequentially declines due to market adjustments previously taken in third quarter. In plywood, we expect sequential volume decreases at or near double digits. On plywood pricing, October realizations were consistent with the third quarter average with the balance of the fourth quarter market dependent. As is typically the case during the fourth quarter, we will take maintenance and capital project-related downtime across our manufacturing system and may also take market-related downtime to align production rates and inventory positions with end market demand. Important to note that although masked at seasonally weak demand levels, our number of site-specific cost improvement measures in Wood Products that when coupled with our division-wide innovation initiatives will benefit our EWP and plywood franchises into the future. For BMD, we currently estimate fourth quarter EBITDA to be between $40 million and $55 million. BMD's daily sales pace in October was approximately 5% below the third quarter sales pace of $24.3 million per day and is expected to decline further as the quarter progresses. Our recent volume changes have compared favorably to single-family starts data, a trend we would expect to continue and an indication of the 2-step value proposition and our customer partners' reliance upon us for next-day out-of-warehouse service. In addition to limited near-term clarity for end market demand, pricing volatility for plywood, lumber and other commodity products is likely given ongoing trade policy uncertainty and a number of recent capacity curtailment announcements. Lastly, we expect our fourth quarter effective tax rate to be between 26% and 27%. This is lower than our third quarter rate of 29%, which was adversely impacted by the effect of permanent tax differences on decreased pretax book income for 2025. I will turn it -- now turn it back over to Nate to share our business outlook and closing remarks. Nathan Jorgensen: Thanks, Kelly. I'm on Slide #11. Now more than ever, our experienced team remains committed to creating value for our shareholders, customers and suppliers by staying resilient, adaptable and focused on delivering exceptional products and services. Our integrated model provides increased channel inventory visibility, enabling us to better navigate market uncertainty by aligning production rates and inventory strategies with end market demand. Cross-divisional efficiencies supported by our robust balance sheet allow us to maintain our dedication to executing our strategy and creating long-term value for all stakeholders. Early industry projections for 2026 are consistent with 2025 housing start levels. Demand expectations are characterized by a cautious market in the first half of the year with gradual improvement expected later in the year, driven by interest rate cuts and normalized homebuilder inventory levels. In EWP, our planning assumption is that prices have bottomed, and we will have an opportunity to move prices higher as 2026 progresses. The extended weakness in the residential market has highlighted the resilience of our distribution business. We have seen an increased customer reliance on our auto warehouse business across our full suite of products. As the uncertainty continues headed into 2026, we stand ready to continue to demonstrate the value of 2-step distribution. Looking beyond the near-term environment, we remain confident in the long-term demand drivers of residential construction, including the persistent undersupply of housing, aging U.S. housing stock and high levels of homeowner equity. Generational trends, including millennials and Gen Z reaching peak age for household formation and more seniors choosing to age in place continue to support household formation growth. Additionally, continued declines in mortgage rates should encourage buyers who have been waiting on the sidelines to enter the market. In the repair and remodeling space, activity has been limited by low levels of home turnover and homeowners delaying major projects due to high borrowing costs and economic uncertainty. However, we anticipate consumer confidence will improve as interest rates decline and economic policy becomes clearer, creating a long runway for growth in repair and remodel projects. Strong fundamentals for both new residential construction and repair and remodeling are the foundation for the industry's robust pathway ahead. And make no mistake, investments we have made in recent years have positioned us well to capture significant upside when the market turns. Thank you for joining us today and your continued support and interest in Boise Cascade. We welcome any questions at this time. Steve, would you please open the phone lines. Operator: [Operator Instructions] First question comes from Susan Maklari with Goldman Sachs. Susan Maklari: My first question is on the general line part of the business. Can you talk to the share gains that you are realizing in there? How you're working with the various partners in this kind of an environment? And what that suggests for your ability to continue to see growth next year even if housing and the macro stays more challenging? Joanna Barney: Yes. So this is Joe. I'll start with that one. What I'll tell you is that demand held up really well with our general line product categories in the third quarter. Part of the reason, I think, is that we've made significant investments across our footprint in out of capacity, right? We've put really at most of our locations, we've added laydown space, we've added warehouse space. And we've done it intentionally so that we could bring in a broader mix of general line products, carry them on a deeper scale. Our suppliers that we work with, our key partners are consistently adding new products to their -- to what they bring to the market. And we want to make sure that we have the ability and the capacity to support their growth as well as support our own. So we've invested in that. We've also looked at bringing new products in the general line category to market. We've taken some risks there. We are -- have been focused on and achieved growth with our home center business, the special order business that we do at the home centers. So that's helped us with the general line categories. We focused on and grown our specialty dealer business certainly in third quarter. So that's been a focus for us. We've been successful at that. And we've grown in the multifamily category, and that's been a focus for us. As single-family housing starts have been flat or depressed, we focused significantly into the multifamily arena. We're going to continue to focus on the growth of our multifamily business in the quarters to come. And I would tell you that our -- we believe that our market share growth in certain general line categories that we think we've captured market share. There have been competitors of ours who have exited different product categories across the country, and they've left a void in the market as they've exited, and our teams have done a really good job of stepping in and filling that void and taking that market share. And so we expect now that we have that capacity, and we will continue to see that growth in the quarters to come. And then lastly, I think I mentioned our door and millwork business and the investments that we've made there, and we do continue to strengthen and improve our operations from a door and millwork standpoint as well as our sales growth and margin opportunities that we see there. Susan Maklari: Okay. That's great color. And then maybe moving over to EWP. It's great to hear that you think that price there has bottomed and there's the potential for some growth next year given what we're hearing and seeing from the builders. Can you talk to the competitive dynamics that you're seeing with the EWP? What gives you that confidence on the pricing side? And any thoughts on the upside or downside to that, just given the affordability pressures the builders are facing? Troy Little: Sue, this is Troy. I'll start with kind of what we're seeing -- what we've seen and what we're seeing this year and then turn it over to see if Nate or Kelly have anything. As we noted, we were down 5% or 6% quarter-over-quarter, and that was primarily due to 2 things. Early in the quarter, it was continued price pressure and matching competitive issues. And then the other one was we had the tariff of product we were shipping from U.S. into Canada. That was a 25% tariff, and we weren't able to fully pass that on. And then starting -- it looked like about August, the prices started to stabilize, and they continued to stabilize since that time, similar to what others have reported. So that's where we're seeing that maybe we've reached the bottom there. And then looking into Q4 and kind of how we started the quarter, prices have remained flat, and we would expect to continue that throughout the quarter as we don't have those other 2 issues as it appears right now. Nathan Jorgensen: Yes. I think, Sue, it's Nate. Yes, I think Troy, yes, described that well. And I think as we think about 2026, I think the backdrop is setting up okay in terms of what the demand environment is expected to be. And I think we continue to get builders really insistent in a great way on cycle times. So that's been an area of focus for them over, as you know, over the last couple of years. And as we think about EWP, it's absolutely part of that answer to make sure that cycle times continue to be -- perform at a high level for the builders and they can turn that land into cash that much quicker. So again, I think it's set up well for next year. And to Troy's comments, we feel like we're at a bottom, and we can move higher here at some point in '26. Susan Maklari: Okay. Great. Good luck with the quarter. Nathan Jorgensen: Thanks, Sue. Operator: The next question comes from Michael Roxland with Truist Securities. Michael Roxland: First question I had is, obviously, just following up on the BMD question and the mix up in general line. As you think about margins in BMD, what do you think are the constraints as you see it in terms of generating even higher margins -- EBITDA margin that is, in terms of maybe high single digits or low double-digit type margins as some of your distributor peers currently are? Nathan Jorgensen: Yes. Mike, thanks for the question. So I guess I would start with on gross margins for BMD near term here, we feel really good about our ability to maintain the 15-plus percent margins that we've been putting up of late. As you know, in markets like this, the reliance and dependency of customer base on out-of-warehouse service is certainly relevant. And again, we continue to see a good pull-through there. And then to your point, where might we go from here? Again, we continue to look to richen the product mix and that's more general line products, which do give us more gross margin opportunity. And at the same time, I don't want to discount our teams in terms of what we've been doing in terms of EWP sell-through and also commodities where we've been doing a really nice job in a really tough environment, in particular, in commodities. And with commodities at the very low levels that they are today, certainly, near term here, we -- if we get any energy in the commodity markets, we could see some near-term tailwinds in terms of our margin profile. And then I guess maybe one final point would be, as you know well, but I guess I'll just verbalize the fourth quarter as we see seasonally slower sales, as you'd expect to see, again, feel good about the gross margin percentage, but the gross margin dollar opportunity will come off as a function of just lower sales dollars. Joanna Barney: So I'd jump in there as well and just say that as our general line business becomes a larger percent of our overall sales volume, and we have seen that happening quarter-to-quarter, that's room for margin improvement there. As we become better operators in our door and millwork investments and we have -- quarter-to-quarter, we continue to move in that direction. And as we become better operators and as we invest in our pre-finished business that brings higher margin opportunities to our business, as we bring our lead times in check, as we become better operators, we are finding that we are growing in the success in our millwork business, which will add to our margin opportunity. As we push into multifamily and make a broader push there, we're seeing more margin opportunity. And to Kelly's point, I would reiterate, we are pretty good at our commodity business. And we have a line of sight across the country. We've built systems in that make us really flexible and we are able to move quickly both into a rising market and into a falling market, so we can reduce and mitigate our losses in a falling market, and we can take advantage of opportunities in a rising market, and we do it really quickly. So I wouldn't discount our ability to make margin on commodities as well. Michael Roxland: That's very helpful. Appreciate the color there, Joe and Kelly. Second question is realizing that you're beholding to the single-family housing market to some degree. Is there anything that you can do in this environment to further improve mill profitability? You highlighted a number of times how you're basically the mill -- because of the capital investments you made over the last couple of years, the mills themselves are ripe to generate significant profitability when single-family returns. But is there anything you can do now, additional cost takeout, other things that you can do that could situate the company for even greater margin expansion when the cycle turns? Troy Little: Yes, this is Troy. I'll look at it from the standpoint of the cost improvement activities that we're doing at the mill level, that's something that probably has got muted in the third quarter and may continue to get muted with the lower volumes, market-related downtime volumes. But behind that, the operations have what we call our site improvement plans. And each of the locations are definitely working on a very detailed plan for 2026 to address our site improvement plans. We are making sure that we're filling all our process improvement positions. Those are support type functions, but instrumental in our process improvement to reduce our cost, increase our efficiencies. And then we also have our group working on innovation. And so we do actually have a couple of technology-type projects planned that we're looking at for 2026 and beyond. And all of those should help contribute to improving our cost structure at the mill level as well as just operationalizing the capital projects that we've had over the last couple of years. Kelly Hibbs: So Nate, the only thing I would add to that -- to Troy's comments on cost is as you think about the market, to your point, single-family has been steady, not great. But I think the opportunity for us continues to be how do we continue to grow our presence in multifamily. And that's -- we're very good at that in terms of our EWP Key franchise. That's just, I think, an area of focus for us as we transition out of '25 and in '26, making sure that we create the right opportunities with the multifamily segment, and that goes really in some cases, beyond EWP, but it touches other product categories in BMD as well. So as we think about single-family, that's a big driver for our business, but multifamily is an important engine too, and that has our focus and resources as well. And I guess as Nate... Michael Roxland: Got it. And... Kelly Hibbs: Sorry, Mike, maybe one thing I'd add to both Troy and Nate's comments would be we've been trying to be very thoughtful in terms of not making any knee-jerk or quick reaction that we may regret later, right? I mean we feel still good about the medium to long term. And so we really need to be thoughtful about how we manage our capacity, including our crews so that when the market turns, we don't get caught behind the curve. So that always has to be part of our nuclei, our algebra, if you will. Michael Roxland: Kelly makes a ton of sense. And just one last one, I'll turn it over. Where you said growing presence in multifamily. Can you just remind us right now where that presence stands currently in multifamily, whether it be maybe through EWP or if you want to talk about the whole portfolio and where you expect it to be, let's say, in 2026 and maybe provide like a 5-year outlook? Kelly Hibbs: Yes. So it's not a large part of either of our businesses today. I don't have a number right at hand, probably, Mike, but we're probably in the -- we're probably -- single-family is still the big driver for us in terms of -- it's probably 75% to 80% of our business. And then we're probably something like 10 and 10 there between home center channel and multifamily. Operator: The next question comes from Kurt Yinger with D.A. Davidson. Kurt Yinger: Troy, I just wanted to go back to the discussion around competitive dynamics in EWP. And if I heard you right, you kind of talked about a stabilization kind of coming through in August. Can you maybe just put a little bit more color around that? Is that less dealer and builder business being put to bid? Is that maybe a little bit more of a balance in terms of the trade-off between pricing and volume? What do you think was really the catalyst there to kind of reach the stabilization? Troy Little: Yes. I think as the markets started slowing coming out of Q2 and into Q3, there was capacity available. And so I think there was room to move on price in the industry and people were out there trying to preserve and/or grow share as things came off. We continue to see that for several quarters now. And I think we just got to the point where we addressed the markets where that was necessary for us to maintain our volumes. And we were able to do that by and large. And now we're in a position -- the costs have come up during that time and now prices moved to a point where I think the industry itself is in a position where there's not a lot left there to go. And so now it's just kind of the seasonal impacts as we kind of finish out the year. And so right now, we're just seeing that less of a pressure as people have adjusted production to the demand. Nathan Jorgensen: Kurt, it's Nate, maybe just to add to Troy's comments is as you think about the fourth quarter and as we head into the first quarter, working capital is always a focus for our customers. And so in EWP, but all product categories, having world-class distribution and support EWP really matters as that next-day service is important on EWP, and we have seen that we'll continue to see that going forward. So as we think about the competitive dynamics, volume and price, having world-class distribution and support EWP really matters in these moments. And so we feel good about how we're set up there to execute to that standard as we close out 2025 and head into 2026 as well. Kurt Yinger: Okay. That's super helpful. And it sort of ties into my next question. I think realistically, right, like pricing is difficult to predict, but a lot of it comes back to single-family activity. But it does seem like channel inventories are lean. Is there a scenario where seasonally we get into the spring period next year? And even if structurally housing activity isn't significantly stronger, you feel like there could really be some tension there in the market just based on what you see in terms of your customer inventories at this stage? Nathan Jorgensen: Yes, Kurt, it's Nate, I'll start. To me, the channel, I think, is really well balanced in terms of inventory levels and kind of that risk reward, both on demand and anything else. And so I think people are positioning as we close out this year and head into next year, I think the marketplace, if there's demand that shows up that's somewhat unexpected or there's maybe a supply disruption, to your point, Kurt, I think there could be maybe some different urgency in the marketplace that we haven't seen for a period of time, which would include price, I think, as part of that. So I think to me, the backdrop is, I think, set up well because it's -- there's not a lot of excess that needs to get worked out of the system. And to your point, it all it takes is a maybe a demand event we weren't expecting or a supply event we weren't expecting on the downside to kind of quickly kind of tension things up in the marketplace. So I think it's set up well, not perfectly, but I think we're -- as we think about 2026 and I think about the homebuilders, they've been pretty active in working their new home inventory levels down. That's been an area of focus for them for a period of time. And as we transition into maybe 2026, Kurt, at some point, a new home sale has to equal a new home start. And we haven't been in that kind of math for a period of time. And so I think in '26, that gets a better balance as well. So I think it's just shaping up to have more normalcy than we've frankly experienced for the last year or so. Kurt Yinger: Yes. That all makes sense. And then lastly, I just wanted to go back to the door and millwork performance. Can you just talk about, I guess, the sales performance thus far in 2025? And as some of these new facilities get up and running, is that something where you would expect even in a tepid demand environment, just given the capacity that you have and the focus there that you could really drive a healthy amount of kind of above-market growth? Or how dependent on that is underlying demand from here? Jeff Strom: Kurt, it's Jeff. I'd say overall, it's -- millwork has been challenging this year with the price pressures and everything else. There's no ends about that. However, we have a lot of new facilities, and we have a lot of new locations that we're working into this business. And every day that goes by is the day that we get better and we improve and we get the right people in place and the opportunities that's there. So we're definitely expecting to see more growth regardless of what the market does just because we're going to operate significantly better. Additionally, we have some locations that are constrained space-wise, and we are addressing those. So we're excited for what the upside is for us on the door business for sure. Kurt Yinger: All right, okay. Appreciate all the color, guys. Jeff Strom: Thanks, Kurt. Operator: The next question comes from George Staphos with Bank of America Securities. Bradley Barton: This is Brad Barton on for George. Just if we go back to the AZEK announcement, when we think about the genesis of the deal, can you just talk to the puts and takes that you were considering on the move? And then did AZEK come to you? Did you go to them? And then how do you kind of see that impacting your Hardie lineup in those specific markets and maybe even across the whole network as well? Joanna Barney: Yes, I will start with that one. So let me just first say that we are very excited about the opportunity to partner with Hardie in the Baltimore market. It's a big decade market. So we see it as a big opportunity. We have not had in a decade in that market before. So this is net new revenue for us. It's not a revenue shift from a different product category. We haven't has it. So this is net new revenue, and it's a big opportunity for us. So we're excited about that. We're excited about the full suite of products that we're going to be able to offer in that market. So we see a lot of upside revenue potential for us, specifically to the Baltimore, Pittsburgh market. Saying that we also have grown our market share with Trex across the country. So we've done really well with that brand. So our plan is to continue to support both partners, continue to grow our market share as we have in all of those markets across the country. Bradley Barton: Okay. Great. And then you -- I guess one follow-up, and I think you guys touched on this a little bit, but are there any kind of -- any signs that you're seeing early in the quarter that you can kind of point to as signs of life or green shoots, not just for the remainder of the quarter and into next year, but maybe even for the spring building season? Jeff Strom: Yes. It's Jeff. I'd just say one thing that we are seeing and experiencing is that there have been some green shoots in the multifamily space. And we're seeing some activity. We're seeing a lot of quoting that's going on. We have some projects that we know that are going to kick off to get us through the balance of the year and into the beginning of next year. So we feel good about that. Operator: The next question comes from Jeff Stevenson with Loop Capital. Jeffrey Stevenson: How much of an impact did the operating inefficiencies related to the ramp in production at your Oakdale facility have on Wood Products margins in the third quarter? And will that continue to be a drag on segment margins over the next several quarters? Troy Little: Yes. This is Troy. Yes, it's a little bit hard to tell because we've had that market-related downtime in there. But that team has been trying to work on all the machine centers, when we essentially touched all the machine centers. And so honestly, working through that, which I would describe as the operational issues coming out of a large project that they've been working through in the third quarter. So we didn't see a huge difference specific to Oakdale, say, Q3 impacts versus the first 2 quarters. But moving forward, we would expect them to continue to improve their operating efficiencies, lower that cost structure. That was a high-cost mill before. Once we get that capital in there or working, we should see the improvements there. I'd hate to put a number on it because I don't know the specifics. And then we have -- you're moving into Q4 seasonal issues. You've got the shorter months in November and December and then any market-related downtime, it's going to be dependent on what that looks like specific to Oakdale. Jeffrey Stevenson: Got it. Got it. And then over the past year, you've announced multiple expanded partnership agreements to strengthen your distribution relationship with key suppliers and the most recent one, obviously, is James Hardie. And I wondered if you could talk more about how these agreements have better positioned the company's general line distribution business moving forward and whether there could be additional opportunities to expand partnerships with other key suppliers. Joanna Barney: Yes, I'll start there. I think we're always looking for opportunities to expand partnerships, but we're also very focused on the partnerships that we've got and the new products that they bring to market. Trex is a great partner for us. We've grown market share with them. We're going to continue to grow market share with them across the country. Hardie has been a great partner for us in siding across the country, and now we're exploring a new opportunity with them in the Baltimore market. Again, I'd just reiterate, it's a significant decking market and that we haven't had that category before there. So looking at that, we're looking at new partnerships as far as doors and millwork go. So we are always absolutely looking to expand. We've added the space and the capacity to do it. So we are going to continue to look into whatever partnerships we have available that we think we can generate sales growth, revenue growth and margin growth. Jeffrey Stevenson: Makes sense. And then one last one, just on how you're planning to balance M&A with share repurchases moving forward given the market pullback. Would you expect to be aggressive with the new $300 million share repurchase program? Kelly Hibbs: Yes. Jeff, I'll take that one. So I guess just stepping back briefly, our priorities are very much the same in terms of capital allocation in priority order, invest in our existing asset base, look to do organic growth projects and then also M&A if the fit and the price is right. But I would say, absent any meaningful M&A, we would expect to continue to be active with share repurchases here moving forward. Jeffrey Stevenson: Got it. Operator: [Operator Instructions] The next question comes from Reuben Garner with Benchmark. Reuben Garner: Let's see. So if I'm doing the math right, and I know you didn't explicitly give top line guidance, but it looks like the distribution segment's EBITDA margin is going to dip into the 3s for the first time in a while. The third quarter was obviously lower than the second. And I get that there's some seasonality. How should we think about what's going on there? Like has competition picked up? Where do we think that things will stabilize? And how do we think about next year, assuming that the housing market in general is kind of consistent with what we've seen of late? Kelly Hibbs: Yes, good question. And I guess I would start with saying this isn't a market share degradation or anything like that. I feel really good about how we're positioned and how 2-step distribution shows up in these sorts of markets. So really, what's embedded in the guidance really is really truly a function of just seasonal slowing that we expect to see. November and December, you got -- you've only got 18 sales days in November and 21 sales days in December, you got weather. So you've got some seasonal events. So yes, could we dip into the high 3s in terms of EBITDA margin? Yes, sure, we could, just given the seasonal nature of it. But I wouldn't -- I would not pull back from what we view as the -- when we get to a normalized cycle over a normalized year that we can be -- it can start with a 5% in terms of our EBITDA margin. So I feel really good about how we're positioned there, Reuben. It's really just a seasonal event that you're seeing in the fourth quarter. Reuben Garner: Okay. Great. That's really helpful. And then how do we think about -- it looks like your inventory, I guess, at the Inc. level, we don't have segments on that, but your inventory as a percentage of revenue ticked up the last couple of years. Is that a function of some of the investments in distribution and growing general line? Is that some kind of signal that you're optimistic about the market coming back as we get closer to '26 and you want to make sure you have the materials? Or is there some other factor driving that delta? Kelly Hibbs: Yes, I think it's a function of the growth that we've done. We've added a handful of locations, including via M&A and via organic growth opportunities. And then it really comes back to our stated goal that we always want to be in stock and be able to serve the marketplace, especially in times like today. And so we feel good about our inventory position. We're not too heavy. I think we're in a good spot. And yes, and then we do feel good, obviously, about the -- here come back half of 2026, we are very well positioned if we start to see some more energy here in the spring building season in 2026. Reuben Garner: Okay. Great. Good luck. Kelly Hibbs: Thanks, Reuben. Operator: The next question comes from Ketan Mamtora with BMO Capital Markets. Ketan Mamtora: Maybe to start with on the EWP side, Troy, I mean, your volumes in 2025 are still kind of higher than what it was in 2021, 2022 when housing demand was stronger. Can you talk about kind of what is driving there, whether there's some share gains or things that you are doing differently? Troy Little: Yes. I'd say throughout 2025, in terms of looking for opportunities, we believe we have some share gains that we're trying to maintain. Our order files throughout Q3 comparatively were lower but consistent throughout the quarter. And as we move into Q4, other than the seasonality around that, it still seems to be fairly consistent in what we've seen so far. Ketan Mamtora: Okay. Got it. And then just switching to the distribution side, really nice to see that growth in general line. You talked earlier about sort of doors still being under some pressure. Can you talk about sort of what is -- where you are seeing sort of growth in the general line business? Kelly Hibbs: The question is where are we seeing growth in the general line business. You guys can take that. Joanna Barney: Yes. I think we're seeing growth in the general line, again, market share gains in certain product categories, decking being one of them. So we've seen market share gains as some of our competitors or other distributors have exited different categories across the country, we've stepped in and filled those voids. And so we've seen market share growth that way in multifamily business. And I really think in the door and millwork side, we're starting to see gains, and we're moving forward, moving that capacity and our ability there forward. Nathan Jorgensen: Ketan, it's Nate. Maybe just to add to Joe's comments. is that when you think about general line, and Joe mentioned this earlier, the new SKUs that are showing up and the SKU complexity that comes from our suppliers is something that we enjoy, we're really good at. And so we certainly have experienced that in '25, and we're expecting that in '26 as well. So as they bring out new products, that creates, I think, really an important opportunity and responsibility for us to not only serve our customers but serve our suppliers as well. So I think that's the other component on the general line that continues to play in our favor, and we expect that going forward as well. Ketan Mamtora: Got it. No, that's helpful. I'll turn it over. Good luck. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Nate Jorgensen for any closing remarks. Nathan Jorgensen: We appreciate everyone joining us on our call this morning for our update, and thank you for your continued interest in supporting Boise Cascade. Please be safe and be well. Thank you. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Pawan Kedia: Good evening, ladies and gentlemen. I'm Pawan Kumar, General Manager, Performance Planning and Review Department of the Bank. On behalf of the State Bank of India, I'm delighted to welcome the analysts, investors, colleagues and everyone present here today on the occasion of the declaration of the quarter 2 financial year '26 results of the bank. I also extend a very warm welcome to all the people who are accessing the event to our live webcast. We have with us on the stage our Chairman, sir, C.S. Setty at the center, our Managing Director, Corporate Banking and Subsidiaries, Sri Ashwini Tewari; our Managing Director, Retail Banking and Operations, Vinay M. Tonse, our Managing Director, Risk, Compliance and SARG, Sri Rana Ashutosh Singh; our Managing Director, International Banking, Global Markets and Technology, Sri Rama Mohan Rao Amara, our Deputy Managing Director Finance, Srimati Saloni Narayan. Our Deputy Managing Directors heading various verticals and Managing Directors of our subsidiaries are seated in the front rows of this hall. We are also joined by Chief General Managers of different verticals, business groups. To carry forward the proceedings, I request our Chairman, sir, to give a summary of this Bank's quarter 2 financial year '26 performance, and the strategic initiatives undertaken. We shall thereafter straightaway go to question-and-answer session. However, before I hand over to Chairman, sir, I would like to read out the safe harbor statement. Certain statements in today's presentation may be forward-looking statements. These statements are based on management's current expectations now subject to uncertainty and changes in circumstances. Actual outcomes may differ materially from those included in these statements due to a variety of factors. Thank you. Now I would request Chairman, sir, to make his opening remarks. Chairman sir, please? Challa Setty: Thank you, Pawan. Good evening, ladies and gentlemen. Thanks for your interest in SBI. I would like to start by thanking the support of all of our stakeholders, including our customers, shareholders, employees and the broader ecosystem are supporting us all through our journey. Fairness to all our stakeholders remains at the cuts of the bank's culture, which in turn has helped us in creating sustainable value and contributing to nation's success. Let me first start with a brief description of the present global and domestic economic scenario. The global economic outlook for 2025 presents a picture of modest but uneven recovery. The IMF's world economic outlook, October 2025 projects world GDP growth at 3.2% in 2025 and 3.1% in 2026, reflecting steady but subdued momentum amid persistent structural challenges. Regarding inflation, though it has broadly moderated across most economies, the pace of disinflation remains slow. Against this global backdrop, India's macroeconomic outlook remains one of cautious optimism, underpinned by robust domestic demand and easing inflationary pressures. The RBI projects real GDP growth at around 6.8% for FY '26 and 6.6% for FY '27. Growth is being supported by strong investment activity, recovery in rural consumption and buoyancy in services and manufacturing. The GST 2.0 reforms are expected to boost private consumption and domestic demand. On banking front, scheduled commercial bank's credit growth is slowly picking up and grew by 11.5% year-on-year. Last year, it was at the same level of 11.5% for the fortnight ended 17th October 2025, while deposit growth remains sluggish at 9.5%, which was 11.7% last year. Going forward, we expect demand for credit to continue in the second half. By looking at the trend, deposits and credit growth of scheduled commercial banks may remain in the range of 11% to 12% during FY '26. However, risks persist from volatile global commodity markets and potential spillovers from the trade disruptions. Overall, India's near-term outlook is strong with macroeconomic stability providing space for sustained medium-term growth. In the above economic backdrop, let me now highlight a few key aspects of bank's performance in the half year and the second quarter of FY '26. Our Q2 FY '26 results and of several quarters before this underscore a simple point. State Bank of India is compounding on durable structural advantages, scale with discipline, growth with quality, returns with resilience. The current quarter demonstrates industry-leading credit growth at SBI scale, market share gains in chosen segments such as current account, home loans, auto loans, stable asset quality and disciplined pricing. Our domestic NIMs for the quarter improved by 7 basis points quarter-on-quarter to 3.09%, driven by repricing of deposits. Operating leverage from technology, distribution and procurement. The flywheel is clear. Our strength in low-cost liabilities derived from our brand, customers' trust in SBI and our extensive reach. These advantages allow us to expand liabilities significantly, which are then utilized to finance strategic growth with careful pricing discipline. This focus on pricing and robust risk management supports our leading return on risk-weighted assets, RORWA. A well-capitalized balance sheet enables us to achieve top-tier return on equity, which in turn helps in compounding our book value while maintaining stable capital ratios. In this quarter, we also raised INR 25,000 crores of equity capital by way of qualified institutional placement with a demand book of more than INR 1.1 trillion. This was the largest ever QIP offering in India. We thank our investors for supporting us in the capital raise. The issue was oversubscribed 4.5x with significant interest from both domestic and foreign institutional investors. What are our strategic anchors? They are brand trust and customer value. SBI is the reference brand in Indian banking. We earn trust by creating value for customers through transparent, efficient service and optimal pricing across deposits and lending. Relationship depth drives balanced stability and lowers risk through cycles. Institutionalization at scale. SBI runs on codified processes in credit, risk, collections, treasury, technology and procurement while allowing innovation at all levels. Execution is consistent and repeatable across businesses and regions. Fair outcomes for all stakeholders is the third anchor. We balance customers, employees, investors and society. Capital is allocated where risk-adjusted returns are sound. We price risk fairly, invest in people and systems and support the real economy while protecting depositors and shareholders. Fourth anchor is liability franchise strength. I think I mentioned earlier also, our total deposits of INR 56 lakh crore, CASA deposits of more than INR 21 lakh crores with CASA ratio at 39.63%, while CASA market share, 23% versus overall deposit market share of more than 22%. This granular low-cost funding is a structural advantage and the engine for disciplined growth. And finally, the anchor, which I want to mention is leadership where roadway is attractive. We lead by a wide margin in lending and liability products with superior risk-weighted returns. We choose segments where unit economics are strong and price up are deemphasized where capital is not adequately compensated. We believe SBI is positioned to grow faster than the industry at this scale and to deliver higher ROE than the industry. We will attempt to deepen the liability engine and sustain the CASA outperformance, allocate capital to high RORWA businesses and maintain pricing discipline, use technology to lower cost to serve and lift service quality and further improve capital turns. Keeping in view a customer-centric approach, bank has launched Project Saral, I think I did mention last time also, on the 31st July 2025, aligning with this year of simplification, an ambitious vision of a complete revamp and redesign of operational processes in our retail banking territory. The aim is not only to reengineer the existing processes, but also to make the bank future-ready for the evolving financial landscape and changing market dynamics. So as we augment and enhance our digital capabilities further, Bank will shortly launch the next version of YONO platform YONO 2.0, which is not just an upgrade to the previous version but a leap forward in digital banking. With state-of-the-art journey designs and supporting tech architecture, our customers can bank with confidence and in a more seamless manner. Although the current valuations of SBI are a conundrum, considering our return on equity and growth metrics, we are confident that they will eventually align with our fundamental and operational metrics, the institutionalized nature of our business and our market leadership in the coming years. SBI's path is clear. We will defend and extend the liability franchise, grow faster than industry where RORWA is superior, institutionalize execution and deliver fair outcomes for all stakeholders. To conclude, I thank you all for your continuous support to the bank. We remain committed to rewarding your trust in us with sustainable returns over the long term. I wish everyone here the best of health and happiness. My team and I are now open to taking your questions. Thank you very much. Pawan Kedia: Thank you, Chairman, sir, for the presentation. We now invite questions from the audience. For the benefit of all, we request you to kindly mention your name and company before asking the questions. To accommodate all the questions, we request you to restrict your questions to maximum 2 at a time. Also, kindly restrict your questions to the financial results only. And no questions be asked about specific accounts, please. In case you have additional questions, the same can be asked at the end. We now proceed with the question-and-answer session, please. Unknown Analyst: Congratulations, sir, for yet another good quarter of good set of numbers. And I pick up your point, which you said our valuations. So here, I would like to give some comparison. Our business is now INR 10 trillion, INR 10 trillion bank for the first time and congratulations for this again, and against the Bank, which we compare of about INR 57 trillion. But our market cap is only INR 8.82 lakh crores against the market cap of that bank of INR 15.1 lakh crores. So even GNPA now almost 1.7 to 1.2. Net NPA is only 0.4. The only difference is now in, I think ROA. But for that, whether we should be so undervalued as compared to -- with a price to earning of almost INR 22 and here INR 11, INR 11, INR 11.5. So definitely, we deserve much higher valuations on our working and the way you said on the fundamental structures, our digital existence in the road map, definitely, we deserve much higher valuations and compliments to you and your entire team for this same. Having said that, sir, in this quarter, particularly, I think, -- but for that exceptional item of, I think, Yes Bank sale of shares of INR 4,593 crores, we are down in our operating profit and net profit substantially. Now one item, which I have noticed is that while the exceptional income in the stand-alone is INR 4,593 crores in the consolidated, it is only INR 3,000 crores. So it means one of the subsidiary also booked a loss of -- exceptional loss or some of the subsidiaries or maybe associate businesses. So I would like to know about that. What is that? And sir, the profitability, of course, you already said reply. Then there was a report and recommendations, which I read in the newspaper, even your own statement also that you all appeal to the RBI for making funding available for the corporates, at least listed corporates for M&A activities and the capital. So on that, any progress -- further progress? And are we moving in that direction? And is there any immediate positive results going to be there because of that? Then, sir, this quarter, we have a little bit fallen short in the recovery and upgradation numbers also, which are almost 55% or 60% lower is -- I mean, 40%, 45% lower than the last quarter. So some color on the recoveries. And one last is that the treasury has been the biggest, which, of course, in some of the other banks also. So if you look at the segment-wise results, our treasury profit has gone down by almost 50% from INR 8,082 crores to INR 4,011 crores. So going forward, for the next 2 quarters or for the FY '26, how do we look at it with, of course, second half is expected to be a little better and maybe 20 bps more rate cut might come in. So these are my few questions and some observations. You are very comfortable on SMA, NIM is good. So there is nothing much on that. And last, as generally I ask is that in the first 6 months, our credit growth is only 3.88%. Though annualized basis, you can say it is 12%. But to get the 12%, we'll have to disburse the loan of INR 307,000 crores in the remaining 5.5 months or maybe 6 months, if you take it. So how do we plan to achieve those target numbers, targeted numbers? What is the sanction pipeline or some activity which might have been done in last 1 month. So these are the -- in first round of my questioning and observations. Challa Setty: First round is it? Okay. Thank you, Ajmera-sab, for your compliments. On the consolidation number, I think they will clarify that number. The net profit on the transaction is not INR 4,593 crores. It is lower than that, post-tax. But they will clarify in terms of what are these consolidation numbers. As far as the M&A activity is concerned, I -- more than the opportunity in the M&A transactions, it's a confidence, which the regulators have reposed are reposed in us as Indian banking system. Indian banks were not allowed to fund the local M&A transactions for so long. And the current guidelines are a matter of trust in the banking system. And as far as what SBI -- obviously, SBI has been doing outbound M&A activity financing for quite some time. This is not new to us. And we will definitely take up the suitable transactions. But current guidelines are basically draft guidelines. We have to get the final guidelines to take up any transaction. But in the meantime, we are setting up our teams to ensure that they are ready when the guidelines are released. As far as recovery numbers are concerned, I think recovery -- in written-off accounts, I think we have done fairly well in this quarter. You want to add anything... Unknown Executive: So upgradation and recovery figure is combined. So if you see the slippage itself in the previous quarter is much higher. So if you compare it, this number is better. And AUCA recovery, Chairman guidance was INR 2,000 crores per quarter. We have done INR 2,400 crores and the guidance continues. Challa Setty: On the treasury gains, Rama, you can... Rama Rao Amara: Yes. I think your observation is correct. If we exclude the exceptional items, I think Q2, the trading profit is almost 50% of Q1. But we need to be reminded that Q1 has the OMO operations from RBI and switch operations were also there, which is available to the entire industry, and we have made use of, which was not available in Q2. So that was the reason why I think that the same performance we could not repeat. But there are several. I think strategically, we are doing several things. We are taking larger positions in trading portfolio. And we do have certain investments, which are like depending on the opportunity, depending on the price that is available, we will continue to offload. So that way, we are reasonably confident that a large portion of this -- whatever we have performed in Q2, we will be able to repeat in Q3 as well. No, we don't have any losses. Rather, our AFS reserve has increased actually quarter-on-quarter. There's no MTM loss. There is no MTM loss treasury side. Challa Setty: But one thing I would like all of you to look beyond the net profit number. Obviously, the Yes Bank transaction aided us to post a good number in a difficult treasury quarter. I think what we have focused on that how do we balance your resource cost. If you have seen the cost of borrowings as well as cost of deposits have come down. And we not only have focused on reducing the reliance on the wholesale deposits where the market was going berserk in terms of pricing those deposits, we stayed away from there. And number two, that we focused on the daily average balance improvement in the current account and savings bank account. And that has contributed to the reduction in the cost of deposits and cost of resources. So your NIM uptick is basically on account of that despite that 100 basis point reduction in the interest rates on the asset side. Just to answer your credit growth, the pipeline, I think Mr. Tewari will answer. The credit growth is secular. If you see from the Q1 itself, we have had almost 1 to 2 percentage point increase across the business segment, whether you take retail personal, agriculture, SME, corporate for the first quarter after March '25, we have reversed the trend and have posted a good 7.1% credit growth. And with the pipeline, what we have the visibility of at least reaching 10% corporate credit growth in the next 2 quarters. Would you like to supplement something? Ashwini Tewari: Yes. So the pipeline is INR 7 lakh crores, INR 7 trillion, which is a consistent number across quarters. Half of it is already sanctioned and awaiting disbursement and half is in the discussions. And the other point which has to be made is in the quarter 1 and also in quarter 2, we had a lot of payments which were a result of either a large IPO being raised or an equity raise, which was used to repay loans or sometimes converted into bonds as well. A couple of airports were like that. And then there were also the large payments done by some of the government entities, which got cash up front. So these were the reasons. But as, sir, has said, that we would expect a much better performance in quarter 3. The negative growth has been reversed. So we look forward to a better performance. Unknown Analyst: Congratulations. Sir, I just had a few questions. Firstly, on margins. So what has been the interest on tax refunds this time for the quarter? That's the first question. And the second question is that usually, there's a seasonality in your miscellaneous operating expenses in the second quarter. This time, it looks higher maybe because of a low base. So if you can give the breakdown of those miscellaneous operating expenses for this quarter and the previous quarter, so Q2 '26, Q1 '26 and Q2 '25, so that will really set everything clear. And just the last one in terms of CASA, if you could give the average CASA growth. You said your average daily balances have been good. So any growth numbers you could share? Challa Setty: So in terms of margins, interest on tax refund is miniscule, some INR 200 crores, INR 300 crores or something, that's not a big -- INR 340 crores. So that is not contributing any significantly to the margins. And on the seasonality, miscellaneous operational expenses, you can... Saloni Narayan: The major hit here is actually GST on expenses, which was INR 662 crores in Q2 of FY '25, which is INR 1,180 crores this year -- this quarter. Last quarter also, it was INR 588 crores. So there's a large difference there. Apart from that, actually, software expenses for software. Challa Setty: No, not many items... Saloni Narayan: These are very small amount. Challa Setty: Very small. Saloni Narayan: Of course, they aggregate to a large number, but actually, individually, they don't add up so much. The main thing is this. And the next is the mobile banking. Unknown Analyst: Okay. But GST, why such a big rise? Saloni Narayan: GST on expense that we have -- we recover and pay that is taken on both sides. Challa Setty: Yes, you get input tax credit also. Unknown Analyst: Got it. Got it. Challa Setty: CASA daily average balance we'll give separately. Unknown Analyst: Sir, congrats on very good numbers. Sir, firstly, we did a very good job in recovery from written-off this quarter. It was almost doubled quarter-on-quarter. Sir, how much of that would be parked into interest income line this quarter versus last quarter? So there is some apportionment which happens, right? Challa Setty: Not much. Unknown Analyst: Not much. Okay. Challa Setty: Most of that has gone into the P&L directly. Unknown Analyst: Understood, sir. Yes. And sir, on ECL, as sir, your initial assessment would help. And given SMA 1 and 2 would be charged at 5% odd as per the proposed guidelines, so would we see an inch up in credit cost on a sustainable basis after the implementation of these guidelines? Challa Setty: So I think on the ECL front, we need to be a little patient. I did mention earlier that the impact on our balance sheet would be limited for 2 reasons. One is the long road map, which is given, while we have to assess the overall expected credit loss requirement on the 1st of April '27, we will have time up to 31st March 31 to take that. And we want to utilize that road map, which is going to be given to us. So which means that the impact is going to be not significant. And we will wait for the final guidelines to come to you what would be the impact and how we would like to handle it. As I mentioned, whatever is the impact, we are going to take that 4-year road map, which is given to us and to ensure that the balance sheet is not impacted in one go. And the second thing is, yes, the major impact would come from the SMA 1 and 2, which are not significantly provided now. We do have some buffers as shown here on the excess provisioning on the standard assets. What we believe that the impact can be reduced by strengthening our collection mechanism. Today, the rollbacks in SMA-1 and 2 are significant for us. They're temporarily SMA-1 and SMA-2. So while we are presenting to the regulator that in terms of the rollback -- frequent rollbacks of this category does not require such a high floor rates on the ECL but there are so many other things which we need to present to them. So I don't want to comment at this juncture. But structurally, what we are focusing is strengthen our collection mechanism. Today, in our retail side, 70% of the collections happen automatically. It is just sweeping from a savings account to the loan account. Over the years, we have focused on this rest of the 30% where the delays happen. The delay is not necessarily that the customer is delaying. It is also because salaries get delayed. We are trying to see how do we address this category. Structurally, we will be strengthening our collection mechanism intensely so that we will not have SMA 1 and 2 situation. They are not bad assets, except that they just roll forward and roll backward frequently. We need to address that issue. So ECL, I think, is too premature to talk about the impact at this juncture. Unknown Analyst: And sir, lastly, sir, you mentioned. Challa Setty: I gave a little longer answer so that, again, this question on ECL doesn't come. Unknown Analyst: Just one last question. Sir, your borrowings as that's up 12% quarter-on-quarter. And yes, as in there has been a very sharp improvement in interest on borrowings, interest expense borrowings, it is down from INR 6,000 crores to INR 12,000 crores over the last year. Sir, any insights there would be helpful. And was this INR 60,000 crores of incremental borrowings back-ended? Any color there? Challa Setty: The second part, I did not understand but the interest on borrowings is a market function. As the liquidity improved and the rates have moderated, I think the costs have come down. What was your second question? Unknown Analyst: The borrowings, we saw like 12% quarter-on-quarter inch up. So I just wanted to understand if it was back-ended or was through the quarter. Challa Setty: And borrowings -- overall borrowings. Unknown Analyst: Yes, overall borrowing. Challa Setty: Anything, Ravi, you want to say? Unknown Executive: Throughout the quarter, the liquidity was in surplus. So borrowings were very few. Only in the last week of September, we had to do some borrowing. That's why the price is low. Saloni Narayan: And interest on borrowing has also gone down by 26%, yes, while we have borrowed less, the cost has also gone down. Jai Prakash Mundhra: This is Jai Mundhra from ICICI Securities. Sir, a question on your NIM trajectory, right? So this quarter was supposed to be tough for NIM because you had the residual impact of 50 basis point rate cut but you have done phenomenally well. The margins are up. Now going ahead, sir, you would have some tailwind from continued repricing on borrowing, maybe CRR benefit, of course. And then on the opposite side, you may have some MCLR deceleration. So on balance, sir, would you believe that MCLR deceleration would be more than offset by TD repricing and maybe CRR benefit and NIM should inch up from here at least the same way what we have seen in 2Q or they can be slightly even better? What would be your sense, assuming there is no further rate cut? Challa Setty: Yes. That's the last one, which you mentioned. The caveat is that if there are no rate cut in December, we believe that -- I did mention about the U-shaped curve of the recovery of NIM and slightly front-loaded on the Q2 because of our liability management, better liability management, both on cost of deposits coming down and cost of borrowings come down. Yes, there are some definite tailwinds. How much it plays out, we'll have to see. Obviously, the CRR full cut benefit will be available by the end of November. So that will give some pickup on the net interest margin side. We will continue to focus on the CASA. CASA is a very critical component in terms of bringing down the costs. Fixed deposit repricing is -- generally takes about 12 to 14 months. That means we are -- we have completed 6 to 8 months, another 1 or 2 quarters, the repricing will continue to be there on the stock. The flow is not getting too much repriced because I don't think any of us would be relooking at adjusting the fixed deposit rate of interest unless there's a rate action by the RBI. So our guidance still stands good that we will be above 3% in Q3 and Q4. Jai Prakash Mundhra: Sure. And sir, on your core fee, right? So this has been up 25%, and there is a decent 30%, 31% growth in remittance and processing fee. Is this volume only or you have done some fee structure change also because for the last 3, 4 years. Challa Setty: It is purely volume. I think it is mainly coming from the debit card spends and interchange fee, which we got on the debit cards, very significant amount uptick. I don't know whether it is sustainable or not. One is the cards issuance itself has gone up but that is a function of how many savings accounts that we've opened. But I think the spends have gone up and the interchange fee on the debit cards has gone up. It's not about fee structure being changed. It's just volumes have contributed. Jai Prakash Mundhra: Last question, sir, on Yes Bank transaction, right? So other banks, which have sold the stake, they had very small stake but they have routed it through reserves, right? We have shown in P&L. So any insights that you can offer, plus the residual stake, which is there, right? So as per my -- I mean, the plain reading of RBI circular stated that MTM, you can actually route either through reserves or through P&L, right? So you have done the P&L for the realized amount. This is my understanding. But the unrealized understanding, could you have done or that is still pending? Challa Setty: Unrealized, we will not do because we have a significant control by having a Board seat there, which means that we don't have to -- we are not using the MTM on the residual portion. So on the other transaction, would you like to explain in terms of S Bank transaction? Even CFO can explain. Unknown Executive: We were holding this as an investment in associates, sir. And stake sale, which was sold is mark-to-market as per our we have done it. Challa Setty: We follow the same regulatory process. The one which is actually realized is routed through the P&L. And unrealized, we continue to not mark-to-market because of our control, which is still there by way of it. Jai Prakash Mundhra: And sir, on the same logic, I mean, does this new guidelines actually creates less volatility in P&L because if there is an MTM loss on bond, it will not be part of P&L, right? But if you realize, then, of course, it will come in P&L. So in a way, these new guidelines makes P&L less volatile, especially at the time of hardening of yields. Is that a right understanding? Challa Setty: I don't -- in terms of the corporate bonds? Jai Prakash Mundhra: Yes, sir, G6 bonds. Challa Setty: G6, yes. That was the purpose of that. Anand Dama: Sir, this is Anand Dama from Emkay Global. Sir, my question was related to your Express credit. So last quarter, you said that incrementally, we will see growth coming back in that. So are we on to it? Now we will see further acceleration in the second half of the year? Are you getting more comfortable in terms of the asset quality over there? If you can comment on that. Plus the mortgages. So obviously, we are growing at a relatively faster pace versus the peers. Can we see further acceleration on that front? And that basically should fuel the growth target basically, which we have increased now from 11% to 13% to 12% to 14%. Challa Setty: So the 12% to 14% guidance is because of -- across the segments, not necessarily home loans. Home loans, 15% is a good growth. I -- while we may have potential -- see, in case of home loans, our catchment is fairly large. We have set up almost more than 420, 425 home loan centers across the country, processing only the specialized sales only for home loan processing. And our acquiring the customers is also robust. So that is contributing to the home loan growth. But I think 15% to 16% growth, I would place that as the portfolio grows, 14% to 15% stability will be achieved there. And Express credit is one segment we would like to further grow. Currently, we expected this express credit to reach double digit. We were wishing for that. But the gold loans, I think some movement is there from Express credit kind of customers. Unsecured personal loan is moving to secured gold loan because the amount of gold loan is higher now because of the value and the lower rate of interest, I think, contributing to that. As the gold prices moderate, we hope that Express credit will grow. But our sanctions and disbursements have been very significant in the Express credit. It's a high churning product. You need to constantly acquire the customers. Anand Dama: Sure. Sir, the customer segment is similar, particularly when you look at your express credit and gold loan because otherwise, why would the shift happen? Challa Setty: Some overlap is there. Some overlap is there. Some of those non-CSP customers, that is corporate salary package customers only will take express credit. Non-CSP customers could be their gold loan customers but a fair amount of customer base of gold loans may not be the common customer base. Anand Dama: Sir, secondly, on your overseas credit. So that book also is now growing pretty fast. You said that you are more focused on the RORWA-based lending. How does the overseas corporate book lending places, particularly in terms of the RORWA versus the domestic credit? Is not dilutive in terms of the RORWA? Challa Setty: Foreign book growth rate in dollar terms is just about 8.7%. What you see 15% growth rate because of the rupee depreciation when we convert into rupees. So our IBG -- our international book growth is opportunistic. If we see the good value, we will do that. Otherwise, we'll just ramp up. In the past also, we have demonstrated in quarters where we feel that pricing is not attractive, we just ramp down that. So we will be comfortable. I think the IBG book constitutes about 15% of our credit portfolio. I think that is a level which we would like to maintain. Sushil Choksey: Sushil Choksey from Indus Equity. Congratulations on all your milestones. Sir, first question, recent event of the newspaper, you highlighted that you have INR 5,500 crores of human resource spend for training. And second thing, you highlighted you would not spell out or SBI doesn't talk on digital spend what they do on the CapEx side on an annualized basis. Can you elaborate on that INR 5,500 crores, which is... Challa Setty: INR 50 crores, INR 550 crores. Sushil Choksey: INR 550 crores. How does it enable our bank? The performance speaks for itself. So the steps what you've taken for today and with cybersecurity and many other measures which are required, how are we going to be future enabled with all these with all these measures? Challa Setty: So this spend on training is significant for us because most of the people who join SBI are not bankers to start with. We take mainly from the people who are writing exam and joining the bank, whether it is a clerical position or officer position. But their career paths are defined, and we prepare them for various assignments as you are familiar with. And this training system today has 2 components. We have one of the largest physical training systems in the country. Almost 55 training colleges and centers are available. The second important element, which we have done. While the physical trainings are important to bring people together, exchange of ideas happen, we have launched what is called Spark. This is a digital platform, not only provides online training for -- across the section, they can choose their training package. We have international agencies providing the inputs along with our own inputs. But more importantly, we are creating a skill inventory. And based on the skill inventory, the job profile is defined and where people want to go. And every training modules are available in this Spark, the knowledge base, which we have created. And we are using AI extensively to offer what they're looking for, and they can build their own training module. So a combination of physical training, on-the-job training and online training aided by the AI is going to be the way forward. And as you mentioned, I think we are also having a specialized training, job families so that the specialized areas of treasury, technology, are constantly improved. We have, for the first time, had undertaken the largest technical recruitment of 1,500 people. And these are the people who have not come from the market. They are from colleges and people who have first time are entering the technical jobs. And we have completely created a training module for them internally. And these are some of the investments, which we are making, so that we have the industry best attrition rate. I think we have 0.5% -- less than 0.5% attrition rate because of our investment in human resources. Sushil Choksey: Sir, you churn out a lot of CEOs and top management people from many other entities, you answered for new recruits, but the top layer of SBI management, you've specified in that event about IMs, Harvard, MIT, various other things. So these initiatives, what you spend is immaterial, but what makes the bank capable for future-ready like AI. You may not spell out the digital CapEx number or annual digital number. How are we transforming from current, like you said, 2 is going to come up. Now you have set up a global capability center or you can say back office in Delhi, agriculture and other products. A lot of other things initiative, whether your retail credit processing and this back -- so you have a 24/7 working bank, it's not necessarily you have to only do within the bank. And the cost will be far lesser and productivity may be large there. So the initiatives, which you are enabling today because your profit numbers can support any kind of future projections which you want to make? Challa Setty: Absolutely. I think today, we made a big beginning. I don't know whether I've mentioned to you, we had 17 trade finance processing centers in the country, 17 of them. We have moved to 2 global trade finance centers, one in Kolkata and Hyderabad, which is completely digital. And across the country, the global trade finance is handled by these centers. This is a beginning of our centralization aspect. And -- the Project Saral, which I mentioned in my speech, the simplification project has 4 elements. One is you identify a process and simplify it. After simplification, if it is possible, automate it and if possible, centralize it. And fourth element is that if it can be outsourced, you outsource it. This is a new paradigm, right? When you are looking for doubling your balance sheet every 6 years, the scale what we have, this scale requires out-of-the-box thinking. And this is what we are going to do through the Project Saral. And if Project Saral believes that a centralization by way of global capability center is the need, we will definitely look at it. Sushil Choksey: SBI as a parent has achieved many milestones. It will continue to figure with much higher milestones in years to come. We have very formidable subsidiaries. I'm not critical of the performance. But when will you find those milestones visible where SBI Mutual Fund is the largest, I understand. SBI Cards is concerned, a lot of concerns and ups and downs keeps coming. SBI Trusteeship, SBI Capital Markets, Insurance, it's underpenetrated market. The amount of CASA customers you have, I'm sure your fees can be 5x than where it is today. So improve all these areas, what enabling steps or how are we going to improve upon that the consolidated number of some of the members are saying we are not performing to the private bank Possibly, we are not listed on ADR, maybe one answer. Maybe you're holding now you've given a QIP done. But the underlying assets have much more strength than what we are showing today. How does it take to the next level? Challa Setty: So in case of subsidiaries, as you see, SBI Life Insurance today is the largest private insurance company. And in case of SBI Card as a stand-alone card company, the performance is always under the focus. We are working on that in terms of addressing the asset quality issues, in terms of the spends, in terms of the new card issuance. I think many things are being done in the SBI Card. AMC, as you mentioned, is the largest AMC in the country. And the General Insurance is moving up the ladder and has a great potential in terms of the non-property -- non-life insurance company. Merchant Banking unit of SBI caps is a different ballgame altogether. I don't think we should be looking at the valuation there. But among these 4 major subsidiaries, we definitely would be looking at, as I mentioned several times, SBI AMC and SBI General are right candidates for listing in our stable. It also provides some value unlocking and more importantly, value recognition for the industry. We would soon be working on that. It is also important that SBI conglomerate is leveraging one SBI value, one SBI in the sense that if any customer walking into SBI branch, he has provided the gamut of services, which manufactured by the conglomerate itself. And that has been successful, yes, if you see our cross-sell income. But more important than income, we are trying to provide one-stop solution for our customers. So we'll continue to do that. Yes, we can do better, we can do more, and we will definitely work on them. Sushil Choksey: Does it mean that CASA customers, we are able to sell 5 products, 3 products, 4 products? Challa Setty: So our PPC at this juncture is about 3.5. Sushil Choksey: Can we have 5%? Challa Setty: We can definitely move to 5. Sushil Choksey: Okay. Sir, moving back to today, RBI is indicating the deposit rates have stabilized. So how do you see the environment at least for the current year? Second thing, rupee is a little volatile and G-sec is also volatile. So what's your outlook on the next 6 months on that? Challa Setty: Deposits, what did you ask? Sushil Choksey: Deposit has stabilized. The rates have stabilized, what RBI articles... Challa Setty: I think the deposit rates have stabilized. The further deposit repricing or recalibration will only happen if there is any monetary -- I mean, repo rate action. Otherwise, I think more or less the deposit rates have stabilized. As far as treasury related, you can respond. Unknown Executive: I think your question is around the G-Sec where it is going to be a 10-year I think we have seen a lot of volatility and also specific actions from RBI, where they convey to the market that they're not comfortable at certain yields, right? I mean -- so that may happen by way of canceling some auctions. So that was taken note of by the market on that particular day when the yields came down by around 4 to 5 basis points. I think it is now range bound. We feel like the range can be 6.2% to 6.65% kind of range for the 10-year G-sec. It's just an internal house view. Sushil Choksey: Last question again. Government may have to push up bigger ticket CapEx for infrastructure because you're seeing some noise being made about nuclear tie, hydrogen and many others and SBI caps have come out with a lot of reports on solar, hydrogen. So solar integration more on backward going up to polysilicon. So these larger ticket sizes are moving up, there is no INR 1,000, INR 2,000, there's INR 10,000 crores, INR 20,000 crores. Are we getting any sense for next year, if not for this year, of some kind of a discussion on a pipeline coming up? Challa Setty: From the government side? Sushil Choksey: Government and private. Challa Setty: No, no. private side, I think we have a very robust pipeline. Our aggregate corporate credit pipeline is around INR 7 lakh crores. So this is a mix of working capital underutilized and term loans under disbursement, the new projects which are being discussed. So both in the public sector and private sector but predominantly private sector. So that pipeline is very strong. And this pipeline will -- a part of it will get converted into reality this year, and there will be a spillover to the next year in some of the projects. Sushil Choksey: You indicate that there is positivity on private CapEx? Challa Setty: Yes. Not necessarily across the sectors, but most of the sectors, yes. Sushil Choksey: This new policy about capital market funding and M&A, the yields on capital markets are much higher than home loan and car loans and any other loans which you might be disbursing today, at least from the other banks and the M&A activity, can we build INR 40,000 crores, INR 50,000 crores overnight on this? Challa Setty: I mean, see... Sushil Choksey: 40,000 crores, INR 50,000 crores. Challa Setty: Today, I think the draft guidelines put some cap on that 10% of our capital. Sushil Choksey: Capital market is possible to say. Challa Setty: Capital market, yes, I think we have done one product, which is loan against mutual funds. We have never been active on loan against shares. While we have adequate room on the capital market exposure, is underutilized cap room available there. We will see. I think we need to assess our own risk appetite for this kind of activities. And also, I think most of these activities also have to be end-to-end digital. Unless we get that right, we will not be moving there. On the capital market broker side, I think we have significantly scaled up that. Sushil Choksey: The share advance can be a 10% yield on current conditions. And second thing, you or 2 can plug in... Challa Setty: Yes. So we are -- we will develop that product mostly on the self-consuming platform. Sushil Choksey: Good luck for many milestones for the year to come. Pawan Kedia: Due to paucity of time, we will take up 2 more questions, followed by a few questions coming in through online webcast, which will be addressed by the Chairman sir. Kunal Shah: This is Kunal Shah from Citigroup. So firstly -- so firstly, with respect to standard asset provisioning, almost INR 1,200-odd crores, and this is after some release from the restructured account of INR 1,100-odd crores against INR 165,000 crores of increase in the loan book. So is there any accelerated provisioning, which has been done towards the standard assets during the quarter? Challa Setty: There's no accelerated provision. Kunal Shah: Some additional standard asset provisioning, it seems to be a slightly higher quantum. Saloni Narayan: Yes, we have done some -- for 2 accounts actually, we have done some DCCO extension. Challa Setty: This is basically whenever there's an extension of commercial -- date of commercial production, there's a requirement of making provision. And some of the reversals, what you see also related to the DCCO. The moment DCCO is achieved, the provision gets written back. So there has been some write-back and there is an additional provision, which is made where the DCCO dates are extended. Kunal Shah: And that quantum was on couple of... Challa Setty: I think, INR 750 crores or something additional provision. Saloni Narayan: INR 200 crores was write-back, sir. So INR 500-odd crores is our... Kunal Shah: Net was INR 550-odd crores. And second question is on subsidiaries. So monetization, as you indicated, SBI Mutual Fund and SBI General. So what would actually trigger that decision? The capital market environment is conducive, market sentiments are good. So should we expect it sooner? Or maybe we have just done the fund raise very recently, so we would want to wait for some time and then explore that option? Challa Setty: We are not waiting because we have done the QIP. I think we need to just look at -- see, one is, as I mentioned earlier also that these 2 companies don't require capital at this juncture, neither the parent requires because we just raised INR 25,000 crores. But we are serious about listing them. And the Boards will -- respective Boards will take a call in terms of the timing, quantum. The reasons, whatever you mentioned, all of them are applicable. Pawan Kedia: One last question, please. Okay. I'll squeeze in 2. Piran Engineer: Sir, just on -- this is Piran Engineer from CLSA. On Project Saral, how do we like measure what the outcomes will be and what the timelines would be? That's point number one. Point number two, in our current account ratio, we've seen like a steady improvement for the last 4, 5 quarters. It's growing faster than the overall deposits. Just some flavor on what's going on there. Are we gaining market share in terms of accounts or higher wallet share of existing customers, more retail SME push, what's going on there? That's it. And congrats on the good quarter. Challa Setty: Yes. The second one, I think I did mention in terms of what we are doing on the CASA side. One is you're all very familiar that when we open savings bank account, we don't have minimum balance requirement. That is USP of SBI. And we were the first bank not to charge on the minimum balance not being maintained, which also means that the customers who are -- have the ability to fund the account also so many time don't fund. So we have started a large-scale campaign to educate our staff who are opening the accounts that you politely ask the customer that whether you can fund the account. Today, the simple nudge has ensured that 70% or 75% of such account get funded within 45 days, which means that your balances are going up, otherwise, which would have remained unfunded for a long time. That is on the savings bank side. And on the current account side, I think our focus on business current accounts and focus on ensuring that you give different variants of current account to business customers based on the balance maintained, which is the usual stuff everybody does but we have intensified our effort in terms of providing services, which are linked to the balances which are maintained. And this has helped us, and we have opened a lot of a few transaction banking hubs, which were primary owners of opening the current accounts and ensuring that a solution is given, not merely opening an account. That is also contributing to CASA daily average balances going up. And we did acquire market share in the current account and 85 bps... Saloni Narayan: 185 bps. Challa Setty: So it's a significant market share acquisition there. And mind you that the largest current account balances are with us and growing on that is important. On the savings bank account, another thing I would like to say, in the overall deposit construct, what we have told all our regional managers, we have more than 730 districts in the country. And in many districts, SBI, you will be surprised, have market share more than 60% in deposits. But we said that despite whatever dominant market share you have, the focus is at least get 1% additional market share, get additional acquired market share of 1%, irrespective of what is our market share in that district. That is also contributing to the savings bank growth rate. I think these are a few things. There are many strategies which we are adopting, but there are 2 things which I wanted to call out. And on the Project Saral, I think the primary aim of Project Saral is to reduce the drudgery at our branches. We -- whatever we talk about technology, digitalization, this is a bank which we would like to position as digital first, consumer first, our customer first, which means that we would like to leverage our large physical presence and large employee base to provide that human touch. But many a times, the branches are overcrowded, branches are -- people are not able to spend enough time with the customers. We would like to focus on reducing that treasury. So the outcomes could be taking some time. Ultimately, of course, it has to be measured in terms of whether it is adding to my productivity, reducing my costs. There are definite outcomes are defined there, but we will not be discussing them at this juncture, probably the first drop from this Project Saral, is 1st of April 2026. I think April quarter, we would talk more about what are those benefits we are getting out of this project. Pawan Kedia: We have a few questions coming in through the online webcast. Now these will be addressed by the Chairman, sir. Challa Setty: Yes. First question, Kiran Shah, written-off account and recoveries from accumulated written-off. Recovery from written-off accounts, as we have presented here, INR 2,480 crores. This question on the -- what is that technically written-off portfolio is likely to give recovery rate, I think, discussed earlier also. We placed it around 6% to 8%. We started saying about 10% but as the security value is coming down based on the security value, and the accumulated written-off accounts, our recovery rates are likely to be around 8%. [indiscernible] On slippages and portfolio quality in Express credit, the GNP is showing a sharp rise. Any signs of concern there? Not showing any sharp rise. I think quarter-to-quarter, it has come down, if I remember correctly. So as the denominator, the portfolio increases, in absolute terms, there is no major concern in terms of the express credit. Abhishek Kumar, gross NPA and AUCA book position. Gross NPA as on 30th September is INR 76,000 crores and AUCA is INR 163,000 crores. Ujjwal Kumar, SBI should implement Tab Banking for onboarding of customer, either individual or nonindividual, why is SBI not taking such initiatives? I'm glad to announce that Tab Banking, we have launched last quarter. And this Tab Banking is launched initially for the corporate salary package customer onboarding. And as we fine-tune that, and there's a good number of customer accounts are being opened under Tap Banking. So the first phase we launched on the 1st of July 2025. This journey, onboarding journey takes just about 5 to 7 minutes because if it is -- most of the customer data is collected from various sources. Similarly, in the current account also, we have already started Tab Banking. Ankit Ladhani from IndusInd Nippon Life, any guidance on NIM? I think we have talked enough on the NIM. And we still are holding that our guidance, long-term NIM above 3% through the cycles. Ashish, can you provide a share of MCLR, EBLR and other loans and advances? As on 30th September, EBLR is 31%, MCLR is 29%, fixed rate is 22% and T-bill is 15%. Tarun Lala, what amount has been earmarked for pension provision? The pension provision for half year '26 is INR 6,672 crores. For the quarter, it was INR 3,525 crores. Prashant, this sector industry has maximum proposals in pipeline. This is a little diversified. I think pipeline is both in terms of capital expenditure and as well as NBFC portfolio. So from a capital expenditure point of view, power, renewable energy, commercial real estate and a bit of iron and steel. Vishal Gupta from Ak Investment. Any plans to monetize your subsidiaries in near term? I think we have had enough discussion on this but just to answer your question, these are the 2 companies we will be seriously considering and the timeline and when we are likely to go will be decided by the respective Boards. How much is the LCR of the bank? LCR of the bank is 143.8%, up from 139% as on 30th June. What is the impact of Yes Bank's stake sir on your return on assets? If we do not consider the profit in Yes Bank, the ROE is still above 1%. It would be around 1.04%. Thank you very much. Pawan Kedia: Thank you, Chairman, sir. I trust all the questions have been addressed. Challa Setty: If anybody wants to ask questions, we still can give 5 more minutes. Otherwise, we can close. But just see that you're not repeating the same question. Unknown Analyst: I just had a data keeping question. The extraordinary gains because of Yes Bank stake sale, gross of tax was around INR 4,500 crores. What is this amount net of tax? Challa Setty: INR 3,386 crores. Prakhar Sharma: Sir, Prakhar Sharma here from Jefferies. Just wanted to check, your fee growth in this quarter has been phenomenal. You haven't seen 20% plus numbers for a long time on a big number. Can you just elaborate what has helped? And what do you think is this start of a new run rate, maybe not 20%, but double digit, et cetera. So if you could just help. Challa Setty: So most of the lines of other income seem to be good ones like either in the government business or cross-sell I believe they are stable, even loan processing charges. Much of the loan processing charges are not one-off or bulky one. They're all widespread across the retail segments. The only thing which I mentioned is on the debit card interchange fee. I don't know how it is going to play out. But otherwise, I think other income streams are seem to be stable. Pawan Kedia: Okay. I trust all the questions have been addressed. We'll be happy to respond to other questions in offline mode. Let me end the evening with thanking Chairman, sir, MD sir, DMD Madam, top management team, analysts, investors, ladies and gentlemen. We thank you all for taking time out of your schedule and joining us for this event. To round off this evening, we request you all present here to join us for high tea, which is arranged just outside this hall. Thank you. Thank you so much.
Operator: Good morning. Good evening, everyone. Welcome to Catena Media's Q3 Interim Report. I am Manuel Stan, and today, I'm joined by our Chief Financial Officer, Mike Gerrow. Today, we will be speaking to our Q3 interim report, related financials and our strategy and outlook going forward. We will start today's presentation with a high-level summary of the most important developments in the quarter. I am pleased to see a solid quarter with growth in both revenue and earnings. Q3 amounted to EUR 11.6 million. This represents an improvement of 9% versus Q3 2024 and 22% versus Q2 2025. Adjusted for the weaker U.S. dollar, our primary invoicing currency, revenue increased by 15% from Q3 2024. The adjusted EBITDA improved to EUR 2.9 million, more than double from the previous quarter as well as Q3 2024. The adjusted EBITDA margin improved to 25%, a significant improvement from 14% in the previous quarter and 13% in Q3 2024. During the quarter, we continued to focus on operational efficiency and diversification. From a revenue diversification perspective, Q3 represented another step in the right direction as our performance marketing verticals, CRM, sub-affiliation and paid media, all continue to increase their share of group revenue. The full financial effect of our cost optimization program is now visible in our financials with notably lower personnel and other operating expenses. The full cost base was down 6.9% year-on-year despite the higher direct costs coming primarily from sub-affiliation growth. [indiscernible] resulted in improved efficiency across all areas of the business. While the growth of these channels comes at a lower margin, we are pleased to see the group's overall reduced reliance on the search channels. From a geographical perspective, the share of revenue coming from North America increased to an all-time high of 96%, reflecting our focus on this geography. While we evaluate other geographies, North America remains our core focus for the immediate future. While the quarter was overall positive for us, we recognize the regulatory uncertainty surrounding social sweepstakes casinos and the continued drive of generative search, both of them present headwinds for future quarters. Moving on to operational developments. One of the highlights of the quarter was the launch of our best-in-class sub-affiliation platform, Marketplace. The platform is designed to connect affiliates and operators in a modern and streamlined ecosystem. It replaces manual processes with a scalable infrastructure that enhances service delivery. It equally empowers affiliates to grow their network and operators to expand their footprint in North America. We have seen good results from our diversification efforts as both CRM and sub-affiliated verticals recorded new highs during the quarter. From a tech perspective, we have made great progress as we continue the migration of our top-tier brands to our central platform. Our search rankings improved on the back of the June Google Core update and the trend held firm throughout the quarter. We will go into more details on the next slide. The teams worked diligently to finalize the early December Missouri launch. In October, [indiscernible] return-to-office program in our Malta headquarters, which sees the majority of our workforce back in the office for at least 3 days a week. A similar strategy will be implemented in the beginning of 2026 in our North American Miami hub. Moving on to the organic search score. In Q3 last year, we started showcasing our average ranking score for the most important keywords across Catena Media's owned and operated products. The report, keyword list and criteria are continuously redefined to improve both the structure and relevance. From Q3 2025, the report includes an extended set of 100 keywords and updated logic. This was applied retroactively from March 2025 to continue to show the movement over the last quarters. We are pleased to see that the uplift showed after Google's June algo update was continued throughout Q3, reflecting the strength of our products and validating the team's strategy and execution. At the end of the quarter, we have registered the best average score for the last 6 months. Another notable success during the quarter was passing Google's Core Web Vitals assessment for all our top-tier products. Lastly, it is important to note that generally conversational dynamic has a direct impact on click-through and traffic. This is a threat for our industry as well as the wider affiliate base, but equally represents an opportunity to shift focus towards building brands and loyal communities. I will now hand off to Mike to give an in-depth update on our financial performance. Michael Gerrow: Thank you, Manu, and good day. Looking into our Q3 financials. Q3 was a strong quarter. Revenue was EUR 11.6 million, representing a 9% increase year-on-year and a 22% quarter-on-quarter increase. Adjusted for foreign exchange rate fluctuations, year-on-year revenue was up 15%. This represents our first year-on-year revenue growth since Q1 of 2022. Adjusted EBITDA was EUR 2.9 million, an increase of 119% in the same period previous year and a 12 percentage point increase in margin. Adjusted EBITDA increased 112% versus Q2 2025. The quarter-on-quarter and year-on-year EBITDA growth was an encouraging step-up driven by both revenue growth and our cost optimization program implemented in recent quarters. NDCs decreased 12% year-on-year, driven by lower sports performance and shift towards casino revenue. North America contributed 96% of group revenue, up from the 89% in the previous year. Please note that given the decreased contribution of products outside North America, we've reduced our focus on the geographical reports going forward. The sustained underperformance in legacy Rest of World casino assets and our North American sports [indiscernible], a [ $16.5 million ] impairment loss recorded during the quarter. Moving on to our segment performance. In Q3, our Casino segment contributed 85% of revenue with sports contributing 15%. I am pleased to see that our Casino revenues grew by 20% versus Q3 2024 and by 26% versus Q2 2025. This growth came from both improvements in our soft tier products and positive developments in our diversification efforts to grow paid media, CRM and sub-affiliate channels as noted by the increase in direct costs. Casino NDCs increased by 1% versus Q3 2024 and by 23% versus Q2 2025. Adjusted EBITDA in our Casino segment decreased by 4% versus Q3 2024 and increased by 82% versus Q2 2025. The year-on-year decrease is mostly [indiscernible] portion of our shared costs to the now much larger casino business as well as FX fluctuations and our efforts to diversify our revenue streams to lower-margin sources, including CRM, paid media and sub-affiliation. Our sports revenue decreased 28% versus last year to EUR 1.8 million. There was a marginal 2% increase versus Q2 2025. The slight quarter-on-quarter growth is mostly attributed to seasonality. However, the overall performance in our owned and operated sports brands remained unsatisfactory and will require more time to turn around as we continue to invest in our core sports products to improve long-term competitiveness. New depositing customers decreased by 40% versus Q3 2024, but increased by 5% versus Q2 2025, again, due to the regular sports seasonality. Adjusted EBITDA in sports grew significantly versus last year's losses and our breakeven results in Q2 2025 to a healthy 25% margin. The growth in adjusted EBITDA is primarily related to the delivery of our cost optimization measures. Please note that the Sports segment loss in Q3 2024 was also partially attributed to the remaining media partnerships that were operating at a loss for part of the quarter. Continuing on to our cost development. We decreased our cost base by 6.9% versus Q3 2024 with a slight increase versus Q2 2025, driven by our increasing direct costs. Our direct costs increased by 145% versus Q3 2024 and by 50% versus Q2 2025. This reflects our positive momentum in diversifying our revenue to include a larger mix of performance marketing channels, including paid media, CRM and sub-affiliation. In line with our communicated cost optimization program, our personnel expenses decreased by 39% versus Q3 2024 and decreased by 8% versus Q2 2025. And other operating expenses decreased by 27% versus Q3 2024 and 21% versus Q2 2025, mainly due to optimized SEO activities and lower professional fees and IT support costs. Total items affecting comparability were EUR 200,000 in the quarter. This was primarily related to movement associated with divestment of minor assets and an adjustment of H1 2025 revenues due to invalid player activity. Moving on to our financial position. Total operating cash flow from continuing operations was EUR 2.1 million in the quarter, increasing from EUR 1.8 million in Q3 2024. Our resulting cash and cash equivalents balance at the end of September was EUR 8.4 million. We do not have any remaining debt instruments, but our hybrid capital security with a nominal value of EUR 44 million has interest costs of approximately EUR 1.4 million per quarter. As mentioned in the press release before the Q1 report, we do not intend to redeem the hybrid capital security in the short term, and we have deferred making interest payments on this instrument. So far, we have deferred the July and October 2025 interest payments, and the accumulated deferred interest now totals EUR 2.5 million. Following our annual asset value review, we have recognized an impairment of our North American sports assets of EUR 10.5 million and our Asia Pacific casino assets of EUR 6 million. This is a noncash affecting impairment, reflecting the poor performance in these areas over the past number of quarters. I will now hand back over to Manu to give us an update on the strategy and outlook. Manuel Stan: Thank you, Mike. We will now have a look into the strategy and outlook for the next quarters. Status quo in terms of new marketing openings. Overall, market penetration remains at approximately 50% for online sports betting and only 16% for online casino, indicating a remaining sizable future opportunity. As Missouri is approaching the December 1 go-live date, our teams are working diligently to prepare the launch. While this is the first launch of a legalized online sports betting market in the U.S. since North Carolina in Q1 of last year, due to the specific nature of Missouri, i.e., the 19th largest U.S. state by population surrounded by legal sports betting in 6 out of the 8 neighboring states, we expect the revenue uplift to be moderate. Alberta's iGaming bill was approved in May 2025, and the province is expected to go live at some time in 2026. There is no concrete launch date at this time. Alberta will follow a model similar to Ontario, including both online sports betting and online casino. Moving on to the strategic focus areas. As laid out in the previous reports, our 2025 strategy is focused on 3 key pillars: people, product and profit. From people perspective, the key initiatives in the recent periods included rightsizing the organization by eliminating more than 50 roles in Q2. Q3 was the first quarter where the full financial effect of this action and resulted in a year-on-year personnel cost reduction of 39%. The implementation of OKRs was partly delayed during -- due to the Q2 layoffs and was fully rolled out throughout the organization during Q3, ensuring alignment and accountability. The hubs build-out continued in Q3 with no roles being advertised or hired outside our 2 hub locations. And in early October, we rolled out the return-to-work initiative in our Malta HQ that will be also implemented in our Miami North American hub in early 2026. From a product perspective, the key initiatives included performance marketing verticals, paid media, CRM and sub-affiliates continue to grow their share of revenues for the company. This contributed to the revenue mix diversification and also equally important, helped offset the SEO reliance. The launch of Marketplace during the quarter showed strong interest from prospective sub-affiliates, and we are well positioned to grow this area further in the coming quarters. The ongoing tech consolidation work includes bringing all our product to a central platform. The top-tier products that have benefited from this work during the quarter have shown encouraging performance improvements. Our third and last strategic pillar is profit. We are pleased to see the outcome of our efforts on both revenues as well as costs, as our adjusted EBITDA margin almost doubled from previous quarter and corresponding quarter previous year, up to 25%. Direct costs are expected to trend slightly upwards as our performance marketing channels continue to grow and the cost will follow directly. The remaining cost base is unlikely to see any significant movement in the near term as we expect to see a relatively flat -- we expect it to stay relatively flat moving forward. Lastly, let us recap the key takeaways from our report. Revenue was up 9% year-on-year, 15% when adjusted for our primary currency USD, showing positive signs of operational stabilization. Adjusted EBITDA margin almost doubled to 25%, driven by both increased revenues as well as the cost optimization initiatives. Q3 had the full impact of our cost optimization measures, and we expect the personnel and other operating expenses to remain relatively flat in the near future. Our core search channel has seen good development during the quarter reaching the best average position for our top 100 keywords in the last 6 months. The focus on revenue diversification paid dividends during the quarter with all our performance marketing channels, paid media, sub-aff and CRM showing good progress. The launch of the next-generation sub-affiliate platform, Marketplace, represents a great opportunity to develop this vertical even further in the next quarters. While the performance in Q3 was a welcome step, positive step forward, we remain cautious for the future quarters due to the potential headwinds, both by social sweepstakes casino regulatory pressures and the impact of generative search trends. We have deferred the July and October 2025 hybrid interest payments and have accumulated deferred interest, and our accumulated deferred interest now totals EUR 2.5 million. Thank you very much for listening. I will now hand over back to Mike to move on to the Q&A section of our call and open up for questions. Michael Gerrow: Thank you, Manu. I'll open up for questions now. [Operator Instructions] All right. I have a question coming in from Pontus. I'll let him in now. Operator: The next question comes from [ Pontus Wachtmeister ] from PWA. Unknown Analyst: Great stuff, seeing some double-digit growth, very exciting. I just wanted to know on sub-affiliation, you mentioned it's best in class. What should we look at in terms of metrics to back that up and so to say, and [ performance ]? And what is the ambition would you say of that vertical, given it's kind of slightly lower gross margin? If you can -- I know it's early days, but given your kind of talking about it as a very good product in the market, can you tell us anything about that? Manuel Stan: Pontus, I'll take a first stab and Mike, if you want to fill in the gaps, please do. I think one interesting anecdote is that, obviously, as a marketplace between operators and sub-affiliates, we have to earn the trust of both sides. And it happens relatively frequent that we actually get recommended by operators in North America to sub-affiliates to work as a partner bridging that partnership between operators and sub-affiliates. That is a great testament that we have built a trust to operators by being a great partner when it comes to doing the proper due diligence, being transparent and being a helpful part in that whole journey. When it comes to us saying that it's a best-in-class, I think from any perspective, you're looking at the platform, again, you're looking at the functionalities, you're looking at speed, you're looking at user experience, you're looking at a transparency. We built that platform with the idea of making it a marketplace where eventually operators and sub-affiliates can come and self-serve directly as much as possible, making that process as automated and as smooth as possible. So I don't think we have any -- well, we don't -- I'm sure we don't have any third-party opinions or user research to say particular on this criteria as the best-in-class. But subjectively speaking, when we're comparing the platform with whatever else we see out there in the market and knowing what we try to achieve, and we managed to achieve when we launch this, we're confident to say that from our perspective, this is a best-in-class platform. Unknown Analyst: Okay. And the ambitions there, would you say it's a complement? Or is it potentially a kind of substantial business in a few years? Or how do you see it when you -- it's hard for us, I think to -- it's kind of a new effort for most players. It's interesting to hear your views on it, but maybe it's too early to kind of point to that. Manuel Stan: I think I can answer the first part for sure. I think it's complementing our business. It's not replacing our current -- our existing business model. We remain a media company, and we -- our first and most important focus is to grow our owned and operated product and brand. But this is a very nice way to complement that and to diversify our revenue streams to make sure that we're well protected against anything that may change the landscape. I think, obviously, you have the direct costs in the report, and you can make an estimation of how much this is growing quarter-on-quarter, and you can understand that it's becoming a relatively important revenue stream and a focus area for us going forward. But I do see it in the short, medium term, at least for sure that it is a complementary business to our core owned and operated brands. Unknown Analyst: Okay. Good. Just a quick one on the potential impact of prediction markets. Could you say anything about that? Like is it positive or negative or no impact to go -- because there's so much noise going on there and a lot of kind of revenues going there. So can you just comment on that? Manuel Stan: Yes, of course. Thank you, Pontus. So far, we have not disclosed any particular revenues coming from this subsegment per se. We have launched our activities on different products or different brands and trying to work with the top operators in the production market space. I think it will continue to grow, and we will continue to invest in this. So related to what are the strategies for 2026, prediction market is definitely one of the areas where we want to continue to invest, and we want to grow. We see that as a good opportunity. I think there are key unit economics to take into account. The CPA for prediction market is substantially lower than sportsbook or than the casino verticals in general, which means that it's more a play of volume rather than seeing the same revenue per customer that we see in other verticals. But our products are well positioned to tap into this market. And as I said, I think it will be one vertical where we'll continue to invest into the rest of 2025, but also 2026. Michael Gerrow: And I think I'll add a little point -- I'll add a little clarification there as well for you, Pontus, which is that we report any revenue that comes in through the prediction market at this stage through our sports segment. So as a portion of that, as you can tell, with an 85% split on casino versus sports, it's a portion of the smaller portion of our revenue base at the moment. Thank you. I think that's all the questions we have on the line. So I have a few questions that are -- came in from written format. So I'll start asking a couple of those towards you now, Manu, if that's all right. So the first question, probably generic is, just are you satisfied with the performance in Q3? Manuel Stan: Thanks, Mike. I think, absolutely, there is no way to go around it, both from revenue as well as cost perspective or adjusted EBITDA perspective, we have seen growth in the quarter. The revenue -- the most pleasing thing for me to see is that the revenue came from a variety of initiatives. It was not just based on diversification or based on strength in rankings, but it came from all over the place. It came from our continuous improvement in Google rankings throughout the quarter. It came from the diversification of our revenues. It came from sub-affiliates as well as CRM. So we've seen really nice development there. And then, as you pointed out in your part of the presentation, Mike, we have seen the first year-on-year growth since Q1 2022. So that's the first year-on-year after 14 quarters of relative struggles, I guess, for us as a company. So seeing the revenue increasing year-on-year as well as quarter-on-quarter is fantastic. And again, looking at the FX, removing the FX from calculation on a year-on-year growth, we're looking at the 15%. Secondly, we've done this while putting the business in a stronger operational place with a lower cost base than we had last year. So that's also great to see and that added to having a pretty healthy EBITDA -- adjusted EBITDA margin at 25%, as we said, pretty much doubled from previous quarter in 2024 as well as Q2 2025. So all in all, I think good development across the entire P&L. That being said, realistically speaking, we appreciate the pressures that are coming from sweepstakes. We appreciate how the impact of California then will play in the short term, but also throughout 2026, how that impact may have additional effect in other states and how that will impact our business. We appreciate the challenges coming from the zero click and generative search threats. So we do have a reasonable amount of headwinds in front of us, and we have to be able to navigate that and continue to strengthen our position. But talking about Q3, I think, overall, I am pleased to see the progress that our teams have made. Michael Gerrow: All right. Thanks, Manu. Kind of related to a question Pontus asked, but I guess I'll ask that. But what is -- what initiatives do you have ongoing to reduce the dependency on Google Search? Manuel Stan: Yes. I think, first and most importantly, we've talked about diversification for a few quarters now. And we talked about the investments we're making into CRM. We talked about the investments we've made into building our Marketplace platform. We've talked about us investing more in paid media. So that's definitely one of the key focus areas for us in to reducing the dependency on Google Search. Secondly, I think very important for us, we're investing into customer engagement initiatives. Those include stuff as loyalty programs, gamification, product features and so on. Those are all a part of our wider strategic shift towards building brands and products that emphasize on customer added value and loyalty. So instead of putting all our force into acquiring new customers, we do realize that we have an equally strong opportunity to retain the customers, to engage with the customers and build our own communities and build the loyalty towards our brands and be in a much better position to extract value from those customers in a longer period of time. Michael Gerrow: Thanks, Manu. And one more for you, which is that the direct costs grew noticeably during the quarter. Why is this? And is it a concern from a margin perspective? Manuel Stan: Absolutely. Thanks, Mike. I think this is pretty much related to Pontus question about sub-affiliation. And obviously, as this grows for us, as the share of the revenues coming from sub-affiliate platform grows for us as a company, so will the direct cost. So on the positive, this is obviously a cost that's proportional to the revenues. It's a performance-driven costs, so we're pleased to see the development. But we equally appreciate that it's a lower margin than the rest of the business. I think all in all, I am happy to see this keep on growing. And the more we grow, the more it benefits us on the bottom line also. And I think it's a scalable platform, and it's a scalable part of the business that should not have any ceiling, and we should be happy to see it growing even further. Michael Gerrow: All right. We actually have, I think, a clarification question coming in from Pontus again, so I'll activate him and let him ask a follow-up here. Manuel Stan: Sure. Operator: The next question comes from [ Pontus Wachtmeister ] from PWA. Unknown Analyst: Sorry, to -- but I had a more -- one more question. You mentioned this Rest of the World assets basically. Some are now written down historically, and you're also very much a U.S. business at the moment. Would you say -- I guess, you still have these assets? Could we see like a selling or total closing of the Asia and European pages? Or doesn't it work like that? Or is that something you just kind of run in the background? Can you just explain what that will be in the future? Manuel Stan: Thanks, Pontus. So I think we're talking about some European assets and some assets that are targeting Lat Am, some assets that are targeting Southeast Asia. Overall, we do not see these assets performing as there -- as we would like them to perform. So over the last few quarters, one of our key initiatives that we talked about was reducing our focus when it comes to products, when it comes to brands, when it comes to geographical assets. So a lot of these products did not get the much-needed love for them to continue to perform. But going forward, for us, as we're trying to make sure that our organization is well set up and we're doing the right things for North America, we may try to duplicate some of those things in other geographies or on other products. But that is a secondary thought once we're confident that doing the right things for North America. I don't see in the near future any sizable effect of those. I don't think that we will spend significant time resources, investments outside North America, at least in the near future. That being said, for the long run, we still have a number of assets that can become at some point -- at the right time, they can become valuable for us. We did divest over the last few quarters, a few smaller assets for different geographies. And that remains part of our ongoing strategy. But I don't think that we have anything big there that it should be a game changer either as a divestment cash coming in, either as operational generating significant revenue stream. Mike, if there's anything you want to add on top of that, please do. Michael Gerrow: No, I'd say that's about right with it representing 4% of our revenue in the most recent quarter is not an area of focus, but at the same time, we would only look at divestments if they make sense, if it's still financially viable products, it makes sense to operate them even at only 4% of our current revenue base. All right. Thank you again, Pontus. Just a couple of more questions, which came in or more kind of focused in my area. So I'll ask those and answer those, which is regarding the deferred hybrid capital security interest payments, are there any plans to resume payments soon? And should investors be concerned for the future? So the short answer on that is no. According to the terms of the hybrids, we're allowed to defer the payments indefinitely, and there's no kind of default risk or anything like that towards shareholders. So I just want to make that one very clear. Our role from a cash planning perspective is to try to sustain recent growth in the healthy cash generation before making any further decisions on our capital structure. That includes any resumption of the hybrid interest payments. Building up the cash by deferring the payments, it gives us flexibility. And flexibility is important when it comes to seeing whether we should invest more tech-facing investments, strategic initiatives, and also lets us adapt as the market does change quite rapidly that we work in. And then another question that I had was that the margins have improved significantly since Q2. And can these levels be maintained going forward? And on that one, I'll say that Manu already spoke a little bit to the fact that we're trying to keep our cost base relatively flat with the exception of the direct costs, which follow the revenue streams. But overall, we're cautiously optimistic that the margins can be maintained. The improved margins reflect both the revenue growth and also the cost discipline that we've put in place. But this is only one quarter of improved results. So we need to sustain this, knowing that there are headwinds that are coming forward in the next quarter as we talked about the increased regulatory pressure on social sweepstakes, casinos. We talked about the fact that generative search is definitely highly impact across affiliation, not specific to iGaming. So we know those are in front of us, so we need to make sure that we can withstand [ those ]. The other thing is that quarterly revenue and the cost variations are always possible, but the business is now operating from a much stronger base with a more efficient structure. So I don't see significant variance coming in unless there's an adverse revenue item that happens, with one potential exception that the current cost structure could change a little bit just based on the fact that we haven't had any performance-based incentive programs that have been very, very minimal in the recent years. So that's one area that could potentially bring that up. And that's all the questions that we have that have come in today. So I guess I'll hand it back over to you, Manu, and you can handle the closing remarks. Manuel Stan: Thanks, Mike. We'll wrap up today's call with some quick closing remarks. Revenue was up 9% year-on-year, 15% when adjusted for our primary currency USD, showing positive signs of operational stabilization. This represents our first year-on-year revenue growth since Q1 2022. Adjusted EBITDA margin almost doubled to 25%, driven by both increased revenues as well as the cost optimization initiatives. Q3 had the full impact of our cost optimization measures, and we expect the personnel and other operating expenses to remain relatively flat in the near future. Our core sales channel has seen good development during the quarter, recording a 6-month high performance. The focus on revenue diversification paid dividends during the quarter with all our performance marketing channels showing good progress. That being said, while the performance in Q3 was a welcome positive step forward, we remain cautious for the future quarters due to the potential headwinds posed by social sweepstakes casino regulatory pressures and the impact of generative search trends. We have deferred the July and October 2025 hybrid interest payments, and the accumulated deferred interest now totals EUR 2.5 million. Thank you all for joining today's call. Thank you for the questions. And looking forward to hosting you for the year-end Q4 report on 10th of February 2026. Thank you very much.
Operator: Ladies and gentlemen, thank you for standing by. My name is Desiree, and I will be your conference operator today. At this time, I would like to welcome everyone to the Lindblad Expeditions Third Quarter Earnings Call. [Operator Instructions] I would now like to turn the conference over to Rick Goldberg, CFO. You may begin. Rick Goldberg: Thank you, operator. Good morning, everyone, and thank you for joining us for Lindblad's Third Quarter 2025 Earnings Call. With me on today's call is Natalya Leahy, our Chief Executive Officer. Natalya will begin with some opening comments, and I'll follow with details on our Q3 financial results and updated expectations for the full year before we open the call for Q&A. As always, you can find our latest earnings release in the Investor Relations section of our website. But before we get to all of that, I'd like to remind everyone that the company's comments today may include forward-looking statements. Those expectations are subject to risks and uncertainties that may cause actual results and performance to be materially different from these expectations. The company cannot guarantee the accuracy of any forecast or estimates and we undertake no obligation to update any such forward-looking statements. If you would like more information on the risks involved in forward-looking statements, please see the company's SEC filings. In addition, our comments may reference non-GAAP financial measures. A reconciliation of the most directly comparable GAAP financial measures and other associated disclosures are contained in the company's earnings release. With that out of the way, I'll turn the call over to Natalya. Natalya Leahy: Thank you, Rick, and welcome, everyone, to our third quarter earnings call. I want to start a bit differently today. Our guests are in the center of everything we do, and I want to share a remarkable highlight from this quarter. We achieved our highest guests Net Promoter Scores ever, both for quarter 3 and year-to-date since we began measuring them. That milestone made me pause and reflect on where we came from on the history and legacy that make us who we are today and differentiate us and set us up for success going forward. In January 1966, Lars-Eric Lindblad led to very first nonscientific expedition to Antarctica, followed a year later by the first citizen voyage to the Galapagos. These were the expeditions that started it all, the beginning of expedition travel and in many ways, the birth of ecotourism, now one of the fastest-growing segments in global travel. That legacy still defines us in our industry, experience and expertise truly matter and those take decades to build. It's this foundation built over nearly 60 years of pioneering exploration that continues to drive the exceptional guest experiences and results we are seeing today. Talking about results. We are pleased to report another quarter of very strong performance with revenue and adjusted EBITDA both exceeding expectations. Consolidated revenues increased 16.6% with our Lindblad and Land Segments growing 13.4% and 21.1%, respectively. Within our Lindblad segment, occupancy reached 88%, 6 points higher than last year on a 5% increase in capacity in the quarter, resulting in a record level of available guest nights of any quarter of our company's history. Net yields increased 9% to $1,314, the higher third quarter yields in the company's history. We were particularly pleased to see our core Alaska trade performed exceptionally well, achieving almost 16% yield growth. This result demonstrates that travelers truly appreciate the unique intimate and highly differentiated experiences we provide, thanks to our unparalleled expedition expertise. We will continue to look for opportunities to increase capacity to meet demand in popular destinations like Alaska. From a profitability perspective, we produced the highest level of adjusted EBITDA in a company history with adjusted EBITDA increasing 25% to $57.3 million and margins expanding 160 basis points to 23.8%. These results are proof that our commercial strategy to drive occupancy and maximize revenue is working and gives us strong confidence that we are on our way to achieve historical occupancy levels in 2026 and beyond. Looking ahead, our net booking costs remained strong for 2026 in both segments and are taking significantly ahead of prior year. We've seen a very encouraging uptick in 2027 bookings as well as we just launched our 2027 deployment. Supporting our optimism marketing conditions in the luxury travel segment remain highly favorable. According to a recent McKinsey study, demand for luxury tourism is expected to grow faster than any other travel segment with a projected 10% CAGR through 2028. These industry tailwinds reinforce our confidence in our positioning for sustained growth. Focusing on our 3 strategic pillars continues to be essential in our path forward: number one, maximizing revenue generation through occupancy, pricing and deployment optimization; number two, optimizing financial performance through cost innovation and fixed asset optimization; and number three, exploring and capitalizing on accretive growth opportunities, including growing our portfolio. Let me begin with our first pillar, which focuses on maximizing revenue generation. Our Disney relationship continues to introduce the National Geographic Lindblad brand to new audiences and expanded distribution channels. In partnership with National Geographic, we successfully relaunched our youth travel program called Explorers in Training, targeting core family-friendly destination. This program combined with other marketing initiatives to drive multigenerational travel has generated encouraging early results with travelers 18 years and younger, increasing 24% this summer versus prior summer. Our efforts will drive occupancy and yield optimization in family-friendly destinations such as the Galapagos, Alaska and Iceland. Our Disney Vacation Club activation continues gaining momentum as DVC members can now redeem points for National Geographic Lindblad expedition cruises. Our expedition team had an opportunity to sail with and present our brand to guests of the 4,000 passenger Disney Dream, generating not only media and bookings for members, but also significant interest and leads. This represents the beginning of a significant opportunity to introduce expedition cruising to DVC's most loyal and engaged member base. We continue to see strong momentum from earmark Disney travel advisers with bookings increasing 42% year-to-date. We are seeing higher adoption from this distribution channel as we educate and market our brand to these highly productive advisers, representing a large opportunity to deepen our penetration. Regarding our sales initiatives. In August, we fully rolled out on board dedicated expedition sales specialists. For the quarter, our onboard sales program performed exceptionally well, with bookings as a percentage of total more than tripled year-over-year as our expedition experts effectively introduce guests to new destinations, converting them into repeat customers at the height of their excitement. This program not only drives higher repeat rates, but also expand booking windows, which is so important for pricing optimization. Similarly, our recently expanded outbound sales program is gaining significant traction with year-to-date sales increasing approximately 80% versus the prior year. We believe we're still in the early stages of optimizing this high potential distribution channel. In our Land segment, we delivered strong quarter 3 performance with our portfolio of premium adventure destinations continuing to exceeding guest expectations. We appointed a dedicated sales leader to capitalize on cross-selling opportunities between our Land segment and expedition cruise offerings, creating additional revenue synergies across our platform. Moving to our second pillar, which focuses on optimizing financial performance through cost innovation. We continue to build cost innovation capabilities throughout the organization. This ongoing initiative helps us well on our way to meeting our cost efficiency targets this year while kicking off the next round of cost innovation projects. Among our accomplishments this quarter, we renegotiated corporate leases and port agreements, generating hundreds of thousands in cost savings. We also recently hired a Senior Vice President of Supply Chain and Procurement, who brings years of world-class experience across multiple industries, including cruise operations. Additionally, we successfully refinanced our debt, extending maturities and lowering our interest rate by approximately 75 basis points, a very meaningful achievement that strengthens our balance sheet flexibility and enables us to continue investing strategically across both our Lindblad and Land Experience segments. Rick will share more details on this in his section. Our third pillar focuses on accretive growth opportunities. The sustained strength in demand for our product presents compelling opportunities to strategically expand our capacity, including through new builds and charter partnerships. To that end, we continue to strategically expand our charter offerings. Our inaugural European river cruising program exceeded expectations, prompting us to increase the number of voyages for 2027. We've added spring and summer departures, as well as new in-demand Christmas market and holiday sailing offerings. In fact, we just announced our 2027 River collections this morning, including European, Egypt, India and Vietnam itineraries. Charters provide a very efficient, capital-light approach to enter high demand markets for the right season. We are also actively evaluating accretive acquisitions, both with Lindblad and Land segments. As always, I want to briefly highlight our why because while these 3 strategic pillars drive our operational excellence and growth, our success is equally rooted in our unwavering commitment to our purpose of responsible exploration. During the quarter, we held our Arctic Visiting Scientist program in collaboration with National Geographic Society. Our ships hosted 10 projects, 6 of which were led by National Geographic explorers and funded by the Lindblad Expeditions-National Geographic Fund. Participating scientists surveyed glaciers to study the stability and structure, monitor changes in sea temperature and collected seawater to understand how small microbes survive in dynamic and extreme environments. Guests traveled alongside the scientists and learn about their work in real time, exemplifying how our collaborative impact programs with National Geographic Society differentiate us in the marketplace. Turning to guidance. Given the strength of our performance, we are raising full year guidance for net yields, revenue and EBITDA. Rick will take you through the specifics of our outlook in his remarks. These results reinforce our confidence that we are executing successfully on our strategic plan and are well positioned to capitalize on the significant opportunities ahead. In closing, I want to express my sincere appreciation to our crew, our field experts, the incredible founders of our land companies and the entire team who worked tirelessly to deliver extraordinary guest experiences at the highest standards. This unwavering commitment to excellence is reflected in our results and is built into our DNA. As we look ahead, we remain committed to building on this momentum, continuing to invest in our people and operations and delivering the transformative travel experiences that sets Lindblad apart in the marketplace. Thank you for your continued confidence. We look forward to updating you on our progress in quarters ahead. And now I'm turning the call over to Rick for his remarks. Rick Goldberg: Thank you so much, Natalya. This was an outstanding quarter with strong top line growth as we continue to drive occupancy back to historical levels and solid bottom line performance as we advance our cost innovation initiatives to improve margins. Total company revenues for Q3 2025 were $240 million, an increase of $34 million or 16.6% versus Q3 2024. Lindblad segment revenues were $138 million, an increase of $16 million or 13.4% compared to the prior year. Occupancy increased 6 percentage points from 82% to 88% despite a 5% increase in available guest nights, and net yield per available guest night increased 9% to $1,314, the highest third quarter yield in company history. Land Experience segment revenues were $103 million, an increase of $18 million or 21.1% compared to Q3 2024, driven by a 12% increase in guests and an 8% increase in revenue per guest. Turning now to the cost side of the business. Operating expenses before stock-based compensation, transaction-related expenses, depreciation and amortization, interest and taxes increased $22.7 million or 14% versus Q3 2024. Specifically, cost of tours increased $14.6 million or 13%, driven by operating additional voyages and trips. Fuel costs were 4.5% of Lindblad segment revenue, which was flat to Q3 2024. Sales and marketing costs increased $5.1 million or 20%, primarily due to higher royalties and commission expense and investments in demand generation efforts. We expect marketing expenses to remain elevated in Q4, reflecting investments in initiatives designed to drive growth into 2026 and 2027. General and administrative costs, excluding stock-based compensation and transaction-related expenses increased $1.7 million or 7% versus a year ago, driven by higher personnel costs, partially offset by $1.8 million of employee retention tax credits realized in Q3 2025. Adjusted EBITDA for the quarter was $57.3 million, the highest quarterly result in our history and an increase of $11.5 million or 25% versus the prior year. This was driven by a $6.5 million and a $4.9 million increase in the Lindblad and Land Experience segments, respectively, with both segments growing EBITDA by 25% year-over-year. This includes the impact of $1.8 million of employee retention tax credits realized in Q3 2025, which brings the year-to-date impact of this program to $5.3 million. We also continued to deliver margin improvement this quarter, driven by greater leveraging of our fixed cost infrastructure and our cost innovation initiatives with adjusted EBITDA margins expanding 160 basis points year-over-year to 23.8%. Net income available to stockholders for the third quarter was roughly breakeven or $0.00 per diluted share, reflecting $23.5 million in debt refinancing expenses. Turning to the balance sheet. We ended the quarter with total cash of $290.1 million, an increase of $74 million versus the end of 2024. The increase reflects $97.1 million in cash from operations due primarily to the strong results of the business and increased bookings for future travel. We used $54.1 million of cash for investing activities, which includes the acquisition and refurbishment of 2 Galapagos vessels. Year-to-date, we've generated $60.4 million in free cash flow. During the quarter, we completed a comprehensive refinancing of our debt, a significant milestone that strengthens our balance sheet and enhances our financial flexibility to support strategic growth initiatives. As part of the refinancing, we issued $675 million of new senior secured notes to replace our 2027 and 2028 notes. This transaction simplifies our capital structure, extend our maturities and lower our cost of debt. The new notes were priced at 7%, approximately 75 basis points lower than our prior blended rate, reflecting strong investor confidence in our business. In conjunction, we upsized and extended our revolving credit facility to $60 million with a new 5-year term, further improving our liquidity position. We've now delivered 10 consecutive quarters of deleveraging, driven by continued EBITDA growth and our net leverage stands at 3.1x. Reflecting this progress, S&P Global recently upgraded our corporate credit rating, citing Lindblad's strong operating performance and healthy forward book position. With a stronger balance sheet and ample liquidity, we're well positioned to aggressively pursue accretive growth opportunities, including fleet expansion through charters, acquisitions and/or new builds and adding [ to our ] portfolio of world-class land-based experiences. Turning to our full year outlook. I'm pleased to share updated guidance for 2025. Our demand generation efforts continue to drive strong booking momentum across 2025 and 2026 as well as for our recently launched 2027 itineraries. As a result, we now expect net yield per available guest night to increase 12.5% to 14% year-over-year, up from our prior range of 9% to 11%. In line with this performance, we are raising our full year revenue guidance to a range of $745 million to $760 million, up from prior guidance of $725 million to $750 million. We are also raising our full year EBITDA guidance to a range of $119 million to $123 million, up from our previous range of $108 million to $115 million. This increase reflects the continued strength of our business and our disciplined execution against our 3 strategic pillars. In closing, Natalya and I have now been on board for 10 months, and we couldn't be more encouraged by the progress our teams have made in such a short time. We remain confident in our ability to deliver sustained growth and long-term value for our shareholders. With that, we would now be happy to take your questions. Operator: Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from the line of Steve Wieczynski with Stifel. Steven Wieczynski: So Natalya or Rick, you gave some high-level color around '26 bookings, and I think you noted bookings for next year in 2027 are running. I don't remember what your adjectives were, but it sounds like well ahead of this point last year. So just wondering if you could give a little more color around those booking trends, maybe where demand is right now across maybe some of your different itineraries, maybe your more important itineraries in next year. And then maybe also some color -- a little bit more color around your commentary about the uptick in bookings from your Disney travel partners, which I think is -- which is obviously pretty important. Natalya Leahy: Steve. Well, thank you. Great question as usual. So we are not giving '26 guidance yet. It's coming next time, but I will give you a little bit more of a commentary. So as I mentioned, our booking cost [ side had on ] '26 in both segments, and it's important to note is quite significantly and actually seeing some recent uptakes which are encouraging. On Lindblad segment, as we mentioned several times, we are working with all the commercial initiatives. As you know, we just implemented them throughout this year. So they have a lot of run rate to deliver results. We are working towards delivering historical occupancy levels, which are around 90%, and we are, I would say, well on track for that, which will result definitely into yield growth combined with managing pricing. As of Disney relationships, we are just starting to see the fruits of all the initiatives that we're implementing there. So we are seeing some results that are coming this year, and I certainly expect more to come in forward years. Steven Wieczynski: Okay. Got you. Second question is also going to be kind of a '26 question, so you might not answer this one, but I'm going to ask it in a way that hopefully, you give some kind of answer. So based on where you guys are booked today, obviously, as we kind of think about yields and pricing next year, you're going to be coming off of a -- what Rick say, 12% to 14% kind of growth year from a yield perspective. So not sure if you can kind of help us think a little bit more about maybe how pricing, how yields potentially could look into next year? Just I guess, coming off 12% to 14% growth, what could that potentially look like? Natalya Leahy: Yes. Well, as you are mentioning, we are coming out of double-digit yield growth year-to-date, which is very largely driven by a step change increase in our occupancy in addition to pricing integrity. Obviously, [ anniversarying ] it will normalize yield growth as we'll continue to increase occupancy, but it's not going to be double-digit increases that we've seen this year. So hopefully, it gives you some confidence. In terms of pricing, we continue to maintain price integrity as we increase occupancy. Operator: Our next question comes from the line of Eric Wold with Texas Capital Securities. Eric Wold: I guess first question, kind of a follow-up on the last one. Natalya, kind of on the maintaining price integrity as you kind of go into next year, is that more -- as you think about that, should we think about that more as kind of the avoidance of discounting as you move into next year? Or do you think you actually have pricing power as you move into next year and the ability to actually take price up in both the Lindblad and the Land-based segments as you look into next year? I guess as you -- as your price, as you think about what you've been booking and how things are priced into next year, maybe talk about what the pricing has been looking like next year versus this year? Natalya Leahy: So again, we will be guiding for '26 during next earnings call. I think, Eric, we are clearly communicating that we are seeing an uptick in demand. We've been increasing our capacities through charter additions, through new ships we added this year. We have been communicating that we're actively looking to expand our capacity, whether it's through adding more charters or new builds or buying ships. And that's because we are seeing a demand, particularly for some of our very popular destinations such as Alaska. We had a giant waitlist in Alaska this year, and delivered exceptional pricing power. Our [ flight ] cruise in Antarctica have been doing extremely well and pretty much selling out the moment we deploy it, and we continue to take price increases there. Galapagos is doing very well, and we now have 4 ships operating there where we basically increased capacity by 40% this quarter versus last quarter and continue to see this momentum. So we sell to over 100 destinations. Of course, there is a variable demand for each one of them. But overall, I think we are seeing exceptional demand for our product. Rick Goldberg: Yes. And if I can just add a couple of quick things. I mean, we're also continuing to build out our revenue management function, which is going to be critical to building out our price growth over time on the expedition cruise side. And then our Land Experiences segment experienced an 8% increase in revenue per guest here in Q3. And so we feel really good about our continued ability to take price in that segment as well. Eric Wold: And then my second question. Rick, on the guidance, I think [indiscernible] the updated EBITDA guidance still does imply a decline in Q4 EBITDA compared to last year's Q4, even with revenue up materially. I know on the last call, you noted expectation for some pressure in second half EBITDA. We obviously didn't see that in Q3. So maybe help us bridge kind of what you expect in Q4, what may be causing the expectation for Q4 EBITDA pressure. Rick Goldberg: Yes. So I think there's 2 important dynamics happening in Q4. The first is a shift in the timing of our marketing spend in order to set the stage for wave season. And the second is an increase in the number of dry and wet docks in Q4. We had 6 happening in Q4 2025 versus only 2 in Q4 of 2024. Eric Wold: Got it. And just quick, should we assume that's a recurring schedule going forward? Or is that more of a '25 specific? Rick Goldberg: What I would say is the timing of dry and wet docks is variable every year based on our decisions around deployment as well as shipyard availability. Operator: Next question comes from the line of Eric Des Lauriers with Craig-Hallum. Eric Des Lauriers: Congrats on strong results. So the increase in occupancy in guest nights, obviously, very impressive here. It's clear that all the changes you've made since joining and the expanded NatGeo Disney partnership are providing some nice tailwinds here. On the flip side, are you guys seeing any headwinds at this point from the macro environment? Obviously, your customers are typically higher net worth so less sensitive to the macro. But just wondering if you're seeing sort of any offsetting headwinds to call out amid all the sort of positive news otherwise. Natalya Leahy: Eric, I think that -- I mean, we are always very mindful of geopolitical environment and always watching that. Our guests are a bit more resilient to economic vulnerabilities. And we've seen that this year as the economy kind of changed that the demand remained pretty stable. So we hope that it will continue moving forward. We always watch for macroeconomic environment. The only headwinds I will remind everyone is, as Rick mentioned several times, we do expect a step up in royalties in '26. Eric Des Lauriers: Yes. No, that's clear. And I think, I mean, if '26 is anything like what we've seen very early on from this expanded partnership, those royalties will be well worth it. Next question for me. So you mentioned the benefit from increasing the mix of charters for a few quarters now. You also stated, Rick, that you expect to aggressively pursue accretive growth opportunities, including Land Experiences. So just kind of a bit of a higher-level question here, but how do you view your current mix of revenues? And is there anything that you would like to sort of increase or decrease from a mix perspective as you look out over the next 5 years or so, whether that's different channels or charters or what have you? Rick Goldberg: So I'll start by saying we're very comfortable with the mix that we have today. We currently have 10 charter ships that will operate in 2026. These are a great way for us to deliver our product in unique destinations at attractive margins without capital intensity. There are natural limitations of expanding capacity through this channel as there are just a limited number of ships available to satisfy our guest experience criteria. However, along with new builds and acquisitions, this is an important tool in our toolbox as we think about growing capacity and we're especially excited to launch a handful of innovative charter voyages this morning for our 2027 season, including on European Rivers, Egypt, India and Vietnam. Operator: Next question comes from the line of David Hargreaves with Barclays. David Hargreaves: Congrats on getting your bond refinancing done. And thinking of growth opportunities, I'm just wondering how you're thinking of financing alternatives and where you feel comfortable with leverage? Rick Goldberg: So I'd say we're very pleased with the results of our recent financing. And as we sit here with a strengthened balance sheet, we feel like that positions us well to aggressively pursue expansion opportunities, whether that's on the expedition cruise side, through charters, acquisitions and/or new builds or expanding on our portfolio of world-class Land Experience companies. David Hargreaves: I guess I'm wondering [indiscernible] thinking bite-size type of expansion opportunities like the last couple of ships you acquired? Or I think you mentioned possibly new builds. Which way are you leaning? Natalya Leahy: I think that this is our -- we are evaluating and considering various different types of opportunities again. It is charter businesses, which have very great way to, as Rick mentioned, to expand capacity in specific destinations. But there are some limitations to that. We are definitely looking at buying existing tonnage if we find something that is accretive as a return on investment and satisfies our brand criteria, and we are evaluating new build opportunities as well. So I would say stay tuned, and you will hear more on that. David Hargreaves: And sorry, Rick, I kind of cut you off. Were you going to say something on leverage sort of where your comfort zone is? Would you consider taking leverage higher? Rick Goldberg: I would say we now have delivered 10 consecutive quarters of deleveraging, and we're confident in our ability to continue to delever as we drive EBITDA growth. Operator: [Operator Instructions] There are no more further questions at this time. I would like to turn the call back over to Rick Goldberg for closing remarks. Rick Goldberg: Just want to thank everyone for your continued interest and support of Lindblad Expeditions. Have a great day. Bye now. Operator: Ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.
Operator: Good afternoon, everyone, and a very warm welcome to the Quarter 2 Analyst Meet of Mahindra & Mahindra Limited. For the main presentation today, we have with us our Group CEO and MD, Dr. Anish Shah; ED and CEO of Auto and Farm business, Mr. Rajesh Jejurikar; and our Group CFO, Mr. Amarjyoti Barua. Once the presentation concludes, we will start with the Q&A session. Just a reminder, this meeting is being recorded. For the purpose of completeness, I wish to read this out. Certain statements in this meeting with regard to our future growth prospects are forward-looking statements, which involve a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. With that, I now hand over to Dr. Shah for opening remarks. Anish Shah: Thank you, Divya. Good afternoon, everyone. Just before this at the press meet, I started by saying that I'm delighted to announce results for this quarter. And as many of you know me well through many, many quarters, I don't think you've heard the word delighted from me so far as yet. It's always been good, steady performance. We are doing well. We are on track. But this one is different, because we've seen all our businesses come together. And take in the challenges of the quarter, it wasn't an easy quarter overall. But despite that, I would give a lot of credit to our teams across businesses. And therefore, you also see a simplified version of a key messages page, because sometimes when the numbers say what they have to, you don't need to say much beyond that. And what you see is a strong performance across businesses with Farm profits up 54%, with Auto at 14%, but impacted by the GST transition, because a number of vehicles were not delivered from September 8 onwards, or rather delivery was postponed to October. And 14% generally is a very good number, but in the context of our overall numbers, we feel that it could be higher, and that's again because of the transition. Mahindra Finance delivers. We've been talking about Mahindra Finance for some time, and we'll give more details on that. But I look at this as sort of the end of Phase 1 in terms of what we had to deliver for Mahindra Finance and a very strong quarter with 45% operating profit growth. TechM, on track, profits up 35%. This does include exclusion of a one-off gain from land sale last year, and that is, therefore, an operating number of 35%. Growth Gems are accelerating. As you heard before, I typically don't talk much about profits for Growth Gems, because we are looking at investing in these businesses and growing them multiples and therefore, we will look at profits for a few years down the road, not today. But despite that, we've got a good outcome for Growth Gems right now. And on balance, consolidated profit is up 28%. Accounting for three one-offs, first is gain from land sale last year. Second is gain from PLI this year in this -- what was recorded in this quarter, but for prior quarters. And therefore, we've countered the prior quarters' part obviously as a one-off and are not taking that gain into account. And third is the tax payment on SML Isuzu transaction of about INR 217 crores. So, those are the three that we've taken out. And therefore, we want to show the operating profit numbers, which is up 28%. ROE annualized is up 19%. With my standard caveat, which is, please do not expect 19% going forward, it will always be in the range of 18% and could be slightly higher or below that. Consolidated numbers, revenue up 22% year-over-year. Year-to-date, up 22% as well. So, it's not just a quarter. It is performance for the year. Profit operating up 28% for the quarter, 29% year-to-date. And therefore, I want to go back to the reason for the word delighted is, this time we've got all our businesses really contributing in a very meaningful way. It's not just the numbers, it's the quality of the numbers behind all our businesses contributing that delivers that outcome. Drivers of consolidated PAT. Auto and Farm up 28%. Tractor volume, strong at 32%. Auto volumes, given the transition, a little lower at 13%. You'll see a steady margin expansion, completion of the SML acquisition. And that has driven again a very strong outcome for the Auto and Farm businesses. TechM and Mahindra Finance, both businesses that are on a track to meet peer averages and then over time, exceed peer averages. I think Mahindra Finance has completed that first phase, as I mentioned. And what you see here, again, is great results for both businesses. And Growth Gems, where we've got a 5x growth challenge, what you see is 22% increase, a one-off here, which is not a one-off we captured in our overall numbers. There was a onetime tax impact, which we've just basically shown for the Growth Gems only, and because our overall numbers are smaller. But real estate is strong. Aero has continued strong wins. The Airbus helicopter fuselage, that we will supply globally, is a big win for the Aero structures business and Accelo has continued growth momentum. Auto, a little more details on the Auto business. Revenue up 25%. As you've heard from us before, there will be a mismatch between revenue and profit growth for a few reasons, and Rajesh will cover that in more detail as well. SUV penetration from an electric standpoint is 8.7%, up 90 basis points sequentially quarter-on-quarter. And export momentum is strong. This is a growth vector for us, and we are seeing a 40% growth in exports. And hopefully, we continue to see that be a meaningful growth vector as we go forward. Market share, this is a remarkable number, up 390 basis points from a revenue standpoint year-over-year for the same quarter, literally 4 percentage points of market share gain. LCV market share, despite it being 50% plus, has increased as well by 100 basis points to 53.2%. And that has resulted in the profit numbers that we've talked about. Farm, just outstanding execution on the ground. Premium segment growth, albeit from a small base. Operational execution driving both profits and cash. You'll see the cash numbers a little later as -- presents them. And we've completed the sale of SAMPO in Finland. We continue to maintain that discipline. And what we've always said is where we need to exit a business, we will. And this is what we've done with SAMPO. And market share up 50 basis points. Farm revenue starting to deliver the potential that we've been talking about for some time, up 30%. INR 330 crores of revenue for the quarter is starting to move towards profitable -- is profitable now as well. And therefore, you see again the remarkable number of profit after tax growth of 54% for the Farm business. As you think about achieving full potential, Mahindra Finance is one where, I look at this as a breakout quarter. We've talked earlier about improving asset quality, about tighter controls and technology and data being a key part of the business. All of that is done. Asset quality is maintained steadily at less than 4.5% for GNPA. It's at less than 4%, in fact, for this quarter. Controls, a lot of work has been done, and the business has a much stronger set of controls now. We are looking to pivot to growth. Because we've got technology and data also largely in place with the UDAAN stack that we've talked about in the past going live and very strong adoption across our teams for UDAAN, which is effectively creating a whole new system architecture, a much better customer experience and a much easier process that will result in not just customer delight, but also lower costs as we go forward. And that digital transformation is done. We also see a NIM improvement this time of 47 basis points. AUM growth of 13%. This is despite not really focusing on growth for the last couple of years, but we will, as I said earlier, pivot to growth now. And that has overall resulted in a very strong number of operational performance, 45% profit after tax growth for this quarter. Tech Mahindra, on track. Gains in BFSI, Manufacturing and Retail in a tough industry. Accelerated our AI effort have launched Orion. Margin progression is on track, it has been outlined by us as well. And therefore, we feel good about where this business is and again, reflected in some ways in the operational PAT number of 35% growth. As you look at our scalable Growth Gems. Logistics, with Hemant coming in has seen just a remarkable improvement across various parameters from an operational standpoint. We will start seeing the benefits of that from a financial standpoint as well, but that will take a little bit of time, not too long. But we're starting to see some very, very strong execution. And we see the first quarter for a positive gross margin for the Express business, white space reduction, which is excess warehouse space that we had has been reduced quite significantly, not at the level where we want it as yet, but still more work to be done on that. E-commerce segment growth, revenue is up 11%. EBITDA is up 70 basis points at 5% and putting the business on a very solid turnaround track that we'll start seeing more results for. Hospitality, occupancy hurt by some of the weather-related issues in this quarter. And that's been offset by average unit realization being much higher at 85%. We're starting to focus a lot more on quality and on the average unit realization as compared to just number of members. So, number of members, you will see 1% growth, but this is a key area for us. Some geopolitical headwinds for our Holiday Club business in Finland, but it's a business that's still profitable, a good asset overall, but it's one that we feel can do a lot more as we think about holidays going to the next level. Room inventory of 5% and on balance, what you'll see here is a good, strong business that delivers very well for its customers, has a potential to grow to a lot more. And we will come back with details on how we do that in not so distant future. Real estate on a very strong trajectory. You saw GDV last year being extremely strong. That trend continues this year as well. Last year, if you remember, we had the 37-acre land in Bhandup as part of our GDV and resulting in maybe somewhere around INR 18,000 crores. I don't have the exact number, but somewhere in that range. And this year is also on a very, very strong track. So, you're seeing this business be one that has broken out again the plan for GDV growth for -- of a presales growth rather, which is a key metric from a real estate standpoint for this decade is 14x, from what we had in fiscal '20 to what we planned for in fiscal '30. And the business is still looking at how do we grow faster than that. And that's really what we've seen here. The GDV that's required for the presales growth over the next 5 years is largely in place as well, which gives us confidence that the delivery is more based on execution now, not based on external market factors. And that's what you see in the launch pipeline. In addition to that, good realization from the IC business. So, residential presales up 89%. GDV acquired up 3x, still coming from a fairly good year last year. And that brings me to the slide that you've been very used to seeing. Consistent delivery on our commitments. ROE continues to be in the range of 18%. This quarter, it's 19.4% and EPS from the time we had committed 15% to 20% EPS growth, we've delivered a 35% EPS growth. So, all-in-all, very strong execution across businesses for us, and that's where the word delight comes from. And with that, Rajesh, over to you. Rajesh Kajuria: Hi, everyone. Thanks, Anish. Just a quick look. You've seen a lot of this. I'm just going to zip through quickly. The volumes were up 32% for the quarter. Of course, we had the preponement of the Navratras. So, it's not completely like-to-like, but still a very robust growth and gain in market share of 50 basis points. The trend continues to be a strong trend with 44% market share in the first half of this year. 70 lakh tractors rolled out between the two brands, of course, over decades, but 45 lakhs for the Mahindra brand and 25 lakhs for the Swaraj brand. Both milestones got achieved between September and August this year. Farm Machinery business saw a very good quarter, INR 330 crores. Every month clocked INR 100 crores plus. So, it was a very, very strong quarter performance. And we are seeing good momentum now kicking in into the Farm Machinery business. The farm margins were very strong. Core PBIT for -- core tractor PBIT was upward of 20% to 20.6%, which is a very strong performance and something which makes us feel good about -- normally, quarter 2 is not a very strong profit quarter. It's quarter 1 and quarter 3. So, 20.6% in quarter 2 is a very strong margin performance. This is the chart we normally show you with respect to market growth, how we are able to keep a band of margin. And we've seen now consistently last three quarters of 20% plus core tractor margin. The PBIT growth has been 44%. This is consolidated with a INR 1,600 crores profit. On the Auto side, 7% growth, as Anish mentioned, impacted by complex logistic issues starting right from 15th August and then the GST announcement on 4th September, after which we completely stopped all ICE products. So, we then had a huge bundling towards the end. But as you saw, the October numbers kind of made up for the loss in September billing numbers. Very positive trend that we are beginning to see on LCVs finally. Quarter 2 saw 13% growth for us, and we gained some market share. So, as you'll see, when we come to the LCV chart, after many quarters of flattish volume, we're finally seeing growth in the segment. The volume dip in quarter 2 is a reflection of the transition of GST and the billing. So -- but overall, depending on whichever cut you look at it, we are in the mid- to high teens. So, if you look at April to September, April to October, only festival days, retail, we are in the mid- to high teens irrespective of the cut by way of how our SUV growth has happened. Revenue market share still continues to be #1, come down marginally from the previous quarter, because of the reasons that we spoke, but otherwise, a strong performance. We introduced the two new Boleros. They got delayed a little bit because of liquidation of the older versions as GST transition was happening. But the response has been very, very strong. All versions are priced below INR 10 lakhs, which is a great opportunity to create category. And with the changes that we've made, we ourselves are pleasantly surprised with the kind of response that the market has brought forth for both of these changes and both the new versions that are out there. The Thar 3-door with the ROXX interiors coming in, some minor exterior changes, also has got a very good response. And the benefits of all of these, because both of these were mid-cycle, in the middle of festival transitions, we will see the benefits of that as we move into the next quarters. We sold 30,000 electric SUVs totally cumulative till date. Very good feedback from customers, very good word of mouth, very good analytics that we now have on the kind of usage, how much of it is more than 1,000 kilometers per month usage, 20 days more per month, so on and so forth. We will put out this analytics. We were thinking of whether we should do it today, but then we said we'll reserve that for 26th November, which is the first anniversary. And we will put out a more comprehensive customer understanding with numbers. Because, these are all connected vehicles, and we have some really good analytics on how the vehicle is being used and profile of people and percentage of customers who've run so many kilometers per day, so many times in their ownership cycle. So, there's some really good analytics. We'll put that out in a comprehensive release on the 26th of November. The Batman edition has been a huge revelation and a huge learning for us. It just shows us what -- it actually came out of customers who -- when they started seeing the Black BE 6, started calling it the Batmobile. That's what gave us the idea to do the Batman edition. And then, we tied up with it. We announced it at 300. We saw the demand is going to be way more. So, we increased that to 999, which got sold in no time. So, we're in the process of completing the deliveries. And it's -- we'll talk more as we go forward, but we've learned a lot out of how to use special editions out of the Batman experience. The penetration in our portfolio is now 8.7%, which we think is a very good number at this stage of the launch with the two products that are out. This should strengthen further as we introduce and add more products into the portfolio. In the first half, we've been at revenue #1. In quarter 2, we were #2. We had a competitor who had a new product in. And you can see that there's a small gap, but we were in the quarter marginally below #1. This is the point I was making on LCV. You see a reasonably large period of time, which was flattish. And then, we've seen 69,600 volume in one quarter as a very positive turn in the segment. The auto margins are -- this is a stand-alone without contract manufacturing. The next chart will explain this as a format we put out. So, 10.3% is, we believe, a very strong performance. This is how it breaks up. So, what you see as reported is 9.2%, which is 10.3%, which is a stand-alone business. Contract manufacturing, we make INR 10 crores on the INR 2,900 crores. So, that drops it to 0.3%. And the weighted of that is 9.2%. So, we will continue to show it like this, so that you are able to see the operating auto performance without the contract manufacturing getting merged into that. We'd also said that you will see the end-to-end of the electric performance. And hence, you see Mahindra Electric as a company, which had an EBITDA of INR 173 crores in the quarter. This only reckons the PLI for that quarter. As Anish mentioned, the PLI that we got for quarter 4 of last year and quarter 1 of this year is treated as exceptional. So, this is only the quarter 2 PLI accrued, which takes the EBITDA to INR 173 crores. And we earned INR 29 crores as contract manufacturing. So, the end-to-end of that is INR 173 crores plus INR 29 crores, which is the INR 202 crores that you see up. Last Mile Mobility had a very good quarter, 42.3% market share. And as you can see, a very strong electric volume of 32,000. The Auto consolidated, you've seen this. Revenue grew 25%, PBIT grew 14%. Coming to the event on 26, 27th, so this is my closing couple of videos. We see a huge opportunity to build on the equity we have around racing. India has become much more conscious of racing. Two things that changed. One is the Netflix show on Formula racing. The second is the movie F1. Both of these have heightened awareness around racing. We had a really good season last year. We were #4 ahead of many strong pedigree brands. So, we do want to leverage this as we start the new racing season in December in Sao Paulo. So, we have a video which we've been running over the last couple of weeks, leading into the 26th event, where we will reveal some of the new livery and the prep going into the December races. So, the first video is really about that. This is on air for the last few days. [Presentation] Rajesh Kajuria: So, this is one part of what's going to happen on 26th November in Bangalore. We've also started teasing the 9S, as we're now calling it. So, the first teaser was out yesterday, which I'll play for you now. [Presentation] Rajesh Kajuria: And the second teaser is just getting out as we speak. [Presentation] Rajesh Kajuria: So, thank you. With that, I'll hand over to Amar. We're excited about 26, 27 November. Amarjyoti Barua: Thank you, Rajesh. So, you've seen this chart, but I just -- after the media interaction, I got a few questions. So, I just want to reiterate a few things about how we call out one-offs. We don't call out something we hadn't called out last year when we are doing a comparison to last year. If you look at our charts for last year, we had the INR 304 crores gain for land sales called out last year, because it was truly a one-off event and is not likely to repeat. And so, the intent of showing that again this year is to make sure you have an operational baseline to compare to. Similarly, if you see, even though there was a big PLI gain in the current year, it was offset by the tax -- one-time tax we paid on SML, which is why that is -- the net impact of that is the INR 14 crores that's called out. You will see exactly these numbers reflected next year when you see that. So, we are very consistent in this. I just want to reiterate that, because I got a lot of questions on it after the media interview. And even the criteria for calling out something as a one-off, it is not a sub INR 100 crores or even sub INR 200 crores, we would typically take something which is above INR 200 crores as even for consideration in our one-offs, okay? So, I just wanted to clarify that. This chart gives you the picture that Anish showed on one page. So, I just wanted to reiterate again the key messages there. You see the Auto growth, you see the phenomenal Farm growth. Even in Services, you can see the TechM and Mahindra Finance. And as he called out on his chart on Growth Gems, that Growth Gems and investment line item does include a onetime charge we took for Mahindra Holidays. Details of which you can see from their reports. It is a -- truly a one-time, and it is a tax catch-up that we had to do. And we have proactively done that in line with our very strong governance standards, okay? And you can see that reflected here the big contribution from Farm, but also very meaningful contribution from Auto and the Services franchise. Stand-alone results, exactly same principle. You'll see the INR 201 crores out of the INR 304 crores, INR 201 crores was land sale of what we used to call K land, which is what was reflected last year as well. So, we've called that out. And the INR 219 crores is the tax we had on the SML transaction, that is also called out. As I mentioned, again, it's one-off. So, 23% year-to-date growth in revenue, 31% year-to-date growth in profitability, excluding those two one-offs that we have called out, okay? So, clearly, very, very strong performance. This is a chart that most proud of. Because, I think this reflects a lot of effort from the teams. Because you've got to keep both in sync. You've got good profitability, but if you don't have good receivable management, payables, et cetera, you could get out of sync. And this is something which reflects the strength of the results you have seen in the first half. You can see we started the year at INR 27,000 crores. We have spent close to INR 2,500 crores on CapEx. We have done the right -- three rights issues that you're well familiar with. We've done the SML transaction, and we paid out dividends, yet the total cash balance has increased in the first half. So, it reflects very, very strong operational results of -- across the group, but a special call out also for the Auto and Farm team for what they have done on working capital management through, as Anish mentioned, some very trying circumstances that we have seen at least in the second quarter. Okay? So, I'll wrap up with that, and we'll take questions from here. Operator: Okay. We can start with the Q&A. We'll take the first question from Kapil of Nomura. Kapil Singh: Yes. Thank,s, Divya. Congratulations team, I think it was a really tough quarter. So, solid performance. My first question is on the GST cuts, if you could just share your thoughts on what is the impact across your portfolio. So, on the Automotive side, we have the 40% GST bracket and the 18% GST bracket. What are your thoughts on how the consumers are reacting? Because some of your peers have said that the industry growth may be around 6% going ahead with 10% growth in small cars and not so much effectively growth coming from SUVs. And then, some -- maybe you can share some thoughts on LCVs and Tractors also, if you feel with the GST cut there will be some impact on demand there as well. So, I'll leave it open for you to share the details across the portfolio. Anish Shah: So, just a couple start with an overall view and then go to your question specifically, and we'll request Rajesh to answer that. Overall, I think this is a very, very good move by the government. Because for the longer term, it simplifies things as well as reduces GST. And there will be, in our view, fairly strong multiyear benefits from this move. In the shorter term, what we are seeing is the fact that the strong fundamentals of the economy were waiting for some stimulus to be able to translate that into optimism from an overall feeling standpoint, which is important as well. And we're seeing that happen right now. So, that's a shorter-term impact. And for this, I talk about across the economy, I'm not talking about Auto and Farm in particular. We operate in, as you know, in 70% of India's GDP. And we're seeing that across businesses right now as a very positive thing. So therefore, for both of those aspects, we think it's a very good step forward. Yes, little bit of pain in the short run, as we talked about, but that's fine. We'll take that any time for the benefits that we are seeing here. And with that, I'll request Rajesh to specifically answer your question. Rajesh Kajuria: Yes. So, I'll -- Kapil, I'd like to walk through all the three segments, because it's important to understand each. So, in a way Tractors and LCV, I'm first taking as one bucket. Over the last 5 years, customers have seen unprecedented price increases. At least I have been -- if you go back many years, not seen this kind of a price increase in such a short period of time, huge commodity increases that happened starting 2020, more like 2021, regulation change that kicked in, especially with BS6 and then BS6.2 and multiple other regulatory costs that got added. So, customers have seen more than 25%, 30% cost increases. This was having, especially in the LCV segment, a major drag on ability to grow. Because the fleet owner or the vehicle owner was not able to pass on that on a freight cost charge to customer. So, it was creating a drag. So, I think this was much needed to as a fillip to boost demand. And it's not a small -- I mean, I don't think any OEM could have taken a 10%, 12% price correction. It was just way too much for anyone to do to, kind of, trigger upside in demand. So, as Anish said, I think this is a very significant move from overall approach to boosting growth in the economy. So, I think LCVs will -- and we've already seen that through the festival period, but we'll see a lot of the latent demand over many quarters, which didn't kick in, probably start to kick in. That is accompanied with positive mandi arrivals and many other things. But we've been talking about mandi arrivals for a while, but I think both these needed to have come together and that's happening now. So, that's a positive enabler. On the Tractor side, again, the same thing. It is very, very high cost increases on the Tractor commodity and other things. So, it's quite a substantial reduction again for the farmer. So, it is that along with the mood right now in rural, many enabling factors. So, both of these are clear category enabler. In both these segments, these are clear category enabler in place for the GST. Coming to passenger vehicles, which is everyone has their point of view on how this story will play out. Whichever way it plays out, it's going to play out for good. Now whether some subsegment gains more or less, time will tell. Every customer set is looking for something in particular to their life when they're making a purchase decision. So, when we think of what you were calling the 40% slab, so if you think of vehicles at the 40% slab, they actually start from interestingly from even as low as INR 10 lakhs. In fact, we had done an analytics of volumes that happen in different GST slabs earlier, connected to size and price. And you'll find in the 40% of -- earlier 48% slab. Vehicles as low as INR 7 lakhs is going up all the way to INR 50 lakhs or INR 60 lakhs or more. So, now for a customer who is in the INR 12 lakhs, INR 15 lakhs, INR 17 lakhs bracket, they're still paying 40% GST and they're at a certain budget. Now, they are able to move up the ladder of feature offering for the budget they already had. So, they are not first-time buyers who are going to come into the category or not based on a certain price. But what they choose to buy, they will -- they can upgrade based on a certain price. So, there may be customers who were till now not thinking about buying, let's say, a bigger SUV. But today can, because we've enabled it. And I just spoke about an example of, let's say, Bolero or Bolero Neo. If that product was INR 1.5 lakhs, INR 2 lakhs more, it may have excluded some set of customers. But today, when they've gone below INR 10 lakh, and hence, we are also able to get the on-road benefit, because, as you all know, most states have a differential road tax above INR 10 lakhs, you start getting the multiplier effect on on-road price. This, along with reducing interest rates, creates a compelling package for those who are in the mid end of the market to upgrade either from what they were buying earlier. And as some of our peers referring to that comment would say for those who are not thinking of buying a car earlier and are now thinking of buying a car. Right? So, you have a spectrum of buyers who are going to be reacting differently. For some people, it's a question of should I buy a car or not. And the size of the overall passenger vehicle market goes up, because more people have come in, over a period of time, they're going to upgrade. And while we may not get that customer into our portfolio today, they will be our customers for the future. So, I think at the end of the day, I'm sorry, I'm giving you a very long answer to your short question, but I think this is going to be good for everybody. Kapil Singh: No, that was the intent. Actually, I wanted a more detailed answer. But can you cover EVs also within that answer? Is there an impact because the differential has changed? Rajesh Kajuria: So far, we are not seeing that. I still think the EV propositions. Firstly, most of our EVs are in the big size and hence, play against the big SUVs, right? So, the gap still is 5 to 40. We were not in the 5 to 28 category. We were in the 5 to 48 category. So yes, the gap has come down, but 5 to 40 is still a very substantial gap. Amarjyoti Barua: Sure. And can I just add one thing, which is a fringe benefit of this is the simplification on the working capital side for the Farm business is pretty significant. I don't know whether that was as obvious earlier. That is a business which used to have a 12, 18, 28 kind of structure, right? And now it's far simpler for the team to manage and working capital will be better managed as a result and should free up some as well. It's a big benefit. Kapil Singh: Yes. Sir, second question is on the CAFE norms. We saw some changes in the draft, particularly, I was a bit surprised to see lower credits for EVs than what was originally being proposed. Where are you placed on this? What is the EV penetration required now? Is this draft final? Do you need hybrids in your portfolio as well as you move forward? And also, if you can share some color on festive bookings since your portfolio is under transition, probably if you can share some numbers there would be helpful. Anish Shah: I'll just start again by saying that we don't believe the draft is final. There are a number of inputs that have been sent after that across the industry and SIAM also has sent or is sending a set of inputs on that. And our sense is the government will look at all of those before finalizing it. Rajesh Kajuria: So the fundamental word draft means it's not final, and we treat it as such. So, we -- there is a process of dialogue and discussion, which is on, which was the purpose of the draft. And that process is right now under discussion. In either case, as we've said, we will be ready to do what we need to do manage customer expectations and part of that is managing CAFE norms. I think the journey on CAFE is a while away. We feel comfortable that with what is likely to be an outcome, not necessarily the current draft and its process, we will be able to have enough EV in our portfolio along with any other fuel types that are needed to be able to meet the CAFE norm. So, that's the direction towards which we are working. But the draft is far from final. Kapil Singh: And sir, on the festive? Rajesh Kajuria: On the festive, I, in a way indicated that, Kapil, while I was presenting. So, there are multiple ways to cut it and everybody is cutting it in the data in different ways. There isn't any one simple way to look at it. So actually, we have eight cuts of whichever way you want to look at it. The reason I'm saying that is, this time, the first 7 days of Navratri were way better, because the period before Navratri, customers were not really buying at all. Compared to normally, pre-Navratri, you had Shraddh, but South was buying, who were not so much into the Shraddh mindset. Right? So, it's just very hard to compare anything. So, we're just looking at basically April to October as a period or quarter 2 as a period or we've also looked at only September, October. So, whichever way we look at it, we are mid- to high teens on our retails as a number. So, we are in line with what we've been thinking should be the offtake. I'm not getting into first day of Navratri to last day of Diwali, because this time demand has spilled over beyond last day of Diwali as well as we've all seen, when you look at Vahan. So, I don't think there's any one right way to cut it, and we've cut it multiple ways, but we feel overall comfortable. Given the limitations that were there of having the right product mix, because of dispatch delays and all of that. So given all of that, I think we feel comfortable about the way demand works. Not specifically reacting to bookings right now, because actually booking numbers are very, very healthy. Now it's just hard to say what of that is going to convert and we've decided not to get into sharing bookings. But booking momentum has been much stronger than retail momentum. Operator: Nitin, please proceed. Nitin Arora: Just on this consumer behavior, what you talked about, people might want to upgrade, because it's not like income is increasing. It's like the price is reducing part. How do you see that mix of -- because 1.5-liter diesel becomes very attractive, especially for the mid-SUVs versus a petrol when we look at the price bracket? And some of your competitors, especially Koreans are talking about a lot of bookings coming in the diesel in the midsize, and we have that very strong product there. So any transition, any consumer behavior you have seen a change where you see because the product is very well accepted, some market share gain can happen there, how consumer is behaving to that part, diesel versus petrol, especially in that particular segment? And second question to Anish, sir, I think as an investor, I -- 2023, I asked you a lot of questions about RBL. Anish Shah: We should have placed bets as to how soon that RBL question is going to come in. Nitin Arora: Finally, it's a very big strategy investor is there. How are you thinking about now? You already owns, I think, 60% of the bank. So just any input from your side? How you're now you're thinking about that part? So, those are the two questions. Anish Shah: So I'll start with that as a shorter answer, because as we said earlier, one of the key reasons was a treasury investment as well. We saw significant value there. And that has played out. So, if we just see the gains, it's probably more than 50%. I don't know the exact number. But for us, it is in a sense, a validation of what we had seen. And it's one that we will continue to look at as the treasury investment, make decisions on that basis from a treasury standpoint. In the previous session, with the press, I was joking and saying, someone should just do an analysis of how much timeshare this gets versus the really impact on M&M. And you'll see a huge inverse correlation from that standpoint, because everyone loves this question. So, that -- it's a good one to ask. Rajesh? Rajesh Kajuria: Your question is primarily around diesel, petrol? Nitin Arora: Diesel and petrol. [indiscernible] Rajesh Kajuria: Yes. So I'll just quickly walk through different parts of our portfolio. So, 3XO is primarily a petrol offering now more than 75%, 80% is petrol. We're not seeing -- at this point, at least, I have no input that there is a shift there towards diesel. There is a lot of shift there by way of which version becomes attractive, because as prices come down, a different version becomes attractive than what was so before the price change. So, in 3XO at least, I have not so far picked up that there's more diesel demand, because of a price drop. Though it's an interesting input, and we'll watch it on 3XO, but at least, so far, I don't have that input. On the rest of our portfolio, diesel is in the region of 70% to 75%. 25%, 30% is the gasoline. It varies from product to product. Diesel can be a compelling proposition now, because of the price drop and that puts us at a competitive advantage, clearly. So, in following up on Kapil's earlier question, different people are going to get different things out of the GST rate cut. I was earlier focusing on the ability to upgrade vertically, but an interesting perspective could be gasoline diesel as well, which will give us a competitive strength. But it's something, honestly, we'll not -- at least, we've not picked up yet, and it's some -- and thanks for sharing that. We'll watch for that more carefully. Operator: Raghu, please go ahead. Raghunandhan N. L.: Congrats on the results. Sir, firstly, on the LCV side, festive season, at least Vahan shows a very strong double-digit growth. And how do you see the full year outlook? And within LCD, for your customer set, would there be a sense on for how much of the customers would the GST be a pass-through and for how many of them would the GST reduction will actually be a benefit when they are purchasing the product? Rajesh Kajuria: Just to be clear on the second part of the question, you're talking about where they are able to get a GST set off, which is a company buying, right? That's the point. Yes. So, the second one is, let me just try and get that out of the way. For pickups, we have very reasonably large market operation buying, which are individuals are not buying in companies or small aggregators of three, four, five vehicles, who I don't think will be getting the GST tradeoff. Nal, do you want to -- you have a different take. 60% are market MLOs or whatever. So, it's a fairly large chunk, which retains the benefit. On the first question, everyone will have a different view on it. I'm sticking my neck out and saying that it's -- I think we'll -- the outlook will be a double-digit growth for the year. I think, if this momentum continues, which means not just the price impact, but there isn't too much of destruction because the late -- in crops, because of the late rains and mandi arrivals continue to be good and robust. So, the rest of the economic parameters play out the way they have played out in the last 2, 3 months, along with the rate cut. I think we'll end up the year at double digit, but some may argue that it will be high single digits. But at least, I would stick my neck out to say that, I would expect to see low double-digit growth for the category. Raghunandhan N. L.: And also on the Tractor side, now you are seeing a low double-digit growth for the full year. So, how are you seeing the mix between North and other regions, because other regions seem to be growing at a much faster pace. And also recently, there are some concerns in terms of like on the rain side, unseasonal rain side, cyclone side, anything we should read into it? So, that was the part. Rajesh Kajuria: Yes. So Maharashtra, Karnataka, in particular, have seen really strong growth this year. UP is -- UP and Rajasthan has not been all that bad, they are high single digits. So, there have been, I think, from what I remember, the 8%, 9% range. So in a way, from a market share weighting point of view, that's -- weighing point of view, that's good for, that's positive for us. These are very strong markets for both Mahindra and Swaraj, Maharashtra, Karnataka, Telangana, Andhra and so on. So, now whether this will continue, I think my sense it will continue, because some of these states were on a very low base. And including for the second half of this year. So, I would expect that this mix is not changing too much for the balance part of the year. The effect of rains, we are trying to assess. I have actually struggled to see in the past a correlation between significant off seasonal range. So often, we get this happening also in Feb, March. It's not very directly correlated to Tractor sales, it's kind of my intuitive judgment on this. But in this particular case, we need to wait and watch and see what's happening and how much damage -- the fact that there has been damage at this stage is uncommon. Normally, you get a little bit more of that in the Feb, March period, when you get the early rains and you get damage, which I have not seen too much of impact of that. Hopefully, this is not going to have too much. We are not factoring in a slowdown because of the delayed rain, which has just happened. Raghunandhan N. L.: I mean, it's delightful result. Just two, three concerns, I wanted your thoughts on that. One is that Nexperia, would it have an impact on production in Q3 or Q4. Second, on the SES refund. And third, commodity prices, precious metal has been going up. Rajesh Kajuria: Second was? Raghunandhan N. L.: SESZ refund. Rajesh Kajuria: Dealer SES? Raghunandhan N. L.: Dealer SES. Rajesh Kajuria: Yes. So, on the first one, we have a reasonably high confidence that quarter 3 is under -- fairly covered. We believe that the situation will ease out by quarter 4. If not, I'm sure you've been tracking Nexperia closely. It's a very low-value commodity kind of chip, so roughly $0.20. So, it's not hard to substitute. It's not like the semiconductor issue that was there through COVID, which were all very specialized and very hard to replace and needed extensive validation. These are more commodity-type chips. So, it's a question of finding substitutes, which -- for which we need a few weeks. We have, over the last 3, 4 weeks, already solved for many, many existing parts, which now gives us comfort that by and large this quarter is covered. Hopefully, by the time we come towards the end of November, we would have covered, with options, most of our portfolio. There is -- there are multiple stakeholders hoping to resolve this issue. It has impacted Europe OEMs quite significantly, and there's a lot of work happening between a couple of countries in Europe with China to unlock this problem. So, I don't think, as of now, we do treat it as an extreme risk and hence, extreme caution by way of mitigation. So, I hopefully, this should not be an issue. But that being said, we have to be very watchful. On the SES issue, we're just treating it right now as an issue dealers have to solve for it, sub-judice, as you all know, the FARDA has gone to the government. I mean, gone to the Supreme Court, arguing for why it can't be unilaterally discontinue. There is a valid -- they believe they have a valid case and we'll see how that plays out in court. Our view will be to wait and watch that out. In any case, it's a it's a dealer liability in the books of the dealer. Whatever we had to take by way of cost that we've incurred related to SES, we've built it in quarter 2. So, we are not carrying anything in our books over. But of course, this is a dealer point of view. Can you repeat the third question? Raghunandhan N. L.: On Material inflation, on precious metals. Rajesh Kajuria: So, precious metals had gone up. It started easing off a little bit as we all know, over the last week or 10 days. That's something that we need to watch for. Each of these are volatilities that come out of nowhere. So, we'll watch for that, is all I can say. I mean, this is all part of managing life today. You don't know what's coming at you from where. Anish Shah: Just if you don't mind me adding something on that. I just want you to although feel good that the team does have a very strong focus on this and we do hedge everything. So, there was a good anticipation by the strategic sourcing team. The precious metals will see some pressure. We have taken a hedge position from January to now, on average, three precious metals have gone up between 60% to 80%. So you're absolutely right. But we are not as exposed to this phase, because we have taken hedges. We've taken the offsetting gains for the expense that we have seen. But if, of course, the trend continues, then the hedging costs will go up and that will impact. Operator: I'll now just take a few questions online. This is from Arvind Sharma of Citi. Amar, the question is, where would PLI reflect in the stand-alone numbers? And what is the broad amount? Also, how much of it accrues to XEV 9 and BE 6? Amarjyoti Barua: So PLI actually doesn't come up in the stand-alone results because it goes into MEAL books. It is reflected as a revenue item. And the total amount for the quarter was around INR 460 crores, of which INR 150 crores pertain to INR 463 crores exactly, INR 150 crores pertains to -- INR 151 crores pertains to the quarter, and INR 312 crores pertains to prior period. That's what we have called out effectively. The tax impact of -- tax affected amount of that is what we have called out in our results. And it all is for the 9e, it's -- the 6 has not yet qualified for PLI. Operator: Okay. Next question, this is Pramod of UBS. Rajesh sir, there are three questions. Can you please share a full year guidance for SUV, LCV and Tractors? Second question, PLI by which year do you expect PLI incentives to fade for the EVs? And the third question, can you share any EV booking trend post the GST cut on the ICE vehicles? Rajesh Kajuria: Just to clarify the last question, EV booking trends or ICE? Operator: EV. Because GST has been cut on ICE vehicles, so has it impacted the EV booking? Rajesh Kajuria: Yes. So, on SUV for us, Pramod, we stay with mid- to high teens, which was what we said at the beginning of the year. We're not changing that. We believe mid-to-high itself was an aggressive outlook that we had put out, and we stay with that number. For LCV, we think it will be -- I just answered that, in a way to say, we think it will be low double digits for the full year. For Tractors, we had said in the region of 5% to 7%, I think at the beginning of the year, which we are now seeing as low double digits. So, we are upping the Tractor industry outlook from 6% to -- 5% to 7% to maybe like 10% to 12% kind of thing, so low double digits. PLI, it goes on till F '28. And we expect that will continue till then, if not longer, but hopefully, it should continue till then. The claims against PLI there's enough funds left. So, it should comfortably last us till '28. Operator: And there was one on impact on EVs. Rajesh Kajuria: Yes, the EV, it's too early to say right now, Pramod. But as you can see, even through the festival period, the overall EV segment has continued to grow rapidly with the new products coming in from competitors, the segment has continued to remain strong. And we believe that will continue, because as I mentioned, especially in the segment in which we play and some of the new products have come in, the gap between 5 and 40 is still very substantial. Of course, it has come down from 5 to 48 to 5 to 40. But 5 to 40 is still a very large gap, and we don't see that deteriorating. There have been one-off issues in Haryana, we are waiting for the EV policy to get affected, which affects the NCR region, because you have Gurgaon as part of that. So there has been an uncertainty on that. UP went through a few days of old policy to new policy. So some of the state level, things are also kind of getting clarified, which also makes a difference to on-road price. So, it's not just the GST. It's you to see it as a combination. So, the new UP policy, the benefit is only on EV and not on hybrid, which was there earlier from what came in, in October. So overall, too early to say if there is an effect, but we don't see that really having an effect on EV demand. Operator: Anish, there's a question, it stays you had expressed strong confidence that India will achieve 8% to 10% annual GDP growth. Can you please elaborate on impact of the revised GST and other government incentives and initiatives on the M&M businesses other than Auto and Farm? Anish Shah: So, not revising my 8% to 10% estimate. As I said earlier, the foundation is strong. The sentiment change with this is what we are seeing play out. And that's why we felt that the economy will grow at 8% to 10% for the next few years. M&M results as you've seen a fairly strong in this current quarter. And I can't say much for future quarters, but we will promise to deliver what is in our control and deal with things that are outside our control the best we can. Operator: There's another question there that, any further right issue capital investment planned in any of the listed or other subsidiaries in the near future? Anish Shah: There are no rights issues planned in the near future. Capital investments will be made in all businesses as we need them as part of our growth plans. Operator: Next question, this is from Chandra of Goldman. The first question there is BEV's PAC1 and PAC2. Can you please discuss how PAC1 and PAC2 mix is progressing after deliveries have commenced earlier this year? Can you also share some color on the drivers that can help raise our BEV mix towards the targeted range of CAFE 3 vis-a-vis the 8% to 10% BEV mix today? Rajesh Kajuria: PAC1 continues to be sub 10%, which is what we would desire by way of delivery. PAC2, we wanted PAC2 to be a significant PAC, because it creates the right price point, which is why we had introduced a PAC2 79, which is doing well. Right now, PAC2s are roughly 35%, 40% of each of the products. So PAC1 is sub-10%, then 35%, 40% and 50% to 60% is PAC3. Broadly that's the mix on -- to meet CAFE 3 percentage, it's going to depend on multiple things once we see the final policy get play out, whether it's going to be MIDC, WLTC cycle, whether tail pipe emissions on the WLTP cycle will be treated as zero or not. So, the percentages vary a lot. But we have new products coming in. So, the 8-odd percent penetration that has been achieved has been within 5 to 6 months of launch of being in the market with only two of our products, and there's a portfolio of products that will come. So, when we are talking about CAFE 3, we are talking about roughly 2 years away. So, we have a substantial time to get to whatever is the needed percentage from where we are today. Operator: There's another question, which says, we saw a decline in the monthly numbers for SML, last month, and a strong bounce back for the month of October. Were there any production bottlenecks or any process refinements? What was the reason for the decline in the month of September? Rajesh Kajuria: I think some of it was the transition issues around GST and getting the vehicles out, but nothing more to be read into that. Of course, the SML does very well when school bus season kicks in. So, we do see a big increase in market share in the quarters or months where school bus buying happens. They are very strong as we know, in the bus segment. Operator: Okay. This is from Gunjan at BofA. Some of these are taken. So, I'll take the ones which are not there. One, it's Tractors, solid momentum. Can you give more color on underlying trends supporting this euphoria, sustainability of this, an update on TREM 5 regulations. And the second question, how should we see the margin for MEAL trending ahead? Rajesh Kajuria: So TREM 5, Gunjan, firstly, TMA is aligned has had meetings with the Agri Ministry. TMA has also met more to kind of put reality of implications or moving to a very high level of technology from a serviceability in the marketplace. So everyone understands that implementing TREM 5 in a country like ours where you -- farmers have to have service capability or very high-end technology may not be practical. So, there is an understanding that we need the right solution for rural India, so that serviceability for farmers is not constrained. Right now, there's a dialoguing on, which is the TMA proposal to move the 25 to 50-horsepower from 2026 to 2028. That's the TMA proposal. And for the less than 25 horsepower, the date was April '26. Again, there's a conversation on to postpone that as well. Both of these are under consideration. In the less than 25-horsepower the unit cost is not that high and the technology needed is also not that hard to service. But there is a conversation on between Tractor Manufacturers Association and the rest of the stakeholders on what the implications of transitioning to TREM 5 are. On what you're calling euphoria, it has been a strong festive season for Tractors across the board. GST is, of course, one factor, but many underlying factors were building up. We've been saying over the last few quarters that the rural economy has been on a path to strong recovery. The rains have helped, reservoir levels have improved. The government spending, which is a key indicator of Tractor buying, as we've shared in the past, has been strong. Farmer terms of trade have not deteriorated. Export of crops from India have grown, which adds to cash flow to farmers. So, multiple on-ground factors have favored Tractor buying. And the GST has really enabled that process of buying. So, I think part of your question was how sustainable is that. It's really hard to give an outlook for next year, but we just stay with our outlook for this year moving up from 5% to 7% industry growth to 10% to 12% industry growth. Operator: There was another question on margin for MEAL. Rajesh Kajuria: Margin for MEAL, yes. So, margin for MEAL is going to be a series of things that kick in, which is what is the right PAC mix and pricing to enable growth in the segment. We are at that stage where we are into category creation. So, we do want to make sure that we don't lose the overall objective of driving electric vehicle penetration by way of not doing the right things that are needed to make that happen. We do have BE 6, which will, hopefully, by April 2026 meet PLI as well. So multiple localization actions are in place, which will all get executed in a way by which hopefully by quarter 1 of next year, BE 6 will also meet PLI. So that will be one positive enabler. And there is, -- some of the localization benefits also flow through to current portfolio products that are there, which is the 9e as well. So, multiple actions. But we just want to say that the -- a few quarters back, we said we will -- we have a path by which we want to go. And I think just a positive EBITDA was a very good surprise for all of you. Now we are seeing a healthy EBITDA. And we don't want to lose sight of the fact that we want to create this category and have to play a role in driving volumes in this category because that is what will fundamentally ensure long-term returns and long-term margins. So, we don't want to trade off the ability to grow for driving short-term margins. That does not mean we are not taking all actions to keep costs under control, but we do want to make sure that we are driving the adoption of the category in the most appropriate way. Operator: This is a question from BII. This is Adithya Banoth. Do you see any details on first buyer penetration for the 4-wheeler EVs? Any trends that you have noticed? Rajesh Kajuria: Sorry, I didn't understand. Operator: He's saying, details of first buyer. Rajesh Kajuria: First buyer. Okay. When we say first buyer, is that -- do you mean first-time vehicle buyer? No, very, very few. What we do see is a very substantial portion of non-Mahindra, almost 85% of our BEV buyers have not owned Mahindra earlier. So, it's a completely new target group that we're getting in. Fairly large number of multiple car ownerships, but we don't really have too much of -- never bought a vehicle earlier in our portfolio. Very small. Operator: This is from ICICI Prudential, Sakshat. He's asking, we had mentioned about three new ICE SUVs in calendar year 2026, two mid-cycle announcements and one new SUV, that was the composition we had mentioned. Does this include Bolero and Thar 3-door refresh, which we have launched recently? Can you share more details on these ICE launches in '26? Rajesh Kajuria: Unfortunately, we can't share more details. The reason we don't share more details on ICE is just so that, it doesn't look like we're evading the question is, because it does affect buying of current portfolio of products wherever there's uncertainty in customers. So, we are very mindful of that being a Core part of our product that we don't announce any new ICE product too much in advance for the year that is coming. So, we wait and wait and watch as we go ahead, but we have a couple of -- three, four interesting things happening in 2026. Nal, is that number about right? Operator: Yes. The question is also that the Bolero and the Thar 3-door refresh, was that a part of the three? Rajesh Kajuria: No. Operator: This is another question. Exports had a strong growth, both in SUV and Tractors. Which are the key markets showing high growth? Rajesh Kajuria: Yes. So for us, Auto -- firstly, on Auto exports, we're seeing very good response to 3XO both in South Africa and Australia. That's really very, very good momentum there. The 7OO is also doing decently in both these markets. So Australia, South Africa become two very important parts of the export leg. The neighboring countries, which had kind of gotten to a little bit of a slowdown for multiple reasons, money availability, so on and so forth, have all begun to open up. So, Sri Lanka, Bangladesh, all of these, Nepal as well have all opened up. We've sent our first lot of EVs to Nepal. They are on the way in this quarter. So, it seems to be very good demand. That's organically got generated in Nepal for the EVs, probably spillover out of the India story. So, that's broadly what's happening on the Auto side. On the Tractor side, the neighboring countries, again, have opened up, which Bangladesh was having a lot of issues for a while availability of LC, so on Sri Lanka had slowed down. Nepal had slowed down. So, all of those have come back. Algeria, we've started doing business. And so, that's which again was shut for a long period of time, because of the government not allowing imports in without a certain license. Most India exports to Algeria had stopped for almost 1.5 years or 2 years, which have started. By and large, covered it. Operator: Just taking this one last question. This is Amit of PhillipCapital. What is the company's strategy to grow the Farm implements business? And as this business is growing, how do we look at maintaining the margin in line with the Tractor margin? Rajesh Kajuria: Yes. Firstly, I must say that right now, the margin is not in line with the Tractor margin. We're just starting to make some money. So, we have a path to go. The competitive pool has reasonable margins. So, as we evolve our volumes, the margins should be much better than what we are making now. So, the peers that we have in that segment do make a decent level of margin. Unfortunately, there's no formulaic solution to growing in Farm Machinery. It is really to get behind the product category and then work at it and grow. One of the segments in which we haven't so far been in the past done as well as the Harvesters, which goes under the Swaraj brand. We've roughly had 4%, 5% market share. We now have an enhanced improved product, which is beginning to do well. And that hopefully will help us drive overall growth of per unit value. The harvest is about 20-odd lakhs. So, that does play a key role in driving top line. Operator: Great. Thank you, everyone. On behalf of M&M, I would like to thank you for joining us today. Please join us also for our Investor Day on 20th of November. It's a very exciting day ahead. And join us for snacks in the adjoining room. Thank you very much.
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 Natural Resource Partners L.P. Third Quarter 2025 Earnings Call. [Operator Instructions] It is now my pleasure to turn the call over to Tiffany Sammis, Investor Relations. Please go ahead. Tiffany Sammis: Thank you. Good morning, and welcome to the Natural Resource Partners Third Quarter 2025 Conference Call. Today's call is being webcast, and a replay will be available on our website. Joining me today are Craig Nunez, President and Chief Operating Officer; Chris Zolas, Chief Financial Officer; and Kevin Craig, Executive Vice President. Some of our comments today may include forward-looking statements reflecting NRP's views about future events. These matters involve risks and uncertainties that could cause our actual results to materially differ from our forward-looking statements. These risks are discussed in NRP's Form 10-K and other Securities and Exchange Commission filings. We undertake no obligation to revise or update publicly any forward-looking statements for any reason. Our comments today also include non-GAAP financial measures. Additional details and reconciliations to the most directly comparable GAAP measures are included in our third quarter press release, which can be found on our website. I would like to remind everyone that we do not intend to discuss the operations or outlook for any particular coal lessee or detailed market fundamentals. Now I would like to turn the call over to Craig Nunez, our President and Chief Operating Officer. Craig Nunez: Thanks, Tiffany, and good morning, everyone. NRP generated $42 million of free cash flow in the third quarter of 2025 and $190 million of free cash flow over the last 12 months. We continue to generate substantial free cash flow despite significant headwinds for all 3 of our key commodities: metallurgical coal, thermal coal and soda ash. Metallurgical coal markets are challenged by slowing global growth and soft steel demand. Thermal coal markets are struggling with muted demand caused by mild weather, cheap natural gas, slowing global growth and renewable energy adoption. While the prospects for a more accommodating regulatory environment and increased electricity demand from data centers have increased market optimism for thermal coal, we have not yet seen any material support for prices or demand. While we acknowledge that these factors offer the potential for a more bullish long-term outlook, we will continue to manage the partnership in accordance with the thesis that North American thermal coal remains in long-term secular decline until we see evidence to the contrary. As we've seen previously, we believe -- as we've said previously, we believe most coal operators are struggling to make money with most producing at razor thin margins and a growing number operating at a loss. We are seeing this play out in the announced results of publicly traded companies and recent bankruptcies of several smaller producers. While we have not identified a catalyst to turn the market around, we continue to believe that the vast majority of our lessees are in better financial shape than in previous downturns. We believe these factors, combined with our relatively robust free cash flow generating capability, solid and improving capital structure and conservative management philosophy, position us well for navigating a very difficult coal market. The soda ash market remains oversupplied due to capacity additions and slowing global growth. International prices are below cash production costs for most producers. While we were early to share publicly our concerns regarding the potential for the supply-demand imbalances now plaguing the market, the depth and potential duration of the current downturn is more significant than we initially expected. We are in a generational bear market for soda ash, and there will be more pain to bear before the situation improves. If there is a silver lining to the cloud hanging over the soda ash market, it is that this dynamic is unsustainable in the long term. We expect producers will rationalize supply at some point, but we don't know when or how that will occur. Rebalancing supply and demand will likely take several years before prices return to levels enjoyed historically. As one of the world's lowest cost producers, Sisecam Wyoming continues to navigate this downturn well. In addition to aggressively managing costs and inventories, Sisecam is maintaining its focus on safety and system integrity, 2 areas that are sometimes overlooked during periods of challenging financial results. Our soda ash investment is a long-term asset with durable competitive advantages that will produce an essential global commodity for many years in the future. We are quite pleased that our managing partner is committed to maintaining the long-term integrity of our shared asset even when near-term financial performance is down. We did not receive a distribution from Sisecam this quarter after receiving $8 million in distributions during the first half of the year. While we expect Sisecam Wyoming to remain profitable through the downturn, we do not expect it to resume distributions for the foreseeable future with cash retained used for investments in safety and system integrity. The carbon-neutral industry continues to struggle. Oxy notified us during the quarter that it was dropping its subsurface CO2 sequestration lease on 65,000 acres of floor space we own in Polk County, Texas. You'll recall that Exxon dropped its CO2 sequestration lease on 75,000 acres we own in Baldwin County, Alabama last year. As of now, none of our 3.5 million acres of CO2 sequestration pore space is under lease. You've heard me describe these sequestration rights as out-of-the-money call options on greatness. They cost us nothing to hold, they never expire, and we benefit if the market for CO2 sequestration goes up. I do not believe our leases were dropped due to any problems associated with our specific acreage. On the contrary, I think the locations leased to Oxy and Exxon are some of the highest quality CO2 pore space in the Gulf Coast. The entire CO2 sequestration industry remains burdened by high capital and operating costs, insufficient and inadequate revenue streams and the lack of a consistent regulatory framework. These factors have created formidable economic barriers that operators are either unable or unwilling to overcome. Our call options on sequestration pore space will remain out of the money until and unless these industry challenges are resolved. In conclusion, coal and soda ash prices are down, and we do not see near-term catalysts for market improvement. Our coal lessees are operating at or near their cost of production, and our soda ash investment is experiencing the lowest international sales prices in decades. Despite this, NRP continues to generate robust free cash flow and make progress toward our goal of retiring all outstanding debt. Over the past 12 months, we have retired nearly $130 million of debt with only $70 million of debt remaining as of the end of the quarter. We continue to believe that we will be in a position to increase unitholder distributions in August. However, I caution that the longer we slog through the depths of bear markets for all 3 of our key commodities, the greater the likelihood that some event occurs that pushes that timing back. Rest assured, however, that we will continue to manage the partnership with a conservative mindset in order to protect your investment and be best prepared for negative events that may arise. And with that, I'll turn it over to Chris to cover the financials. Christopher Zolas: Thank you, Craig. In the third quarter of 2025, NRP generated $31 million of net income, $41 million of operating cash flow and $42 million of free cash flow. Of these consolidated amounts, our Mineral Rights segment generated $41 million of net income, $44 million of operating cash flow and $45 million of free cash flow. When compared to the prior year third quarter, our Mineral Rights segment net income remained flat, while operating and free cash flow each decreased $9 million. Decreases were primarily due to weaker metallurgical coal markets resulting in lower sales prices. Regarding our third quarter 2025 met thermal coal royalty mix, metallurgical coal made up approximately 70% of our coal royalty revenues and 50% of our coal royalty sales volumes. For our soda ash segment, net income decreased by $11 million compared to the prior year third quarter, while operating and free cash flow each decreased by $6 million. These decreases were primarily due to lower international sales prices driven by weakened glass demand from the construction and automobile markets, combined with new natural soda ash supply from China. We did not receive a distribution from Sisecam Wyoming in the third quarter of 2025 and do not expect distributions from Sisecam Wyoming to resume until soda ash demand rebounds or there is a more significant supply response to this weakened market, most likely from higher cost synthetic production. Moving to our Corporate and Financing segment. Q3 2025 net income improved $3 million and operating cash flow and free cash flow each improved $2 million as compared to the prior year period due to significantly less debt outstanding, resulting in lower interest cost and less cash paid for interest. We used the free cash flow generated from our business segments to repay $32 million of debt during the third quarter, over $70 million through the first 9 months of 2025, and we remain on track to accomplish our deleveraging goals next year. Regarding our quarterly distributions, in August of 2025, we paid the second quarter distribution of $0.75 per common unit. And today, we announced the third quarter 2025 distribution of $0.75 per common unit that will be paid later this month. And with that, I'll turn the call back over to our operator for questions. Operator: [Operator Instructions] Our first question comes from the line of [ Dan Adler ]. Unknown Analyst: This is Dan Adler. Thank you for all you're doing for shareholders. My question revolves around leasing for lithium mining in the Smackover region. And if you could provide any information on acreage that has been leased or potential for revenue from that leasing. Craig Nunez: Thank you for your call, Dan, for your question. Yes, we are active in leasing acreage in the Smackover formation for lithium production to multiple lessees. We don't comment on terms of leases and that type of thing. I will say that the activity in the area has been -- has varied from robust to lukewarm at various periods over the last several years. But yes, we're active in the Smackover in Southern Arkansas and in Northeast Texas. Operator: Our next question comes from the line of David Spier with Nitor Capital. David Spier: Just first, a bit of a housekeeping question. Just given the passive nature of the partnership, just the operating and maintenance expense, what goes into those expenses? And is there any ability given the environment to reduce that expense line? Christopher Zolas: Sure. Salaries and compensation is a big part of that. We also have a variety of other general corporate costs, insurance, legal, accounting. So there's a variety of general corporate type of costs that flow in there. David Spier: We have -- those aren't in general and administrative expenses. I'm talking about the operating and maintenance expense line. Christopher Zolas: Sure. We also have those same type of expenses in the operating expense for the Mineral Rights segment. But there's also things such as property taxes, which is a big one and royalty expenses as well. We have some royalty costs as well that go in there. Craig Nunez: We have a zero-based budgeting approach so that every year, we -- the goal is to make the total cost as low as possible rather than simply look at increases of costs from year-to-year. So I won't say that we don't sharpen our pencil whenever times are lean because we do. But the reality is we sharpen our pencil all the time. And we have long-term cost management goals that we follow. David Spier: Got it. And then just a general question regarding the company's mineral rights. Are the majority of the company's mineral rights specific to certain minerals? Or are they general subsurface rights where royalty opportunities exist on anything that comes out of the ground? Just some better insight there would be helpful. Craig Nunez: It is generally for specific minerals. David Spier: Understood. And then so with that, are there any opportunities given the growing demand or interest in nat gas? Are there any additional production opportunities that might be arising that didn't previously when the company -- the partnership didn't previously thought existed over the past year? Craig Nunez: I'm not sure I understand your question. You referred. David Spier: Maybe some higher cost -- there were some higher cost natural gas plays that the company has mineral rights on that in the past few years didn't seem like a possibility for production where now these plays are now in the money and there's increased interest of producers. Craig Nunez: In other words, call options moving in the money is what you're describing. Yes. The vast majority of our oil and gas mineral rights are in the Haynesville, in North, Central and West -- North Central and Northwest Louisiana. And that's a pretty active basin right now. And so I would say drilling has picked up a bit in the Haynesville. And to the extent that it does, we benefit from that. I will say that while -- I will say that those numbers are -- those production amounts and those revenues that we can receive from oil and gas minerals, they're not as that material to the partnership. David Spier: Got it. And then just regarding capital allocation, looking at the cash on hand and the debt outstanding, it seems like 1, maybe 2 quarters away from being in a net cash position. Is that the right way to look at it? Craig Nunez: You're looking at it correctly. As we've said, we believe that we will be in a position where we will have the majority -- the vast majority of our remaining debt paid down and be able to increase distributions in the third quarter next year. That's the plan, and that's the forecast. The issue comes in with -- as we continue in this difficult market, are there going to be things that will happen that will change that. We don't know that there will be, but we're just warning everybody that there could be. Operator: Our next question comes from the line of [ Ken Ack ]. Unknown Analyst: [ Kenny Ackerman ]. A question, again, regarding capital allocation. I mean, you guys retired the warrants, have retired substantial amounts of debt, almost all of it, as was just discussed. What kind of would be the criteria to start unit repurchases? Or I mean, what are the thoughts surrounding that? I know this isn't the first time this has been asked, but just considering you're getting closer and closer to a net cash position. I mean, is there anything that would inspire you guys to repurchase your units? Or is there anything prohibiting? I know there's one large owner of the partnership. Just didn't know if unit repurchases were even possible. Craig Nunez: So let's think of it instead of thinking about being in a net cash position, let's think about how we, at the company, think about our balance sheet and what the signals we look forward to being able to do -- to deploy cash in some way other than just paying down debt. We're looking to establish what we define as an NRP fortress balance sheet. And to us, that means 2 things. It means, number one, no permanent debt in the capital structure. And permanent debt, we define as debt that we do not have the ability or intent to repay prior to maturity with internally generated cash. And then in addition to no permanent debt, we want to have $30 million of cash on the balance sheet. And that also means at the same time that we'll have our revolving credit facility in place. Once we're in that position, we feel that we have what we believe is a fortress balance sheet. And then we can feel free to allocate capital as we see best. And what are our priorities for allocating capital? Number one, unitholder distributions. Number two, unit repurchases at material discounts to our estimates of intrinsic value. And number three, if they come along, opportunistic acquisitions where we can acquire assets that are within our circle of competence at what we consider to be bargain prices. And there are no impediments to us being able to buy back units other than can we acquire them for a price that we think is a sufficient enough discount to our estimates of intrinsic value to want to do it. Unknown Analyst: Got it. No, makes total sense. And just one follow-up. I mean, can you give any color around what you consider intrinsic value? I mean just what -- I mean, broad question, but just what would the company consider intrinsic value just to get a decent sense of what would kind of qualify for unit repurchases and what wouldn't? Craig Nunez: No, we're not going to guide on that. Sorry about that. I would encourage you to go back and read our unitholder letters that are published each spring with the annual report with the 10-K, especially this most recent one. But each one of them talks about how we think in terms of intrinsic value and the process we use to value the company because intrinsic value per unit is a very important component of all of our management decisions that we make. And so we've explained in writing how we go about doing that. We just don't tell you exactly what our assumptions are and what the numbers are that we think are in place. Operator: Our next question comes from the line of Neil Patel with Sawgrass Beach. Neil Patel: Congrats on the progress, especially with the debt paydown to $70 million. It's been quite the journey over the last 10 years. Thanks for the comments on thermal coal. I had a question on that. It seems that every day we're hearing more about data center CapEx being at just very extreme levels. I understand you're not seeing that demand come through to your thermal coal assets yet. But if that does next year, is there infrastructure and capacity in place for the producers on your thermal coal properties to scale up? Or would that require a lot of additional CapEx on their side? Craig Nunez: Good question. And I don't know that we completely know the answer to your question because, as you know, our operators are our operators. We don't operate and they don't necessarily share everything with us. But I can give you my educated guess on it, my best judgment. I do believe that if the increased power demand from data centers that is forecasted to result from all of the CapEx that's now planned over the next 5, 10 years, I do believe there will have to be material amounts of capital invested in the thermal coal infrastructure, both to bring new production online and to process it and transport it. I don't know what those dollars are, and I don't know to the extent that, that capital would involve mines that are on NRP or on other acreage elsewhere in North America. Operator: And with no further questions in queue, I will turn the call back over to Craig Nunez for closing remarks. Craig Nunez: Thank you, operator, and thank you, everyone, for joining our call today. Thank you for your questions. And as I look over the list of participants here, the vast majority of you have been with us for quite a while. So thank you for your support over the years, and we look forward to talking to you next quarter. Take care. Operator: Thank you again for joining us today. This does conclude today's presentation. You may now disconnect.
Operator: Good day, ladies and gentlemen, and welcome to the Axcelis Technologies call to discuss the company's results for the Third Quarter 2025. My name is Brittany Morgan, and I will be your coordinator for today. I would now like to turn the presentation over to your host for today's call, David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. Please proceed. David Ryzhik: Thank you, operator. This is David Ryzhik, Senior Vice President of Investor Relations and Corporate Strategy. And with me today is Russell Low, President and CEO; and Jamie Coogan, Executive Vice President and CFO. If you have not seen a copy of our press release issued earlier today, it is available on our website. In addition, we have prepared slides accompanying today's call, and you can find those on our website as well. Playback service will also be available on our website as described in our press release. Please note that comments made today about our expectations for future revenues, profits and other results are forward-looking statements under the SEC's safe harbor provision. These forward-looking statements are based on management's current expectations and are subject to the risks inherent in our business. These risks are described in detail in our annual report on Form 10-K and other SEC filings, which we urge you to review. Our actual results may differ materially from our current expectations. We do not assume any obligation to update these forward-looking statements. Given the pending merger with Veeco, we will not be addressing questions related to the transaction. Please note that today's call is neither an offering of securities nor solicitation of a proxy vote in connection with our previously announced transaction with Veeco. We urge you to read the joint proxy statement relating to the transaction with Veeco once it becomes available. During this call, we will be discussing various non-GAAP financial measures. Please refer to our press release and accompanying materials for information regarding our non-GAAP financial results and a reconciliation to our GAAP measures. Now I'll turn the call over to President and CEO, Russell Low. Russell Low: Good morning, and thank you for joining us for our third quarter 2025 earnings call. Beginning on Slide 4, we generated solid results in the third quarter with revenue of $214 million and non-GAAP earnings per diluted share of $1.21, both exceeding our outlook. We delivered record CS&I revenue as well as slightly better-than-expected system revenue, which drove the better-than-expected profitability. Bookings in the third quarter declined on a sequential basis, primarily led by a softer power and general mature bookings, which were partially offset by an improvement in memory. While bookings fluctuate from quarter-to-quarter, based on recent encouraging quoting activity and our conversations with customers on their build plans, we anticipate bookings to improve sequentially in the fourth quarter. Before I provide more detail on the trends we are seeing by Market segment, I'd like to touch on our recent transaction announcement. On October 1, we announced that Axcelis and Veeco had agreed to merge to create what we believe will be a leading semiconductor equipment company. We have long admired Veeco's history of innovation and its track record of delivering breakthrough products, and this merger is expected to position the combined company as a key beneficiary and critical enabler of secular tailwinds, including AI and electrification. I want to take this opportunity to recap a few points that we made when we announced this deal and what is highly compelling opportunity for both companies. Starting with cross-sell synergy, we believe each company can open doors for the other. One such example is with Axcelis implant and Veeco's laser annealing solutions, which are adjacent steps and reside in the same diffusion module in the fab. In addition, our combined technical depth is expected to enable us to optimize technology advancements. An example of this is our plan to leverage our deep ion source and component expertise to enhance Veeco's ion beam deposition capabilities and vice versa. Second, from a market perspective, we are strong in Silicon Carbide, while Veeco has an exciting opportunity in MOCVD for GaN on silicon. We believe this combined presence will allow us to be a comprehensive solution provider to the compound semiconductor market, which is becoming increasingly relevant due to electrification, including the growing need for greater power efficiency driven in part by the rise in AI. In addition, we believe Veeco's MOCVD business has an opportunity in microLED as well as an indium phosphide opportunity for optical communication products, which is an emerging data center application. Moreover, we see opportunities stemming from our strength in memory and mature foundry logic, which we believe are complemented very well by Veeco's strength in advanced foundry logic and advanced packaging, stretching across annealing, ion beam deposition, wet processing and lithography solutions. It's also worth noting that the combined company is expected to be better equipped to better serve our customers through access to an expanded installed base supported by stronger aftermarket services. Finally, the all-stock nature of this transaction is expected to position the combined company to have a resilient operating profile and balance sheet post closing, which we believe allows us to invest in our business to drive organic growth as well as return capital to shareholders. In short, by bringing our 2 companies together, we believe we are building a leading semiconductor equipment company with the capabilities, resources and financial foundation to drive sustainable growth and value creation for shareholders and drive meaningful benefits for all our stakeholders. With that, let me now turn back to our Q3 results and the trends we're seeing by market category. Turning to Slide 6. In the quarter, sales to mature node applications comprised almost the entirety of our system shipments, in particular, power and general mature. Now on Slide 7, let me review our trends by end market. Within our Power business, shipments to Silicon Carbide applications grew nicely on a sequential basis. Consistent with our commentary heading into 2025, customers continue to digest the capacity that has been put in place over the past few years. However, in China, multiple customers continue to build out capacity as they strive to address growing demand in the local market, while customers outside of China are making select investments into next-generation technology such as trench and super junction. Moreover, in the quarter, we shipped several tools to multiple customers that have only just begun to develop their Silicon Carbide capability. We believe this is yet another validation of the long-term secular growth opportunity in Silicon Carbide and customers recognize the world's need for more efficient power delivery will continue to accelerate. As the cost of Silicon Carbide continues to decline, we anticipate its adoption in an expanding array of applications will continue to grow, ultimately requiring more investments in technology and capacity. As we've noted in the past, Axcelis is a market and technology leader in high-energy ion implantation, which is becoming increasingly critical for next-generation Silicon Carbide devices. In August, we announced a joint development program with GE Aerospace to pursue production-worthy high-voltage Silicon Carbide devices utilizing our Purion XEmax system, which is our highest energy implanter delivering up to 15 million electron volts in an IMV. We are proud to partner with GE Aerospace on this exciting initiative. In September, we made multiple new product announcements, including our new Purion Power Plus series at the annual ICSCRM Conference, which was held in Korea. The platform is designed to enable improved device performance and increased productivity for next-generation power devices. While the majority of the platform is targeted to the Silicon Carbide market, there are also applications for silicon and gallium nitride. Axcelis has a proven track record of collaborating with customers to develop innovative solutions, and this product announcement is no different. We also have received positive customer feedback about our new high-energy channeling capability and MUSIC, our multistep implant chain capability, which reduces the overhead of wafer transfer time during the implant process, enabling our customers to have increased output with less downtime between recipes. This capability is on tools, we've already placed in the field with our leading customers. And as I said, we are receiving positive feedback. Additionally, Axcelis announced the launch of the GSD Ovation ES, a high current multi-wafer ion implanter targeted specifically for engineered substrates. Turning back to the near-term demand environment in Silicon Carbide, we continue to see select areas of capacity and technology investment, and we expect revenue from Silicon Carbide to fluctuate from quarter-to-quarter with fourth quarter expected to be down slightly on a sequential basis. In our other Power Market segment, ship system revenue also grew on a sequential basis, primarily due to shipments to customers in Japan and Europe. In General Mature, revenue declined on a sequential basis as customers continue to manage their capacity investments given the current demand environment in auto, industrial and consumer electronics. Broadly speaking, we are seeing an improvement in utilization rates. However, this varies by customer and can even vary by fab location within each customer. In fact, we are seeing some signs of improvement in utilization rates with our image sensor customers as camera content on autos continues to rise and smartphones continue to be a strong long-term demand driver. Image sensors require high energy ion implantation, and we are well positioned to address this market as our customers resume capacity build-out investments. In the third quarter, we also shipped an XEmax evaluation unit for a 300-millimeter power management IC application. This is noteworthy because our XEmax was developed for the image sensor market, and yet we are seeing interest in additional applications where this technology can be deployed, namely power. Turning to Slide 8. In Advanced Logic, we continue to actively target next-generation ion implantation applications across multiple customers. In the quarter, we generated revenue from a previously booked system with an existing customer. Moving to Memory. Revenue remained muted in the third quarter. However, we expect sequential increase in the revenue in the fourth quarter as customers expand capacity to address growing demand for AI-related applications. While it is too early for us to predict 2026, given our conversations with customers on the capacity plans, we anticipate our sales to memory market to grow next year, led by increased DRAM and HBM investments. In NAND, customers remain focused on scaling to higher layer counts, which requires deposition and etch trimer-based upgrades, but not incremental ion implant capacity. As a result, we continue to expect demand for NAND applications to remain muted in the near term. However, we are encouraged with some initial signs of improvement in the NAND bit demand and pricing, and we are ready to service market once customers resume capacity additions. On Slide 9, let me wrap up my thoughts prior to handing the call over to Jamie. We are navigating the current cyclical digestion period across our markets exceptionally well, remaining aggressive in our product development and customer engagement while staying disciplined on cost control. As referenced earlier, we are seeing interest in new applications for our high solutions while also executing on our strategy to drive greater adoption of our high current portfolio. Meanwhile, our CS&I business continues to benefit from our focused aftermarket strategy and growing installed base. It remains a foundational part of our company's profitability and cash flow profile and integral to the value proposition we offer our customers. Adding all this up, despite a moderation of demand in our markets in 2025, we have a strong base of profitability and cash flow, which we believe provides a solid platform for Axcelis to execute on our long-term growth opportunities. With that, let me turn the call over to Jamie for a closer look at our results and outlook. Jamie? James Coogan: Thank you, Russell, and good morning, everyone. I'll first start with some additional detail on our third quarter before turning to our outlook for Q4. Starting on Slide 10. Third quarter revenue was $214 million, with systems revenue at $144 million and CS&I revenue at a record of $70 million, both above our expectations for the quarter. Our better-than-expected CS&I revenue was driven by strong demand for spares and consumables as well as an improvement in our service revenues. We are pleased with our execution in CS&I and our aftermarket offerings are resonating with the customers. Case in point, through the first 9 months of 2025, our CS&I revenue was up 9% on a year-over-year basis despite customers moderating their capital equipment investments. Moving to consolidated sales from a geographic perspective, China decreased sequentially to 46% of total sales, down from 55% in the prior quarter. Consistent with our expectations, our customers in China continue to digest the robust investments they've made in mature node capacity over the past few years. While quarterly revenue by region can fluctuate, we anticipate revenue from China will decline sequentially in the fourth quarter. Turning to other regions. We saw sales to the U.S. at 14%, while Korea declined to 10%. As Russell mentioned, bookings declined on a sequential basis to $52 million, and we exited the third quarter with a backlog of $484 million. Turning to Slide 11. I'd like to share some additional detail on our GAAP and non-GAAP results. GAAP gross margin was 41.6% in the quarter. And on a non-GAAP basis, gross margin was 41.8%, below our outlook of 43%, primarily due to mix. Within systems revenue, we recognized a number of low-margin system installations in the third quarter that we had forecasted to occur in the fourth. Within CS&I, as previously noted, we saw increased volumes of consumables and service contract revenue, which typically carry a lower margin. Nevertheless, we find this encouraging as this tends to reflect increased utilization rates with our customers. GAAP operating expenses totaled $63.8 million. And on a non-GAAP basis, operating expenses were $50.4 million, lower than our outlook of $53 million, primarily due to lower compensation-related expenses associated with the timing of annual merit increases as well as onetime cost savings measures we executed in the quarter. Our non-GAAP results excluded transaction-related expenses associated with the pending Veeco merger, along with other typical adjustments such as share-based compensation and restructuring charges. On that note, in the third quarter, we implemented a onetime voluntary retirement program and recorded a portion of the expense associated with that in the period. Given the nature of this program, we expect to record additional program-related expenses in the fourth quarter. As a result, our GAAP operating margin was 11.7%, while our non-GAAP operating margin was 18.2%. Moreover, in the third quarter, we delivered adjusted EBITDA of $43 million, reflecting an adjusted EBITDA margin of 20.2%. We generated approximately $5 million in other income with the sequential decrease primarily due to foreign currency. And our tax rate was approximately 14% in the third quarter, both on a GAAP and non-GAAP basis. For the fourth quarter, we estimate our non-GAAP tax rate will be approximately 15%. Our weighted average diluted share count in the quarter was 31.5 million shares, and this all translates into GAAP diluted earnings per share of $0.83, which was lower than our outlook of $0.87. However, non-GAAP diluted earnings per share was $1.21, exceeding our outlook of $1. The higher-than-expected non-GAAP diluted EPS was primarily due to better-than-expected revenue, along with lower operating expenses, partially offset by product mix. Moving to our cash flow and balance sheet data shown on Slide 12. We generated $43 million of free cash flow in the third quarter as a result of better-than-expected profitability and a slight improvement in both days sales and days payable outstanding. Turning to share repurchases. In the third quarter, we repurchased approximately $32 million in shares and have $135 million remaining under the share repurchase program previously authorized by the Axcelis Board of Directors. We exited the third quarter with a strong balance sheet, consisting of $593 million of cash, cash equivalents and marketable securities on hand. This includes $143 million of long-term securities. With that, let me discuss our fourth quarter outlook on Slide 13. All measures will be non-GAAP with the exception of revenue. We expect revenue in the fourth quarter of approximately $215 million. And looking beyond the fourth quarter, our preliminary view on the first quarter of 2026 suggests revenues to be relatively similar to our anticipated levels in the fourth quarter of 2025. We expect non-GAAP gross margins of approximately 43%. The sequential improvement is primarily due to a more favorable mix. And we expect non-GAAP operating expenses of approximately $56 million as a result of onetime cost-saving measures in the third quarter not reoccurring and in addition to a full quarter of annual merit increases kicking in for the period. Adjusted EBITDA in the fourth quarter is expected to be approximately $41 million. And finally, we estimate non-GAAP diluted earnings per share in the fourth quarter of approximately $1.12. In summary, we are pleased with our financial execution through the first 9 months of this year, delivering robust year-to-date adjusted EBITDA margins of 20% and strong free cash flow generation of $116 million despite our revenue being down. With a strong balance sheet, we are exiting 2025 in solid financial position, and we are especially excited about our pending combination with Veeco and the opportunities ahead for the combined company. With that, let me hand the call back to Russell for closing remarks. Russell? Russell Low: Thank you, Jamie. We are pleased with our third quarter performance as the team continues to execute with focus and discipline. Our results reflect the strength of our business model, the quality of our technology and the dedication of our global team. Looking ahead, the pending business combination with Veeco represents an exciting transformational step for both companies. We expect it to broaden our capabilities, expand our market reach and position us to unlock even greater value for customers and shareholders while creating exciting new opportunities for our employees. I want to thank our customers, employees, partners and shareholders for their continued support and trust in Axcelis. With that, operator, we are ready to take your questions. Operator: [Operator Instructions] Our first question comes from the line of Jed Dorsheimer with William Blair. Jonathan Dorsheimer: Congrats on the quarter. I was wondering if you might be able to describe the dynamics a bit more in the other power category. And in particular, what customers are seeing in terms of in Silicon -- and what I'm trying to get at in Silicon Carbide, your differentiation with high energy is very clear and distinct. And I'm curious what the dynamics are that you're seeing in other power and maybe also in general mature that are driving that business? And then I have a follow-up. Russell Low: Jed, it's Russell. So yes, so kind of broaden that slightly. So regarding power overall, we are seeing the second half of '25 has been slightly better than the first half of '25. We've talked about different customers from different locations kind of being in different phases. We have kind of Chinese customers for Silicon Carbide specifically adding capacity versus the non-Chinese customers basically doing node transitions. When you look at non-silicon carbide power, so basically silicon power, so that obviously is the largest TAM regarding power in total, right, for us. And I'd say it's kind of ebbing and flowing. We do a nice job in -- for a number of customers with that power. And remember that some of those applications really are quite specific. So they might have a thin wafer application, which is silicon-on-glass or silicon-on-silicon or some other applications. So they're very specific and quite advanced products. And in some of those, there might even be a proton implant on the backside, right? So I'd say that they are still what I would consider highly differentiated products on the silicon power. In addition to -- we've had a very differentiated portfolio and continue to push our portfolio with our latest power series in Silicon Carbide. Jonathan Dorsheimer: Got it. That's helpful. And then just an update on tariff impacts overall on the business and what you're seeing there would be helpful, too. James Coogan: Yes. So as for 2025, we continue to manage through the tariff environment as we think about the optimization of our global manufacturing footprint to help support us in that effort. We are fortunate to have the operations overseas. But we're not immune, right, at all to the tariff and tariff-related costs as they do come in. As we look to 2026, it could have a little bit more of an impact in '26 as we move ahead as sort of some of those tariff costs start to move out of inventory and into the P&L. But the team is working now on working to mitigate the potential impact of that. And as we pull our models together for that period, we're going to -- we'll work to try to quantify that a little bit more materially for you guys. I think overall, we've done a nice job in 2025. But again, these are dynamic times for sure, Jed, as the way things continue to sort of ebb and flow with the administration and the decisions that are made around tariffs. Jonathan Dorsheimer: I will jump back in the queue but nice job managing through the difficult markets. Operator: Our next question comes from the line of Craig Ellis with B. Riley Securities. Craig Ellis: Congratulations on the execution in the quarter, particularly the record CS&I revenues. That's really quite notable that you're now $71 million. I wanted to follow up on something that's been fairly topical with earnings quarter-to-date, and it's the broader arc of China demand and acknowledging that Axcelis has a uniquely broad and I think uniquely served customer base there. How should we think about the potential for China to be either a stable market in 2026, a growing market or one where there would be just more digestion at play? And any color on timing for which that might occur? I know revenues as a percent of total are now 46%. So arguably, it's happened year-on-year and quarter-on-quarter. But any color on that would be helpful. Russell Low: Craig, it's Russell. Thanks for the question. So it's a little too early to say too much about 2026. And clearly, 2025 has been a year of digestion. We believe that China demand in 2026 will depend upon the end demand environment. as well as how much progress they make on the chip self-sufficiency targets. And right now, we believe they're still below those targets. Clearly, China for China and being able to supply domestic chips is a really big initiative for China. And I think they have to continue to invest to achieve this capacity. And I think the markets that we have the most visibility in would be general mature and power, and that's kind of where we're seeing this continued kind of desire to grow. One thing I'd also say, Craig, is so geopolitics aside, our Chinese customers are acting like any of our other customers. They really do want the best technology. They want the highest quality support, and they're actively engaging with us on our road map. So we are very engaged with our Chinese customers. We are aligning our road map so that we can support their long-term growth. And we see opportunities in China. Craig Ellis: That's really helpful, Russell. And then the follow-up question is related to the tantalizing comments that in 2026, we may be seeing indications for a better memory environment. I was hoping you could go into more detail in terms of what you're seeing in DRAM versus NAND to the extent that it's discernible. I know equipment can flex to either line or either type of line, but just more color on what you're hearing from memory customers. And in the past, you've had 50% share with Korean manufacturers. Is that a realistic expectation as memory starts to reaccelerate? Russell Low: Okay. So when we talk with our customers right now, it's clear that the demand is coming from, say, DRAM and HBM. I think when you kind of read the news, some of the suppliers of those products are basically sold out for 2026. You do see the high utilization. You do see the upgrade flow. I think the next stages are to bring on new greenfield capacity, right? So you're going to see that happening. So that's kind of one of the things we expect to see. NAND is really -- still NAND is very quiet. I think NAND has been quiet for us for a long time. And obviously, we care about wafer starts for NAND, not whether you build to and to skyscrapers, which certainly, as I mentioned, helps the dep and etch people. So I do think it's exciting that memory could actually be turning a cycle. It's a bright spot for us. And I do think that we will continue to do well when that happens. Operator: Our next question comes from the line of Christian Schwab with Craig-Hallum Capital Group. Christian Schwab: Good quarter and guide. Just a follow-up on the memory. Can you remind us in a typical capacity cycle of adding wafer starts, kind of a range of revenue outcomes that historically you have seen so we can get an idea of should we enter an up cycle, the range of revenue outcomes that could benefit you in memory? Russell Low: So just to double check, Christian, you're talking about how many implanters, the capital intensity for 100,000 wafer starts, that kind of number you're looking for? Christian Schwab: Yes. So if we -- if there was greenfield facilities available for expansion, obviously, we all know how the pricing environment is. It would make sense for DRAM wafer starts to expand. Does that add $50 potential million of revenue to you on a yearly basis, $100 million? Could you just give us a wide range of potential outcomes? Russell Low: Yes. So let me -- so Jamie is looking to find the exact number, and we'll give you that -- well, the number, we believe. So NAND and DRAM has about the same intensity. And obviously, we're thinking in terms of they all need high energy, medium current and high current. There's a mix of those tools. For 100,000 wafer starts, thought it was north of -- it's 45 to 55 total implanters, that kind of number. Christian Schwab: Perfect. And then as you guys are seeing improved utilization, but spotty and general mature, are you guys optimistic that General Mature will see a recovery in 2026? Or is that yet to be determined? Russell Low: So I think General Mature is going to be driven by the macro climate. So you're looking at consumer spending, automotive and industrial. I think while we're kind of encouraged by memory, we've kind of said in the past, we're kind of bouncing along the bottom. And it is too soon to say that the other markets, namely consumer, industrial and automotive have actually turned. But by customer, you do see pockets of high utilization, but you also see some customers still with lots of excess capacity. James Coogan: Yes. We might just like you guys were monitoring our customers' sort of public commentary on inventory levels and their performance, right? And I think it still continues to be a bit of a mixed bag. Operator: Our next question comes from the line of Jack Egan with Charter Equity Research. Jack Egan: So nice job on the record CS&I revenue. For that, were there any kind of unique or onetime benefits in that number? Or I mean, do you think the current level is pretty sustainable for the near future? James Coogan: Yes. I mean, again, we saw a little bit uptick from some -- again, we talked about seeing some improved utilization rates. So we saw a little bit of uptick there. We do always have some customers who do some buying as they sort of do some restock and other related activities. I think what we saw in the period, right, relative to expectations was slightly higher consumables in the period, which sort of contributed to some extent to the lower gross margin in the period. That's generally a positive sign. It's one of those trends we talk about as recovery comes into play. Upgrades continue to remain strong, primarily in the memory market for the period as well. So again, I think these are just -- we keep talking about these little bright spots that we see along the path. And again, I think you can tell from our tone here, we're a little bit more comfortable on the memory side, but we still remain a little bit cautious as we look at the remainder of the business in terms of calling a broad-based recovery just yet, but we do feel a little bit more encouraging about where memory is going. Jack Egan: Got it. Okay. That's helpful. And then on the bookings side, you mentioned that they're expected to grow next quarter. Obviously, there's probably a bit of a normalization after just the lower level in the third quarter. But can you just kind of go over some of the assumptions for growth in the fourth quarter there, maybe like by end market or geography? Russell Low: I think we're expecting bookings kind of across pretty much all of our customers, right, not specifically a given market segment. I think there's kind of been a little bit of buildup pressure and people will be looking to place POs. I mean obviously, if you focus in on memory specifically, we've kind of said in the past that we typically build to forecast. So you may get the booking and the shipment in the same quarter. So you're not likely kind of to see those necessarily in the backlog. Operator: Our next question comes from the line of Mark Miller with The Benchmark Company. Mark Miller: Congratulations on the quarter. You're talking about lower Silicon Carbide in the fourth quarter. Do you see a trend where EVs are going to be utilizing less Silicon Carbide next year? Russell Low: So I think -- so while the second half of '25 was slightly higher in the first half of '25 for Silicon Carbide, I think it's been -- it's remained healthy, and it's kind of -- the demand has remained. As you kind of talked about, there's kind of 2 camps. There's the camp moving to kind of more advanced nodes and bigger wafer sizes more quickly. And then there's those that are adding capacity with the technology they have. I think one of the things is that as the prices come down significantly within EVs and even hybrids now, we're seeing a lot more penetration of Silicon Carbide into those drive systems, then you're seeing more -- so you're seeing more and more hybrids and electric vehicles anyway, then the penetration into those with Silicon Carbide is going up. And then we're also actually hearing about applications going up. So for example, we're hearing that the compressor for the AC unit on a car is going to be using Silicon Carbide. So that's certainly a positive. And then there's also the new applications, whether it be data center or grid technologies. So I think there's still a long way to go on this electrification. And I think as you see price coming down more and more and more, you're going to see the applications open up. James Coogan: Yes. And we also think about design cycles for automobiles as well, right? I mean those are a little bit of a multiyear. So cars that are being designed over the last few years now actually have the ability, given the price points of Silicon Carbide to introduce it more meaningfully into the BOM, right, as they're building out those automobiles. Reading some reports out there that, again, we talked about penetration of Silicon Carbide into full EVs being in sort of that sort of mid-single digit, and that's maybe today in the sort of low teens or something like that, Mark. So there's still a lot of room to run in the sort of the automobile market for Silicon Carbide on penetration into that space. Mark Miller: Okay. Just what's your feeling for EVs next year in China and the United States? Are they going to grow in both areas? James Coogan: Yes. I think it's hard for us to know. I mean, again, China continues to make some really meaningful progress, right, in the development of their electric vehicles. I think they're doing a nice job in pushing the technology forward. I think the support the government provides to the consumer there to encourage them, right, to move to those vehicles has actually worked pretty well for them. But it's hard for us to know exactly where those numbers come in. Russell Low: Yes. And the other thing, Mark, so obviously, the Chinese auto market is the largest. I think it's like 30 million out of the entire 90 million cars per year. I think the competition has been so aggressive in China amongst the electric car manufacturers that they're now seeking overseas market in order to kind of broaden their portfolio and improve their kind of ability to weather that. So I think you're going to see more and more electric cars at better price points start to proliferate multiple different international markets. Operator: Our next question comes from the line of Denis Pyatchanin with Needham & Company LLC. Denis Pyatchanin: For first question, could you please discuss orders a little bit? Maybe which segments saw the dip in Q3? I see you guys were down to around $55 million or so and what you're seeing into Q4, perhaps also with regards to your full year bookings expectations for full year '25 versus 2024? James Coogan: Sorry, Denis, I missed the first part of that question. Can you just maybe reiterate that real quick? I just want to make sure we're answering the right question here. I know it's around bookings. I just want to make sure we answer it the right way for you. Denis Pyatchanin: Yes. Basically, could you discuss which segments saw the dip in Q3 here and then what you're seeing into Q4 and then maybe full year expectations for 2025 versus 2024? James Coogan: Got it. Yes. So again, I think what we're seeing here is really Power General Mature continue to be a little bit softer relative to the bookings. I think for the full year, we do anticipate bookings to be lower than what we saw sort of during the high days of the high booking rate, although we do see encouraging signs, as Russell noted in his prepared remarks, that bookings will be higher in Q4 relative to what we see here in the third quarter time frame. And then beyond that, we don't typically provide commentary on bookings beyond that, just given the visibility and sort of nature of that process for us. Denis Pyatchanin: Got it. And then my follow-up, maybe we could discuss the CS&I a little bit. So with CS&I being up this much, maybe you can talk about what you're seeing for utilizations or maybe service intensity by geography? Are there some regions that are particularly strong or particularly weak? James Coogan: Yes. So we talked about seeing some good upgrade activity and consumable activity in the memory space. That's primarily going to be tied to sort of our Korean memory customers, and we think about that performance. I think we continue to see good business in China relative to CS&I and other related activities. And then as it relates to the other geographies and the other markets, it really is sort of spot customer by customer based on the specific fabs and utilization rates that we're seeing there. Denis Pyatchanin: What end markets? James Coogan: Yes. And what end markets and what end customers they have. And so we've talked about the sort of disparity even within a certain customer for one fab to have higher utilization than another, and we do see that today, and that translates into CS&I volumes as well. I think the important piece is, though, we continue to push more of our systems right into the field. And so on a period-by-period basis, we're having more available systems for CS&I revenue, which creates that nice stable sort of floor of revenue for us even in lower utilization and lower system shipment regions. And then the generally above-average margins we get from that creates a nice little stable profit base for us as we continue to look to invest in the business going forward. Operator: Our next question comes from the line of Duksan Jang with Bank of America Securities. Duksan Jang: Congrats on the quarter. I wanted to go back to the bookings question. And I know you're not giving too much color beyond specific end markets. But in Q3, you said power and general mature were down, which are 2 of your biggest end markets. And even if Q4 increases -- unless it increases materially, I think your backlog coverage is now only down to 3 quarters. So I'm curious what you're seeing in terms of visibility into 2026. I know Q4 and Q1 were guided flattish, but what happens after that? Russell Low: Okay. So regarding bookings, I kind of said, bookings can fluctuate from quarter-to-quarter. And I think Q3 is no exception. Based on our conversations with our customers across all segments, we're expecting to see increased activity regarding bookings. Regarding memory, which has always been a kind of almost like a turns business where we're kind of seeing some kind of optimism, we're booking -- we're building to a schedule, if you like. And so we expect we'll get the PO at the same time as we ship the tools. That's kind of where we are right now. I think when you look at that, we've got like 4 to 5 quarters' worth of backlog, still at $485 million. That doesn't include any of our CS&I base. So when you start putting the improving CS&I on top of that, you've got a really solid financial base to which to build the business off. So I think we still believe we're bouncing on the bottom, but we do see some exciting opportunities. And as everybody knows that this business can change quickly and often order intake can improve quickly as well. James Coogan: Yes. And just to add back, our backlog is comprised of both short- and long-term orders, Duksan, right? So to some extent that current period deliveries don't necessarily always all come out of backlog either because we are building to sort of our forecast, our customer expectations, as Russell noted, we predominantly see that in the memory space, but that can also happen in other parts of the business as customers' needs and requirements shift and change. We want to make sure that we stand ready to be able to capture incremental opportunities for that. So operationally, we can operate pretty efficiently with sort of the type of production visibility that we have today. We've been making some investments in inventory given the strength of our balance sheet to be able to pivot pretty quickly to meet customer requirements that might come in, in relatively short time frames. And in some instances, we can see customer needs, book and ship in orders within a period, not just within memory, but in other parts of the business as a result of that. Duksan Jang: Got it. And then for China specifically, you said China Q3 was down. You expect it to be down again next quarter. But then a lot of the strength, especially in power seems to be coming from China auto. So what would be the total revenue drivers into Q4 and Q1? Is it mostly the memory customers? Or is it Western power device customers? James Coogan: Yes. So I don't -- we're not going to give specifics, I think, on markets just as of yet, Duksan, right, to some extent. As we look ahead and see where that comes, we do expect to see some incremental memory opportunities supporting the business as we go forward. I just wanted to remind you, as we entered the year, we anticipated China revenue being down both for General Mature and Power. So what's occurring here is not outside of our general expectations to the overall performance of the business given the digestion of capacity that we see there. I think Russell in his prepared remarks noted that we are still seeing new entrants into the Power market. I think there are customers today that see inflection points. As they look at sort of the long-term trajectory of power, specifically in Silicon Carbide, they still see an opportunity for -- to enter the market and to be successful in that space. So like I said, we're ready to support all those customers as we move forward, and we'll have more commentary on that -- on the future expected performance in our next call. Operator: Our final question comes from the line of David Duley with Steelhead Securities. David? David Duley: Can you hear me? James Coogan: [indiscernible]. David Duley: Okay. I finally figured out the technical difficulties. Congratulations on nice results in a difficult environment. Jamie, I think you were talking about gross margin or systems that were pulled into Q3 from Q4 that impacted gross margins. I was wondering if you could elaborate a little bit more on that? And do you expect that to continue in Q4? And my second question is basically adoption of Silicon Carbide outside of electric vehicles. And if you could perhaps elaborate on which end markets you think will start to contribute in a more significant way? James Coogan: Yes. So I'll start with the gross margin and hand the second question off to Russell there. But on the gross margin front, so there's a couple of things. So systems mix, so shipped systems mix within the period can impact margin. We did see a little bit of reshuffling of shipped systems relative to expectations. So that's the sort of product mix. The specific items we were talking about related to the installation. So this is really around some deferred revenue that related to systems that had shipped in prior periods or some installations that were at lower margin. We have forecasted those getting signed off and completed in the fourth quarter time frame. The team in the field worked to bring those in and get those closed off here in the third quarter, which led to some of the high -- slightly higher revenue than what we had forecasted in that space, but unfortunately, also carried some lower margin, which put a little bit of pressure on gross margin for the period. Those are, I think, a unique event. Each installation is its own unique event, by the way. So this is not something we will see this from time to time occur. But as of right now, this event will not repeat in that way going into the fourth quarter as we think about what the systems revenue will be overall. So between that product mix, the timing of those installation acceptances and then sort of the makeup of the CS&I are the real drivers of gross margin for the period. Russell Low: Right, I think your second question was about Silicon Carbide applications beyond electric vehicles, right? So just start off kind of like calibrate on electric vehicles. So I think David mentioned it, but I think it's kind of low single -- low double digits, like the 10% to 12% of cars having Silicon Carbide in them outside of, say, Tesla. I think part of that is because the design cycle is so long for most car cycles that if you want to design Silicon Carbide in, you -- it's going to take you 3 or 4 years for it comes into production. So I think we're going to see a large increase there. And like I mentioned, I also think you're going to see more and more cars taking Silicon Carbide, including hybrids and then needing more and more Silicon Carbide. So that's kind of what we're seeing. And the huge competition and the lowering of costs, I think, is going to grow EVs quite significantly. But that aside, we are hearing about the electric grid and having kind of solid-state devices in the electric grid. We're also hearing about the data centers. But bear in mind, we don't necessarily know what our customers are shipping. But if you listen to some of the kind of reports, some of our customers have products that are going after the data centers, and there's multiple applications in the data centers. It comes in at the kilo volts, jumps down all the way through until it hits a couple of volts or whatever actually on the board. So -- and those data centers are using ridiculous amounts of power, right? And I think the electrification is really going to support the penetration of AI going forward. Operator: Thank you so much for that. That does conclude our question-and-answer session. And thank you for your participation in today's conference. And this does conclude the presentation of our. You may now disconnect. Good day.
Operator: Thank you for standing by. At this time, I would like to welcome everyone to today's Genius Sports Third Quarter 2025 Earnings Results Call. [Operator Instructions] I would now like to turn the call over to Genius Sports. The floor is yours. Brandon Bukstel: Thank you, and good morning. Before we begin, we'd like to remind you that certain statements made during this call may constitute forward-looking statements that are subject to risks that could cause our actual results to differ materially from our historical results or from our forecast. We assume no responsibility for updating forward-looking statements. Any such statements should be considered in conjunction with cautionary statements in our earnings release and risk factor discussions in our filings with the SEC, including our annual report on Form 20-F filed with the SEC on March 14, 2025. During the call, management will also discuss certain non-GAAP measures that we believe may be useful in evaluating Genius' operating performance. These measures should not be considered in isolation or as a substitute for Genius' financial results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most directly comparable U.S. GAAP measures is available in our earnings press release and earnings presentation, which can be found on our website at investors.geniusports.com. With that, I'll now turn the call to our CEO, Mark Locke. Mark Locke: Good morning, everyone and thank you for joining us today to discuss our Q3 results. We will keep our prepared remarks relatively brief this morning as we look forward to hosting many of you at our upcoming Investor Day next month. There, we will share with you a detailed overview of our business, product demonstrations, industry trends and our strategic and financial outlook. With that in mind, I will quickly touch on the key highlights from this quarter. First, we increased our group revenue by 38% year-on-year, making our strongest quarter of revenue growth since Q1 2022. This was led by our Media segment, up nearly 90% year-on-year, further validating our investment and excitement in the space. We also increased our group adjusted EBITDA by 32% year-on-year to $34 million, representing a 20% margin. Both Betting and Media contributed meaningfully to our revenue growth this quarter. I'll touch quickly on Betting to start. Betting revenue increased 28% year-on-year, predominantly driven by growth with existing customers and there are a few specifics that are worth highlighting. First, we secured the exclusive rights to the European Leagues and Serie A this quarter, further strengthening our existing portfolio of the highest quality football content globally. With our scale and distribution across hundreds of the world's largest regulated betting operators, we were able to generate immediate revenue uplift in this quarter through this additional content. Additionally, we announced the expansion of our partnership with Hard Rock Bet this quarter. As part of our renewal, we are now providing Hard Rock with additional content and live trading services across the Premier League, Serie A, European Leagues, NFL and more. Hard Rock is also now the latest Sportsbook partner to utilize our BetVision product across Serie A, NFL and over 23,000 other live betting streams. Our Hard Rock relationship is another example of how our picks and shovels positioning in the U.S. betting market enables our revenue growth to outpace others in the ecosystem. Whether it is in a state like Florida or through a competing product, our portfolio of data and advanced product set is essential to the success for all operators and we are confident this positioning will afford continued opportunities in an ever-changing and evolving industry. We've also expanded our partnership with ESPN BET this quarter, which now, for the first time, includes BetVision, not just for NFL, but for our full suite of soccer and basketball content as well. And finally, we have seen positive in-play betting trends to start the NFL season. Through the first 6 weeks of the season, in-play represented 30% of total NFL handle, right in line with our expectations. We are encouraged by the continued growth of in-play betting and expect this will continue to drive betting revenue growth through the remainder of this NFL season and beyond. This growth is a function of the continued evolution and maturity of the U.S. market, but equally, it's driven by an improving set of in-play betting products. Our sportsbook partners have done an excellent job of offering a much wider range of in-play betting markets this year, and we are realizing the direct benefits of that. To add to this, we are empowering more in-play betting volume through the continued distribution of BetVision, which is now available on nearly every major sportsbook in the U.S. and continuing to drive more viewership, increased in-play betting and more engagement overall. For instance, through the first 6 weeks of the NFL season, we have seen a 35% increase in the number of unique devices streaming NFL on BetVision. Additionally, we've seen a 25% increase in the average time spent on BetVision per device. So we aren't just seeing growth in the overall numbers, but also growth in the actual time spent interacting with the platform. This, as you know, is critical for the integration of our advertising solutions into the BetVision product, which I will touch upon shortly. And most importantly is that BetVision continues to be a consistent enabler of greater in-play betting, which represented 74% of total handle through the BetVision platform so far this season. And within the last 6 months, we have launched BetVision for soccer and basketball, meaning that we are now providing over 23,000 events per year, more than 200 global competitions through BetVision, representing a rapid expansion of the product. As a result of this expansion, the number of sportsbook customers utilizing BetVision has exploded. This time last year, we had 6 Sportsbook customers integrated with BetVision. As of today, that number has grown to over 100 Sportsbooks, representing more than 350 brands. This kind of growth in just 1 year demonstrates our scale and distribution. So BetVision continues to drive more engagement in in-play wagering, which compounds our Betting revenue growth. And as we have proven consistently, our Betting revenue growth continues to exceed the growth of the overall market. This was the case again in Q3 with the growth of our Betting revenue nearly doubling the growth of our U.S. GGR. Now as it relates to BetVision, this increasing engagement is also enabling opportunities in Media, both as a source of audience information and as a source of unique advertising inventory, each of which makes our advertising services unique in the market. As such, our Media business was the largest contributor this quarter with revenue increasing nearly 90% year-on-year to $42 million. I'll pause for a moment to let that register. $42 million marks a new quarterly record of Media revenue in absolute terms and 89% growth is our strongest year-on-year increase since Q1 2022, the quarter of our first Super Bowl for perspective. When we raised our guidance last quarter, we expected 50% to 60% revenue growth based on minimum commitments. So we are happy to see that level of spend in the quarter exceed even our own expectations. I want to take a moment to quickly remind you of what makes our advertising platform unique. We understand sports better than anyone. We know sports fans better than anyone and we are leveraging our technology to create the next generation of fan experiences. So these are 3 distinct factors that differentiate us and we strengthened each of these even further over the last few months. The first is live sports data. We understand the exact moment of a heightened fan engagement and emotion and use real-time data to trigger advertising content, improve campaign pacing and inform bid optimization strategies, all leading to better return on investment for our customers. The second is audience data, our understanding of who the fans are. We have several sources of first-party data and now we've acquired Sports Innovation Lab, which brings an even deeper understanding through their proprietary fan graph, which is built on real spending patterns compiled from billions of transactional data points. When combined with our league relationships, existing data sets and media buying platform, we can reach fans with even greater precision and at exactly the right moments, generating a higher return for our advertising customers. Third is our unique inventory. We're creating new ways for brands to reach sports fans that can only be executed through Genius Sports. Last quarter, we mentioned new inventory that now exists on BetVision and how quickly that, that was monetized. Our latest example of new and unique inventory was seen on FanDuel Sports Network for select WNBA games. We delivered broadcast augmentations to showcase next-gen stats such as real-time short probabilities, 3-point distances and more. We transformed these augmentations into high-impact sponsorship opportunities, empowering brands like Shopify, NBA 2K and Point3 to own these key moments of the game, fully integrated live on the broadcast. This has been highly successful for broadcasters and advertisers alike, so we expect more of this to come. So we are continuously improving each of the factors that make us unique and we have built the most comprehensive real-time fan activation platform in the industry. Our Media revenue growth this quarter is evidence of the progress that we've made. As always, our Media revenue is driven by two important factors: growth in the number of advertisers and increase in total advertising spend. This is exactly why it's important for us to sign deals with advertising agencies because they aggregate a large amount of spend across several individual brands. So our recently signed agency deals, including our new partnership with P&G, are driving significant growth in the Media revenue through the second half of the year. We plan to cover the Media business in more detail at our up-and-coming Investor Day on December 3. But in the meantime, the key takeaway is simple. We have a unique set of sports data, audience data and inventory and that enables us to deliver superior return on ad spend for our partners. We're gaining significant momentum with brands and agencies and remain optimistic about the long-term potential of this business. Before we conclude, I want to briefly address prediction markets, a topic of frequent discussion over the last few months. In an effort to preemptively address questions, let me share our perspective. We are observing the developments around prediction markets carefully. We must always comply with applicable laws and regulatory requirements and we place a great deal of importance on the views of our regulators and commercial partners. As they evolve and mature, prediction markets may provide a meaningful new opportunity for Genius Sports in expanding the addressable market. While these products are nascent, they are evolving rapidly and the need for Genius official league data, marks and logos and integrity solutions will only grow as prediction markets become more sophisticated. This means that we are extremely well placed should we decide to engage. With regard to timing, we are being extremely considered and deliberate in our approach. We will work closely with key stakeholders across the ecosystem, our league partners, regulators, existing customers and indeed, the prediction markets themselves to determine the next steps and we are confident in our ability to capitalize on this opportunity in a responsible and sustainable way if we feel all of the requirements we need to be in place to participate in this market are met. Given the early and evolving nature of this market, we won't be providing additional detail on this call, but I want to be clear, if we are confident that prediction markets will meet our robust regulatory and commercial thresholds, these developments could result in positive developments for Genius Sports and our future growth. And with that, I'd like to officially welcome Bryan Castellani to his first earnings call for Genius. And I'll now turn the call to Bryan to discuss the financial results in more detail. Bryan Castellani: Thank you, Mark. I'm very happy to be joining Genius at such an exciting moment in the company's journey, and I look forward to working with the analyst and investor community. To pick up where Mark left off, I will also keep my comments relatively brief this morning since we are planning to cover a lot of financial detail in our Investor Day. As you've heard from Mark, we benefited from multiple revenue growth drivers this quarter across both Betting and Media. Even if we take a step back and review our year-to-date position, we are delivering well-balanced growth across each of our product groups and tracking well ahead of our initial expectations to start the year. As you'll see on Slide 14, we are also seeing strong growth from each geographic region globally. As you can imagine, the U.S. is driving most of the growth this year and this quarter in particular, especially given most of our Media revenue is derived in the U.S. But even in our more mature European business, we have still increased our revenue by 19% year-to-date, which speaks to our long-term value creation and growth with sportsbook partners who operate in more mature markets. You'll notice our Group adjusted EBITDA margin was roughly in line with Q3 of 2024 and it's worth quickly touching on a few one-off factors. First, we just secured the official data rights to Serie A and the European Leagues in August. As we outlined last quarter this partnership is built on the broad deployment of our technology platform across Europe, which enabled us to obtain these rights on attractive financial terms. Because rights fees are recognized over the course of the season, we recognized 2 full months of expenses in August and September. However, on the revenue side, a few sportsbook contracts were finalized shortly after the quarter end, resulting in a temporary timing mismatch between expense and revenue recognition. This will naturally resolve in Q4 as the revenue from those contracts are recognized. With that in mind, we have generated strong growth in Group adjusted EBITDA, increasing 32% in Q3 and 65% through the first 9 months. And as it relates to cash, our operating cash flow this quarter was $27 million, demonstrating the seasonality of our cash flow, which typically flips positive in the second half of the calendar year. Taking a step back from the quarter and looking across the full year, we are continuing to demonstrate strong annual top line growth and group adjusted EBITDA margin expansion. We feel confident in the underlying trends across both Betting and Media, as you heard earlier from Mark. In Betting, we're seeing strong product adoption, increased in-play betting and favorable pricing in our fixed contracts, giving us good visibility for approximately 30% growth for the full year. In Media, we're even more optimistic. We started the year expecting full year growth in the low to mid-teens. Last quarter, we raised our growth expectations to 20% and now we expect growth of nearly 30%. As such, we are raising our group revenue guidance from $645 million to $655 million representing 28% growth for the full year. We are also raising our group adjusted EBITDA guidance to $136 million representing 59% growth and 400 basis points of margin expansion for the full year to 21%. This further emphasizes our consistent growth and margin expansion on an annual basis. To conclude, the business is firing on all cylinders. We're continuing to improve our position in the online sports betting industry through expanded content coverage, increased product adoption and favorable commercial terms, enabling durable revenue growth. We're also proving the value of our advertising platform, evidenced by a growing number of unique capabilities and new client wins. This success is reflected in the results we've delivered to date and our raised expectations for the rest of the year. We're looking forward to sharing more detail with you in our upcoming Investor Day on December 3. We'll now conclude our remarks and open the line to Q&A. Operator: [Operator Instructions] and it looks like our first question today comes from the line of Ryan Sigdahl with Craig-Hallum Capital Group. Ryan Sigdahl: I want to start on Serie A, European leagues. You mentioned kind of the straight-line expensing delayed revenue rec from a few sportsbooks. One, can you quantify that? And then two, the impact on the quarter that is? And then two, anything you've learned from those two specific contracts now that you've taken them over from the commercial negotiations to working with the leagues to just anything that may have surprised you with either of those? Mark Locke: Ryan, it's Mark. I'll take those backwards. Well, so on the commercial negotiations, I think the takeaway from some of this is really that the rights market that we -- is changing in a way that's very positive to us. We're sort of seeing the sort of evolution that we've been talking about over the last few years of rights fees coming down in a lot of leagues and giving an opportunity for us to deploy technology and partner in a very meaningful and serious way with the leagues. And the rights deals that we've announced recently are very good examples of that. We've managed to deploy a lot of technology. We've managed to create relationships with those leagues that give us the opportunity to really leverage the technology that we've got, access new markets and deploy a lot of our -- it make a lot of the -- sorry, make some returns on the investment that we've been making over the last few years. Bryan Castellani: Ryan, what I would add -- it's Bryan. Thanks. I would add just that, as I called out, we contracted those early in the quarter but we have a revenue timing mismatch where it will take us a bit of time to monetize them. And so there's a timing expense impact on that. Ryan Sigdahl: Are you willing to quantify that? Bryan Castellani: No. Ryan Sigdahl: Fair enough. Switching over to the Media segment, nice outperformance in the quarter. It seemed like better on the revenue line than kind of the flow-through to EBITDA. Curious if that was more the legacy, let's call it, programmatic advertising, lower-margin business or if it was kind of FanHub, higher-margin, self-serve DSP and just kind of bifurcating that strength in the quarter and then also the raise in guidance and if there's any difference in that mix in Q4? Bryan Castellani: Yes. Ryan, it's Bryan again. Just on the margin flow-through, again, we have the rights timing impact there, Serie A and EPFL coming online early in the quarter and we will monetize in Q4. And so that will start to unwind itself a bit. The revenue mix, as you noted, Media was heavily weighted there with strong growth, almost 90%. That flows through at a lower margin than our Betting business but all the trends in Media going the right way and growing that business. And for the full year, while the margin may be a little lower this quarter but it was where we expected, everything performed in line with our expectations. Looking at the full year as well as year-to-date, you have roughly 60% growth on the EBITDA and high 20s on the revenue. So you'll see there year-to-date, there's 460 basis points of margin growth. And for the full year, we're projecting 400. So the quarter really just impacted more by timing and mix. Operator: And our next question comes from the line of Clark Lampen with BTIG. William Lampen: Mark, I wanted to go back to growth in the Betting Tech business for a moment. You talked about performance sort of exceeding the U.S. benchmark. Is it possible to contextualize for us as the market is evolving and it's sort of coalescing around you and your next largest competitor sort of on a go-forward basis, is it reasonable to think about sort of growth holding and above market, i.e., 20% to 30% range for the foreseeable future? Mark Locke: Yes. I mean there's a lot in that. I mean we're seeing a lot of product rollout. As I mentioned in the call, we're running over sort of 20,000 -- I think we're up to about 23,000 events now. So the products that we're putting out into the market are evolving quickly and providing a lot of revenue opportunities. We're sort of seeing this kind of consolidation around the way that we operate the business. We've got our BetVision product going out. The Media is integrated into that, and that's providing us opportunities to compound some of the growth. So we're expecting strong growth over the coming period. I mean, I think we put our long-term targets out 30% margin. We still see that as our North Star. And again, the way that the product rollout is happening at the moment is bang in line with how we've been talking about it over the last few years. William Lampen: That's helpful. And if I could, just as a quick follow-up, I apologize if I missed it, but did you call out sort of the delta in performance between the sort of 50% to 60% plan and the north of 80% growth that you realized for the Media business. What led to, I guess, sort of more spend materializing in the quarter? Was it customers seeing a better return? Or was this perhaps timing related? Any color you can provide would be helpful. Mark Locke: Yes. I mean the short answer to that is agencies and strong returns. The products are proving themselves. We're getting the outcomes that we want. And obviously, we've got the agency announcements that we've made. So -- and the combination of both those is driving outsized growth in that sector. Operator: And our next question comes from the line of Mike Hickey with The Benchmark Company. Michael Hickey: Mark, Bryan, congrats guys on a great quarter. Welcome, Bryan. Great to hear your voice this morning and seeing you at G2E. Just two quick ones. Mark, just curious on the prediction market here, obviously creating a lot of excitement for the industry. Do you think this could be a driver of legalization across the U.S. and some key states here that have been kind of sticky and not legalizing? And then the follow-up, Mark, would be, do you have any concerns where the prediction markets are competing against some of your partners today that they could take some market share in the near term or long term? Mark Locke: Yes. I mean sort of to take it backwards and I think we made some pretty direct comments in the prepared remarks that we see on a general principle, anything that expands the TAM and expands the market is a good thing for us. We're well placed and we believe that there's a need for official Genius data, league data, marks and logos, integrity solutions across the Board, and that's only going to grow. So in terms of the prediction markets, we -- frankly, as I said in the prepared comments, we see there is potentially an opportunity which could be very exciting. But again, we keep a very tight eye on regulation. As you know, you follow us for a very long time. We're very focused on making sure that we operate in a highly regulated fashion that we work with regulators and we work with the right people in the market. So at the moment, we're watching it very closely. It's not -- it's a topic of frequent conversation, not only externally but also internally. But at the moment, we feel very well placed. We feel like there could be a large opportunity but we've got to watch the regulatory space and how that's evolving over time. Michael Hickey: Mark, I guess a quick follow-up. Just on the integrity piece. We're seeing a lot of issues here, obviously, NBA, UFC and there's some international pieces too. Can you just talk about how the integrity piece of your business and how vital you think it is to the ecosystem? Mark Locke: Yes. I mean it's how we entered the market in the U.S. If you remember all those years ago, we sort of led with the focus around integrity. And again, it sort of comes down to the concept of official data, the thing we've been talking about for many years. It's increasingly important as we're seeing that the operators and the market coalesces around one focus around official data, one source of truth and making sure there's full transparency in the market. So there's nothing particularly new here from our point of view. Again, we came to market in the late teens of 2000 with an integrity product that was focusing on making sure that there was real transparency and real understanding of what the original results are and how the markets are working. And again, we're just seeing the evolution of that coming through in the market as we predicted. Operator: And our next question comes from the line of Bernie McTernan with Needham & Company. Bernard McTernan: Just want to ask, I mean, kind of a real-time question, but with the ESPN blackout on YouTube TV and Monday Night Football, was that helpful for BetVision viewership? And if so, any tactics that you or your sportsbook partners could deploy to make sure the consumers come back after the blackout or stay with you guys -- stay with BetVision after the blackout is over? Mark Locke: Yes. I mean, look, I mean, not to comment specifically on that but I think the overall point is around the growth of BetVision as you've seen, I think I can't remember which slide number it is. But we've put it out there where the number of sportsbooks has grown. I'm just putting the numbers up. Yes, I think we're up at what we published about 120 BetVision customers and the amount of content that we're putting through it has gone up to north of 20,000 global events. So we're seeing strong growth. We expect that product to continue to deliver decent viewership. And again, internationally, we're seeing a lot of success there. So we don't know how the viewership and I won't comment on ESPN specifically but we don't know how that's going to affect it. But overall, we think getting content in front of sports punters is good for the sports leagues, increases the number of eyeballs, increases the focus on those competitions and we think it's good for the sportsbooks. And again, we're seeing good results from them. Bernard McTernan: Yes. Makes a lot of sense. And secondly, can you just talk to the advertiser response to the Sports Innovation Lab data? This seems like a pretty significant upgrade. And so when do you think you'll start to benefit from this data in the identity graph? Mark Locke: Yes. Well, we're already benefiting from it. It was a company that we've been doing some work with and the integration has been very, very smooth and pretty much immediate. So we knew what we were getting when we bought the business and we're already using it and we're already getting very strong results from doing so and good response from the customers. Operator: And our next question comes from the line of Jordan Bender with Citizens. Jordan Bender: Something that's front and center again is kind of the bad game outcomes that are happening across the NFL. As we've learned your business model, there's this understanding that higher gaming margins for the NFL leagues to more upside in your estimates via your variable gaming revenue. So the question is, do you start to think any differently about how you view your upside with respect to variable revenue as we are now in what's the third consecutive month of poor results and what looks like the third consecutive year of bad outcomes in the NFL? Bryan Castellani: Yes. I would say that we had communicated a while and we did what we said in terms of a round of renegotiations and renewals where we increased our fixed composition. And so while that has decreased the variable component, it still exposes us to the upside and it also gives us more predictability and consistency. And so the week-to-week holds, we don't really feel that variability, that noise. And we obviously like the model we have and we continue to grow our value for the sportsbooks in terms of just the adoption of products and helping them engage more deeply with their audience. Jordan Bender: Got it. And then just a follow-up. The in-play mix at 30% from what I see in my notes here, that's roughly flat year-over-year. Maybe something more to discuss at your Investor Day but curious if there's any change on how you're thinking about the shift into in-play over time. Bryan Castellani: Yes. I think it's partly too, we're early in the season here. The parlay mix matters. And so as we've seen around the world, it's likely that will grow over time, but I think we're early in the season here to judge it too finely as staying flat. Operator: And our next question comes from the line of Jed Kelly with Oppenheimer. Jed Kelly: Just two. Touching on the Media segment, obviously, good growth, recent acquisitions. Can you just talk about how your go-to-market strategy is evolving with your sales force? And then following up on Jordan's questions around the 30% live Betting mix. Are you seeing more better start to go into the higher-margin products such as TV props? We've seen the sportsbooks push that. So is some of this that they're just going into higher GGR products, which is actually a benefit for you guys? Mark Locke: So the answer to the first question is the go-to-market strategy is pretty much in line with what we've been saying for a while. Our focus is agencies. Our focus is deploying the product through them and the acquisition of large brands and proving value through the initial campaigns that we run and making sure we're getting results and it's all coming through. And again, it was touched on the last questions, SILs have really helped a lot with that. We're getting strong results off the back of that. So we expect our relationships with our agencies to continue to grow and we'll touch upon that in the upcoming Investor Day. Bryan Castellani: On the in-play, as we said, overall, we're seeing that roughly flat. What I would say, and we've called it out in the slides, is that in BetVision, where you might say that is a deeper fan engagement, that in-play mix is closer to 70%, 75%. So we do see that the deeper they go, the more in-play there is. So I hope that helps. Operator: And our next question comes from the line of Steve Pizzella with Deutsche Bank. Steven Pizzella: Just going back to the advertising business. I believe you mentioned increased spend in the quarter -- for the quarter, driving the growth above your expectations. Can you talk about how much visibility you have into the Media business versus the shorter term in the quarter demand? Bryan Castellani: Yes. We -- again, there, our business continues to grow ahead of our expectations this quarter. As I called out in my remarks, we started in the teens, went to 20%. Now we're projecting almost 30% for the year. Things like the Sports Innovation Lab acquisition give us more data and deeper insights. And we're currently working on with our new agencies and partners on just annual planning and things like World Cup. And so we look forward to talking more about it at Investor Day. Steven Pizzella: Okay. And then can you just help us how we should think about free cash flow in the fourth quarter? Bryan Castellani: Yes. On free cash, we had a strong 2024 with $82 million in operating cash. And a big piece of this is going to be a couple of things in terms of discretionarily where we might invest as well as you have some timing of rights as I mentioned earlier. And then also, we do have, and we've called it out, there is some nonrecurring one-off litigation expenses. So on -- when you look at it organically, we expect it up to be strongly. And so the back half of the year is typically where our cash flow flips positive and strong. Operator: And our next question comes from the line of Barry Jonas with Truist. Barry Jonas: I just wanted to follow up on an earlier question. I think we -- relative to the NBA scandal going on, I think we all understand potential upside with integrity solutions and the power of official data. But can you help frame for us any risks around wider bet type restrictions like perhaps limiting player props or micro betting? Mark Locke: Yes. I mean I think the answer still stands, to be honest with you. We've seen this quite a lot in Europe and we've sort of been through a sort of cycle of this in -- especially in the U.K. And I think the focus really does come down to official data and making sure that the leagues are well plugged in and the regulators are -- have good visibility of how the markets are evolving in respect to official data. So we don't really see particular risks around that as long as the market continues to evolve hand-in-hand with the sports leagues to protect the consumer. Barry Jonas: Great. That's helpful. And then Bryan, congrats on the new role. I didn't have a chance to meet you at G2E, but I was just curious if you could spend a minute talking about how you'll approach the role with any new lenses and how you think your background can most help add value here. Bryan Castellani: Yes. Thanks. I hate to turn the call into about me. But listen, I come from a long background in sports, media and entertainment. And what we're doing here at Genius is exciting. And I think for me, Genius is at a really interesting point where our scale and our distribution continues to grow very well. And I have, of course, been focused on driving -- continuing to increase the top line, especially the EBITDA and cash flow and also continue to help and be continued good stewards of capital. And I think you've seen us allocate capital well and set high standards for when we spend it, where we spend it and with whom we spend it. Operator: And our next questions come from the line of Eric Handler with ROTH Capital. Eric Handler: I'm curious, as the NFL continues to expand internationally, have gains into new markets this year, are you seeing any impact on bets being made overseas with the NFL? Mark Locke: Yes. Yes, we're seeing the NFL a real success internationally. I mean you saw, I think, Flutter announced their news with the NFL on an international basis. I think it's the third most bet on sport with Paddy Power. So they're making real traction, and it's certainly piquing the interest of the players in the European market. Eric Handler: Okay. And then I know it's still very early, but I wonder if you have any sort of early insights on BetVision with your new soccer and basketball rollouts. Mark Locke: Yes. I mean, I think the initial indication is we've got, I think, over 100 customers that have taken it now. So the growth has been extremely strong and we're seeing good results and getting good feedback from that. The addition of new events is interesting. I mean, I think most people think about it from only the sportsbooks point of view. But one of the things that's probably a lens that's interesting to think about, I guess, is if you're a sports league, what you're looking for as you look at the distribution, you want people and you want engaged players to be watching your game in order to distribute your sport and make it more well known. And I think that in today's world where the way that sports consumed is changing so much. You've got short-form content, my kids watch sport in a very different way to the way that I used to watch sport. I think that this product is a really helpful thing for the leagues which is why they're so supportive of it. The other thing, I guess, that's happening is just the way that the advertising market is changing. The advertisers want content that's -- sorry, want spots that are driven by high emotion. Our technologies with the fact that we've managed to teach the machines to understand the game, and therefore, we can highlight those moments of high emotion, which end up getting high returns for the advertisers. So putting a brand logo up as a gold score or something very, very relevant to that individual fan happens on the event. We were able to do that now. And we're seeing very, very strong results from that. Again, it's one of the things that I think is piquing the advertisers and certainly the agency's interest in helping to drive the Media business growth. Operator: And our next questions come from the line of Josh Nichols with B. Riley Financial. Josh Nichols: Real quick, I just want to touch on the gross margin front. I understand you had some additional expenses in 2Q with the revenue coming in -- or sorry, in 3Q with the revenue coming in, in 4Q. With that in mind, just how should we think about the margin profile for 4Q? Do you expect that to be back up to be up year-over-year in the fourth quarter, given you have a normalization? Bryan Castellani: Josh, I mean, we've called out where we expect to land for the year at $136 million against the $655 million and roughly 20% margin and up 400 bps year-to-year. And in terms of -- if you were looking at the cost of sales, some of that has to do with just increased rights costs in there. Josh Nichols: That makes sense. And then last question, you'll probably touch on a little bit more detail at the upcoming Investor Day. But if you look like the Media business now, you've taken the growth expectations up there to like 30% this year. And you've mentioned previously that you thought the company as a whole was able to deliver 20% plus growth for multiple years. Fair to assume, not just looking at this year but a little bit beyond that, that you would expect the Media business, given the traction you're seeing to grow at above that pace for at least the foreseeable future? Bryan Castellani: Yes. And we'll talk about this more at Investor Day. As I said earlier, I mean, it is U.S.-centric in that the U.S -- the U.S. and particularly in the back half of the year, the NFL drives a big component. And so strong growth this year, and we're working on that annual planning and how the calendar next year will look. And so we'll talk about that more at Investor Day. Operator: And our next questions come from the line of Chad Beynon with Macquarie. Samir Ghafir: This is Sam on for Chad. Mark, last quarter, you mentioned that a big focus for the company was on trying to create more NFL ad inventory for your partners. Just curious now that we're a couple of months into the season, if there are any updates or new plans on that front for this NFL season or for the next? Mark Locke: Yes. I mean we've managed to do that and we've sold it out actually. It's all sold out. So that's a pretty good place to be. It gives us opportunity to create more inventory going forward as well since we can evolve the product sets as they go. And as you'll have seen, again, I don't have the slide number but the slide entitled New Inventory creating more ways for brands to reach sports fans, I think, is a really good example of that. Samir Ghafir: And then bigger picture question. I wanted to ask about the 30% margin target. It seems like the growth for the company keeps getting better. So as a company, how are you guys thinking about the balance of growth versus profitability and the time line to reach that target? Bryan Castellani: Again, I mean, we will provide a multiyear view at Investor Day. This year, we're adding 400 bps and we continue to believe that our margins will rise over the next few years and achieve -- I don't want to get too far ahead on future guidance but we remain optimistic about what we said, where we're going, and we're excited for December 3 Investor Day to talk more about it. Mark Locke: Yes. I mean there's sort of two main focuses. We've got our North Star out there at 30% margin, which we're still targeting and feel very good about. And we're focusing increasingly and certainly will in '26 on cash flow conversion and increasing the cash flow from the business. So we've had a good couple of years on that front and we are hyper focused on that. And again, it's one of the reasons I'm so excited to have Bryan join us to focus on driving that. Operator: And our final questions today come from the line of Greg Gibas with Northland Securities. Gregory Gibas: Congrats on the quarter. Similar to what you accomplished with ESPN BET to, I guess, expand to the full suite of BetVision sports coverage, could you maybe discuss the opportunity with your broader sportsbook customers that maybe don't use or use it for perhaps just the NFL? I guess just kind of how underpenetrated you would say that, that product is relative to the full adoption opportunity? Mark Locke: Look, they're early days. The products are being distributed widely. We've got a good uptake in the sportsbooks, as we mentioned earlier but there's still an awful long way to go. I think the thing that I would focus on if I renew your shoes is the level of results that we're getting. Obviously, the sportsbooks as we said for a very long time, we want to be shifting people to in-play betting, higher margins, better returns, better engagement from the fans point of view. And from our point of view, we get a much higher return on our -- through the commercial deals that we have. I remind you, going back over the years, it's 3x the amount. So there's a strong focus in the business on getting that distribution and frankly, a strong focus from the sportsbooks as well because it benefits both of us. So from that point of view, we think that we're still very early in the journey and we expect that product and the adoption of that to be very strong over the coming years. Gregory Gibas: Got it. Great. And I guess for clarification and I apologize if you already addressed but regarding the temporary timing mismatch between rev rec and the increased cost basis from rights, fair to say no impact expected or carry over into Q4? Bryan Castellani: That's right. It should start to unwind as we -- for Serie A and EPFL in particular, we start to monetize those deals. Operator: All right. Thanks for the questions, Greg. And that does conclude our Q&A session, and it also concludes today's earnings call. Thank you so much for joining and you may now disconnect. Have a great day, everyone.
Pawan Kedia: Good evening, ladies and gentlemen. I'm Pawan Kumar, General Manager, Performance Planning and Review Department of the Bank. On behalf of the State Bank of India, I'm delighted to welcome the analysts, investors, colleagues and everyone present here today on the occasion of the declaration of the quarter 2 financial year '26 results of the bank. I also extend a very warm welcome to all the people who are accessing the event to our live webcast. We have with us on the stage our Chairman, sir, C.S. Setty at the center, our Managing Director, Corporate Banking and Subsidiaries, Sri Ashwini Tewari; our Managing Director, Retail Banking and Operations, Vinay M. Tonse, our Managing Director, Risk, Compliance and SARG, Sri Rana Ashutosh Singh; our Managing Director, International Banking, Global Markets and Technology, Sri Rama Mohan Rao Amara, our Deputy Managing Director Finance, Srimati Saloni Narayan. Our Deputy Managing Directors heading various verticals and Managing Directors of our subsidiaries are seated in the front rows of this hall. We are also joined by Chief General Managers of different verticals, business groups. To carry forward the proceedings, I request our Chairman, sir, to give a summary of this Bank's quarter 2 financial year '26 performance, and the strategic initiatives undertaken. We shall thereafter straightaway go to question-and-answer session. However, before I hand over to Chairman, sir, I would like to read out the safe harbor statement. Certain statements in today's presentation may be forward-looking statements. These statements are based on management's current expectations now subject to uncertainty and changes in circumstances. Actual outcomes may differ materially from those included in these statements due to a variety of factors. Thank you. Now I would request Chairman, sir, to make his opening remarks. Chairman sir, please? Challa Setty: Thank you, Pawan. Good evening, ladies and gentlemen. Thanks for your interest in SBI. I would like to start by thanking the support of all of our stakeholders, including our customers, shareholders, employees and the broader ecosystem are supporting us all through our journey. Fairness to all our stakeholders remains at the cuts of the bank's culture, which in turn has helped us in creating sustainable value and contributing to nation's success. Let me first start with a brief description of the present global and domestic economic scenario. The global economic outlook for 2025 presents a picture of modest but uneven recovery. The IMF's world economic outlook, October 2025 projects world GDP growth at 3.2% in 2025 and 3.1% in 2026, reflecting steady but subdued momentum amid persistent structural challenges. Regarding inflation, though it has broadly moderated across most economies, the pace of disinflation remains slow. Against this global backdrop, India's macroeconomic outlook remains one of cautious optimism, underpinned by robust domestic demand and easing inflationary pressures. The RBI projects real GDP growth at around 6.8% for FY '26 and 6.6% for FY '27. Growth is being supported by strong investment activity, recovery in rural consumption and buoyancy in services and manufacturing. The GST 2.0 reforms are expected to boost private consumption and domestic demand. On banking front, scheduled commercial bank's credit growth is slowly picking up and grew by 11.5% year-on-year. Last year, it was at the same level of 11.5% for the fortnight ended 17th October 2025, while deposit growth remains sluggish at 9.5%, which was 11.7% last year. Going forward, we expect demand for credit to continue in the second half. By looking at the trend, deposits and credit growth of scheduled commercial banks may remain in the range of 11% to 12% during FY '26. However, risks persist from volatile global commodity markets and potential spillovers from the trade disruptions. Overall, India's near-term outlook is strong with macroeconomic stability providing space for sustained medium-term growth. In the above economic backdrop, let me now highlight a few key aspects of bank's performance in the half year and the second quarter of FY '26. Our Q2 FY '26 results and of several quarters before this underscore a simple point. State Bank of India is compounding on durable structural advantages, scale with discipline, growth with quality, returns with resilience. The current quarter demonstrates industry-leading credit growth at SBI scale, market share gains in chosen segments such as current account, home loans, auto loans, stable asset quality and disciplined pricing. Our domestic NIMs for the quarter improved by 7 basis points quarter-on-quarter to 3.09%, driven by repricing of deposits. Operating leverage from technology, distribution and procurement. The flywheel is clear. Our strength in low-cost liabilities derived from our brand, customers' trust in SBI and our extensive reach. These advantages allow us to expand liabilities significantly, which are then utilized to finance strategic growth with careful pricing discipline. This focus on pricing and robust risk management supports our leading return on risk-weighted assets, RORWA. A well-capitalized balance sheet enables us to achieve top-tier return on equity, which in turn helps in compounding our book value while maintaining stable capital ratios. In this quarter, we also raised INR 25,000 crores of equity capital by way of qualified institutional placement with a demand book of more than INR 1.1 trillion. This was the largest ever QIP offering in India. We thank our investors for supporting us in the capital raise. The issue was oversubscribed 4.5x with significant interest from both domestic and foreign institutional investors. What are our strategic anchors? They are brand trust and customer value. SBI is the reference brand in Indian banking. We earn trust by creating value for customers through transparent, efficient service and optimal pricing across deposits and lending. Relationship depth drives balanced stability and lowers risk through cycles. Institutionalization at scale. SBI runs on codified processes in credit, risk, collections, treasury, technology and procurement while allowing innovation at all levels. Execution is consistent and repeatable across businesses and regions. Fair outcomes for all stakeholders is the third anchor. We balance customers, employees, investors and society. Capital is allocated where risk-adjusted returns are sound. We price risk fairly, invest in people and systems and support the real economy while protecting depositors and shareholders. Fourth anchor is liability franchise strength. I think I mentioned earlier also, our total deposits of INR 56 lakh crore, CASA deposits of more than INR 21 lakh crores with CASA ratio at 39.63%, while CASA market share, 23% versus overall deposit market share of more than 22%. This granular low-cost funding is a structural advantage and the engine for disciplined growth. And finally, the anchor, which I want to mention is leadership where roadway is attractive. We lead by a wide margin in lending and liability products with superior risk-weighted returns. We choose segments where unit economics are strong and price up are deemphasized where capital is not adequately compensated. We believe SBI is positioned to grow faster than the industry at this scale and to deliver higher ROE than the industry. We will attempt to deepen the liability engine and sustain the CASA outperformance, allocate capital to high RORWA businesses and maintain pricing discipline, use technology to lower cost to serve and lift service quality and further improve capital turns. Keeping in view a customer-centric approach, bank has launched Project Saral, I think I did mention last time also, on the 31st July 2025, aligning with this year of simplification, an ambitious vision of a complete revamp and redesign of operational processes in our retail banking territory. The aim is not only to reengineer the existing processes, but also to make the bank future-ready for the evolving financial landscape and changing market dynamics. So as we augment and enhance our digital capabilities further, Bank will shortly launch the next version of YONO platform YONO 2.0, which is not just an upgrade to the previous version but a leap forward in digital banking. With state-of-the-art journey designs and supporting tech architecture, our customers can bank with confidence and in a more seamless manner. Although the current valuations of SBI are a conundrum, considering our return on equity and growth metrics, we are confident that they will eventually align with our fundamental and operational metrics, the institutionalized nature of our business and our market leadership in the coming years. SBI's path is clear. We will defend and extend the liability franchise, grow faster than industry where RORWA is superior, institutionalize execution and deliver fair outcomes for all stakeholders. To conclude, I thank you all for your continuous support to the bank. We remain committed to rewarding your trust in us with sustainable returns over the long term. I wish everyone here the best of health and happiness. My team and I are now open to taking your questions. Thank you very much. Pawan Kedia: Thank you, Chairman, sir, for the presentation. We now invite questions from the audience. For the benefit of all, we request you to kindly mention your name and company before asking the questions. To accommodate all the questions, we request you to restrict your questions to maximum 2 at a time. Also, kindly restrict your questions to the financial results only. And no questions be asked about specific accounts, please. In case you have additional questions, the same can be asked at the end. We now proceed with the question-and-answer session, please. Unknown Analyst: Congratulations, sir, for yet another good quarter of good set of numbers. And I pick up your point, which you said our valuations. So here, I would like to give some comparison. Our business is now INR 10 trillion, INR 10 trillion bank for the first time and congratulations for this again, and against the Bank, which we compare of about INR 57 trillion. But our market cap is only INR 8.82 lakh crores against the market cap of that bank of INR 15.1 lakh crores. So even GNPA now almost 1.7 to 1.2. Net NPA is only 0.4. The only difference is now in, I think ROA. But for that, whether we should be so undervalued as compared to -- with a price to earning of almost INR 22 and here INR 11, INR 11, INR 11.5. So definitely, we deserve much higher valuations on our working and the way you said on the fundamental structures, our digital existence in the road map, definitely, we deserve much higher valuations and compliments to you and your entire team for this same. Having said that, sir, in this quarter, particularly, I think, -- but for that exceptional item of, I think, Yes Bank sale of shares of INR 4,593 crores, we are down in our operating profit and net profit substantially. Now one item, which I have noticed is that while the exceptional income in the stand-alone is INR 4,593 crores in the consolidated, it is only INR 3,000 crores. So it means one of the subsidiary also booked a loss of -- exceptional loss or some of the subsidiaries or maybe associate businesses. So I would like to know about that. What is that? And sir, the profitability, of course, you already said reply. Then there was a report and recommendations, which I read in the newspaper, even your own statement also that you all appeal to the RBI for making funding available for the corporates, at least listed corporates for M&A activities and the capital. So on that, any progress -- further progress? And are we moving in that direction? And is there any immediate positive results going to be there because of that? Then, sir, this quarter, we have a little bit fallen short in the recovery and upgradation numbers also, which are almost 55% or 60% lower is -- I mean, 40%, 45% lower than the last quarter. So some color on the recoveries. And one last is that the treasury has been the biggest, which, of course, in some of the other banks also. So if you look at the segment-wise results, our treasury profit has gone down by almost 50% from INR 8,082 crores to INR 4,011 crores. So going forward, for the next 2 quarters or for the FY '26, how do we look at it with, of course, second half is expected to be a little better and maybe 20 bps more rate cut might come in. So these are my few questions and some observations. You are very comfortable on SMA, NIM is good. So there is nothing much on that. And last, as generally I ask is that in the first 6 months, our credit growth is only 3.88%. Though annualized basis, you can say it is 12%. But to get the 12%, we'll have to disburse the loan of INR 307,000 crores in the remaining 5.5 months or maybe 6 months, if you take it. So how do we plan to achieve those target numbers, targeted numbers? What is the sanction pipeline or some activity which might have been done in last 1 month. So these are the -- in first round of my questioning and observations. Challa Setty: First round is it? Okay. Thank you, Ajmera-sab, for your compliments. On the consolidation number, I think they will clarify that number. The net profit on the transaction is not INR 4,593 crores. It is lower than that, post-tax. But they will clarify in terms of what are these consolidation numbers. As far as the M&A activity is concerned, I -- more than the opportunity in the M&A transactions, it's a confidence, which the regulators have reposed are reposed in us as Indian banking system. Indian banks were not allowed to fund the local M&A transactions for so long. And the current guidelines are a matter of trust in the banking system. And as far as what SBI -- obviously, SBI has been doing outbound M&A activity financing for quite some time. This is not new to us. And we will definitely take up the suitable transactions. But current guidelines are basically draft guidelines. We have to get the final guidelines to take up any transaction. But in the meantime, we are setting up our teams to ensure that they are ready when the guidelines are released. As far as recovery numbers are concerned, I think recovery -- in written-off accounts, I think we have done fairly well in this quarter. You want to add anything... Unknown Executive: So upgradation and recovery figure is combined. So if you see the slippage itself in the previous quarter is much higher. So if you compare it, this number is better. And AUCA recovery, Chairman guidance was INR 2,000 crores per quarter. We have done INR 2,400 crores and the guidance continues. Challa Setty: On the treasury gains, Rama, you can... Rama Rao Amara: Yes. I think your observation is correct. If we exclude the exceptional items, I think Q2, the trading profit is almost 50% of Q1. But we need to be reminded that Q1 has the OMO operations from RBI and switch operations were also there, which is available to the entire industry, and we have made use of, which was not available in Q2. So that was the reason why I think that the same performance we could not repeat. But there are several. I think strategically, we are doing several things. We are taking larger positions in trading portfolio. And we do have certain investments, which are like depending on the opportunity, depending on the price that is available, we will continue to offload. So that way, we are reasonably confident that a large portion of this -- whatever we have performed in Q2, we will be able to repeat in Q3 as well. No, we don't have any losses. Rather, our AFS reserve has increased actually quarter-on-quarter. There's no MTM loss. There is no MTM loss treasury side. Challa Setty: But one thing I would like all of you to look beyond the net profit number. Obviously, the Yes Bank transaction aided us to post a good number in a difficult treasury quarter. I think what we have focused on that how do we balance your resource cost. If you have seen the cost of borrowings as well as cost of deposits have come down. And we not only have focused on reducing the reliance on the wholesale deposits where the market was going berserk in terms of pricing those deposits, we stayed away from there. And number two, that we focused on the daily average balance improvement in the current account and savings bank account. And that has contributed to the reduction in the cost of deposits and cost of resources. So your NIM uptick is basically on account of that despite that 100 basis point reduction in the interest rates on the asset side. Just to answer your credit growth, the pipeline, I think Mr. Tewari will answer. The credit growth is secular. If you see from the Q1 itself, we have had almost 1 to 2 percentage point increase across the business segment, whether you take retail personal, agriculture, SME, corporate for the first quarter after March '25, we have reversed the trend and have posted a good 7.1% credit growth. And with the pipeline, what we have the visibility of at least reaching 10% corporate credit growth in the next 2 quarters. Would you like to supplement something? Ashwini Tewari: Yes. So the pipeline is INR 7 lakh crores, INR 7 trillion, which is a consistent number across quarters. Half of it is already sanctioned and awaiting disbursement and half is in the discussions. And the other point which has to be made is in the quarter 1 and also in quarter 2, we had a lot of payments which were a result of either a large IPO being raised or an equity raise, which was used to repay loans or sometimes converted into bonds as well. A couple of airports were like that. And then there were also the large payments done by some of the government entities, which got cash up front. So these were the reasons. But as, sir, has said, that we would expect a much better performance in quarter 3. The negative growth has been reversed. So we look forward to a better performance. Unknown Analyst: Congratulations. Sir, I just had a few questions. Firstly, on margins. So what has been the interest on tax refunds this time for the quarter? That's the first question. And the second question is that usually, there's a seasonality in your miscellaneous operating expenses in the second quarter. This time, it looks higher maybe because of a low base. So if you can give the breakdown of those miscellaneous operating expenses for this quarter and the previous quarter, so Q2 '26, Q1 '26 and Q2 '25, so that will really set everything clear. And just the last one in terms of CASA, if you could give the average CASA growth. You said your average daily balances have been good. So any growth numbers you could share? Challa Setty: So in terms of margins, interest on tax refund is miniscule, some INR 200 crores, INR 300 crores or something, that's not a big -- INR 340 crores. So that is not contributing any significantly to the margins. And on the seasonality, miscellaneous operational expenses, you can... Saloni Narayan: The major hit here is actually GST on expenses, which was INR 662 crores in Q2 of FY '25, which is INR 1,180 crores this year -- this quarter. Last quarter also, it was INR 588 crores. So there's a large difference there. Apart from that, actually, software expenses for software. Challa Setty: No, not many items... Saloni Narayan: These are very small amount. Challa Setty: Very small. Saloni Narayan: Of course, they aggregate to a large number, but actually, individually, they don't add up so much. The main thing is this. And the next is the mobile banking. Unknown Analyst: Okay. But GST, why such a big rise? Saloni Narayan: GST on expense that we have -- we recover and pay that is taken on both sides. Challa Setty: Yes, you get input tax credit also. Unknown Analyst: Got it. Got it. Challa Setty: CASA daily average balance we'll give separately. Unknown Analyst: Sir, congrats on very good numbers. Sir, firstly, we did a very good job in recovery from written-off this quarter. It was almost doubled quarter-on-quarter. Sir, how much of that would be parked into interest income line this quarter versus last quarter? So there is some apportionment which happens, right? Challa Setty: Not much. Unknown Analyst: Not much. Okay. Challa Setty: Most of that has gone into the P&L directly. Unknown Analyst: Understood, sir. Yes. And sir, on ECL, as sir, your initial assessment would help. And given SMA 1 and 2 would be charged at 5% odd as per the proposed guidelines, so would we see an inch up in credit cost on a sustainable basis after the implementation of these guidelines? Challa Setty: So I think on the ECL front, we need to be a little patient. I did mention earlier that the impact on our balance sheet would be limited for 2 reasons. One is the long road map, which is given, while we have to assess the overall expected credit loss requirement on the 1st of April '27, we will have time up to 31st March 31 to take that. And we want to utilize that road map, which is going to be given to us. So which means that the impact is going to be not significant. And we will wait for the final guidelines to come to you what would be the impact and how we would like to handle it. As I mentioned, whatever is the impact, we are going to take that 4-year road map, which is given to us and to ensure that the balance sheet is not impacted in one go. And the second thing is, yes, the major impact would come from the SMA 1 and 2, which are not significantly provided now. We do have some buffers as shown here on the excess provisioning on the standard assets. What we believe that the impact can be reduced by strengthening our collection mechanism. Today, the rollbacks in SMA-1 and 2 are significant for us. They're temporarily SMA-1 and SMA-2. So while we are presenting to the regulator that in terms of the rollback -- frequent rollbacks of this category does not require such a high floor rates on the ECL but there are so many other things which we need to present to them. So I don't want to comment at this juncture. But structurally, what we are focusing is strengthen our collection mechanism. Today, in our retail side, 70% of the collections happen automatically. It is just sweeping from a savings account to the loan account. Over the years, we have focused on this rest of the 30% where the delays happen. The delay is not necessarily that the customer is delaying. It is also because salaries get delayed. We are trying to see how do we address this category. Structurally, we will be strengthening our collection mechanism intensely so that we will not have SMA 1 and 2 situation. They are not bad assets, except that they just roll forward and roll backward frequently. We need to address that issue. So ECL, I think, is too premature to talk about the impact at this juncture. Unknown Analyst: And sir, lastly, sir, you mentioned. Challa Setty: I gave a little longer answer so that, again, this question on ECL doesn't come. Unknown Analyst: Just one last question. Sir, your borrowings as that's up 12% quarter-on-quarter. And yes, as in there has been a very sharp improvement in interest on borrowings, interest expense borrowings, it is down from INR 6,000 crores to INR 12,000 crores over the last year. Sir, any insights there would be helpful. And was this INR 60,000 crores of incremental borrowings back-ended? Any color there? Challa Setty: The second part, I did not understand but the interest on borrowings is a market function. As the liquidity improved and the rates have moderated, I think the costs have come down. What was your second question? Unknown Analyst: The borrowings, we saw like 12% quarter-on-quarter inch up. So I just wanted to understand if it was back-ended or was through the quarter. Challa Setty: And borrowings -- overall borrowings. Unknown Analyst: Yes, overall borrowing. Challa Setty: Anything, Ravi, you want to say? Unknown Executive: Throughout the quarter, the liquidity was in surplus. So borrowings were very few. Only in the last week of September, we had to do some borrowing. That's why the price is low. Saloni Narayan: And interest on borrowing has also gone down by 26%, yes, while we have borrowed less, the cost has also gone down. Jai Prakash Mundhra: This is Jai Mundhra from ICICI Securities. Sir, a question on your NIM trajectory, right? So this quarter was supposed to be tough for NIM because you had the residual impact of 50 basis point rate cut but you have done phenomenally well. The margins are up. Now going ahead, sir, you would have some tailwind from continued repricing on borrowing, maybe CRR benefit, of course. And then on the opposite side, you may have some MCLR deceleration. So on balance, sir, would you believe that MCLR deceleration would be more than offset by TD repricing and maybe CRR benefit and NIM should inch up from here at least the same way what we have seen in 2Q or they can be slightly even better? What would be your sense, assuming there is no further rate cut? Challa Setty: Yes. That's the last one, which you mentioned. The caveat is that if there are no rate cut in December, we believe that -- I did mention about the U-shaped curve of the recovery of NIM and slightly front-loaded on the Q2 because of our liability management, better liability management, both on cost of deposits coming down and cost of borrowings come down. Yes, there are some definite tailwinds. How much it plays out, we'll have to see. Obviously, the CRR full cut benefit will be available by the end of November. So that will give some pickup on the net interest margin side. We will continue to focus on the CASA. CASA is a very critical component in terms of bringing down the costs. Fixed deposit repricing is -- generally takes about 12 to 14 months. That means we are -- we have completed 6 to 8 months, another 1 or 2 quarters, the repricing will continue to be there on the stock. The flow is not getting too much repriced because I don't think any of us would be relooking at adjusting the fixed deposit rate of interest unless there's a rate action by the RBI. So our guidance still stands good that we will be above 3% in Q3 and Q4. Jai Prakash Mundhra: Sure. And sir, on your core fee, right? So this has been up 25%, and there is a decent 30%, 31% growth in remittance and processing fee. Is this volume only or you have done some fee structure change also because for the last 3, 4 years. Challa Setty: It is purely volume. I think it is mainly coming from the debit card spends and interchange fee, which we got on the debit cards, very significant amount uptick. I don't know whether it is sustainable or not. One is the cards issuance itself has gone up but that is a function of how many savings accounts that we've opened. But I think the spends have gone up and the interchange fee on the debit cards has gone up. It's not about fee structure being changed. It's just volumes have contributed. Jai Prakash Mundhra: Last question, sir, on Yes Bank transaction, right? So other banks, which have sold the stake, they had very small stake but they have routed it through reserves, right? We have shown in P&L. So any insights that you can offer, plus the residual stake, which is there, right? So as per my -- I mean, the plain reading of RBI circular stated that MTM, you can actually route either through reserves or through P&L, right? So you have done the P&L for the realized amount. This is my understanding. But the unrealized understanding, could you have done or that is still pending? Challa Setty: Unrealized, we will not do because we have a significant control by having a Board seat there, which means that we don't have to -- we are not using the MTM on the residual portion. So on the other transaction, would you like to explain in terms of S Bank transaction? Even CFO can explain. Unknown Executive: We were holding this as an investment in associates, sir. And stake sale, which was sold is mark-to-market as per our we have done it. Challa Setty: We follow the same regulatory process. The one which is actually realized is routed through the P&L. And unrealized, we continue to not mark-to-market because of our control, which is still there by way of it. Jai Prakash Mundhra: And sir, on the same logic, I mean, does this new guidelines actually creates less volatility in P&L because if there is an MTM loss on bond, it will not be part of P&L, right? But if you realize, then, of course, it will come in P&L. So in a way, these new guidelines makes P&L less volatile, especially at the time of hardening of yields. Is that a right understanding? Challa Setty: I don't -- in terms of the corporate bonds? Jai Prakash Mundhra: Yes, sir, G6 bonds. Challa Setty: G6, yes. That was the purpose of that. Anand Dama: Sir, this is Anand Dama from Emkay Global. Sir, my question was related to your Express credit. So last quarter, you said that incrementally, we will see growth coming back in that. So are we on to it? Now we will see further acceleration in the second half of the year? Are you getting more comfortable in terms of the asset quality over there? If you can comment on that. Plus the mortgages. So obviously, we are growing at a relatively faster pace versus the peers. Can we see further acceleration on that front? And that basically should fuel the growth target basically, which we have increased now from 11% to 13% to 12% to 14%. Challa Setty: So the 12% to 14% guidance is because of -- across the segments, not necessarily home loans. Home loans, 15% is a good growth. I -- while we may have potential -- see, in case of home loans, our catchment is fairly large. We have set up almost more than 420, 425 home loan centers across the country, processing only the specialized sales only for home loan processing. And our acquiring the customers is also robust. So that is contributing to the home loan growth. But I think 15% to 16% growth, I would place that as the portfolio grows, 14% to 15% stability will be achieved there. And Express credit is one segment we would like to further grow. Currently, we expected this express credit to reach double digit. We were wishing for that. But the gold loans, I think some movement is there from Express credit kind of customers. Unsecured personal loan is moving to secured gold loan because the amount of gold loan is higher now because of the value and the lower rate of interest, I think, contributing to that. As the gold prices moderate, we hope that Express credit will grow. But our sanctions and disbursements have been very significant in the Express credit. It's a high churning product. You need to constantly acquire the customers. Anand Dama: Sure. Sir, the customer segment is similar, particularly when you look at your express credit and gold loan because otherwise, why would the shift happen? Challa Setty: Some overlap is there. Some overlap is there. Some of those non-CSP customers, that is corporate salary package customers only will take express credit. Non-CSP customers could be their gold loan customers but a fair amount of customer base of gold loans may not be the common customer base. Anand Dama: Sir, secondly, on your overseas credit. So that book also is now growing pretty fast. You said that you are more focused on the RORWA-based lending. How does the overseas corporate book lending places, particularly in terms of the RORWA versus the domestic credit? Is not dilutive in terms of the RORWA? Challa Setty: Foreign book growth rate in dollar terms is just about 8.7%. What you see 15% growth rate because of the rupee depreciation when we convert into rupees. So our IBG -- our international book growth is opportunistic. If we see the good value, we will do that. Otherwise, we'll just ramp up. In the past also, we have demonstrated in quarters where we feel that pricing is not attractive, we just ramp down that. So we will be comfortable. I think the IBG book constitutes about 15% of our credit portfolio. I think that is a level which we would like to maintain. Sushil Choksey: Sushil Choksey from Indus Equity. Congratulations on all your milestones. Sir, first question, recent event of the newspaper, you highlighted that you have INR 5,500 crores of human resource spend for training. And second thing, you highlighted you would not spell out or SBI doesn't talk on digital spend what they do on the CapEx side on an annualized basis. Can you elaborate on that INR 5,500 crores, which is... Challa Setty: INR 50 crores, INR 550 crores. Sushil Choksey: INR 550 crores. How does it enable our bank? The performance speaks for itself. So the steps what you've taken for today and with cybersecurity and many other measures which are required, how are we going to be future enabled with all these with all these measures? Challa Setty: So this spend on training is significant for us because most of the people who join SBI are not bankers to start with. We take mainly from the people who are writing exam and joining the bank, whether it is a clerical position or officer position. But their career paths are defined, and we prepare them for various assignments as you are familiar with. And this training system today has 2 components. We have one of the largest physical training systems in the country. Almost 55 training colleges and centers are available. The second important element, which we have done. While the physical trainings are important to bring people together, exchange of ideas happen, we have launched what is called Spark. This is a digital platform, not only provides online training for -- across the section, they can choose their training package. We have international agencies providing the inputs along with our own inputs. But more importantly, we are creating a skill inventory. And based on the skill inventory, the job profile is defined and where people want to go. And every training modules are available in this Spark, the knowledge base, which we have created. And we are using AI extensively to offer what they're looking for, and they can build their own training module. So a combination of physical training, on-the-job training and online training aided by the AI is going to be the way forward. And as you mentioned, I think we are also having a specialized training, job families so that the specialized areas of treasury, technology, are constantly improved. We have, for the first time, had undertaken the largest technical recruitment of 1,500 people. And these are the people who have not come from the market. They are from colleges and people who have first time are entering the technical jobs. And we have completely created a training module for them internally. And these are some of the investments, which we are making, so that we have the industry best attrition rate. I think we have 0.5% -- less than 0.5% attrition rate because of our investment in human resources. Sushil Choksey: Sir, you churn out a lot of CEOs and top management people from many other entities, you answered for new recruits, but the top layer of SBI management, you've specified in that event about IMs, Harvard, MIT, various other things. So these initiatives, what you spend is immaterial, but what makes the bank capable for future-ready like AI. You may not spell out the digital CapEx number or annual digital number. How are we transforming from current, like you said, 2 is going to come up. Now you have set up a global capability center or you can say back office in Delhi, agriculture and other products. A lot of other things initiative, whether your retail credit processing and this back -- so you have a 24/7 working bank, it's not necessarily you have to only do within the bank. And the cost will be far lesser and productivity may be large there. So the initiatives, which you are enabling today because your profit numbers can support any kind of future projections which you want to make? Challa Setty: Absolutely. I think today, we made a big beginning. I don't know whether I've mentioned to you, we had 17 trade finance processing centers in the country, 17 of them. We have moved to 2 global trade finance centers, one in Kolkata and Hyderabad, which is completely digital. And across the country, the global trade finance is handled by these centers. This is a beginning of our centralization aspect. And -- the Project Saral, which I mentioned in my speech, the simplification project has 4 elements. One is you identify a process and simplify it. After simplification, if it is possible, automate it and if possible, centralize it. And fourth element is that if it can be outsourced, you outsource it. This is a new paradigm, right? When you are looking for doubling your balance sheet every 6 years, the scale what we have, this scale requires out-of-the-box thinking. And this is what we are going to do through the Project Saral. And if Project Saral believes that a centralization by way of global capability center is the need, we will definitely look at it. Sushil Choksey: SBI as a parent has achieved many milestones. It will continue to figure with much higher milestones in years to come. We have very formidable subsidiaries. I'm not critical of the performance. But when will you find those milestones visible where SBI Mutual Fund is the largest, I understand. SBI Cards is concerned, a lot of concerns and ups and downs keeps coming. SBI Trusteeship, SBI Capital Markets, Insurance, it's underpenetrated market. The amount of CASA customers you have, I'm sure your fees can be 5x than where it is today. So improve all these areas, what enabling steps or how are we going to improve upon that the consolidated number of some of the members are saying we are not performing to the private bank Possibly, we are not listed on ADR, maybe one answer. Maybe you're holding now you've given a QIP done. But the underlying assets have much more strength than what we are showing today. How does it take to the next level? Challa Setty: So in case of subsidiaries, as you see, SBI Life Insurance today is the largest private insurance company. And in case of SBI Card as a stand-alone card company, the performance is always under the focus. We are working on that in terms of addressing the asset quality issues, in terms of the spends, in terms of the new card issuance. I think many things are being done in the SBI Card. AMC, as you mentioned, is the largest AMC in the country. And the General Insurance is moving up the ladder and has a great potential in terms of the non-property -- non-life insurance company. Merchant Banking unit of SBI caps is a different ballgame altogether. I don't think we should be looking at the valuation there. But among these 4 major subsidiaries, we definitely would be looking at, as I mentioned several times, SBI AMC and SBI General are right candidates for listing in our stable. It also provides some value unlocking and more importantly, value recognition for the industry. We would soon be working on that. It is also important that SBI conglomerate is leveraging one SBI value, one SBI in the sense that if any customer walking into SBI branch, he has provided the gamut of services, which manufactured by the conglomerate itself. And that has been successful, yes, if you see our cross-sell income. But more important than income, we are trying to provide one-stop solution for our customers. So we'll continue to do that. Yes, we can do better, we can do more, and we will definitely work on them. Sushil Choksey: Does it mean that CASA customers, we are able to sell 5 products, 3 products, 4 products? Challa Setty: So our PPC at this juncture is about 3.5. Sushil Choksey: Can we have 5%? Challa Setty: We can definitely move to 5. Sushil Choksey: Okay. Sir, moving back to today, RBI is indicating the deposit rates have stabilized. So how do you see the environment at least for the current year? Second thing, rupee is a little volatile and G-sec is also volatile. So what's your outlook on the next 6 months on that? Challa Setty: Deposits, what did you ask? Sushil Choksey: Deposit has stabilized. The rates have stabilized, what RBI articles... Challa Setty: I think the deposit rates have stabilized. The further deposit repricing or recalibration will only happen if there is any monetary -- I mean, repo rate action. Otherwise, I think more or less the deposit rates have stabilized. As far as treasury related, you can respond. Unknown Executive: I think your question is around the G-Sec where it is going to be a 10-year I think we have seen a lot of volatility and also specific actions from RBI, where they convey to the market that they're not comfortable at certain yields, right? I mean -- so that may happen by way of canceling some auctions. So that was taken note of by the market on that particular day when the yields came down by around 4 to 5 basis points. I think it is now range bound. We feel like the range can be 6.2% to 6.65% kind of range for the 10-year G-sec. It's just an internal house view. Sushil Choksey: Last question again. Government may have to push up bigger ticket CapEx for infrastructure because you're seeing some noise being made about nuclear tie, hydrogen and many others and SBI caps have come out with a lot of reports on solar, hydrogen. So solar integration more on backward going up to polysilicon. So these larger ticket sizes are moving up, there is no INR 1,000, INR 2,000, there's INR 10,000 crores, INR 20,000 crores. Are we getting any sense for next year, if not for this year, of some kind of a discussion on a pipeline coming up? Challa Setty: From the government side? Sushil Choksey: Government and private. Challa Setty: No, no. private side, I think we have a very robust pipeline. Our aggregate corporate credit pipeline is around INR 7 lakh crores. So this is a mix of working capital underutilized and term loans under disbursement, the new projects which are being discussed. So both in the public sector and private sector but predominantly private sector. So that pipeline is very strong. And this pipeline will -- a part of it will get converted into reality this year, and there will be a spillover to the next year in some of the projects. Sushil Choksey: You indicate that there is positivity on private CapEx? Challa Setty: Yes. Not necessarily across the sectors, but most of the sectors, yes. Sushil Choksey: This new policy about capital market funding and M&A, the yields on capital markets are much higher than home loan and car loans and any other loans which you might be disbursing today, at least from the other banks and the M&A activity, can we build INR 40,000 crores, INR 50,000 crores overnight on this? Challa Setty: I mean, see... Sushil Choksey: 40,000 crores, INR 50,000 crores. Challa Setty: Today, I think the draft guidelines put some cap on that 10% of our capital. Sushil Choksey: Capital market is possible to say. Challa Setty: Capital market, yes, I think we have done one product, which is loan against mutual funds. We have never been active on loan against shares. While we have adequate room on the capital market exposure, is underutilized cap room available there. We will see. I think we need to assess our own risk appetite for this kind of activities. And also, I think most of these activities also have to be end-to-end digital. Unless we get that right, we will not be moving there. On the capital market broker side, I think we have significantly scaled up that. Sushil Choksey: The share advance can be a 10% yield on current conditions. And second thing, you or 2 can plug in... Challa Setty: Yes. So we are -- we will develop that product mostly on the self-consuming platform. Sushil Choksey: Good luck for many milestones for the year to come. Pawan Kedia: Due to paucity of time, we will take up 2 more questions, followed by a few questions coming in through online webcast, which will be addressed by the Chairman sir. Kunal Shah: This is Kunal Shah from Citigroup. So firstly -- so firstly, with respect to standard asset provisioning, almost INR 1,200-odd crores, and this is after some release from the restructured account of INR 1,100-odd crores against INR 165,000 crores of increase in the loan book. So is there any accelerated provisioning, which has been done towards the standard assets during the quarter? Challa Setty: There's no accelerated provision. Kunal Shah: Some additional standard asset provisioning, it seems to be a slightly higher quantum. Saloni Narayan: Yes, we have done some -- for 2 accounts actually, we have done some DCCO extension. Challa Setty: This is basically whenever there's an extension of commercial -- date of commercial production, there's a requirement of making provision. And some of the reversals, what you see also related to the DCCO. The moment DCCO is achieved, the provision gets written back. So there has been some write-back and there is an additional provision, which is made where the DCCO dates are extended. Kunal Shah: And that quantum was on couple of... Challa Setty: I think, INR 750 crores or something additional provision. Saloni Narayan: INR 200 crores was write-back, sir. So INR 500-odd crores is our... Kunal Shah: Net was INR 550-odd crores. And second question is on subsidiaries. So monetization, as you indicated, SBI Mutual Fund and SBI General. So what would actually trigger that decision? The capital market environment is conducive, market sentiments are good. So should we expect it sooner? Or maybe we have just done the fund raise very recently, so we would want to wait for some time and then explore that option? Challa Setty: We are not waiting because we have done the QIP. I think we need to just look at -- see, one is, as I mentioned earlier also that these 2 companies don't require capital at this juncture, neither the parent requires because we just raised INR 25,000 crores. But we are serious about listing them. And the Boards will -- respective Boards will take a call in terms of the timing, quantum. The reasons, whatever you mentioned, all of them are applicable. Pawan Kedia: One last question, please. Okay. I'll squeeze in 2. Piran Engineer: Sir, just on -- this is Piran Engineer from CLSA. On Project Saral, how do we like measure what the outcomes will be and what the timelines would be? That's point number one. Point number two, in our current account ratio, we've seen like a steady improvement for the last 4, 5 quarters. It's growing faster than the overall deposits. Just some flavor on what's going on there. Are we gaining market share in terms of accounts or higher wallet share of existing customers, more retail SME push, what's going on there? That's it. And congrats on the good quarter. Challa Setty: Yes. The second one, I think I did mention in terms of what we are doing on the CASA side. One is you're all very familiar that when we open savings bank account, we don't have minimum balance requirement. That is USP of SBI. And we were the first bank not to charge on the minimum balance not being maintained, which also means that the customers who are -- have the ability to fund the account also so many time don't fund. So we have started a large-scale campaign to educate our staff who are opening the accounts that you politely ask the customer that whether you can fund the account. Today, the simple nudge has ensured that 70% or 75% of such account get funded within 45 days, which means that your balances are going up, otherwise, which would have remained unfunded for a long time. That is on the savings bank side. And on the current account side, I think our focus on business current accounts and focus on ensuring that you give different variants of current account to business customers based on the balance maintained, which is the usual stuff everybody does but we have intensified our effort in terms of providing services, which are linked to the balances which are maintained. And this has helped us, and we have opened a lot of a few transaction banking hubs, which were primary owners of opening the current accounts and ensuring that a solution is given, not merely opening an account. That is also contributing to CASA daily average balances going up. And we did acquire market share in the current account and 85 bps... Saloni Narayan: 185 bps. Challa Setty: So it's a significant market share acquisition there. And mind you that the largest current account balances are with us and growing on that is important. On the savings bank account, another thing I would like to say, in the overall deposit construct, what we have told all our regional managers, we have more than 730 districts in the country. And in many districts, SBI, you will be surprised, have market share more than 60% in deposits. But we said that despite whatever dominant market share you have, the focus is at least get 1% additional market share, get additional acquired market share of 1%, irrespective of what is our market share in that district. That is also contributing to the savings bank growth rate. I think these are a few things. There are many strategies which we are adopting, but there are 2 things which I wanted to call out. And on the Project Saral, I think the primary aim of Project Saral is to reduce the drudgery at our branches. We -- whatever we talk about technology, digitalization, this is a bank which we would like to position as digital first, consumer first, our customer first, which means that we would like to leverage our large physical presence and large employee base to provide that human touch. But many a times, the branches are overcrowded, branches are -- people are not able to spend enough time with the customers. We would like to focus on reducing that treasury. So the outcomes could be taking some time. Ultimately, of course, it has to be measured in terms of whether it is adding to my productivity, reducing my costs. There are definite outcomes are defined there, but we will not be discussing them at this juncture, probably the first drop from this Project Saral, is 1st of April 2026. I think April quarter, we would talk more about what are those benefits we are getting out of this project. Pawan Kedia: We have a few questions coming in through the online webcast. Now these will be addressed by the Chairman, sir. Challa Setty: Yes. First question, Kiran Shah, written-off account and recoveries from accumulated written-off. Recovery from written-off accounts, as we have presented here, INR 2,480 crores. This question on the -- what is that technically written-off portfolio is likely to give recovery rate, I think, discussed earlier also. We placed it around 6% to 8%. We started saying about 10% but as the security value is coming down based on the security value, and the accumulated written-off accounts, our recovery rates are likely to be around 8%. [indiscernible] On slippages and portfolio quality in Express credit, the GNP is showing a sharp rise. Any signs of concern there? Not showing any sharp rise. I think quarter-to-quarter, it has come down, if I remember correctly. So as the denominator, the portfolio increases, in absolute terms, there is no major concern in terms of the express credit. Abhishek Kumar, gross NPA and AUCA book position. Gross NPA as on 30th September is INR 76,000 crores and AUCA is INR 163,000 crores. Ujjwal Kumar, SBI should implement Tab Banking for onboarding of customer, either individual or nonindividual, why is SBI not taking such initiatives? I'm glad to announce that Tab Banking, we have launched last quarter. And this Tab Banking is launched initially for the corporate salary package customer onboarding. And as we fine-tune that, and there's a good number of customer accounts are being opened under Tap Banking. So the first phase we launched on the 1st of July 2025. This journey, onboarding journey takes just about 5 to 7 minutes because if it is -- most of the customer data is collected from various sources. Similarly, in the current account also, we have already started Tab Banking. Ankit Ladhani from IndusInd Nippon Life, any guidance on NIM? I think we have talked enough on the NIM. And we still are holding that our guidance, long-term NIM above 3% through the cycles. Ashish, can you provide a share of MCLR, EBLR and other loans and advances? As on 30th September, EBLR is 31%, MCLR is 29%, fixed rate is 22% and T-bill is 15%. Tarun Lala, what amount has been earmarked for pension provision? The pension provision for half year '26 is INR 6,672 crores. For the quarter, it was INR 3,525 crores. Prashant, this sector industry has maximum proposals in pipeline. This is a little diversified. I think pipeline is both in terms of capital expenditure and as well as NBFC portfolio. So from a capital expenditure point of view, power, renewable energy, commercial real estate and a bit of iron and steel. Vishal Gupta from Ak Investment. Any plans to monetize your subsidiaries in near term? I think we have had enough discussion on this but just to answer your question, these are the 2 companies we will be seriously considering and the timeline and when we are likely to go will be decided by the respective Boards. How much is the LCR of the bank? LCR of the bank is 143.8%, up from 139% as on 30th June. What is the impact of Yes Bank's stake sir on your return on assets? If we do not consider the profit in Yes Bank, the ROE is still above 1%. It would be around 1.04%. Thank you very much. Pawan Kedia: Thank you, Chairman, sir. I trust all the questions have been addressed. Challa Setty: If anybody wants to ask questions, we still can give 5 more minutes. Otherwise, we can close. But just see that you're not repeating the same question. Unknown Analyst: I just had a data keeping question. The extraordinary gains because of Yes Bank stake sale, gross of tax was around INR 4,500 crores. What is this amount net of tax? Challa Setty: INR 3,386 crores. Prakhar Sharma: Sir, Prakhar Sharma here from Jefferies. Just wanted to check, your fee growth in this quarter has been phenomenal. You haven't seen 20% plus numbers for a long time on a big number. Can you just elaborate what has helped? And what do you think is this start of a new run rate, maybe not 20%, but double digit, et cetera. So if you could just help. Challa Setty: So most of the lines of other income seem to be good ones like either in the government business or cross-sell I believe they are stable, even loan processing charges. Much of the loan processing charges are not one-off or bulky one. They're all widespread across the retail segments. The only thing which I mentioned is on the debit card interchange fee. I don't know how it is going to play out. But otherwise, I think other income streams are seem to be stable. Pawan Kedia: Okay. I trust all the questions have been addressed. We'll be happy to respond to other questions in offline mode. Let me end the evening with thanking Chairman, sir, MD sir, DMD Madam, top management team, analysts, investors, ladies and gentlemen. We thank you all for taking time out of your schedule and joining us for this event. To round off this evening, we request you all present here to join us for high tea, which is arranged just outside this hall. Thank you. Thank you so much.
Operator: Good day, and welcome to the UL Solutions Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Yijing Brentano. Please go ahead. Yijing Brentano: Thank you. Welcome, everyone, to our third quarter 2025 earnings call. Joining me today are Jenny Scanlon, our Chief Executive Officer; and Ryan Robinson, our Chief Financial Officer. During our discussion today, we will be referring to our earnings presentation, which is available on the Investor Relations section of our website at ul.com. Our earnings release is also available on the website. I would like to remind everyone that on today's call, we may discuss forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements may include, among other things, statements about UL Solutions results of operations and estimates and prospects that involve substantial risks, uncertainties and other factors that could cause actual results to differ in a material way from those expressed or implied in the forward-looking statements. Please see the disclosure statement on Slide 2 of the earnings presentation as well as the disclaimers in our earnings release concerning forward-looking statements and the risk factors that are described in our annual report on Form 10-K for the year ended December 31, 2024. We assume no obligation to update any forward-looking statements to reflect events or circumstances after the date hereof, except as required by law. Today's presentation also includes references to non-GAAP financial measures. A reconciliation to the most comparable GAAP financial measures can be found in the appendix to the earnings presentation. With that, I would now like to turn the call over to Jenny. Jennifer Scanlon: Good morning, everyone, and thanks for joining us. I'm excited to report another strong quarter of consistent growth across our business. All segments, major service categories and geographic markets delivered solid results. I want to start by acknowledging our outstanding team, whose deep expertise and unwavering commitment are the driving forces behind these results. Their dedication to our safety science mission and exceptional customer service continues to be our greatest competitive differentiator and the cornerstone of our industry-leading success. This broad-based performance demonstrates sustained customer demand and the resilience of our business model. It also highlights both our global reach and the strategic value of our focus on transformative industry trends. Our ongoing investments in energy transition, the electrification of everything and digital transformation are expected to continue to drive sustainable growth and position us well for the future. Given our strong year-to-date performance, particularly in the third quarter and our current visibility into our customers' ongoing product development pipelines, we are strengthening our full year 2025 guidance. I'll cover four key areas before turning the call over to Ryan. First, I'll talk about our third quarter performance highlights. Second, I'll cover notable achievements and activities since we last reported. Third, I'll talk about a restructuring initiative we are announcing today to streamline our operating model, reduce expenses and keep our focus on growth areas. And finally, I'll offer some perspectives on how our business continues to thrive. Ryan will dive into the numbers. But first, let me hit the high notes of our third quarter 2025 results. I'm particularly proud that we delivered strong quarterly consolidated revenues that were up 7.1% as compared to the third quarter last year and up 6.3% on an organic basis. Organically, we had balanced contributions from all 3 of our segments, with Industrial up 7.3%, consumer up 5.3% and Software & Advisory up 6.5%. We achieved these results against a dynamic geopolitical and regulatory environment that continues to impact our customers' behavior. Profitability improved year-over-year with adjusted EBITDA growing 18.6% to $217 million and adjusted EBITDA margin expanding by 270 basis points to the highest level since we became public in April of last year. Higher revenue and realized operating leverage were key drivers We generated $317 million of free cash flow through the first 9 months of 2025, and our balance sheet remains robust. Now let me highlight notable new offerings and key developments during the quarter. First, we continue driving growth through our ULTRUS software platform with significant releases addressing customers' key compliance and sustainability challenges. New capabilities include enhanced PFOS identification, expanded ESG disclosure management for international standards and AI-powered features. These strategic enhancements strengthen our competitive position and are expected to grow our software annual recurring revenue. In addition, we expanded our marketing claim verification services into the high-growth industrial software sector. Positioning us as the trusted authority for our customers' next-generation manufacturing technologies and the emerging industrial metaverse. Siemens became our first customer to receive UL verified marks for these services. We expect this strategic expansion into industrial software verification to strengthen our role in enabling digital transformation across manufacturing environments while opening new revenue opportunities in this rapidly growing market segment. As the American leader in fire safety science, we broke ground at our global Fire Science Center of Excellence in Northbrook, Illinois, representing one of our largest laboratory investments to date and reinforcing our leadership in fire safety science. This state-of-the-art facility on our 110-acre headquarters campus will integrate advanced testing capabilities with a dedicated R&D hub. The multi-building complex will test emerging products, including PFAS-free foam systems and energy efficient designs and will serve North American and global manufacturers. We are focused on what we believe to be the most attractive megatrends in the product tech industry to drive above-market growth while delivering superior margins that ultimately result in healthy cash generation. As part of our journey to fulfill those aims, we regularly evaluate our suite of offerings as well as our cost structure. We may be over 130 years old, but we remain agile and will continue to adapt as markets evolve. To that end, today, we are announcing a restructuring initiative that will reduce expenses through streamlining our operating model and focusing resources on our core growth areas while exiting certain nonstrategic service lines. Ryan will address the details, but this initiative is expected to generate meaningful annual run rate savings and margin expansion once fully implemented. Finally, let me remind you of the resilience of our business. First, we believe our market position is fundamentally strong. As a global leader in critical safety science, we partner with customers throughout their entire product journey. From additional initial R&D to manufacturing across every major market worldwide. Second, our revenue model helps create stability and predictability. We provide essential testing during new product development and deliver ongoing certification services throughout each product's market life cycle. Third and most importantly, demand has proven remarkably resilient. During this recent period of uncertainty, our services have remained in strong demand. This validates both the mission-critical nature of our services and our customers' commitment to bringing new products to market. Now I'll turn the call over to Ryan for a detailed review of our third quarter results. Ryan Robinson: Thank you, Jenny, and hello, everyone. I also want to thank all of our team members for delivering another strong quarter and continuing our growth margin expansion and cash generation momentum. I'm pleased to share that both revenues and adjusted EBITDA for the quarter were all-time records for the company and it's encouraging to see the balanced revenue and profit growth across all of our segments. Now let me dive into the details of the quarter. Consolidated revenue of $783 million was up 7.1% over the prior year quarter. On an organic basis, revenue grew 6.3%. Revenue also benefited from favorable FX movements, particularly the euro. Cost of revenue as a percentage of revenue for the quarter decreased 130 basis points to 49.7%, primarily due to improved employee cost efficiency. SG&A expense as a percentage of revenue decreased 80 basis points to 30.4%. And SG&A expenses increased 4.4% compared to the prior year period. On an organic basis, employee compensation increased $6 million related to base salary increases and higher costs associated with performance-based incentives, including the company's long-term incentive awards. In addition, technology costs increased $4 million on an organic basis, primarily associated with cloud computing service arrangements. Adjusted EBITDA for the quarter was $217 million an improvement of 18.6% year-over-year. Adjusted EBITDA margin was 27.7% up 270 basis points from last year, with margin expansion across all 3 segments. Adjusted net income for the third quarter was $119 million, up 14.4% from last year. Adjusted diluted earnings per share was $0.56, up from $0.49 per share in the third quarter of 2024. Now let me turn to our performance by segment, starting with Industrial. Revenues in Industrial rose 8.2% to $343 million or 7.3% on an organic basis, primarily driven by growth in certification testing and ongoing certification services across most industries. We saw particular strength in demand for energy and automation. Ongoing certification services revenue increased due in part to price increases. Revenue also benefited by $3 million versus the prior year from favorable changes in foreign exchange. Adjusted EBITDA for the Industrial segment increased 16.0% to $123 million, while adjusted EBITDA margin improved 250 basis points to 35.9% as we continue to benefit from higher revenue and increased operating leverage. Now turning to the Consumer segment. Revenues in Consumer were $340 million, up 5.9% on a total basis and 5.3% on an organic basis. We saw balanced growth across all industries. We saw particular strength in non-certification testing and other services in consumer technology, primarily driven by increased demand for electromagnetic compatibility testing for consumer electronics and in retail. Adjusted EBITDA for the quarter in Consumer was $70 million, an increase of 12.9%. Adjusted EBITDA margin for the quarter was 20.6%, an increase of 130 basis points. Operating leverage as a result of organic growth was the main driver in the year-over-year improvement. In our Software and Advisory segment, revenues were $100 million, an increase of 7.5% on a total basis and 6.5% on an organic basis. Advisory had a particularly strong quarter as a result of a high level of customer project completion with organic revenue growth of 8.8% in addition to 5.8% organic growth in software. Adjusted EBITDA for the quarter in Software and Advisory was $24 million, which was up 60% compared to the third quarter of last year adjusted EBITDA margin for the quarter was 24%, an increase of 790 basis points due to higher revenues and greater staff utilization. Continuing our great cash generation trend we delivered $456 million of cash from operating activities for the first 9 months. Capital expenditures for the first 9 months were $139 million and I'm very proud of our global team for generating $317 million in free cash flow year-to-date which is up 47% from the first 9 months of last year, primarily as a result of improved profitability in our core businesses. We paid $26 million in the third quarter and $78 million year-to-date in dividends. And as of September 30, we held $255 million in cash and cash equivalents. Additionally, just last week, we replaced our credit agreement with a new credit facility. This updated facility provides us with enhanced financial flexibility, more favorable terms and supports our ongoing investment and growth initiatives. Our results have been strong as a public company. We're continuing to tailor our business to today's rapidly changing landscape. One of the pillars of our margin expansion strategy has been continuing to focus on internal cost improvement opportunities, and we are regularly evaluating our capabilities to ensure they align with our core markets. As Jenny mentioned, today, we are undertaking a restructuring initiative to streamline our operating model and to reduce expenses, including downsizing our current workforce by approximately 3.5%. The planned actions will include role eliminations and the exit of some nonstrategic service lines, representing approximately 1% of our total revenue in 2025. While exiting these services will create a modest headwind to our 2026 organic revenue growth, we believe this initiative positions us for stronger profitability and allows us to focus more acutely on our strategic priorities. We expect to record $42 million to $47 million in pretax restructuring charges primarily in Q4 2025. This initiative is expected to be substantially complete by the first quarter of 2027. And once complete, we expect to improve annual operating income by between $25 million and $30 million as a result of both the revenue and expense impacts from these actions. Now turning to our 2025 outlook. Given our solid performance through the first 9 months of 2025, current visibility into our end markets and confidence in our execution, we are pleased to strengthen our 2025 full year outlook. We now expect 2025 consolidated organic revenue growth to be in the range of 5.5% to 6.0% as compared to our full year 2024 results. Organic growth is based on constant currency, and it excludes acquisitions and divestitures. In the fourth quarter, we expect organic revenue growth to be modestly lower than our full year 2025 expectations as it represents the most challenging comparison to 2024. And as a reminder, the strength in the fourth quarter of 2024, we believe was due in part to some pull forward of revenue, particularly in the Industrial segment's ongoing certification work in advance of expected tariffs. We now expect our adjusted EBITDA margin organic improvement to approximately 25% for the full year 2025. And up from our prior guidance of approximately 24%. Our outlook for capital expenditures in 2025 is now expected to be in the range of 6.5% to 7.0% of revenue down from 7.0% to 8% previously. This change is mostly due to timing with ongoing strong customer demand in all 3 segment, we continue to invest in capacity and capabilities to address their needs. Our expectation for our effective tax rate in 2025 is now in the range of 25% to 26% compared to our prior guidance of approximately 26%. Our Q3 and year-to-date performance demonstrates sustained business momentum with enhanced profitability and robust cash flow generation, which enables strategic capital allocation opportunities. we expect to continue delivering exceptional returns to our shareholders. And now let me turn the call back to Jenny for her closing remarks. Jennifer Scanlon: Thanks, Ryan. I'd like to take a moment to talk about an exciting development. As we announced yesterday, UL Solutions is proud to be launching Landmark Artificial Intelligence safety certification testing. A major step forward in building public trust and enabling the responsible adoption of beneficial AI technologies. As AI rapidly transforms our daily lives, powering everything from smart devices to industrial systems, it also raises serious concerns about safety, ethics and misuse. The new certification testing we will offer is guided by UL-3115 and the newly published outline of investigation or OOI, as we call it, for artificial intelligence safety of AI-based products. As an OOI, UL-3115 serves as a set of safety criteria developed by UL solutions to assess emerging technologies that lack an established UL standard. Products that meet the requirements of an OOI through UL solutions testing and assessments may earn the UL mark indicating compliance with safety requirements. We have also been granted a patent for machine learning-based AI scoring. So let me close. Our third quarter results reinforce the fundamental resilience and growth potential of our business model. We delivered consistent growth across our business, all segments, major service categories and geographic markets and produced superior returns to shareholders. With that, we'll open the line for questions. Operator: [Operator Instructions] The first question comes from Andy Wittmann from Baird. Andrew J. Wittmann: Great. I have 2 this morning, if I might. I guess, obviously, good results here, very good results. I was kind of curious as to -- given the focus that some of your customers have in China and Greater China, the macro and the headlines are so volatile and the policy seems to switch every week. I was just wondering, Jenny, if you could just talk about the posture of your customers there. What is meaning for your business and what's your experience of all this has been? And what it might just mean here as we start looking into 2026. Jennifer Scanlon: Yes, Andy, thanks for the question. And it is certainly even as recently as this last week that tariffs remain a topic that is front of mind for most manufacturers and most of our customers. What we see was earlier this year, we saw uncertainty and I would say, some slowdowns, and we saw that in particular with some new product launches in Q2. I think what we're seeing now is almost a sense of a new normal that customers are just expecting greater certainty in wherever things are landing and it's becoming a more typical response to tariffs with the supply chain diversification discussions and timing around onshoring and reshoring. And I think just continued emphasis that you've got to get back to business as usual in whatever the new normal is. Andrew J. Wittmann: Got it. Okay. And then maybe, Ryan, one for you. The Software and Advisory business isn't historically a place that -- as you know, a lot of outperformance. It's obviously a small part of your business, but this quarter, it did. And so I thought I would ask here a little bit. And specifically, obviously, while both the top and the bottom line were good. You had a comment in your remarks talking about how there was a number of projects that were completed during the quarter. And I was wondering what the significance of that comment was. I was wondering if it had to do with projects that might have been done on a fixed price basis and therefore, done under percentage of completion accounting. Did that have like a kind of a benefit to the margin this quarter that was worth noting? Or was it purely just kind of every day, better utilization of your advisory staff and mix from having software growth? Ryan Robinson: Thank you very much for the question, Andy. And we are very thankful to the Software and Advisory team for a strong quarter. As you know, that business has recurring software revenue that we recognize over a period of time, but also the advisory business is professional services that can have lumpy project-based work. And what we saw in the third quarter was the completion of a lot of advisory-related projects and the recognition of a lot of revenue that led to high utilization of that staff. We use the words liberally particularly high level because in the -- we have not yet built a trend of multiple quarters, and it's quite possible in the fourth quarter and first -- in additional quarters, it could be lower than what we experienced in the third quarter. But we're very pleased with the performance in the third quarter. Operator: The next question comes from Andrew Nicholas from William Blair. Andrew Nicholas: First one was just to kind of follow up on the first question, just in terms of tariffs and the impact of tariffs to date. I think last quarter, you described a little bit more muted volumes in April and May and then somewhat of a snap back in June. Just kind of curious if third quarter results and maybe even what you've seen so far in October is consistent with those June levels or if there has been continued choppiness intra-quarter consistent with the second quarter. Jennifer Scanlon: Thanks, Andrew. And you know we're not going to comment on October, but Q3 we saw -- it was a strong quarter, and we saw a much more typical cadence. So it was relatively steady across all 3 months of the quarter. And we continue to -- as I said earlier, I think are reverting to a more normal response to tariffs and with customers just having greater certainty in the decisions that they're making around their R&D pipelines, their supply chain diversification and any moves they make around reshoring, onshoring, moving to other countries. We continue and we've said this in other quarters to see shifts in where our ongoing certification services are field sites. And there is pretty significant off a low base but significant growth in Vietnam, Thailand and India. And you see some of the more traditional countries have negative growth rates on a number of manufacturing sites that we visit countries such as Germany, Japan and Taiwan have a slight contraction. So that's how we're seeing this play out. Ryan, do you want to add anything to that? Ryan Robinson: Just that our business model is global. And as you know, we grow capabilities where our customers need our services. So we're adapting. We've added capacity in some of the markets that Jenny mentioned, in total, we're producing pretty good results. Andrew Nicholas: Great. Super helpful. And then -- for my second question, I wanted to ask a little bit more on the restructuring plan that you announced this morning and specifically on the exiting of nonstrategic business lines. Could you just kind of flush that out a little bit what you are deprioritizing? And to the extent that, that frees up capital, I know there's some margin improvement expected. But to the extent that, that frees up capital for incremental investment elsewhere, I would love to hear where you expect that to be diverted. Jennifer Scanlon: Yes. Thanks, Andrew. And philosophically, we on a continuous basis are always assessing where are we leading in our businesses. And part of our leading performance is we like to say the privilege of focus -- and we do have a philosophy of wanting to lead in any business that we're in. And so we have an annual long-range planning process, and we're constantly looking at how do all of the individual pieces fit in. And so this is no different than what we do on an ongoing basis. It's just packaging it a lot together here. But where we're focused is on the highest quality growth that we can get and we're focused on minimizing distractions from underperforming businesses that we don't see a path to leadership in. So that's how we would characterize this. And to that degree, it frees up time, attention and resources to focus on the areas that we believe have the greatest value creating capabilities for our business. Operator: We now have a question from the line of George Tong from Goldman Sachs. Jinru Wu: This is Anna Wu on for George Tong. I have 2 this morning. So first one for industrial businesses, have you observed different growth dynamics across the regions for the U.S., Europe or Asia? And are there any geographies growing meaningfully faster than others? And how does that trend compare to what you were seeing in the Consumer segment? Jennifer Scanlon: Thanks, Anna. I'll start and then let Ryan weigh in a little bit. We've had growth in every region in Industrial. And certainly, the United States Greater China and more broadly across ASEAN and even Korea have exhibited some real strength, especially in areas that I would say are fueling the data center growth. So Industrial, energy storage systems, high-voltage wire and cable and all -- and then the built environment, the fire suppression systems and other pieces that are needed to, again, protect those data centers. So it is strength across our operating units globally. Ryan Robinson: Yes. The only thing I would add is that we had moderately more contribution from the U.S. in the last quarter than last year at this time. But growth across the board and not a material difference, just like moderately more in the U.S. Jinru Wu: Got it. That's super helpful. Additionally, you launched a battery testing laboratory in Germany earlier last quarter. and also the Michigan battery testing lab opened the second half last year. So can you please talk more about the utilization rate of those battery testing labs? And how -- and how are you thinking about the growth momentum in the battery testing services. Specifically, are there any implications from the recent expirations of the federal EV tax credit? Jennifer Scanlon: Yes. Energy storage system batteries continue to be an important and evolving market. When we invested both in Auburn Hills, Michigan and in Batterieingenieure the company in Germany that we acquired last year and then added capital to this year. We always felt that there would be a balance between EVs and industrial energy storage systems. And I think our initial hypothesis is that might be more heavily weighted to EVs and over time, the energy storage systems for the industrial environment would increase. I think we're seeing that shift occur faster than we expected really on the heels of both changes in the approach to EVs as well as the rapid ascent of the need for energy and power and data centers. So we don't publish utilization of individual labs, but we are pleased with both of those investments. Operator: The next question comes from the line of Shlomo Rosenbaum from Stifel. Shlomo Rosenbaum: Jenny and Ryan, I just want to dig in a little bit more into the restructuring program. Is there something that's going to be happening structurally like from a process perspective, that's going to give you more margin leverage in the future? I understand there's like a risk that taking out specific areas. But is there anything that's going to be implemented that just structurally means that the margins are going to improve beyond that amount that you're taking out as the revenue grows. And then just as part of that question, there was a comment in there that the savings of $20 to $30 sounded like a combination of both cost savings and then also some revenue. I know usually hear revenue as a component of restructuring program. So I was wondering if you can kind of parse that out for us a little bit more? And then I have a follow-up. Ryan Robinson: Thank you very much for the question, Shlomo. We wanted to clarify that we're focusing in strategic service lines for our customers. And so as a consequence, we'll be exiting some revenue lines that are roughly 1% of our current revenue. So to get to a forecasted range of operating income improvement, we lose that revenue, and we need to take out more than that amount of expenses. Those service lines are less profitable than the total and our restructuring initiative extends to other areas of the company, other support areas unrelated to those service lines. So it's both a choice to focus on an exit from some service lines, but also a broader expense reduction initiative. The large majority of the expenses are people-related costs and that will occur through Q1 of 2027. The impact in 2026 will be moderate as the revenue comes down, and it's offset by expenses coming down and 2027 is when we'll see the lion's share of that $25 million to $30 million improvement range that I mentioned at an operating income level. Shlomo Rosenbaum: Okay. And then is it -- I guess, just -- just a follow-up on there. So there is there like process improvements that are going on? I understand it sounded like there was some of that, but I just wanted to confirm that. And then just also, the capital intensity guidance is going down a little bit for the year. And it sounds like your view of the outlook of investments are the same. I think you mentioned something about timing going on, but I wanted to know if you can just give us a little level of detail of what's going on over there, like in terms of thinking about the capital intensity going forward, is everything the same and it's just timing? Or is there anything like you're focusing on that is less capital intensive in terms of driving the growth? Jennifer Scanlon: Yes. Shlomo, let me follow up on your process improvement question, and then I'll let Ryan talk about capital intensity. I'm a huge believer in ongoing business process improvement. And we have invested in various technologies and intend to continue to do so to help our employees have better tools and techniques to improve their ability to service customers. So indeed, that type of process improvement on the backs of technology investment is helpful. Ryan Robinson: And in regard to CapEx, we continue to be excited about the portfolio of growth investments. In recent months, we've announced several exciting investments, including our Global Fire Science Center of Excellence here in Northbrook as well as an Advanced Automotive Electromagnetic Compatibility Laboratory in Japan. There was some investment that we had planned for 2025 that will just shift into 2026. We'll provide more overall guidance with our year-end reporting but the portfolio of growth initiatives remain strong. Operator: We now have a question from the line of Stephanie Moore from Jefferies. Stephanie Benjamin Moore: I wanted to touch on the pricing contribution for the third quarter. You called out some pricing contribution. So I was hoping maybe, Ryan, you could elaborate on the contribution from pricing versus maybe just volume growth in general? And how we should think about just pricing in general, just given maybe the competitive environment or anything else you'd like to call out for this year as well as you think about your normal pricing practices going forward? Ryan Robinson: Yes. So first off, certification testing had strong growth, 8.7% and non-certification testing was up 6.8%. So strong growth from both of those. Those are the service lines that comprise 59% of our revenue that are most measurable by price and volume there, the delivery of discrete projects for our customers and the -- we can count the unit volume of the completed projects. So overall, those grew 7.7%, and there was relatively similar contribution from both price and margin -- the price and volume, both very similar. We did comment that ongoing certification services particularly benefited from pricing. So that would be in addition to the testing-related activities that I spoke. Stephanie Benjamin Moore: Got it. And I guess on that last part, is this just -- I'm just in the normal course of pricing given where we are in the year? Or was this a more maybe active approach to take some incremental pricing? Ryan Robinson: Yes. For the testing-related services, we're continuously pricing hundreds of thousands of projects. So it is an ongoing value-based pricing evaluation ongoing certification services are more done on an annual basis, and we benefit from that throughout the year. Stephanie Benjamin Moore: Got it. And then just wanted to follow up on the restructuring program. A couple of questions here. As you think about the revenue impact for 2026, I think you called out the percent from discontinuing from businesses you're effectively walking away from. Do you believe that despite that headwind that you should still continue to grow in line with the algorithm that you have laid out in terms of your kind of long-term or medium-term top line growth algorithm? Ryan Robinson: Yes. I would say the things that drive our growth are unchanged. This will be an organic headwind for one year as we compare against businesses that we previously were in we're still going to be at 99-plus percent of the same businesses. So the growth rate of those -- our overall growth rate is not materially changing, but it does allow us to focus businesses that are underperforming pick up a disproportion amount of management time. So it allows focus to serve our customers in our core businesses. Operator: The next question comes from the line of Andrew Steinerman from JPMorgan. Andrew Steinerman: Ryan, I was really asking just to make sure that I understood the implied fourth quarter organic revenue growth right in your full year guide. I get a little bit under 4% organic revenue growth. I definitely heard you note the tough year-over-year comp and the explanation for the strength in fourth quarter of '24. I was just wondering if there's any other call outs affecting fourth quarter of '25 that didn't affect third quarter '25. And for example, are the exiting of the service lines through the restructuring affecting fourth quarter revenues? Ryan Robinson: Thank you for the question. So after strong Q3 performance, we have a similar outlook about Q4 is when we reported last quarter, and we're very pleased that put us in a position to raise our full year guidance. Q3 and Q4 have historically had similar revenue quarters in a given year, and our guidance assumes that, that trend will continue. When you look at the varying growth rates across quarters, the biggest factor is a tough comp in Q4, reminding that we had 9.5% total organic growth in Q4 last year, which included 1.9% organic growth in Industrial. Also, when you talk about sequentially, I just mentioned in Software and Advisory. Advisory had a particularly strong revenue growth quarter that may moderate in Q4, and that would affect the overall growth rate somewhat. But overall, we're pleased with the momentum we built through the third quarter and our ability to raise guidance. Andrew Steinerman: And then -- the last part about exiting the service lines, does that affect the fourth quarter? Ryan Robinson: I would say just the timing of that, that's more likely to be impactful in 2026 and not expected to have a material effect in Q4. The biggest single effect in Q4, as you pointed out, is comps to last year, particularly in ongoing certification services that grew substantially, we believe, ahead of tariff anticipation. Operator: We now have a question from the line of Josh Chan from UBS. Joshua Chan: Jenny, you mentioned data center a while back, I guess. Could you triangulate for us areas in your business that touch data centers? And maybe how big in total an exposure of that might be for you? Jennifer Scanlon: Yes. We haven't quantified the total exposure, but let me just give you an example of the types of effect that this has on our business. Some of our largest global and strategic account customers came to us and they asked us to host a Data Center Power Summit, which we hosted at our headquarters in September. And the safety challenges around this is that there's this rapid evolution of the energy that's needed in data centers, and then there's the power infrastructure that has to support that. And that energy is needed because of the AI, just amount of compute that's going on as well as the density of GPUs and the thermal environment that, that creates. And so there's things around shifting to direct current, DC as a systems architecture. There's changes in cooling that's required. And typically, you think about air cooled or water cooled back in my former days, now you've got in-rack cooling and on-chip cooling and immersion cooling. And that's just one example of the complexities and types of innovation that our customers are pursuing in the data center environment in this rapidly changing world. So we're right there with them. We're continuing to focus on this growth area and opportunity. And I think there's just a lot of innovation to be had around the this completely different world of different types of data centers that are required. Joshua Chan: Thank you for the color there. Yes, that's really helpful. And then on the broader expense reduction initiative, it certainly seems like this is a more concentrated way to kind of reduce cost. So I'm just wondering what's the historical source of those kind of excess costs, if you will? And is there anything changing that's enabling you to now take out those costs, whereas historically they were needed? Ryan Robinson: Josh, thank you for the question. We'll provide more detail about the program that we're announcing that we'll undertake in Q4 with the completion of the quarter on an ongoing basis. We do anticipate the majority of the restructuring expenses and therefore, the cost reductions will be in our testing inspection certification businesses, both consumer and in industrial but we'll provide some more detail on what we're doing and how we're achieving that as we progress through the program. Joshua Chan: Congrats on a great quarter. Ryan Robinson: Thank you. Operator: The next question comes from the line of Arthur Truslove from Citi. Arthur Truslove: Starting with Bryan. First, I had 3 questions, if I may. The first question is on the sort of underlying software business. You obviously talked about how the sort of project businesses have gone pretty well in Q3. At full year, you had a view that the software business might strengthen. Are you able to just talk to that? Second question, are you able to just give us some reassurance on the growth outlook? So I guess if one was to sort of be negative, if you like, clearly, the mathematically, the Q4 guide would appear to be 3% to 5%. Your CapEx guide is down and obviously, you're doing a restructuring. So can you just provide reassurance that your expectations for the underlying growth of the business have not changed? And then I guess, finally, just in terms of the cost savings, you've obviously -- my sense is, and please correct me if I'm wrong, that you are essentially abandoning a couple of business lines and that what you're saying is that your organic growth will be lower next year because you're not doing those businesses anymore and that the organic growth in the rest of the business will be pretty much as it was this year. Is that the right way to think about what you're saying? Or have I misunderstood something? Jennifer Scanlon: Yes. Arthur, let me start with the software. Our Software & Advisory business was up 6.4% organically, and software was up nicely. And the great thing about software being up is that there's operating leverage that you get from that, and it certainly both the throughput in Advisory and the growth in Software expanded the Software and Advisory margins by 790 basis points. And I think if you look at our software growth rate in the third quarter, you'll see that it continues to grow at an expanding rate versus year-to-date. So we're pleased and there's more to do. We're excited that our ULTRUS releases have been welcomed by the marketplace. We had new releases around sustainability and PFAS and some purchased goods and services and some focus on what will be needed in sustainability reporting as demand around fulfilling CSR-D needs bounces back. And then we were really pleased that Verdantix an independent research and advisory firm labeled us as a leader in their inaugural green quadrant for product compliance software. So overall, I think the underlying momentum in our software business continues. I'm going to ask Ryan to provide some reassurance on the growth outlook, but I do want to highlight that those 3 pieces, the Q4 guide the CapEx timing and the restructuring are not related. They are 3 independent variables that happen to all come together on this call. Ryan Robinson: Yes. I agree. I think that's well described. And then the impact of the expense reduction, I think that's -- you described it appropriately. We are just discontinuing some service lines and we will focus on the remainder of the business. It's roughly 1%. So it does not materially change our overall growth rates for other things. Arthur Truslove: So basically, Ryan, what you're saying is that if you thought -- I'm making this up, but if you thought you were going to grow 6% organically next year, it would now be 5% because you're basically abandoning 1% of the business. Is that kind of right? Ryan Robinson: That's directionally correct. Operator: We now have a question from the line of Jason Haas from Wells Fargo. Jun-Yi Xie: This is Jun Yi on for Jason Haas. Just wanted to jump back on the Software & Advisory segment. Advisory has been a drag on that segment for a couple of quarters and it kind of flipped this quarter, you saw a lot of good momentum there. I know you guys noted that the advisory part of that is very lumpy. But do you have any sense why you saw such a big upswing, what was fundamentally driving that? Jennifer Scanlon: Yes. Interestingly, the upswing in this was in our renewables advisory business. And I'll remind you, that business focuses on supporting financial decisions for banks and other financial services in financing renewables projects. So there was an uptick in that, and our team has been working really hard to fulfill that demand. We do continue to see some headwinds in advisory, in particular, the commercial real estate effect on our Healthy Buildings advisory continues to be a headwind and that's an area that we expect as commercial real estate continues to evolve to continue to hopefully bounce back in the future. Jun-Yi Xie: Got it. That's really good color. And then you guys have talked a lot on this call about your organic investments, but I'm more curious on the opportunity on the inorganic side. with the exit of some of these nonstrategic service lines, is there more appetite to conduct more M&A related to your more core growth areas? And also, I noticed there was no M&A done in the quarter. Is there any reason why? Has the market not been very appealing? Jennifer Scanlon: We'd like to say that we're disciplined and we're active in M&A, and a lot of it has to do with timing and quality of opportunities. So we will continue. If there is a conversation to be had about an acquisition in the product tick space, an opportunity out there. We like to be involved in those conversations. And timing is somewhat capricious sometimes, and we will continue to pursue appropriate opportunities for inorganic growth. Operator: [Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Jenny Scanlon for any closing remarks. Jennifer Scanlon: Thank you, everyone, for joining us today. We appreciate your questions and your support, and we look forward to updating you on our progress next quarter. Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good day, everyone and welcome to The Taysha Gene Therapies Third Quarter 2025 Earnings Call. [Operator Instructions] Please note, this call may be recorded and I will be standing by if you should need any assistance. It is now my pleasure to turn the conference over to Hayleigh Collins. Please go ahead. Hayleigh Collins: Thank you. Good morning and welcome to our Third Quarter 2025 Financial Results and Corporate Update Call. Earlier today, Taysha issued a press release announcing financial results for the third quarter ended September 30, 2025. A copy of this press release is available on the company's website and through our SEC filings. Joining me on today's call are Sean Nolan, Taysha's Chief Executive Officer; Sukumar Nagendran, President and Head of R&D; and Kamran Alam, Chief Financial Officer. We will hold a question-and-answer session following our prepared remarks. On today's call, we will be making forward-looking statements, including statements concerning: the potential of TSHA-102, including the reproducibility and durability of any favorable results initially seen in patients dosed to date in clinical trials, including with respect to functional milestones, to positively impact quality of life and alter the course of disease in the patients we seek to treat; our research, development, and regulatory plans for our product candidates, including the timing of initiating additional trials, reporting data from our clinical trials, and making regulatory submissions; timing or outcomes of communications with the FDA on the regulatory pathway for TSHA-102; the potential for the product candidate to receive regulatory approval from the FDA or equivalent regulatory agencies; our ability to realize the benefits of Breakthrough Therapy designation for TSHA-102; and the market opportunity for our programs. This call may also contain forward-looking statements relating to Taysha's growth, forecasted cash runway, and future operating results; discovery and development of product candidates, strategic alliances and intellectual property; as well as matters that are not historical facts or information. Various risks may cause Taysha's actual results to differ materially from those stated or implied in such forward-looking statements. For a list and description of the risks and uncertainties that we face, please see the reports that we have filed with the SEC, including in our annual report on Form 10-K for the full year December 31, 2024, that we filed February 26, 2025, and our quarterly report on Form 10-Q for the quarter ended September 30, 2025, that we filed today. This conference call contains time-sensitive information that is accurate only as of the date of this live broadcast, November 4, 2025. Taysha undertakes no obligation to revise or update any forward-looking statements to reflect events or circumstances after the date of this conference call, except as may be required by applicable securities laws. With that, I would now like to turn the call over to our CEO, Sean Nolan. Sean Nolan: Thank you Haley and welcome everyone to our third quarter conference call. I will begin with an update of our recent corporate activities and progress across our TSHA-102 Rett syndrome program. Suku will then discuss the new supplemental analysis from Part A of our REVEAL Phase I/II trials. Kamran will follow up with a financial update, and I will provide closing remarks before opening the call to questions. In the quarter, we believe we made meaningful progress that sets the stage for what could be a transformative period ahead for Taysha. The recent regulatory clarity and progress we've achieved, which was enabled by the strength of our REVEAL Part A data set, rigorous data evaluation methodology, and our natural history data analysis allows us to focus on executing our REVEAL pivotal trial and advancing towards BLA submission with clarity and confidence. A major milestone was the receipt of FDA Breakthrough Therapy designation for TSHA-102 at the end of September. This designation is designed to expedite the development and review of therapies for serious conditions that have demonstrated preliminary clinical evidence of substantial improvement over available treatments in one or more clinically meaningful endpoints. TSHA-102 received Breakthrough Therapy designation based on the FDA's review of available safety and efficacy data from all 12 pediatric, adolescent, and adult patients treated with TSHA-102 in Part A of our REVEAL Phase I/II trials, including clinical data from the previously disclosed May 2025 data cutoff. Receiving Breakthrough designation highlights the FDA's recognition of both the significant unmet medical need among the 10,000 patients suffering from Rett syndrome in the U.S. and the therapeutic potential of TSHA-102 to redefine the treatment paradigm for this devastating disease. Notably, over 80% of programs with Breakthrough Therapy designation that proceeded to file for approval have ultimately received FDA approval. We look forward to continued engagement with the FDA as we advance toward potential registration. In September, we finalized alignment with FDA on our REVEAL pivotal trial protocol and statistical analysis plan in support of our planned BLA submission for TSHA-102, following resolution of remaining clinical and statistical queries. Importantly, our previously aligned-upon key design elements remain unchanged. In line with FDA's guidance for cell and gene therapy programs that was issued in September, we believe that the prospectively aligned by -- that by prospectively aligning with FDA on the statistical analysis plan for our pivotal trial helps ensure that the data set collected will be considered reliable and suitable for BLA submission. We are enrolling 15 patients in the developmental plateau population of Rett syndrome with a primary endpoint of response rate which is defined as the percentage of patients who gain or regain one or more of the 28 natural history defined developmental milestones. A response rate of 33%, equivalent to 5 out of 15 patients, is the minimum threshold for success sufficient to achieve our primary endpoint. Notably, we've observed a 100% response rate across the 10 patients in Part A of our REVEAL trials. Additionally, we aligned with the FDA on a 6-month interim analysis that may serve as the basis for BLA submission, potentially accelerating our planned BLA submission by at least 2 quarters. As previously disclosed, the data from Part A of the REVEAL trials demonstrated an 83% response rate at 6 months post treatment, with 5 of the 6 patients treated with the high-dose TSHA-102 achieving a developmental milestone. We observed a consistent pattern of sustained milestone gains with a deepening of effect or additional milestone gains over time. By 9 months post treatment, the data demonstrated a 100% response rate across the 6 treated high-dose patients in Part A. We believe these data support both the suitability of the 6-month time point to demonstrate clinically meaningful efficacy and that the 6-month efficacy data may be representative of treatment effects at 12 months. We believe this enabled our alignment with FDA that a 6-month interim analysis may serve as the basis for BLA submission. It's important to understand that we believe we received Breakthrough Therapy designation and achieved FDA alignment largely due to the results of the rigorous clinical evaluation methodology applied to our video-evidenced developmental milestone data from Part A of the REVEAL Phase I/II trials. In Part A, videos were centrally rated by multiple independent reviewers using milestone definitions from the pivotal trial protocol to ensure an objective, consistent evaluation of milestone gain and regain in the developmental plateau population where these gains are not expected to spontaneously occur. By adhering to rigorous milestone evaluation criteria based on natural history, this approach minimizes bias and avoids overcounting milestones by ensuring the milestones are truly eligible for gain or regain. As a result, this provides a reliable reflection of TSHA-102's disease-modifying therapeutic effect and ensures that the pivotal trial is well powered to demonstrate efficacy. We will continue to have frequent and consistent interactions with the FDA. We presented our REVEAL Part A data from the May 2025 data cutoff, including the new supplemental analysis, which provides supportive evidence that further reinforced TSHA-102's consistent, multidomain impact on activities of daily living at the Child Neurology Society Annual Meeting in October. Suku will discuss these results shortly. With the strength of our Part A clinical data and a clear FDA-aligned path to potential registration, we believe we are strongly positioned to initiate our REVEAL pivotal trial and accelerate execution towards BLA submission. Dosing of the first patient in our REVEAL pivotal trial is scheduled and on track for this quarter, with additional patient enrollment expected to continue across multiple sites this quarter. On the heels of our strong clinical and regulatory progress, we are thrilled to have regained full global rights to our TSHA-102 Rett syndrome program. We regained these rights in October following the expiration of our 2022 option agreement with Astellas, which had granted Astellas an exclusive option to enter into a negotiation period to license TSHA-102 and certain rights with respect to change in control transactions. We appreciate the collaborative relationship we've had with Astellas and the unencumbered rights to TSHA-102 that we now hold enable us to focus on driving long-term value with full strategic flexibility and optionality. We continue to build out our infrastructure to support advancing TSHA-102 toward late-stage development and potential commercialization, if approved. This September we strengthened our commercial leadership team with the appointment of David McNinch as Taysha's Chief Commercial Officer. David brings over 2 decades of experience in global commercialization and strategic market development across multiple therapeutic areas. Most recently he served as Chief Business Officer at Encoded Therapeutics, where he led the commercial and partnering strategy across the company's gene therapy portfolio. He previously held senior commercial roles at Prothena as well as InterMune, where he led the launch of Esbriet, the first FDA-approved treatment for idiopathic pulmonary fibrosis, and supported the company's acquisition by Roche. David reports to Sean McAuliffe, Taysha's Chief Business Officer. Previously at AveXis, Sean led the development and execution of the commercial launch of Zolgensma for spinal muscular atrophy, the first FDA-approved gene therapy for the treatment of a monogenic CNS disease, which has reached blockbuster status. With an estimated 15,000 to 20,000 patients with Rett syndrome across the U.S., EU, and U.K., compelling clinical data from Part A of our REVEAL trials, and a minimally invasive, commercially advantageous delivery approach, we see a significant opportunity to address a profound unmet medical need and drive long-term value. We believe our strong balance sheet, team with proven gene therapy experience, and the clear path to registration strongly position us to initiate our REVEAL pivotal trial and accelerate execution toward BLA submission. I will now turn the call over to Suku to discuss our clinical progress in more detail. Suku? Sukumar Nagendran: Thank you, Sean. As Sean mentioned, the regulatory progress we've achieved to date was enabled by the strength of our REVEAL Part A data and our natural history data analysis that allows us to objectively measure developmental milestone gain and regain in the developmental plateau population using each patient as their own control. At the Child Neurology Society Annual Meeting in October, we presented a comprehensive review of our Part A data set using the evaluation frame point and endpoints of our pivotal trial. As previously reported, 100% of the 10 patients in Part A achieved 1 or more natural history-defined developmental milestones following treatment with TSHA-102, with a consistent pattern of early gains that are sustained and new achievements continuing to emerge over time following TSHA-102 treatment. These milestones were all video evidenced and assessed by independent central raters according to the definition of milestone achievement from our pivotal trial protocol. These criteria enabled a reliable, objective, and consistent assessment of TSHA-102's efficacy, and importantly, show that our pivotal trial is well powered to establish the therapeutic impact of TSHA-102. Additionally, we presented a new supplemental analysis of REVEAL Part A data that captured supportive evidence of additional skill gains and improvements outside of the 28 natural history-defined milestones. These gains are derived from the Adapted Mullen Scales of Early Learning, the Revised Motor Behavior Assessment or RMBA, and the observer reported communication ability assessment, which are Rett-validated, structured assessments that evaluated prespecified skills and quantifiable improvements. The results show that in addition to the developmental milestones achieved across the treatment cohort in Part A, patients consistently gained multiple additional skills and improvements in core disease characteristics across the domains of autonomic function, communication, fine motor, and gross motor areas. We believe these findings reinforce the consistent, broad therapeutic impact of TSHA-102 on activities of daily living that are important to caregivers and clinicians. As we continue to prioritize safety, I am pleased to share that TSHA-102 continues to be generally well tolerated, with no treatment-related serious adverse events or dose-limiting toxicities across the 12 pediatric, adolescent, and adult patients treated with the high and low doses of TSHA-102 in Part A of our REVEAL trials as of the October 2025 data cutoff. We are encouraged by the data we've collected from Part A of our REVEAL trials, which we believe support the potential of TSHA-102 to provide meaningful benefit to children, adolescents, and adults living with Rett syndrome. We look forward to reporting longer-term Part A clinical data in the first half of 2026. I will now turn the call over to Kamran to discuss financials. Kamran? Kamran Alam: Thank you, Suku. Research and development expenses were $25.7 million for the 3 months ended September 30, 2025, compared to $14.9 million for the 3 months ended September 30, 2024. The increase was driven by BLA-enabling process performance qualification, or PPQ, manufacturing initiatives, REVEAL clinical trial activities, and higher compensation expenses as a result of increased headcount during the 3 months ended September 30, 2025. General and administrative expenses were $8.3 million for the 3 months ended September 30, 2025, compared to $7.9 million for the 3 months ended September 30, 2024. The increase of $0.4 million was primarily due to debt issuance costs incurred in connection with the refinancing of our existing loan and security agreement with Trinity Capital that are recorded in general and administrative expense under the fair value option and was partially offset by lower legal and professional fees. Net loss for the 3 months ended September 30, 2025, was $32.7 million, or $0.09 per share, compared to a net loss of $25.5 million, or $0.10 per share, for the 3 months ended September 30, 2024. As of September 30, 2025, Taysha had $297.3 million in cash and cash equivalents. We expect that our current cash resources will support planned operating expenses and capital requirements into 2028. I will now turn the call over to Sean for his closing remarks. Sean? Sean Nolan: Thank you, Kamran. With Breakthrough Therapy designation and finalized FDA alignment, together with our strong balance sheet and full strategic control of TSHA-102, we believe we are entering the pivotal phase of development with focus and confidence in our ability to redefine the treatment landscape for Rett syndrome while driving long-term value. We remain on track to dose the first patient in our REVEAL pivotal trial with additional enrollment expected at multiple sites this quarter. Additionally, we expect to report longer-term clinical data from Part A of our REVEAL Phase I/II trials in the first half of 2026. We look forward to providing further updates as we initiate our REVEAL pivotal trial and advance TSHA-102 towards BLA submission. I will now ask the operator to begin our Q&A session. Operator? Operator: [Operator Instructions] We'll take our first question from Kristen Kluska with Cantor. Kristen Kluska: Just curious, this time around in the pivotal trial, you have a lot more evidence going for you. So can you talk about the pipeline of interest and demand for being in this trial and then your thoughts about how long it could take to fully enroll? Sean Nolan: Kristen, thanks for the question. I would say unequivocally that the demand to be in the trial is exceptionally high. I think the fact that we've been relatively consistently putting out both safety and efficacy data as we have maturation occur in the study and keeping close contact with the advocacy group, centers of excellence, and KOLS has led to a strong demand. So with that as a backdrop, let me just turn it over to Suku to give a little bit more flavor and then maybe just give time line parameters around when we expect enrollment could potentially take. Sukumar Nagendran: Thanks for that question, Kristen. So as Sean highlighted, we have multiple sites -- more than 15 sites identified for our clinical trials program Part B. All of these sites are at centers of excellence. And very interestingly, many of these sites have 100-plus patients per site who have the diagnosis of Rett syndrome. And many of these patients could qualify for a Part B trial. And this includes pediatric, adolescent, and adult patients who will be part of the process. Now furthermore, let me highlight that in the best case scenario, we could potentially enroll and recruit all 15 patients within a 3-month time period, and a more conservative time line could be between 3 to 6 months. And as I said, many of these sites already have multiple patients identified. And there's significant interest in our gene therapy program due to the efficacy already and safety already disclosed in the Part A trial and the ease of route of administration that we have to deliver a gene therapy that already shows significant clinical impact. Thank you. Sean Nolan: Yes. And maybe just one more thing to add. We highlighted it in the press release. But to Suku's point, we've got dosing schedules for the first patients already scheduled this quarter, and we expect other patients to enroll at multiple sites this quarter as well. So I think that speaks to both the demand and the alacrity at which the sites have worked to initiate the pivotal trial. Sukumar Nagendran: And Kristen, one more point I should emphasize is many of these sites may be able to dose more than 1 patient in a staggered parallel fashion. So we might be able to get 1, 2, or 3 patients 2, 3 weeks apart at some of these sites, which would further accelerate our timelines and hopefully make the submission of the BLA time line even shorter and make this product available to deserving patients who have Rett syndrome. Operator: Our next question comes from Salveen Richter with Goldman Sachs. Salveen Richter: I was just wondering if you could touch on expectations for the longer-term data in the first half of next year and also help us understand in the context of your discussions with the FDA what they have signed off on in terms of that minimum threshold for success here that's sufficient for filing. Sean Nolan: Thanks for the question, Salveen. For the first part of the question, relative to what updates will we give in the first half of next year, I think it'll be consistent with what you've seen. As the data matures, we've tried to look at things as a full cohort. So ultimately we want to get to, we have all 12 patients at 12 months, and I think that'll be very important data to look at relative to the 6-month time point, where are we at 12 months with these patients. And so we'll do that. In addition to that, I think it's important to continue to provide updates relative to the safety profile. So we want a little bit of flexibility here that we could potentially give an update in the first quarter with almost 12 months of data, we could do -- we could wait for the second quarter, but we want to -- we just want to make sure that the market is aware of the fact that we do plan to give further updates both in terms of safety and efficacy that we think will be very enlightening and informative relative to the predictability of the approval of the pivotal trial. So that's number one. Number two, as it relates to FDA alignment, we highlighted in the script and I think it's really important that back in September the FDA put out guidance that's very consistent with everything we've done to date in our interactions with them, which is very specifically, they want alignment on your SAP before you start your clinical trial. Like that is the highly recommended path to take. And that's exactly what we've done. We submitted the SAP going back as far as January. When we got the okay to go ahead and submit the final SAP and the clinical protocol by the end of the second quarter without an end-of-phase meeting, we did that. We've answered all the then subsequent queries from the statistical analysis plan question and clinical questions. And we actually even reached out to the FDA because we had believed we'd answered all their questions, and we sent them a note and said, "We just want to confirm that there's no other outstanding statistical or clinical questions." And they said, "Confirmed." So we feel everything that we've just presented with the [ NF15 ], the threshold of a responder being the gain or regain of 1 milestone and crossing the threshold of having a 33% response rate, all ties to the statistical plan that we've submitted. So we feel we're very much in alignment with the FDA. And the other thing I would just note is that per the FDA's internal SOPs, these milestone meetings where you're talking about the final protocol, the SAP internally, the Directors are at those meetings. So I can't give you specific names who are there, but that is the protocol. So we feel, again, supremely confident at this particular point in time. We've done everything that this FDA has asked us to do. We've been in full alignment with them the entire way. And I would argue, we were in full alignment with the Peter Marks regime as well. And I think that's all because of the integrity of the data and the quality and rigor of the data collection that we've put forward. So we think we've checked all the boxes, we've double checked, and we're told we're good to go. And that's why it's full steam ahead on patient enrollment right now. Operator: Our next question comes from Tazeen Ahmad with Bank of America. Tazeen Ahmad: I wanted to get a little bit more color on how you're thinking about the way we should all be thinking about the data from the younger patients, meaning the 2- to 6-year-olds, relative to the 6-plus-year-olds as it relates to efficacy in particular. And then on safety, should we be expecting to see a staggered release of safety data on that younger population relative to the older population? Basically, when could we expect to see data start to come in from that cohort base? Sean Nolan: Thanks for the questions, Tazeen. Number one, I think the headline is our goal is to ensure that by the time we submit the BLA under any circumstance that these 2- to 5-year-old population is included in that, so that we would have a very broad 2-plus label effectively. And so the way we're stepping through that is this quarter we'll be having dialog with the FDA. We've submitted the protocol to them, so we'll be getting some feedback on that. It is a safety focused study. We have had discussions with the FDA, formal meetings with the FDA, where we've basically made the following request, that for this population, we want to establish safety, number one. We will collect some efficacy data, of course, but what we proposed was that we could extrapolate efficacy from the 6-plus population and that that would be sufficient for getting this younger group into the label. And the FDA agreed to that. So that's how we're going to step through it. We would anticipate beginning to dose these patients once we have alignment with the FDA, probably towards the middle of 2026. Again, because it's safety, we think the trains will align on time in terms of BLA submissions, and then we'll follow efficacy over the course of time in this patient population to see if there's things that are unique there. And if appropriate, we could certainly update the label with any new data we have. But again, to just restate the primary goal is that, at approval you would have a label of 2-plus with no specific constraints relative to efficacy that's been collected. It's the full population that you're getting approval on. Operator: Our next question comes from Gil Blum with Needham & Company. Gil Blum: So maybe just another one on protocols here. How much leeway do you think the agency provides regarding the method of video review and is it fair to assume that all companies in the space receive the same guidance on that? Sean Nolan: Yes, Gil, I would say in our experience, the most time we spent in dialog with the FDA was around the rigor of the data collection for the primary endpoint. They were very much focused on how we were going to do that, that there was high fidelity in the data, and that there was high inter-rater reliability. And in fact, what we did to further bolster our case with the FDA is we actually ran a pilot at multiple sites testing the DMA with multiple central raters, and we submitted that as part of our data package to get the protocol approved and also in the Breakthrough Therapy package as well. And so all I can say is that like anything, you're as good -- in our space, you're as good as the data that you're collecting. FDA was super focused on that. So I'm assuming anyone going into a pivotal trial would be held to the standard of a minimum of video evidence and having it centrally adjudicated. I think the question is have you run the experiment and do you know that the methodology you're employing is going to give you the result that you anticipate. And what we feel good about is we've run that result. We've collected the data from our Part A study, and we've done central raters with that. But then the pilot study, which you really haven't talked too much about, but we ran that in the background again at multiple sites, and that gives us the confidence, and hopefully gave the FDA confidence that what we're putting forward is highly rigorous, high-end fidelity, and high-end inter-rater reliability. Operator: Our next question comes from Biren Amin with Piper Sandler. Unknown Analyst: This is [ Michael ] on for Biren. Are there any updates on your plans in Europe or discussions with the EMA on the applicability of Part B? And separately, is the bar for the interim analysis similar to that for the final 12-month analysis? Sean Nolan: Thanks, Michael. Thanks for the question. First and foremost, our focus has been and will be on the U.S., number one, two, and three. That's the biggest market out there. We've been historically resource constrained, both financially as well as human resource capital wise. We're in a better position now, but we've really worked to make sure that we are as aligned as possible, with the highest probability possible to get things approved as safely and as quickly as we can in the U.S. We will continue, and what we've been doing, Michael, with, with Europe and the U.K. is working to enable them, so stepping through regulatory dialogs and things of that nature. We think that as we further generate data in Part A and also get into Part B, that will further inform those discussions and will give us even clearer line of sight to what the options we have. We know we're going to have multiple options to go into Europe. There's some that we've taken in the past that would be the most efficient and make the most sense for all parties involved. We want to see if we can work to enable that. The other thing too is from a policy perspective, I think, we all know the challenges on both sides of the pond. We want to make sure we focus here at home and lock in those things. And we can also take the time while we're collecting the data to see how policy also shakes out from an ex-U.S. perspective as well. So the long-term goal is to enable Europe for sure. It's just a question of stepping through it in a very thoughtful manner. Operator: Our next question comes from Maury Raycroft with Jefferies. Maurice Raycroft: Congrats on the progress. Wondering if you'd tell us anything additional about timelines for IRB approval for the additional 2 to 5 sites that you'll need for the pivotal. And just when thinking about enrollment for this study, is there anything more you could say about number of patients you could potentially have enrolled by end of this year? Just helping provide some line of sight to potentially getting to data from the pivotal by the end of next year. Sean Nolan: Yes, Maury, it's a great question. I think we can provide more information in either Q1 or sometime in the springtime, I think, as we have better line of sight. Again, just from how we're stepping through it, we've submitted protocol to the FDA, we've got a -- waiting for their feedback on that. That'll certainly inform things. We're doing -- I would say, contextually, we're doing for the pivotal trial, 15 patients. This is a smaller subset of patients. So we would anticipate the number of patients to be less than 15 in this study. I think that from a IRB perspective, it will be a new protocol. So it'll have to go through the process of contracting IRB approval, ethics, all the things that you have to do. I can tell you that there are, as you would anticipate, multiple sites, of course, that want to be a part of this. So I don't think that's going to be an issue. We just want to make sure that, number one, we get alignment first and foremost with the FDA on the protocol and the associated statistical plan that we're putting forward. And then number two, that from an operational perspective, we're doing things in a manner that is most efficient and doesn't by any way impede the enrollment of the 6-plus population. So the way we see this, based on the fact that the primary endpoint in the little kids study, is safety -- we think the 2 trains are going to come back together. And again, just to make the point that we do anticipate including that data along with the 6-plus pivotal data in the BLA submission with the goal of getting a broad label. Operator: Our next question comes from Jack Allen with Baird. Jack Allen: Congrats on all the progress made over the course of the quarter. I guess my first one was on the broader sentiment of the FDA. There was quite a bit of news over the weekend and Monday morning [ driving ] CBER and some changes outside CDER. And I just wanted to get a sense for any thoughts that the team has as it relates to management interactions with the agency, whether the agency is functioning as expected and what your plans are going forward to interact. And then briefly on the younger patient cohort, I also wanted to ask about how you're thinking about dose. As you go into younger patients, you could theoretically increase the relative exposure if you're treating smaller patients with a fixed dose. I'm just curious if you have any plans to address that potential issue. Sean Nolan: Yes, Jack, let me start with the second part of your question on dose. It's going to be 1x10 15 total vg, but we're going to adjust for brain volume. So we want to make sure that none of those younger kids get any more dose on a per-kilogram basis than anyone we've dosed so far safely. So we've given that a lot of thought. The clin dev team has done a super job. Again, we've got that in front of the FDA. So we're being very thoughtful about that safety perspective. So more to come on that once we have the protocol finalized. As it relates to the FDA, what we can point to is a couple of things. And I said this earlier. We had good alignment with Nicole Verdun. Nothing that we've changed -- we've done nothing since the new regime's been in that's different in terms of our natural history assessment, our proposed endpoints, et cetera. And I've used this term before, but no one has pushed us off the ball. And the reason we believe that is because we have levered data collected in a very rigorous manner to make our case with the FDA. Number two, the approach that we're taking is exactly what the FDA wants. So that's why we referenced this FDA guidance from September where they're basically saying, "Hey, [indiscernible] for gene and cell therapies, we want alignment on your protocol and your SAP before you start the study." So what are we doing? We've taken our first-in-human study. We've learned from that. We've done the natural history analysis. And now what we're saying is, based on what we've learned, we're going to propose a prospective pivotal trial with the following endpoint and the following statistical analysis plan. And we've worked with the FDA to get that into a situation where they've signed off on that. So we've done exactly what they wanted. Our understanding is any of these milestone meetings like signing off on a protocol or Breakthrough designation, which I can talk about in a second. But internally the Directors are in those meetings. So we've checked and double-checked to make sure we're not misinterpreting things. We've gotten confirmation of that. We feel like we've done everything that the FDA has asked us to do. And more importantly, we're not asking them to do something that's out of course. What we're not doing is we're not taking the Part A data and saying, "Oh, you know what, we want you guys to go back and we're going to propose now that we're doing a DMA, and we're going to do these developmental milestones. So we want you to approve our data based on a statistical plan we put in front of you after the fact." That is not something that we've done. We're taking a more traditional approach and starting a new study. Suku wants to add some information? Sukumar Nagendran: Yes, one thing I would add, Sean, is that under Dr. Vinay Prasad and Vijay Kumar's current leadership of CBER, they have -- their team has followed the spirit of the RMAT designation in CBER and the Breakthrough designation that we have achieved. So our interactions have been very fluid and very constructive and very useful. So I just wanted to emphasize that. Sean Nolan: Yes, I mean, Jack, one last thing on Breakthrough to the point Suku is making. The internal SOP at FDA for Breakthrough is that when a Breakthrough request comes in, the Directors are made aware of it. They then send it to the review team and assign them to review it and let them know the recommendation. And so that means that eyes are on things. And again, we've done the best that we can to be data driven in all of our requests. And therefore, again, we feel the fact that the Breakthrough was granted in September under this current regime in the manner that they like. We've followed their guidance that they've issued in September in terms of protocol for pivotals as well as SAP. We've tried to step through it in exact manner that they want and, I would argue, the exact manner based on data that any administration would want. So that's why I went back into the Wayback Machine with the Peter Marks' group. But it is important, and I do think it's relevant, to say they agreed with what we were doing as well, based on the way that we were going through it. So I've always said data drives -- is the currency of the realm. And we believe that's the case. We're just going to keep moving forward and be as transparent as we can with the agency. And as a result of having Breakthrough, we now can set up even additional meetings with them, which we've already done, to start to talk about BLA submission process and things of that nature. Operator: Our next question comes from Chris Raymond with Raymond James. Christopher Raymond: Just a couple of commercial questions here maybe. So you're starting the commercial buildout now with the hiring of a Chief Commercial Officer. Maybe talk about the footprint you'll need, how it will look, and maybe the milestones that we should expect in terms of, I guess, access progress. And then maybe a related question. Of the 28 developmental milestones, are there any that you think matter more, be it communication, fine motor, or gross motor milestones in terms of clinical acceptance among the physician community, or in terms of ease of access that we should be thinking about? Sean Nolan: Yes. I think to start with your second question, all of the 28 milestones that we selected, we did in concert with KOLs and with the advocacy community. So if you were talking to some of the KOLs, they would talk about higher order milestones. So there's 51 milestones, Chris, in the natural history database. You'll hear like that language, because these are the milestones that, from a clinical and from a functional perspective, really do matter across the 3 different domains. So I wouldn't say anyone rises to the level more than anyone else. It's all relevant to the particular situation of each individual patient. I will say that when you talk to the parents communication is top of mind with them. They want to know what hurts, what do they want, are they hungry, how can they make them feel better, those kinds of things, which make a lot of sense. But that's why we feel we've reached that agreement with the FDA that any 1 of those 28 is relevant. And I think what we're also trying to show is that over time, not only are there more milestones being gained of the 28, but the whole purpose of the supplemental analysis was to show that outside of that -- the 28 are a mechanism for us to get approval, but outside of that, in multiple scales, whether it be done from the clinicians or rated independently like the Mullen or the ORCA, which is the parents and what they're saying that they're noticing. The point of that was to say, beyond the 28 that we've talked about, there's a lot of other things happening that are great. And we're seeing good things, the parents are seeing things, the clinicians are seeing improvements in function, and all of that is going to be what we put forward to the FDA in the final package and would also be part of what we discuss with payers. Suku? Sukumar Nagendran: Yes, thanks, Sean. And one more thing I would add is that -- Chris, is that as our trial design is patient as their own control, every milestone matters. So it doesn't matter what the milestone is out of the 28, to the patient, to the parent, or the caregiver, all of them actually matter, and all of them have impact on activities of daily living. And given our Part A data set, my hope as a physician and clinician is that there will be no patient left behind over time as we gather more data from Part B. Sean Nolan: Yes. And then the first part of your question, Chris, about commercial, I'd say a couple things. First, you're definitely on the leading edge of the curve here. We think starting in the first quarter, we really are going to put more color around how we see the commercial opportunity. I think, for starters, it really is underappreciated how large the patient population is. So we're doing a lot of work relative to claims data analysis and things of that nature to put finer points on things. We're also looking at the launch of Daybue. That's going to be a good surrogate for potential uptake. And the more that we're digging into things, the more robust we think the opportunity truly is, particularly in a situation where the data set that we're going to be able to discuss with payers and also get the treating clinicians and the families hopefully excited about what they're seeing is that no one's been able to demonstrate functional gains before in a neurodevelopmental disease, even in adults. So that opens up a really significant opportunity. And we also have known from the get-go that using CGI (sic) [ CGI-I ] and RSBQ and those type of scales is going to mean absolutely nothing to the payers. They do not care what a CGI (sic) [ CGI-I ] score actually is. They want to know what they're paying for. And what they're going to be paying for is going to be improvements in function or gains of function that haven't been demonstrated, which is why we feel so strongly that this endpoint for a gene therapy is the right way to go. An example is in Canada, the HTA denied Daybue being reimbursed because they couldn't determine the clinical relevance of a 0.3 change in CGI (sic) [ CGI-I ]. So again, I think we're going to be on really strong ground with the data set that we're putting forward in a very significant patient population. And the other thing I'll say just in terms of the team, David McNinch is our new Chief Commercial Officer. He's got a ton of experience. He and I work together at InterMune on the launch of Esbriet, which was a big success. David was also recently at Encoded. He knows gene therapy very well. He reports to Sean McAuliffe, who's our Chief Business Officer. Sean was on the Zolgensma launch team. So we've got a very stacked group internally and, I would say, on the Medical Affairs team, our Head of Medical Affairs, Alain, ran Med Affairs in Canada for Acadia. So we feel like the field team and the commercial team, call it, the external-facing group, we've got just a stellar all-star team, and we'll continue to put out more perspective on that as we generate the data and move towards the BLA submission. Great question. Operator: Our next question comes from Yanan Zhu with Wells Fargo Securities. Yanan Zhu: Wanted to dig into the statistical plan a little bit. Thanks for all the color so far on the call regarding alignment and the FDA. Given that the trial design is novel and there is not an external control arm, per se, wonder how the p-value is derived. And also in terms of the interim analysis, how unambiguous or subjective the threshold is for triggering filing based on interim? In other words, do you run any risk if you file on interim? Just wondering with regard to the actual data and the p-value in making that decision. Sukumar Nagendran: So that's a good question. I'll try to answer that for you in very simple, straightforward terms. So the evaluations are not subjective, they're actually quite objective, because remember, we have a natural history that is very tightly analyzed and the FDA accepted our natural history analysis. But it's very clear once these patients get above 6 years of age, they do not gain new milestones, or they do not regain milestones. And our evaluation process for achievement of new milestones or regain of milestones is video recorded. And as Sean has pointed out earlier, it's very rigorously evaluated by blinded central reviewers. And there are different reviewers for the 6-month interim analysis as well as the 12-month interim analysis. So you have to keep that in mind as well. Now remember, also the 6-month interim analysis, all 15 patients dosed have to reach that 6-month time point before we break the blind on the video evaluations and before we share the information or the data with the FDA for potentially filing on the BLA as we complete the study at 12 months. And that data set will also be available at the final filing of the BLA. So what we do is by the 6-month interim analysis process, we have the opportunity to shorten the time line of filing of the BLA by two quarters more. So again, the 6-month interim analysis also does not really have significant impact on the p-value nor the power of the study, given that the loss of the alpha is actually minimal, and it's a 33% responder rate is all that's needed really to meet our primary endpoint, whether it's a 6-month or 12-month analysis. And keep in mind that usually none of these patients at 6 months reach a new milestone or regain a lost milestone. Therefore, any milestone gained even by 1 patient is miraculous. So I will leave it at that. From a clinician's perspective, I think we have something that I hope that we can gather the data quickly and get our data set to the FDA so that we can make this therapy available to patients as soon as possible. I hope that answers your question, Yanan. Operator: Our next question comes from Joon Lee with Truist Securities. Mehdi Goudarzi: This is Mahdi on for Joon. So the question is, I just wanted to ask you to please remind us what is the actual definition of regaining again. And assuming that at the 6-month interim data is positive, how soon you can start filing for BLA? Sukumar Nagendran: Yes, thanks for that question. So this is Suku, and I'll respond to that question because it's -- thanks because it's important that it's clearly defined and the audience understands what it means. So remember again, natural history, once patients with Rett syndrome reach the age of 6 and above, they do not regain a lost milestone. So I'll give you an obvious one. Let's assume a patient before 6 years of age with Rett syndrome can sit up without support and they lose it completely and now cannot sit up without support. Post treatment with TSHA-102, our gene therapy through lumbar puncture, if that patient now again is able to sit without support, that is a regain of a lost milestone. A gain of a new milestone is something where the patient before the age of 6, for example, can never use their fingers due to significant stereotactic movements and therefore cannot pick up a teaspoon or a cup to feed themselves. Post treatment, this milestone is now achieved where the patient can actually use their fingers, which they've never done before, can pick up a spoon or a cup and feed themselves. That is the gain of a new milestone. So it's very almost black and white, which actually makes it very easy both for the clinicians who are evaluating the patients, the video reviewers who are blinded, as well as when the FDA hopefully sees our videos, it will make it obvious that our product actually works. And keep in mind that this entire process of video recording, central raters, blinding, et cetera, came from our AveXis experience many years ago. And we have most of the team here at Taysha that will continue to execute on this program and hopefully reproduce what we were able to do for SMA population using AVXS-101, which is now Zolgensma. Operator: 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. Sean Nolan: We appreciate everyone taking the time this morning to join us. Have a good day. Thank you. Operator: This concludes today's program. Thank you for your participation and you may disconnect at any time.
Operator: Good day, everyone. My name is Sophie, and I will be your conference operator today. At this time, I would like to welcome you to the Kymera Therapeutics Third Quarter 2025 Results Call. [Operator Instructions] At this time, I would like to turn the call over to Justine Koenigsberg, Vice President of Investor Relations. Justine Koenigsberg: Good morning, and welcome to Kymera's quarterly update. Joining me this morning are Nello Mainolfi, Founder, President and CEO; Jared Gollob, our Chief Medical Officer; and Bruce Jacobs, our Chief Financial Officer. Following our prepared remarks, we will open the call to questions from our publishing analysts. [Operator Instructions] Before we begin, I would like to remind you that today's discussion will include forward-looking statements about our future expectations, plans and prospects. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those projected. A description of these risks can be found in our most recent 10-Q filed with the SEC. Any forward-looking statements speak only as of today's date, and we assume no obligation to update any forward-looking statements made on today's call. With that, I would like to turn the call over to Nello. Nello Mainolfi: Thank you, Justine, and thanks, everybody, for joining us this morning. Now in the final quarter of the year, as we reflect on 2025, I'm happy to say that our team has executed exceptionally well across all parts of our business, and we're very proud of all that we have accomplished this year. We're committed to building a global biopharmaceutical company and have established a strong foundation that will serve us well as we scale an organization and continue to advance our industry-leading oral immunology pipeline. As shown on this slide, I'd like to highlight a few of the key achievements this year that positions us well for important future milestones. In less than 2 years since unveiling our STAT6 program, we have demonstrated exceptional progress in advancing our first-in-class STAT6 degrader, KT-621. To recap, we completed our healthy volunteer study ahead of schedule with impressive results. We enrolled and completed dosing in the Phase Ib trial in AD patients with data coming in December. We initiated our first of 2 Phase IIb trial, BROADEN2 in AD, and we're on track to start the BREADTH Phase IIb asthma trial in the first quarter of 2026. We were also featuring 2 recent late-breaking presentations, which have helped us maintain high level of visibility with the medical and scientific communities where there continues to be strong interest in oral medicines with potential for biologics-like activity. Beyond STAT6, we unveiled our IRF5 program this spring and presented the robust preclinical data at the American College of Rheumatology Annual Meeting just recently. We've also completed the KT-579 IND-enabling studies and remain on track to initiate the first clinical trial in healthy volunteers early in 2026. In addition to IRF5, we continue to advance our earlier-stage undisclosed immunology pipeline, and our goal remains to address many of the major immunology indications with oral medicines. Importantly, we believe the synergies across our pipeline provide multiple development opportunities for broad patient populations. We also entered into a new partnership with Gilead outside of immunology. Gilead is an ideal partner to drive forward our CDK2 oncology molecular glue program, which we believe has broad potential in breast cancer and other solid tumors. In summary, it's been a very busy year and a successful one, and we look forward to finishing this year strong as we advance our pipeline towards more and more important milestones. More broadly, we built what I believe is one of the strongest oral immunology pipeline in the industry, where we're well positioned to deliver novel oral treatment options for patients with highly prevalent immune-inflammatory diseases. Several years ago, we made a deliberate strategic shift to focus our R&D efforts toward the significant opportunities in immunology. And the reason is quite simple. Within immunology, many pathways have been validated with upstream biologics. Traditional small molecule inhibitors are not able to block the signaling pathways as effective as biologics, given the direct correlation between PK and PD and the need of high drug exposures. As a result, the power -- of the power of protein degradation, we can now selectively remove disease-causing proteins through a catalytic mechanism and can block pathways completely, which we've consistently demonstrated across all of our programs. This allows us for potential of oral drugs with biologics-like activity for the first time in our industry, and our first-in-class pipeline is a testament to this strategy. If we look specifically at our STAT6 program, KT-621 exemplifies this approach. There is a tremendous opportunity for a convenient, safe and effective oral pill in highly prevalent Type 2 diseases like atopic dermatitis, asthma, COPD, EoE and others. Despite the large size of the patient population, the penetration of other systemic advanced therapies like injectable biologics is actually quite low. This creates a significant opportunity for safe and effective oral medicines, which we believe would have potential to change the quality of life for many patients and family around the world. We have moved our STAT6 program at a rapid pace from preclinical to IND to initial clinical proof of concept and we're now embarked on our first global Phase IIb trials. In fact, we filed our IND in September 2024 and by the fourth quarter of 2025, we've already launched our first Phase IIb study. This progress is a strong testament to the speed, focus and executional excellence of our team in driving this program forward. Looking back at KT-621 Phase I healthy volunteer study, we demonstrated at very low doses, we can degrade STAT6 fully and block Th2 disease-relevant cytokines in healthy volunteers as effectively as upstream biologics and in a well-tolerated manner. We're moving quickly towards completion of the BroADen Phase Ib trial, which we initiated in the spring. To remind you, the trial was designed to achieve 3 important goals: To confirm robust degradation in blood and skin and understand the translation from healthy volunteers to AD patients. To allow us to refine the Phase IIb doses based on that translation, and to demonstrate that robust STAT6 degradation in AD patients can impact biomarkers and clinical endpoints similar to upstream biologics, specifically dupilumab. Given that the trial is fully enrolled and we plan to share the data next month, I wanted to use this call one last time to reiterate expectations we're setting into the study across the 4 dimensions we're evaluating KT-621 on, degradation, safety, biomarker and clinical activity. With respect to STAT6 degradation, the goal is to translate in AD patients, the robust degradation of STAT6 in blood and skin that we have seen in the Phase I healthy volunteer study. The safety profile is paramount, and we hope to continue to see a safety profile in line with what we've seen in both healthy volunteers as well as our preclinical studies. With respect to biomarkers, we plan to look in both blood and skin. In blood, we have highlighted TARC as the most relevant biomarker at the 4-week time point. After achieving up to a median reduction of 37% of TARC in healthy volunteers and given that in atopic dermatitis patients generally have higher baseline TARC levels, our expectation is to show a meaningfully more robust TARC reduction. As a point of reference, in published dupilumab studies where baseline TARC levels were much higher than healthy volunteers, the reduction was in the range of 70% to 80% at 4 weeks, which is the bar we set for KT-621, assuming generally comparable baseline levels. In skin, we also plan to assess KT-621's impact on skin transcriptomics, which we have not assessed in the healthy volunteer studies. There, we anticipate changes in downstream genes that aligns with the expected biological effect of this pathway modulation. And finally, in terms of clinical endpoints, we went into the study with a robust body of evidence in all of our experiments demonstrating KT-621 blocks IL-4 and 13 as well as dupilumab, and this has resulted in comparable downstream pathway effects in both in vitro and in vivo studies. As a result, we entered the BroADen study expecting clinical activity of KT-621 to be in the range of what dupi delivered at 4 weeks in its published studies, including on both EASI score and itch with all the caveats of small ends and the lack of a placebo arm. I hope that this is helpful as we approach the data readout next month. Given that we have quite a bit of investor activities planned this month, please understand we will refer back to these key objectives and reserve any additional commentary for the final data presentation in December. So before I hand the call back to Jared, I wanted to take a moment to welcome Brian Adams, our new Chief Legal Officer, to Kymera. He's a seasoned life science executive with deep industry experience, bringing more than 2 decades of experience across legal and compliance, corporate development, strategic planning and governance. We're thrilled to have him join our team as we enter this next phase of growth and look forward to his contributions as we continue our efforts to building a fully integrated commercial stage company. So to wrap up, as I said on the onset of the call, this has been a year of exceptionally strong execution, and we're well positioned to continue advancing all aspects of our pipeline as we head into 2026. I'm confident that through our expertise, scientific rigor, focused execution, we're building one of the most exciting immunology portfolios in this industry. Let me pause here and turn the discussion over to Jared, who will provide us an update on the pipeline, including additional color on our newly initiated atopic dermatitis study. Jared? Jared Gollob: Thanks, Nello. We have made significant progress with KT-621, our STAT6 degrader, and I'm happy to share the advancements we are making in the clinic with you this morning. As Nello described, we see this as a transformative opportunity to develop an oral therapy that delivers biologics-like efficacy without the limitations of injectables. KT-621 is the first and, we believe, only STAT6-directed oral medicine in the clinic. It has the potential to positively impact the more than 130 million people around the world living with Type 2 diseases, considering all the indications where dupilumab is approved today. Our first development indication is atopic dermatitis, or AD, a common but complex dermatologic condition with a significant unmet medical need. This is a chronic inflammatory skin disorder, more commonly referred to as eczema that manifests as inflamed, itchy and often painful patches on the skin. These lesions can appear anywhere on the body and range widely in severity from mild irritation to debilitating full body inflammation. One of the most burdensome aspects of this disease is the persistent itch. It's not just a nuisance, it's a hallmark symptom that can severely impact quality of life by disrupting sleep, daily activities and overall well-being. While there are several treatments available today, they have limitations, forcing patients to make trade-offs. Antibody-based injected therapies like dupilumab have made a real difference for many patients, providing a well-tolerated and safe therapeutic option, but it's not a solution for everyone. For starters, access can be very limited and is a challenge for many patients. For those who are prescribed these drugs, it can be inconvenient or a painful route of administration with compliance impacted by lack of tolerance of injection site reactions or phobia of needles. And there are also issues with cold storage requirements and immunogenicity risk. In fact, in an industry survey, 75% of patients taking biologics said that they would switch to orals with an equivalent profile. There are some oral options such as JAK inhibitors that offer an effective oral alternative. However, they come with significant safety concerns, including box warnings that limit their use, especially in long-term disease management. Given this important unmet need, coupled with the strong preclinical and clinical profile of KT-621 in healthy volunteers, we have developed an accelerated clinical development strategy, including conducting a small Phase Ib biomarker-focused trial in moderate to severe atopic dermatitis patients that we initiated earlier this year. The key aim of the 28-day BroADen study is to show that robust STAT6 degradation in blood and skin lesions by KT-621 has a dupilumab-like effect on multiple Th2 biomarkers in the blood and skin. We will also assess KT-621's effect on clinical endpoints such as EASI and Pruritus NRS. The team has worked very hard to advance this program. And in line with expectations, we completed enrollment in the study last month and dosing is now complete. The final patients are completing follow-up, and we will collect and evaluate the rest of the data and report results in December. As we have said, this Phase Ib study was not gating to the start of the parallel Phase IIb dose range finding trials in AD and asthma, which in turn are designed to enable subsequent Phase III registrational studies across multiple indications. This quarter, we initiated BROADEN2, our Phase IIb AD study, a global randomized, double-blind, placebo-controlled trial to evaluate KT-621 in approximately 200 patients with moderate to severe atopic dermatitis. This study is designed to evaluate 3 different doses of KT-621 over a 16-week treatment period compared to placebo. Patients from the study have the opportunity to participate in a 52-week open label extension period after completion of the trial, which will contribute to building the long-term safety database we'll need to support eventual regulatory filings and is also an additional incentive for patient recruitment to the trial. Eligibility criteria to ensure we're recruiting patients with moderate to severe AD include an EASI score of at least 16, at least 10% of body surface area affected and an average weekly Pruritus NRS score of at least 4. While prior use of biologics is permitted if treatment was not discontinued for lack of response and following a study-defined washout period, we expect to enroll a substantial number of systemic treatment-naive patients given the attractiveness of the ease and convenience of a once-daily oral treatment option. The primary endpoint is the percent change from baseline in EASI score at week 16. Secondary endpoints will evaluate a range of additional safety and efficacy measures, including but not limited to, the proportion of patients achieving EASI-50, EASI-75, a validated Investigator Global Assessment score of 0 to 1 and at least a 4-point improvement in Peak Pruritus NRS. We expect top line results from the Phase IIb study will be available by mid-2027. In addition to atopic dermatitis, we plan to initiate the BREADTH Phase IIb study in asthma in the first quarter of 2026. We'll share more information on the trial design next year when we get closer to initiation. Beyond the STAT6 program, we have completed IND-enabling studies with KT-579, our IRF5 degrader, which we plan to advance into a Phase I healthy volunteer study early next year with data expected in 2026 as well. Last month, we shared incremental updates in 2 posters at the ACR meeting in Chicago. In several preclinical efficacy models of lupus and RA, KT-579 was generally more efficacious than clinically active or marketed small molecule inhibitors and injectable biologics, phenocopying IRF5 knockout studies. The compelling preclinical data we have generated showcase that targeting IRF5 can lead to correction of immune dysregulation across multiple disease pathologies while generally sparing normal cells. We continue to be excited about this opportunity and look forward to moving it into the clinic soon. I'll pause here and turn the discussion to Bruce to review our third quarter financial results. Bruce? Bruce Jacobs: Thanks, Jared. As I walk through the third quarter results, please reference the tables found in today's press release and 10-Q, which was filed this morning. Revenue in the third quarter of 2025 was $2.8 million, all of which was attributable to our collaboration with Gilead. With respect to operating expenses, R&D for the quarter was $74.1 million. Of that, approximately $8.4 million represented noncash stock-based compensation. The adjusted cash R&D spend of $65.7 million, which excludes that stock-based comp, reflects a 7% decrease from the comparable amount in the second quarter of 2025. On the G&A side, our spending for the quarter was $17.3 million, of which $7.4 million was noncash stock-based comp. The adjusted cash G&A spend of $9.9 million, again, excluding that stock-based comp, reflects a 3% decrease from the comparable amount in the second quarter. And overall, adjusted operating expenses were down slightly from the prior sequential quarter. We ended September with a cash balance of $978.7 million, providing a cash runway into the second half of 2028. This runway allows us to complete both KT-621 Phase IIb trials in AD and asthma, cover start-up costs in the initial Phase III activities for the STAT6 program, advance KT-579 through initial POC testing and advance our research pipeline as we scale and grow Kymera. Just a quick reminder, our runway collaborations, calculations, I should say, exclude any unearned milestones from our collaborations with Sanofi and Gilead. Regarding Sanofi, we expect that they will advance KT-485 into Phase I testing in 2026, which would trigger a development milestone payable to Kymera. As for the Gilead collaboration, upon exercising its option for a CDK2 glue, we are entitled to a milestone payment. As previously announced at the time of signing the Gilead collaboration agreement, we are eligible to receive a total of $85 million in upfront and option payments, with approximately half of this already received as the upfront payment in the last quarter. We look forward to the continued progress of both the IRAK4 and CDK2 partnered programs. With that, we'll pause here so we can convene in our main conference room and open the call for your questions. Thank you. Operator: [Operator Instructions] Your first question comes from Geoffrey Meacham, Citi. Geoffrey Meacham: I just had a couple of questions. So the first one is, when you look at the upcoming data for KT-621, maybe just highlight, Nello, what are the key characteristics that could enable it to potentially show differential efficacy versus dupilumab at relatively early time points, I think that's probably one of the bigger points of uncertainty with investors. And then the second question is, when you look at the 2 doses of the BroADen study, is the -- the 3 doses, is the expectation that the lower one maybe has a lower impact on degradation and therefore, is subtherapeutic? Or is it to test the upper end of where you'd like to be from a safety tolerability? I'm just trying to get a sense for the selection of the doses and kind of how you would frame that out for what would be the ideal kind of result. Nello Mainolfi: Great. Thanks, Geoff, for the question. So on the first one, let me just take a step back. So in all the work that we've done with our STAT6 program for multiple years now, we've been working on this program for a very long time, we were able to demonstrate, I think, convincingly in all the preclinical studies that when you degrade STAT6, you're able to block IL-4 and 13 signaling as well as an upstream biologics, whether it's an IL-4 receptor blocking drug like DUPIXENT or even an IL-13 drug. So generally, we're actually the only oral drug that is able to block IL-4 and 13 as well as upstream biologics. In all the studies that we've run, again, preclinically, as I said a few minutes ago, both in vitro and in vivo, we've seen comparable activity. And I think this speaks to the biology of the pathway. Whether you block the receptor or you block the specific transcription factor for the receptor, you see the same biology. So the reason why we say the opportunity here is to have dupilumab in a pill-like profile is not because it's actually what we hope to see. Obviously, we hope to see that. But it's because it's the activity, the biology that we've seen so far. So as a data-driven company as we are, we're reporting the observation of so far, we've seen dupi-like activity. In our Phase I healthy volunteer study, where we measured, as you remember, biomarkers in blood in healthy volunteers, we were able to show also in those biomarkers that we were generally comparable, some would say even numerically superior to dupilumab. So for me, it's really hard to say KT-621 is going to be better than dupilumab or worse than dupilumab. All we've seen so far that we're generally blocking the pathway the same way. Hence, that's where the expectations are set. Now as a data-driven drug development company with, I think, astute people in the company, we're very keen to see how the 2 profiles will evolve and where they would differentiate. We're talking about obviously an injectable biologic versus a small molecule degrader. So you will see probably small differences or larger difference here and there. But our priority is very difficult for us to like set the expectation one way or the other. I would be probably the happiest CEO in the world if we're able to deliver a dupi-like profile. Going to your second question, I think I understand what you're saying, what you were asking, but maybe not. So you can correct me if I got it wrong. So maybe the way that I'm going to answer your question is, so we selected 2 doses for the Phase Ib study because we wanted to really understand well what was the translation of healthy volunteer degradation profile into patients to then have a high level of confidence in selecting the 3 doses for the Phase IIb. The only thing I'm going to say right now is that the 2 doses of the Phase Ib as well as the 3 doses for the Phase IIb are all within the doses that we studied in the healthy volunteer study. And generally, our approach for the Phase IIb is to evaluate a range in which we see maximal pharmacology and at the top dose or some would call it super pharmacology and then in the bottom dose, a dose that reaches less than the optimal pharmacology and then obviously, a dose in between. So that's the general philosophy without going into details. Operator: Your next question comes from the line of Marc Frahm, TD Cowen. Marc Frahm: Maybe just on the Phase Ib. Nello, in your comments, you mentioned the kind of target of 70% to 80% TARC reduction, but with that caveat of assuming similar baseline characteristics. Now that you've enrolled the patients with a group of 10 per dose level, there's always some chance that you end up with a little bit of a skewed population relative to the comparators. Just anything you'd highlight there based on the patients that have actually enrolled that might be a little bit different than the historical DUPIXENT comparators? And then I'll probably have a follow-up. Nello Mainolfi: Yes. No, Marc, thanks for that. That's a great question. So let me clarify. So there is 2 aspects of this trial. One is the baseline, let's say, the baseline EASI of patients. And then I think what I was referring to back a few minutes ago was the baseline TARC levels. So I think if you study dupilumab TARC reduction over both the AD study, but actually if you study over all the other studies that were run in other indications, whether it's chronic rhinositis (sic) [ rhinitis ], asthma, EoE, et cetera, you see that there is a clear relationship between baseline level of TARC in patients and reduction of TARC. And so that's what I was referring to when I'm talking about baseline level of TARC, baseline levels, I was referring to the TARC baseline levels. And obviously, I'm not going to comment about what the baselines of the study -- of our study are, but obviously, we'll share the data when the time is right. Then there is another element, which I want to clarify, then there is the EASI baseline levels. And I think what we've said in the past, as we've seen generally when dupilumab was developed, it was the first systemic drug for atopic dermatitis. And so if you look at those studies, the baseline EASI were in the high-20s, low-30s. If you look at studies from all companies in the past 5 years or so, you see that the baseline EASI has shifted down in the, let's call it, mid-20s. And that's mostly because the patient population that we're accessing to these trials in the sites that most companies go to, obviously has changed given that these sites in these countries and these regions have access to dupilumab. So generally, the most severe patients are on systemic biologics. Some are not. But generally, the mean number has come down a bit, and that's what we're observing. And so that's kind of another element to the whole study and the outcome of the study. But I just want to separate the point that I was making before where on TARC baseline levels, not necessarily on the EASI baseline level. Marc Frahm: Okay. And should we expect that same trend kind of to lower EASI scores, it should apply here. But does that have an impact on TARC level -- likely TARC levels as well, do you think? Nello Mainolfi: I think that's something that we'll discuss when we release the data. I think we understand really well, obviously, the level of TARC at baseline in healthy volunteers, right, where we've seen reduction in the mid to high 30s in many patients on our studies in the healthy volunteers. And we show that also dupilumab when baseline levels were in the range of healthy volunteer at similar reduction. I think, again, as I've said, if you look at other studies, dupilumab level, you see a correlation between baseline level and percent reduction of TARC. And so I think that's the observation that we're sharing looking at those studies. I don't want to preview our study because -- as I mentioned a few minutes ago, I don't think it would be productive to preview some data here versus December. Operator: Your next question comes from the line of Brian Abrahams, RBC. Brian Abrahams: Congratulations on all the progress. I'm wondering how are you guys thinking now that it's been initiated about the powering overall for the Phase IIb AD study, just considering the population you expect to enroll, the mix of biologics and experienced and naive patients and your expectations for effect size? And then just as a follow-up, it sounds like you're thinking about maybe different doses for asthma and respiratory diseases versus dermatologic diseases. I was wondering if you could elaborate a little bit more about what you think are the important considerations around that. Nello Mainolfi: Jared, do you want to take that? Jared Gollob: Sure. Yes. I mean we can't give specifics around powering for the Phase IIb. What we can say is -- and we have stated that the end for that study is going to be approximately 200 with there being 4 arms, 3 drug, 1 placebo. So we look very carefully at what the expectations are, what the patterns have been in the past with regard to EASI responses, NRS Pruritus responses, et cetera. And that's all gone into calculating what sort of ends we need to make sure that the study is adequately powered. So we've been very careful in the design of the study to make sure that we are powered to show the desired effect relative to placebo. Another important aim of the study, obviously, is to be able to look across the 3 different doses and to see if we can discern any sort of a dose response. So the study is powered to enable us to do all of those things. Nello Mainolfi: And the doses between AD. Jared Gollob: The doses between AD. So right now, so I think what we've guided is that our plan is to -- in the Phase IIb to use the same doses for both AD and asthma across both Phase IIb studies. Nello Mainolfi: And then maybe just to add, then the Phase III doses or dose that will be used for AD Phase III and asthma Phase II might be different based on the dose ranging. To be honest, our expectation is that it will not be different, and we will use one dose for all studies. But that's why we're running different dose ranging in different diseases with different target tissues so that we actually understand what the right dose will be. Operator: Your next question comes from Brian Cheng, JPMorgan. Lut Ming Cheng: Some of the color you're providing here for the December readout is pretty much in line with what you already messaged. But I'm just curious, just given the gap between the time you selected your 3 doses for the Phase IIb and when Phase Ib finished enrollment around early October, what could be additive to what you already know in the December readout? Or do you think the data is most likely going to be in line with the data that you had already seen when you picked the 3 doses? And I have a follow-up. Nello Mainolfi: Well, so I'd like to maybe clarify. I think what we said before is the same thing that we've been saying for 9 or 10 months. But that's maybe just my small additional color. So I just want to clarify, when we selected the doses for the Phase IIb was actually a few months before October, right? We started the study recently in the Phase IIb study. But in order to submit the protocol and do start-up activities, you had to actually have chosen the doses much earlier. And I think I've said this many times, I believe, publicly that when we selected the doses, we had visibility into partial data for both doses for both the first dose in the Ib and less but still some data from the second dose in the Phase Ib. And again, we did not have access to the totality of the data, but we -- because we're focused mostly on the translation of degradation and obviously, safety, which is understood, we had enough information to make the right selection for the Phase IIb doses. Lut Ming Cheng: In the prepared remarks, in the BROADEN2 trial design, I think you mentioned that you expect a substantial number of patients to be naive to advanced therapy. So I'm just curious what's the driver behind that? And how should we take that into account as investors think about comparing the BROADEN2 future data against other benchmarks? Nello Mainolfi: Yes. So I'll start, Jared, please jump in. So the reason why we believe that will be the case is multifold. But I will start with -- we believe KT-621 and our STAT6 program is -- the whole value proposition is to expand patient access to advanced systemic therapy. The penetration of these advanced biologics in moderate to severe patients is less than 10%. Some companies claim it to be more than 10%. Maybe we align on, let's say, 10%. So we don't have to argue with other companies. So the majority of the patients do not have access to advanced systemic therapy. That's where we are coming from. Then another part, which we've discussed as well is patients that have gone on to systemic therapies that have failed systemic -- pathway systemic therapy, IL-4, IL-13, JAKs will not come on to our study. So they will have to have responded to those therapy, then decided not to continue and then jump on our 621 study. So for those 2 main reasons, and also, I would say, for the experience that we had in the Phase Ib, we believe the majority of patients will be naive. And I would also add, hopefully, I will not be proven wrong, that we don't believe there will be issue out there finding naive patients because those patients are in dire need of an active systemic oral safe therapy. Jared Gollob: The only thing I would add would be just as a reminder that this is a global study. And so we're running the study in North America, Europe, Australia and Japan, with the majority of sites actually being ex U.S. So ex U.S., in particular, there are going to be a number of patients who don't have access to IIb. And so that's another reason why we expect a substantial proportion of patients on IIb to be dupi-naive. Operator: Your next question comes from the line of Mayank Mamtani, B. Riley. Mayank Mamtani: Congrats on the progress. Could you give us a little bit more detail on the asthma BREADTH? I think you're calling it trial considerations. And in terms of if you're looking at a 12- or 24-week FEV1 endpoint or a longer duration exacerbation, you could be looking at both, but just wonder in terms of which is your primary endpoint? And then also curious about the kind of patients you're thinking to enroll there and the allowance of background therapies. And obviously, the question is around time lines for data readout for the asthma and atopic derm. Will they be stacked together in 2027? And then I have a quick follow-up. Nello Mainolfi: Yes. No, thank you for the question. Unfortunately, as we've said, we're going to talk more about the Phase IIb BREADTH study when we're in the start-up mode, when we're close to dosing our first patient. So give us a few more weeks, and then we'll provide all the color that you're asking for. So why don't you ask the follow-up so that at least we have a question. Mayank Mamtani: And maybe just to talk a little bit beyond 621 and about your pipeline beyond that. Just on the 579, could you maybe give us some color on what the initial targeted indications would be just given the broader inflammation cascade that you're targeting there? Nello Mainolfi: Yes. Maybe just high level. So thanks for asking about IRF5. This is a program that I think has mostly been unparalleled in the industry where you have highly validated genetically validated transcription factor that has been, I think, the object of many drug development efforts in the biopharma industry for a decade or so, but has maintained -- has remained elusive where Kymera has that solution using targeted protein degradation. So if you look at human genetics, the top 4 places where one would go directly are generally lupus, SLE and other subcategories of this disease, some other interferon-related pathologies, RA, IBD. So those are where human genetics point to our preclinical data point to. I think when we're closer to the Phase I study, we'll be able to share more about our development plans. Jared, anything you want to add? Jared Gollob: No. Operator: Your next question comes from the line of Sudan Loganathan from Stephens. Sudan Loganathan: Looking back at the healthy volunteer data for KT-621, I noticed that the median percent change in the serum TARC and the IgE were similar to that of dupilumab healthy volunteer outcomes for those same levels when on treatment. There was a noticeable rebound higher, obviously, whenever these -- on these levels when the patients were off of KT-621, as you showed. My question is how important is the durability for the AD and asthma patients' quality of life outcomes? And will KT-621's daily oral dose -- dosing regimen make up for any deficiencies and maybe durability outcomes that it could have compared to dupi? And does dupilumab mode of administration and systemic effects just inherently lend to a more durable outcome? Nello Mainolfi: It's a great question. So I mean, I will answer part of it, and then I'll let Jared also speak to part of all of it. So the beauty about our drug is that it's a once-a-day oral that allows you to block IL-4 and 13 continuously at steady state. The beauty of our drug is that you can stop and start when you want, if needed without long washout period. The beauty about a once-a-day oral drug is that as long as you continue to take the drug once a day orally, you will see profound effects or at least the effect that the biology -- the underlying biology will have. I don't believe that if these drugs are taken as prescribed, obviously, we're still very early to compare to dupilumab, that you have more or less duration of the effect. The only main difference that I will say between an injectable biologic and a once-a-day oral degrader, not small molecule inhibitor, is that the once-a-day oral degraders allow you to have steady-state complete pathway blockade. I believe with dupilumab, a couple of days before your next dose, you're not maximizing the pharmacology as much. So you might actually have less pathway blockade, continuous pathway blockade than a once-a-day oral degrader. Now what would that mean from a therapeutic perspective, obviously, well, time will tell and studies will tell. Jared Gollob: Yes. And maybe coming back to your comment around the Phase Ia, just to clarify, patients who were on the MAD portion were getting 14 daily doses. And so when we look at the effect on TARC and Eotaxin-3 in particular, that suppression or inhibition was seen throughout the entire 14-day dosing period. In fact, if you looked at day 7 versus day 14, levels were actually continuing to go down TARC and Eotaxin-3 between day 7 and 14, which suggested that if we had continued dosing beyond day 14, we might have seen more suppression. So there was no recovery of TARC and Eotaxin-3 until dosing was stopped after day 14 and then you see a gradual recovery. So that just speaks to what Nello was referring to in terms of the durability of the effect as evidenced by even in healthy volunteers, a durable effect on those biomarkers. Operator: Your next question will come from Andy Chen, Wolfe Research. Brandon Frith: This is Brandon on for Andy. Within BROADEN2, are you doing anything to control the rising trend of placebo that we're seeing in atopic dermatitis where recent trials have seen a higher placebo response? Nello Mainolfi: Thanks for the question. So I just want to answer the first part, and then Jared will address it. So I think that's an important point. I think as I was speaking earlier, I think with a drifting of patients with EASI, shifting from, let's say, early 30s to mid-20s, I think it's almost physiological to have seen an increase of the placebo rates. I think though, there are ways in which one can minimize the effect. And maybe, Jared, you can speak to it. Jared Gollob: Sure. Yes. I think as far as we see it, I think this is based on the general learnings from prior studies. There are really 3 main things that one can do to try to limit that placebo rate. One is making sure that you have the right protocol design and site selection so that you're making sure you actually have patients with atopic dermatitis, not other skin diagnoses and that you make sure you have moderate to severe patients that you're not somehow also getting mild patients. The milder patients, the more mild patients you have who should not really be enrolled in these studies, but they are enrolled, are going to have a contribution to placebo rate. The second important thing is to select very experienced sites because you want the raters, the people who are assessing the endpoints to have the right expertise, the right derm expertise here for AD. And you also want to have the proper training of those raters to make sure they're able to assess EASI, for example, consistently and accurately. And then finally, it's really important that there'll be close sponsor oversight of the sites involved and also the CRO that's helping to execute on the study. That oversight is really our study conduct and the sponsor has to really be all over study conduct. So I think all of those elements combined, I think, are important in helping to mitigate placebo rate, and those are all things that we're addressing in our study. Operator: Your next question comes from Kripa Devarakonda, Truist. Srikripa Devarakonda: Can you hear me? Nello Mainolfi: Yes. Srikripa Devarakonda: I was actually wondering how you think about the evolution of the competitive landscape for 621. I know you guys are significantly advanced in terms of the clinical development. There are competitors, whether you talk about degraders or some inhibitors. But based on what you've seen, how important is the fact that you're ahead in development versus any potential areas of differentiation? And where does the next-gen STAT6 degrader fit into this context? Nello Mainolfi: Thanks, Kripa. So obviously, yes, we're aware of other companies that -- I think we've enabled with our amazing data, right, over the past couple of years, which is obviously always great to see, at least from an industry perspective. So first, let me start with -- this is not just about being first. I think this is about being first and best because that's what is going to almost guarantee commercial success, right? You're ahead of the competition, which is important. But more importantly, you have a drug that is going to be extremely difficult, if not impossible, to do better than. And that's what KT-621 is. It's a drug that is exceptionally potent as we've seen, exceptionally well-tolerated with a profile that we believe would allow us to go in any potential indications of patients with Th2 diseases. I think others will have to talk about their differentiation versus KT-621. I'm not familiar with many of the other programs because there haven't been any publications or presentations with actual data. What I will say going on record here is I believe a small molecule inhibitor STAT6 is impossible to reach the level of pharmacological effect that our degrader will have, mostly because we'll not be able to block this pathway 24/7 almost completely or completely as we do. And we believe that, that's required to have biologics-like activity. On the other, obviously, degrader programs, again, I don't know enough. But the important thing here is that we have confidence in our drug. We're years ahead of competitors. And so our team mandate here, including us around the table, is to execute flawlessly in the next few years so that we can accomplish the commercial success that will make KT-621 a double-digit billion-dollar drug in the Th2 space. Operator: Your next question comes from Jeff Jones, Oppenheimer. Jeffrey Jones: We've been talking about TARC, Eotaxin and some of the other critical biomarkers for the STAT6 program. Can you comment on key biomarkers we should be focusing on for the IRF5 program when we see that data? And should we be expecting healthy volunteer data in 2026? Nello Mainolfi: Yes. Jeff, you always ask very orthogonal question. I love it. So yes, we expect to have Phase I data from 579 in 2026, next year. It's a bit early to speak to the biomarkers. But as you know us, as you do know us well, we tend to run Phase I healthy volunteer study that are quite rich in terms of information. So as we get closer to the start of the study, we'll share more about our biomarker strategy. Operator: Your next question comes from the line of Jeet Mukherjee, BTIG. Jeet Mukherjee: You folks have spoken at length about the niche and the opportunity for KT-621 in the atopic derm space. But could you just elaborate a bit further on how you see it fitting within the asthma landscape? Nello Mainolfi: Yes. I mean I'll start with -- actually, there's a more fundamental issue, I think, in the asthma space, and I'll let Jared speak to the medical part of it. I just want to talk strategically. So Th2 asthma, eosinophilic asthma, which obviously we expect this drug to address, right, just to level set, is a disease that starts very early in life. And actually, it turns out that if you're not able to impact the disease until or before your lung fully develops, you're actually going to have reduced lung function for the rest of your life. And children, young adults are on non -- on therapies that do not address the underlying Th2 inflammation for many years before they are graduated to systemic biologics. I think there is a paradigm that needs to change because we're actually putting kids' lives at risk or we're not carrying as much as we should or do for the best quality of life possible of children and young adults with Th2 inflammation. So that's where an oral drug with, hopefully, the safety and the efficacy that we expect should fit in, in the treatment paradigm, that help patients earlier in their trajectory. I'm not saying that this is a patient for mild asthma, a drug for mild asthma, but this is an opportunity to change the treatment landscape in respiratory diseases, given that this is a disease of young people, and we need to change how this disease is treated. Maybe, Jared, you can bring us back to earth and maybe talk more medically. Jared Gollob: Yes. No, I think in addition to the, I think, important opportunity in pediatric patients, I think also in the adolescent and adult patients with asthma, I think being able to access a much greater proportion of those patients with moderate to severe disease, right, who have a significant unmet need, but just are not going on injectable biologics for all the reasons around market access or concerns about being on an injectable or a biologic to be able to really penetrate the adult and adolescent space as well with our drug for those patients with moderate to severe because now we have an oral drug, which hopefully, if it says if it's comparable to dupi in its efficacy and safety, it could really transform how these adult and adolescent patients are also treated with asthma. Operator: Your next question comes from Clara Dong with Jefferies. Nello Mainolfi: I think you're on mute. Bruce Jacobs: Clara, we can't hear you. Yuxi Dong: Now? Nello Mainolfi: No. Bruce Jacobs: Yes. Maybe, operator, do you want to put her back in queue and we go to the next one and she can try to sort that out. Operator: Your next question will come from Alex Thompson. Please bear with us as we invite him to be panelist. Alexander Thompson: I guess on the Phase IIb AD study again, you mentioned obviously, patients that had experience with biologics. And I think, Nello, you also mentioned JAK inhibitors. Is there going to be a cap for how many of those advanced therapy experienced patients you might have in the study? And then on rescue therapy, how are you dealing with that as well? Nello Mainolfi: Yes, there would be no cap. Again, as long as you have not failed advanced systemic therapies that block this path to IL-4, IL-13 and even JAKs, there will be no cut for those. And I don't think we're discussing rescue therapy. Obviously, there is a system on how we're going to deal with it, but I don't believe we're going to disclose it at this point. Operator: Our next question comes from Faisal Khurshid, Leerink. Faisal Khurshid: So I know you've put kind of a benchmark out there of 70% to 80% on TARC reduction from baseline. Could you talk to us about what you would -- what efficacy endpoint you think people should focus on, given that people are focused on this, given that you already showed nice TARC in healthy volunteers? And then if you're not willing to put out a numerical benchmark, can you just clarify for investors why that's the case? Nello Mainolfi: No. So thanks. That's a very good question, actually. So we're just basically stating the facts. And we've said that this is a biomarker-focused study mostly because we -- I think we can gather from the data that there is very little, if almost no, let's call it, placebo effect on biomarkers. So the absence of placebo should not impact the interpretation of biomarkers, right? So we're honestly a bit more comfortable saying for TARC, assuming the baseline levels are in the range of what we've seen with the dupilumab study, we expect to see the 70% plus, 70% to 80%. That's a fact, right? That's what dupilumab has seen. Now you would say it's also a fact that the EASI reduction on day 28, there is a number to it. The reason, again, why we've been shy about putting a number on that is because, as you know, clinical endpoints are much more noisy and much more impacted by the potential placebo effect. And so I think we like to be data-driven and science-first company, as you know as well. And I think we'll put out things when we can confidently say that those numbers are something that we can scientifically then follow and adhere to. What we said, again, we're not going to hide behind it. The numbers are out there for dupi, right? I don't have to say what the numbers are. The numbers are out there. The treatment arm numbers are out there. We expect in this study at day 28 to be in that ballpark because we know that, say, KT-621 blocks the pathway as well as dupilumab. So here is how we've always characterized it, and we're not going to change it now a month from the data disclosure. Faisal Khurshid: Appreciate it. We look forward to the data next month. Operator: Our next question comes from Judah Frommer, Morgan Stanley. Judah Frommer: Maybe just one, if there's anything you can share on early recruitment trends, even anecdotally for BROADEN2. Obviously, the Phase Ib was tougher to recruit just given the 28 days dosing here, you can get patients on drug for a year plus. And curious about just awareness of the healthy data and how all that might be helping in recruiting patients and what investigator feedback is. Nello Mainolfi: Yes. I mean high level, again, we just started the study. We just activated a few sites. So we're very, very early into that process. I think what we believe right now is even on the healthy people -- on the Phase Ib, there was a lot of excitement by sites and investigators and eventually patients, we believe, in accessing an oral option. Obviously, the 28-day study was not set up to get patients excited because it's a short study without an OLE. So the Phase IIb, it's a whole different value proposition. And I believe between that and hopefully, the data that we'll disclose in December, I think it will be -- we are confident that this will be a study that we can recruit in a timely manner. Now recruiting the study as fast as possible is not our goal. Our goal is to recruit the study as fast as possible with the right patient. Going back to what Jared was saying earlier, we have a paranoid oversight of this whole study because we want to try and control the placebo rates as much as possible, even if that has to be at the expense of a week or 2 or 4. So that's where we're coming from. But hopefully, we'll be able to share more about your question as we get deeper into the study. Operator: We would like to invite Clara Dong to try one more time. Yuxi Dong: Can you hear me now? Nello Mainolfi: We can hear you. We see somebody else, we can hear you. Go ahead. Yuxi Dong: Thank you for letting me try again. So my question is on the Phase Ib trial. So this trial has a relatively short follow-up for weeks of patients. So among all the key endpoints like biomarkers, clinical efficacy and safety, which ones are -- in your view, are relatively less affected by the treatment duration and which endpoint do you think is more complex to interpret because of the trial design? Nello Mainolfi: Yes. So I think very quickly because we're almost running out of time. If you look at the dupilumab study, I don't believe -- and hopefully, I'm not wrong, Jared, correct me. I don't believe there was any endpoint that reached maximal effect at week 4. So I think it's hard for me to say which one is going to be less or more impacted by this 28-day duration. I think we'll look at all the data together in December and answer the question better. Operator: Our next question comes from Brad Canino, Guggenheim. Bradley Canino: Maybe just to close out on a capital allocation question for Nello because you're in the most comfortable cash position you've ever been in with the company, but also have the highest capital demands ever faced by the company. So how do you think about deployment of each incremental investor dollar across KT-621, the name pipeline and the platform to really maximize value for Kymera at this juncture? Nello Mainolfi: Yes, great question. So I probably need half an hour for this. But in 30 seconds is, I think there has never been a biotech company that has developed a program like KT-621 on their own fully. So we appreciate this is a unique both opportunity and responsibility to do capital allocation in the right way. I would also say that if we became a STAT6-only company, we will not be fulfilling the mission that we have of a global company that develops drugs that impact patients across the world with different diseases. Obviously, there is a medium -- and happy medium between going all in on 621 and spending a lot of money on the other programs. And I always believe that we need to earn the right to invest more. So our ability to invest more in 621 will be driven by the success of 621. Our ability to invest more also in other programs will depend on also our ability to have success with our clinical pipeline. So we don't do resource allocation because we have money. We allocate capital because we earn the right to do more. And that's the strategy since day 1. Operator: Our final question of today comes from Joe Catanzaro, Mizuho. Joseph Catanzaro: Maybe a follow-up sort of along the lines of duration of effect. Wondering if you could say anything about the level of compliance that you observed in the Phase Ib, but maybe more importantly, looking towards the Phase IIb and 16 weeks of dosing, what you guys can do to ensure a high level of compliance there? Nello Mainolfi: Yes. No, it's a great question. So obviously, with an oral drug, industry data will tell you that getting 100% compliance is difficult just because we all forget to take one pill one day. And with biologics, you can ensure compliance asking patients to be injected in the site. So obviously, we're aware of it. We're actually using novel technologies to increase as much as we can adherence to the study protocol with regarding to taking the drug. And we're confident that, that will deliver what we need. I will add one last thing. I know we're way out of time. The beauty about a degrader drug is that you can actually skip a dose and maintain maximal pharmacology, assuming you have the right dose that reaches complete degradation that you will never see with a traditional occupancy-based small molecule inhibitor. So we have a bit of a cushion on the adherence question. But obviously, we're not sitting on it. We need to ensure as much as we can, 100% adherence because we want to maximize the benefit to patients. Operator: Thank you. I'd now like to turn the call over to Nello Mainolfi for closing remarks. Nello Mainolfi: Okay. Thank you. I'm sorry, we ran beyond the 9:30 goal that we had. I want to thank everybody. Obviously, lots of questions. We are always available to continue to engage. This has been the most exciting year of Kymera, and we have 1.5 more months or so to go. So stay close. I think it's going to be an exciting time in the next few years developing this really once-in-a-generation drug and the broader pipeline. So thank you again today, and we'll talk more soon.
Operator: Good morning. My name is Dan, and I will be your conference operator today. At this time, I would like to welcome everyone to Vertical Aerospace 2025 Third Quarter Earnings Call. [Operator Instructions] Now let's turn the call over to Gillian Levine, IR Lead at Vertical Aerospace. You may begin your conference. Gillian Levine: Good morning all. I'm delighted to welcome you to Vertical Aerospace's Third Quarter Business and Strategy Update Call. Before we get started, I would like to remind you that during today's call, we'll be making forward-looking statements. These statements involve risks and uncertainties that may cause actual results to differ materially. Any forward-looking statements we make are based on assumptions as of today. We undertake no obligation to update these statements as a result of new information or future events. We posted an accompanying slide deck to our Investor Relations website at investors.verticalaerospace.com, which contain detailed information on forward-looking statements. For a more complete discussion about these risks and uncertainties, we have filed our 2025 third quarter financial statements with the SEC earlier today. Please now let me hand it over to our Chairman, Domhnal Slattery. Domhnal Slattery: Good morning, and thank you all for joining the Vertical Aerospace third quarter business update call. Before we get started, though, I wanted to share with you a never before seen image of our new certification aircraft design and doesn't it look cool. We look forward to formally unveiling the full-scale aircraft on December 10 in London. And please reach out directly to our IR team if you would like to join us on what will be a very special occasion. I'm delighted to lead the call today with our Chief Executive, Stuart Simpson. My name is Domhnal Slattery, and I am the Chair of Vertical Aerospace. I've worked in the global aerospace industry now for nearly 4 decades and along the way, founded 2 of the top 3 aircraft lessors in the world today, including Avolon. During the call today, I want to share with you why we believe Vertical Aerospace is a leader in the eVTOL sector. We want to update you on our progress and importantly, outline the top priorities going forward for myself and the management team. On Slide 4, you will see we have 6 items to cover today. If Stuart and I do our job, you should walk away from this call with clarity on several key areas, and in particular, around our flight test progress and aircraft design. And we will also spend time on framing the valuation gap that exists between ourselves and our competitors. Turning to Slide 5. We've spoken extensively about the fourth and the final stage of our flight test program, the piloted transition flight and why this maneuver is so critical. So rather than just tell you, we'd like to show you what this entails. So let's take a look at this video. [Video Presentation] So what you saw there is the demonstration of end-to-end piloted transition and transition price is the critical derisking step for the VX4 developments and our certification program, it represents the most material milestone in our history. And importantly, this is a key point, all under the oversight of the U.K. CAA our home regulators. But the video showed this final phase, transition is actually the culmination of a 5-stage test flight campaign, which I'm glad to say will begin later this week, subject to receiving final permits to fly from the U.K. CAA. And we expect these stages to be completed across 11 test flights in total. Once all 5 stages are completed, Vertical will be the first eVTOL OEM of our aircraft size to have completed this step under U.K. CAA regulatory oversight. This is an industry first, and it is materially ahead of all of our competitors bar one. Turning to Slide 7. Vertical's approach has always been start slow to finish fast. From day 1, we have maintained a transparent, measurable and clear work scope. We are the only team in the industry with extensive aerospace certification experience. Our senior team has certified over 30 aircraft or propulsion systems, bringing decades of invaluable learning and experience. As you may know, we have flown under a permit to fly oversight by the U.K. CAA. It's important to understand this because it requires rigorous oversight, ongoing demonstration of compliance, routine inspections and joint accountability with our regulator. This approach fundamentally differentiates us from peers who currently operate under an experimental air ordinance approval with limited direct oversight by the FAA. This stringent oversight means that we have front-loaded our certification process with over [3,500] hours of CAA export review. One prerequisite for type certification in the U.K. and Europe is being awarded design organization approval, which we received in 2023. This approval affirms the regulators' confidence in our engineering, our design and our development processes. And our successful 2025 audit confirms the CAA's continued confidence in our operations. This level of regulatory engagement in turn allows for high confidence in our 2028 certification time line and importantly, the expected cost to achieve that certification. Now turning to Slide 8. At our Capital Markets Day last September, we highlighted that once an aircraft reaches certification, there are really only 2 metrics that become paramount, aircraft comfort and reliability and the profitability of our customers, the operators. We are confident in our certification plan. But when looking beyond certification, it is evident that our aircraft offers the most versatile eVTOL in the market. So today, I want to focus on our unique passenger comfort and operator profitability. These are the factors that will ultimately drive multi-decade commercial success. The reality is all of our competitors are physically constrained by the size of their aircraft and this provides Vertical with a unique competitive advantage. Turning to Slides 9 and 10. I'm truly delighted to share for the very first time the internal renders of our certification aircraft. As you will see on these slides, our cabin space is the biggest and the most spacious in the industry. We have over 70% increased passenger cabin volumes versus our competitors. Our aircraft was designed from day 1 with passenger and pilot comfort in mind. As you will see, the aircraft is divided into 3 distinct compartments: the passenger cabin, the pilot cockpit and the luggage hold. And you will see each one has a separate entry and exit, ensuring safety and comfort. We have a cockpit that is 50% larger than our competitors. And our luggage compartment is 200% larger than certain of our competitors. This allows us to check in 70 pounds of baggage -- personal baggage for each passenger. This makes our aircraft ideal for airport to central business direct transfer. Simply put, when you step back, no other eVTOL matches this combination of comfort, space and practicality, not one. On Slide 11, you will also see that the VX4 is unique in its ability to scale from 4 to 6 passengers. This flexibility was designed also from day 1, and it sets our aircraft apart in the market as no other competitor can scale to 6 passengers. This will make the VX4 the preferred aircraft for operators globally. Now turning to Slide 12. What I just described qualitatively puts it into clear metrics financially. Serving 6 passengers rather than 4 allows our operators to increase revenue by 50% and more than double annual operating profit potential. Scaling the 6 passengers reduces the cost per seat mile by 30% and obviously significantly improves margins with the potential for gross margins to range between 56% at an assumed 75% load factor. The reality is these unit economics are transformative for our operators, and they underpin our strong industry-leading order book. The step back here and the key message is actually pretty simple. Post certification, what matters is safety, which obviously we deliver to the highest standards and passenger comfort and operator economics, which the VX4 uniquely provides. I'll now hand over to our CEO, Stuart Simpson, who will provide more detail on our cost of certification and some of the key cost components. Stuart? Stuart Simpson: Thank you, Domhnal. 6 years ago, we made a strategic choice to focus on being a pure-play OEM and to largely avoid vertical integration. We source our parts from Tier 1 aerospace manufacturers globally, each one with decades of certification history. We are the only OEM with proven Tier 1 aerospace suppliers on safety critical systems, including flight control computers. This model is efficient, cost effective and positions Vertical as the best steward of capital. Turning to Slide 14. Our cost to certification is guided by confidence in the U.K. CAA process and time line. The key components are: first, $550 million of people and operating expenses. This is where the benefit of our OEM model really comes through, allowing a lean and cost-effective model. Additionally, being based in the U.K., we have significantly lower cost than U.S.-based competitors. Second, $225 million of nonrecurring costs, largely fixed through contracts with Tier 1 suppliers, 75% quoted or contracted and 25% estimated. As a reminder, these are onetime upfront costs to our partner suppliers that cover the initial design and development of key parts of the VX4, along with tooling costs to build our certification and production aircraft. These suppliers are leaders in their respective categories and understand certification, and we get to benefit from leveraging their engineers and [indiscernible]. Finally, $75 million of CapEx to cover investment in our initial production facilities at Cotswold Capital and an expansion of our Vertical Energy Center where we assemble batteries. As we raised at our Capital Markets Day in September, it is in our DNA to bring clarity to an opaque industry. We are the only OEM in the space with published financial and operating metrics through 2035. This speaks volumes to our business strategy and path to certification. Slide 15 shows that through Q3 2025, our spend was in line with expectations, and we maintain our full year guidance of USD 110 million to USD 125 million. This is 75% below our main competitors. Our tax position is $123.4 million as of the end of the third quarter. As of today, our cash position is $117 million. Our ATM facility put in place in September '25 contributed $7.2 million in the third quarter and $16.4 million year-to-date. Over the next 12 months, we anticipate spending $235 million. We will provide more granular 2026 spend forecast at our full year earnings call. Moving to Slide 16. Vertical clearly executes on its own operational milestones for 2025, including our piloted wing-borne test flights, flying real-world use cases, earning further DOA privileges from the CAA and initiation of our production steps are completed. From the 2 items outstanding, first, piloted transition has been discussed earlier today and will be completed within weeks. Second, the build of our third prototype is progressing well and again, will be completed in weeks, likely at the beginning of December and flying shortly thereafter. In 2026, this third aircraft is what will be retrofitted with the hybrid powertrain to begin hybrid flight test. Moving to Slide 17, you will see our high-level certification time line. The first point to note is that we have already completed the preliminary design review or PDR with 75% of our components already locked in for the certification aircraft. The next step is CDR expected in mid-2026. This will lock in the final 25% of the components for the final aircraft design and the supply chain, allowing us to move towards certification and then mass manufacture. After we complete CDR, nothing on the aircraft will change. We will not be tweaking landing gear or propellers. This is the final aircraft and enables us to begin delivering the 7 certification aircraft that we will test through to 2028 certification. Of course, this CDR is a significant milestone for the company, but also for our suppliers and customers as well. I'll now hand back to Dom. Domhnal Slattery: Thank you so much, Stuart. So let's turn to Slide 18. Now the first thing you will note on this slide is a lot of red access. And I'm often asked, why does Vertical trade at such a discount to its peers? The gap is simply cycling. Vertical's market cap is 3% of company A and 6% of company B. In our opinion, this gap is entirely unwarranted. So let me try and frame this for you from our perspective. On almost every valuation metric that matters, be it technology, capital efficiency, real tangible certification progress or customers, practical outperforms -- if you look at the key value drivers down the left-hand side of this page, it's obvious that Vertical has achieved or exceeded on all of these metrics, yet our valuation remains detached from reality. However, we believe upcoming milestones, including piloted transition will act as a significant catalyst to our share price. So turning to Slide 19. In our year-end and Q4 update, we will lay out a very clear set of objectives for 2026. However, as a step back, I see 2 key priorities for me as Chair. The first is to conclude a partnership and investment with a global strategic player and secondly, working with the team to significantly grow our order book. If you turn to Slide 20. Here, you can see the scale and depth and quality of our customer base. We have one of the industry's largest order books, globally diversified. Importantly, we are the only eVTOL OEM that has a Tier 1 global lessor on its program. This is a unique competitive advantage, giving us access to Avolon's global distribution capability. Our relationship with Bristow, the preeminent helicopter operator globally is also strategically compelling as it's the industry's only ready-to-fly partnership enabled by their global AOCs. Now our order book has been effectively closed for 2 years, but we will be reopening it selectively, targeting high-value geographies and end markets. And it will not surprise you that a key focus for me and the team will be to secure the first sale of our hybrid aircraft, which begins testing, as Stuart said, in 2026. Now finally, turning to Slide 21. Now that we are within weeks to completing a successful piloted transition, we and the Board now believe this is the moment to close an investment with a strategic industrial partner to tangibly support our ramp from certification to commercialization. Our ideal partner is a global player in aerospace, automotive or the defense sectors. Unquestionably, there is significant strategic investor interest in the sector. And Beta's successful IPO this morning is a clear demonstration of this. And let me, on behalf of the team, congratulate Kyle Clark and his team on their success. Vertical are in active dialogue led by me with several potential partners globally. And I am confident that we will conclude a transaction shortly. If we are successful, this partnership will be transformational, both for the business and our share price. Finally, turning to Slide 22. We hope that this call has given you clarity on our progress towards piloted transition, the industry-leading aspects of our aircraft and why we believe Vertical Aerospace is the absolute best steward of your valuable capital. With that, I'm going to hand back to the operator, and we will open the call to questions. Operator: [Operator Instructions] Your first question comes from the line of Austin Moeller from Canaccord Genuity. Austin Moeller: So my first question, where are we at on Aircraft 3 production and the development of the hybrid powertrain for early '26 flight testing? Stuart Simpson: Austin, thank you for the question. Aircraft 3 production is exactly in line with plan. And as I said earlier, will be completed in the first couple of weeks of December. So we're really pleased, we are exactly on plan with that. In terms of the hybrid, again, we're exactly in line with our plan for that. Everything is coming together for the aircraft to be flying in the middle of next year. So really pleased with everything that the team has been doing, and we're on track on both of those. Domhnal Slattery: Yes. And Austin, let me add to that as well. And I think this is important for people to understand. A lot of our competitors are talking about hybrid. But the reality is none of them have an airframe currently that works for a hybrid. Vertical is the only OEM that has an airframe that can take a gas combustion engine immediately without any amendments or adjustments to the airframe. That's the most important. So we are a major first mover in the flight test campaign, which will start, as Stuart said, middle of next year. Austin Moeller: Okay. And then just you talked about the hybrid powertrain aircraft and potentially getting an order there soon or announcing an order there soon. If we think about the defense market, when might the U.K. MOD or NATO MODs be interested in procuring aircraft for troop transport? It seems like there's a lot of opportunity there to sell this to European allies given the 5% spending commitment and the low acoustics and thermals of the aircraft. Domhnal Slattery: Yes. I think you're spot on, Austin. So the step back here is that the defense budgets in Europe are going to be at 8-decade highs, okay? We, as you can well imagine, are in direct dialogue with every major government in Europe about this aircraft and the interest in the airplane is exceptional. Given some of the touch points we have from our Board colleagues, particularly Lord Andrew, former Head of MI5, you can well imagine that we've got great access, particularly in the U.K. MOD. So we'll be working super hard going into 2026 to secure the first order, and I'm confident that we'll achieve that. Operator: Our next question comes from the line of Andres Sheppard from Cantor. Andres Sheppard-Slinger: Congratulations on the quarter. I was wondering if you can maybe talk a little bit about your manufacturing strategy. Will you be pursuing kind of a large OEM agreement partnership there to kind of help as you begin to ramp up the kind of the high-scale manufacturing process? Or kind of what's the strategy there? Domhnal Slattery: Yes. It's a good question, Andrew, right? And one we've thought about extensively over the years. So you can apply different approaches to this. You can do the sort of let's build the big huge factories, let's spend a lot of money doing that and hopefully, we can fill them at some point in the future or you can take a more prudent, more risk-adjusted approach, which is what we've done, okay? So you should expect to see our manufacturing cadence as follows. Phase 1 in the U.K. as we've outlined, and Stuart can give some color on that. Phase 2 is the turbocharge phase. And as I mentioned in my remarks, one of the key criteria for selecting an industrial partner with us is their ability to turbocharge our production capacity for this aircraft. What does that mean? What that means in practical terms is by the middle of the next decade, we will have 3 manufacturing facilities, one in the United States covering North and South America, which will be a major market, one in Europe and one in Asia. And I suspect by the middle of next year, we'll be coming back to the market with probably quite significantly ramped up production forecast for this aircraft, given the demand that I am seeing globally. I mean I spend my time talking to airline CEOs globally who are waiting to order our aircraft, but they want the aircraft earlier. And right now, we are production constrained under our current forecast. So clearly, the objective is to build more airplanes faster and more efficiently. Stuart, do you want to touch on the immediate plans because it's important. Stuart Simpson: Yes, of course. Andres, thanks for the question. As I mentioned at the Capital Market Day and just touched on here, $75 million we'll be spending gets our initial capacity up and running that takes us through 2030. That is expanding our footprint at the Cotswold Airport, where we'll be assembling the aircraft and expanding our facility at the Vertical Energy Center where we'll be assembling batteries. Hand-in-hand with that, we're in deep discussions with the U.K. government about where we locate the major U.K. facilities, the battery giga factory and a production facility for the aircraft of several hundred aircraft a year. Then exactly as Domhnal says, we will be ramping that across the U.S. facility and into Asia. Domhnal Slattery: We'll make a decision on the European location during the first quarter of next year. And whilst Stuart touched on it being in the U.K., it's highly likely to be in the U.K., but I wouldn't say we've made that decision yet. What we're seeing is pretty significant inbound from other European countries who are keen for us to base there, unquestionably, high-quality jobs and a lot of them. But from the market's perspective, that decision will be made during Q1 next year. Andres Sheppard-Slinger: Wonderful. Appreciate all that color. And maybe just a quick follow-up. I think a lot of your peers are pursuing the Middle East as a viable market, some of them even potentially targeting commercialization there over the next 6 months. It doesn't seem like Vertical is emphasizing or prioritized in this region. So curious to get your thoughts there. Is this another potential geography to pursue? Is this an opportunity perhaps in the more nearer term? Or is the goal to kind of stay focused on Europe and the U.K. and ramp up from there? Domhnal Slattery: Okay. Well, let me help break this down into its components because it is a really important point. First of all, GCC or the Middle East is broadly defined, is an extremely important marketplace. And for those of you that follow us closely, you will see that we had a very significant day in Saudi Arabia a couple of weeks ago, and Stuart Simpson was there with the U.K. government as part of the FII. So unquestioned, the Middle East is really important. But here's where it's not important and what I would call strategic tourism around certification searches. We do not believe there is any real validity in an eVTOL OEM seeking out some fanciful early-stage certification in the Middle East. It's not real, it's not tangible, and it's not portable globally. That's the reality, and that is based on my 4 decades of experience in this industry. Now you will have noted this morning that suddenly the authorities in the Middle East or there's at least news reports saying, oh, sorry, we don't expect to give "certification" until late '26. And you just referenced there that our competitors are talking about commercial operations as soon as the end of this year. It isn't happening. It is fanciful and it is not certification. Operator: Our next question comes from the line of Edison Yu from Deutsche Bank. Xin Yu: Congrats on all this progress. So first question about -- we saw the press release about funding both from U.K. Department of Transport under this OxCam AAM Corridor initiative. So could you clarify like what portion of the award is like directly attributable to Vertical and any technical milestones met before you can access that fund? Stuart Simpson: All right. Thank you, Laura. So I think what you're alluding to is the British government's desire to promote both Oxford and Cambridge Universities, which are 2 of the world's leading academic and research institutes, which both are producing incredible output of new businesses. And the opportunity to link those through a corridor of innovation and development is a fantastic -- fantastic initiative, of which we're very, very proud to be part of. Our aircraft will be able to fly between those 2, providing an utterly unique capability. Now in terms of accessing funding, it's gone into one big bucket, and we'll be making our pitch to make sure we can do the demonstrations of that capability over the coming 12 months. But it's a phenomenal, phenomenal step for the U.K. to be able to leverage those 2 institutions and grow them aggressively over the coming years, and we will be part of enabling that. So hopefully, that gives you a bit of color commentary, Laura. Xin Yu: Okay. Got you. Also for the $700 million [indiscernible] towards certification. So should we assume more spending on top of that for the hybrid powertrain -- or like would that be a material amount or like most cost for the hybrid already behind? Domhnal Slattery: Well, let's break that into 2 components, Laura, right? And Stuart will answer the components of 700. As I touched on, and I think it's really important for the market to understand this, there is a massive future and a massive opportunity on the hybrid side. There's also a massive cost for our competitors to build a hybrid. We don't have to incur that material cost because our aircraft is capable of taking that gas turbine without any major changes to the airframe. So we'll be first to the market with our flight testing in the middle of next year, as Stuart touched on. And as a consequence of that, we'll be the first to the market to sell a hybrid. With respect to the incremental cost with the 700, Stuart, you might want to touch on that? Stuart Simpson: So Laura, the $700 million includes everything we need to get the hybrid program up running and flying over the next 12 months. On the back of which, as Domhnal said, we are highly likely to get a sale. Now that sale will then be able to fund the balance of the program. Now interestingly, as Domhnal said, our airframe fits this hybrid powertrain. So the cost to actually take it from concept through to certification are relatively low. So that's the way to think about it. We've got everything we need for the next 12 to 15 months. Domhnal Slattery: And maybe to add to that a step back, we think about total cost of certification. By the time our aircraft is certified in the second half of 2028, our estimate is that we will have invested USD 1.1 billion to achieve that milestone. Our best guess is that our U.S. competitors will have spent a minimum of $2.5 billion by that time, and they still won't have achieved the certification of a hybrid aircraft. So there's a start reality there on investor capital allocation and getting a return on that invested capital over time. And I think the market should focus in on the efficiency of how we deal with our capital. Operator: Our next question comes from the line of Chris Pierce from Needham. Christopher Pierce: I just have one question. You talked about front-loaded certification given the regulations needed to get in the air and then building your certification plans by the mid-2026. I think I have that right. So can you just kind of sketch through like what will we hear from you guys or what happens over the next 2 years until certification in 2028? Is that just consistent flying and feedback? Or is there -- like is there a chance for that to be pulled forward? I'm just kind of thinking about where you guys are at and then your comments on front loaded. I just love to hear you expand on that. Domhnal Slattery: Yes. So there's no pulling forward, right? There's no fanciful time lines on certification. It will take what it will take. And we're highly confident in getting that achieved, as we said, at the second half of 2028. In our year-end earnings call, we will present to the market a forensic breakdown by quarter, starting in quarter 1, 2026 through to conclusion in second half '28, exactly what you should expect us to be doing each quarter as we go along the certification journey. The front-loading piece is really important for people to understand. And why it's important is as follows: in the U.K. and in Europe, the process is front-loaded in terms of the amount of interaction, the amount of oversight we have in the process with the regulator when the aircraft is still at early stage prototype development. So we get a lot of input, a lot of guidance, a lot of derisking from a safety regulatory perspective. And if you look at the Slide 7, which was originally presented at our Capital Markets Day by Patrick Kai, the former Head of EASA, who sits on our Board. What I tried to represent to you is a lot of the risk is taken out earlier in the program, unlike the United States, which is actually diametrically opposite. I mean we are the only aircraft manufacturer that has a means of compliance. What that means in simple terms is we know exactly what we have to do and when we have to do it to get the aircraft certified. So key messages are we will get there on time. There will be no pull forward. This will take until the second half of 2028 to get it done. No fanciful ambitions or throw away spend comments that we can get there earlier. Christopher Pierce: Okay. So just to clarify, there will be a schedule that because of what EASA has in place with CAA, investors will be able to see what you need to do, when you will do it, what boxes will be, et cetera... Domhnal Slattery: To a reasonable level of detail so that we can measure ourselves against performance and that you can measure us. Stuart? Stuart Simpson: Yes. And just giving you the high points on that, Chris, we do CDR the middle of next year that locks in 100% of the aircraft design and the supply chain. The engineers effectively put the pencil down at that point. That is our final aircraft, no change. And importantly, we've already locked down 75% of the final aircraft. We already know the design of it. We're showing that on the 10th of December. The CDR just locks in the supply chain. The design is there. The next aircraft we build, and we've already initiated production by ordering the long -- very long lead time items is a certification aircraft. It will be completed in Q1 '27 and flying. After that, we build 6 others and they constantly fly hand-in-hand with oversight from the regulator. So that is the process. And as Domhnal said, has no fanciful forward. This is a clear, transparent process, and we will be certifying in 2028. Operator: Our next question comes from the line of Savi Syth, Raymond James. Savanthi Syth: Just could you talk a little bit kind of given your differentiation of the bigger cabin, could you talk a little bit about the choices you've made versus kind of your competitors that enable that bigger cabin? Domhnal Slattery: Well, the first and I think the most important, before we ever designed anything, and that's taking us back really 5 years ago, we spent a great deal of time, and I was intimately involved in this exercise, speaking with our customers or potential customers globally, what was the best product market fit -- and there were a few key learnings and some obvious learnings. One was that the range wasn't going to be super important for the -- at least the initial phase of business, i.e., from central business district -- airport to central business district globally. And if you look at the 50 mega cities of the world where these aircraft will be flying, the average range from aircraft -- sorry, airport into town is about 50 kilometers, plus or minus. So range wasn't going to be a differentiator. Size of cabin was the absolute most important thing. And as a consequence of that, also the ability to check in luggage. And so that gave us a real engineering challenge 5 years ago. How do you design an aircraft of that size with the energy density you need for the batteries at a price point to the operator that can make sense. So that was the conundrum we were dealing with 5 years ago. We have definitely resolved it. So it was a customer-led design engineering process. And if you talk to the Airbuses and the Boeings of the world, they will tell you that it is the right and best way to design an aircraft. And the reality is, today, that airplane physically exists. If you come to London on the 10th of December, you will be able to sit in that cabin. It is comfortable, it's scalable. And if you compare and contrast our cabin to some of our competitors, it is demonstrably bigger. Savanthi Syth: Helpful. And then just on the battery side, I don't know if you can kind of speak to this. I'm kind of curious, I know you're several generations ahead of what is being fed in Aircraft 2 and Aircraft 3. I wonder if you can kind of talk about how much more development there is prior to kind of CDR and what the kind of the improved capability might be versus kind of what you're flying today. Stuart Simpson: Yes. Thanks, Savi. Thanks for the questions. You're absolutely right. The batteries that we have on Aircraft 2 that is flying, we are a couple of generations ahead as we look to the certification aircraft. And if I take you back to what I've said previously about our PDR, we have locked in the battery capability in that. We actually have a choice of a couple of cell suppliers because we have such a deep understanding. We've done over 5 million hours of testing on our batteries. So we have a great insight on to that. I don't think there's much more I can add on that at the minute, but we have great confidence line of sight through the PDR, through the supply chain to a battery cell and the battery pack that we build around that cell that is certifiable and gives us the payload and the range that we will be putting into the market and meet way over 90% of the customer launch routes. It's a phenomenal engineering achievement, as Domhnal said. It delivers exactly what our customers need in terms of cabin capacity and luggage capacity. Operator: Our final question comes from the line of Amit Dayal, H.C. Wainwright. Amit Dayal: Also great to see the new design guys, definitely a big differentiator for you. Domhnal, you commented on concluding a strategic partnership potentially in the very near term. I mean, can we assume this includes some level of investment? And can that investment carry you through 2027 or 2026 at least? Domhnal Slattery: I can't comment on the specifics on it, but I think it would be reasonable to assume that any conclusion of the transactional strategic will carry with it an investment quantum that would reassure the market, let me put it that way. Amit Dayal: Okay. Understood. Also just sticking on that topic, as defense needs [indiscernible] the European market, the U.K. market, et cetera, is there a path for nondilutive funding through [Technical Difficulty] from development purpose. Any clarity on that would probably be helpful for investors? Stuart Simpson: Yes, Amit, thank you. You're absolutely on point. There is opportunities for nondilutive funding for the development of hybrid aircraft. That's exactly how the defense market works as you get into negotiations with the government. So yes, there are plenty of opportunities for that. And as Domhnal said, we're having a lot of incoming and a lot of very good discussions across the European defense industry. Amit Dayal: Okay. And then on the defense side again, have any specifics emerged in terms of the aircraft capabilities, et cetera, that those essential customers may be looking for? Stuart Simpson: I think if you take a step back and look at the aircraft, it provides several things that the defense industry is extremely excited about. So first of all, you have silent takeoff and landing, which, as you can imagine, is extremely important. It also has a very low noise signature, so you can't hear the aircraft when it's coming in to land or taking off. And then once it's altitude, you can fire the gas turbine to travel up to 1,000 kilometers. That combination of low noise signature, low thermal signature and near silence is transformative in the military. So this is what underpins the incoming that we're getting. And really, the use cases are endless from logistics through to deployment, et cetera. So yes, we feel we have got the strongest product in the sector. We will be flying it next year, and we will be selling it next year. Operator: I will now turn the call back over to the Chairman of Vertical Aerospace, Domhnal Slattery for closing remarks. Domhnal Slattery: Okay. Thank you, operator, and thanks, everybody, for joining us this morning and the thoughtful questions. If I were to ask you to take one slide away as you think about our remarks today, Section 5, Slide 18. It's the only slide that matters. Have to think about that, think about the relative performance of this business relative to our competitors. Now I want to re-extend an invitation to come to London Canary Wharf to see our physical aircraft. And I'm an aerospace geek. I've been in the business 4 decades. I have seen this physical aircraft that we will be unveiling. It is simply -- the coolest thing imaginable. So if you want to see the future of flight and you want to see the Vertical VX4, it will blow your mind. So get your tickets, get on to the IR team and come to London on the 10th of December. We will also be bringing that aircraft to the United States immediately in Q1 2026. So thank you all. We look forward to our...