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Operator: Welcome to Knorr-Bremse's conference call for the Financial Results of the Third Quarter 2025. [Operator Instructions] Let me now turn the floor over to your host, Andreas Spitzauer, Head of Investor Relations. Andreas Spitzauer: Thank you, operator. Good afternoon as well as good morning, ladies and gentlemen. I hope all of you are very fine. My name is Andreas Spitzauer, Head of Investor Relations. I want to welcome you to Knorr-Bremse's presentation for the third quarter results of 2025. Today, Marc Llistosella, our CEO; and Frank Weber, our CFO, will present the results of Knorr-Bremse, followed by a Q&A session. Once again, the conference call will be recorded and is available on our homepage, www.knorr-bremse.com in the Investor Relations section. It is now my pleasure to hand over to Marc Llistosella. Please go ahead. Marc Llistosella Y Bischoff: Thank you, Andreas. Ladies and gentlemen, welcome to our Capital Market call for the third quarter '25. Let's start with the key takeaways for today on Page 2. We are reporting a strong quarter today. In uncertain times, we continue to focus on our earnings by using our financial flexibility, keeping strict cost control, plus staying close to customers and driving our service business. Knorr-Bremse benefits from dominant market position in both divisions, a diversified revenue generation and ongoing stringent execution. RVS is in strong shape. It posted strong organic growth and continuously increased its profitability quarter-over-quarter by the implementation of BOOST. In addition, RVS performance underlines the great potential of the rail industry in total. As a consequence, we are expanding this successful division with the acquisition of duagon. Coming to CVS, one thing is clear. The development of profitability is the most important indicator of our success and our truck colleagues delivered. Despite an extremely challenging North American truck market, CVS managed a slight margin expansion, an extraordinary achievement, which is based on the benefits of our cost and efficiency measures, well supported by a more resilient aftermarket business. The BOOST program overall remains the centerpiece of our strategy and is fully on track. Regarding our BROWNFIELD measures, we are well on track of the sale of the last assets we have in the SELL-IT program. These assets within rail generates roughly EUR 300 million in revenues and is clearly dilutive. Looking at Greenfield, our clear path of additional growth and accretive business expansion for Knorr-Bremse. In the field of subscription-based and data-driven services, we recently acquired Travis Road Services. Together with Cojali’s highly attractive services, we want to strengthen the less cyclical activities in the Truck segment, striving for a leading position in Europe and later beyond. Last but least, we confirm our operating guidance for 2025. Let's now have a closer look at our Duagon acquisition on Chart 3. Duagon itself, a Swiss-based company, is a leading supplier of electronics and software solutions for safety-related applications in rail being active in Europe, North America, China and India. We are convinced that Duagon is an excellent strategic fit for Knorr-Bremse's existing portfolio. Beyond strengthening the RVS segment, the acquisition also unlocks substantial synergies in electronics. For example, in braking and door systems where we are already global experts. Furthermore, the products will enhance the global operations of 2 key KB business units, Selectron and KB Signaling. As trains and rail world networks become increasingly digitalized, the acquisition enables both the Railway Electronics and Signaling technology units to fully capitalize on the rapidly growing market. For KB Signaling, which is expanding its North American business globally, Duagon offers additional opportunities for international growth. The accretive transaction reinforces KB2's Boost strategy and marks another milestone on its transformation journey. By integrating Duagon, Knorr-Bremse strengthened its position in high-growth digital markets and increases the revenue share of the RVS segment overall currently from 55% to even beyond, driving sustainable value creation. The acquisition fulfills all of the M&A guardrails, which were given by ourselves, which we set more than 2 years ago and follow for the time being. We welcome all new colleagues to the team and look forward to a successful future. Let's now have a look at the market situation for trail and rail and truck. Overall, the demand in rail is our least problem within the KB Group. Underlying demand remains robust across all regions as evidenced by a strong order intake and record order books for RVS and its customers. We expect this momentum to continue in the coming quarters, resulting in a full year book-to-bill ratio well above 1. The only exception in this is the freight market, which continues to face some challenges. Also here, we see a low concentration on the North American market. The market development in China itself remains pleasing on a high level this year, which is quite supportive for our profitability as well. Truck markets show a mixed picture. As you're all aware of and as you have already heard from our customers and peers, truck production rate in Europe moved higher in the past quarter, but currently, we are observing a slight softening in market momentum, including some postponement into next year, which also corresponds to the perceptions of our truck OEMs. The North American market is in a very challenging time. Truck production rates declined significantly in the third quarter and a near time recovery appears unlikely. Therefore, we lowered our expectations regarding truck production rate for the second half of this year as the usual autumn recovery has also been significantly weaker this year compared to the previous years. Our North American customers are still taking single days off and slowing down production lines in their factories so far. They are acting rationally and only adjusting their workforce as they know that markets can catch up quickly, especially in North America once a recovery starts. As a result, we have reduced our North American workforce by around 15-plus percent in the recent months, help yourself, then helps you got. At the same time, we are using the current situation to consistently implement our structural measures. The better than originally expected development in Europe cannot compensate fully the weaker-than-expected development in North America. Nevertheless, every crisis presents opportunities. We should benefit via operating leverage from a lower fixed cost base when the crisis in North America comes to an end, which it will happen. With that, I will hand over to Frank, who will give you -- walk through the financials in detail. Frank Weber: Yes. Thanks, Mark, and hello, everybody. Thanks for joining us today. Please turn to Slide 5, and let's have a look at the good financials of the third quarter. Order intake achieved a strong result at almost EUR 2 billion. The market-driven decline in truck was overcompensated by the strong rail order intake and led to a more than 5% organic growth. Knorr-Bremse generated revenues of EUR 1.9 billion organically with nearly 3%, a slightly higher figure year-over-year. Our operating EBIT margin was positively impacted by both divisions, driven in particular by our portfolio adjustment, the strong aftermarket performance, our operating leverage and the respective cost measures and of course, by KB Signaling. As a result, the operating EBIT margin improved by 100 basis points year-over-year. With a 13.3% operating EBIT margin, we delivered the best profitability within the last 16 quarters for Knorr-Bremse. Our free cash flow in quarter 3 amounted to EUR 159 million and converted once again into more than 100%. We are proud of our global teams maneuvering KB so successfully through a rather challenging '25. Let's move to Slide 6. CapEx amounted to EUR 78 million, which represents in relation to revenues 4.2%. Spending in absolute numbers decreased by EUR 2 million. This development is fully in line with our strategy to optimize CapEx spending following our lowered target range of CapEx to revenues of 4% to 5%. We expect some higher CapEx spending in the running quarter as usual. A pleasing development saw once again our net working capital, which decreased significantly year-over-year, respectively, by 7 days versus prior year. Including KB Signaling, we are at the level of EUR 1.6 billion and 72 days of efficiency. The continuous improvement in net working capital is based on the ongoing success of our Collect program, including improvement basically in all major net working capital ingredients, especially the lower level of inventory supported the improvement of working capital by more than EUR 160 million year-over-year. Free cash flow amounted to EUR 159 million. This is only a slightly lower figure compared to the prior year, driven by the unfavorable development of FX. On a 9-month view, free cash flow even increased by more than EUR 70 million. Quarter 4 will be the strongest quarter, as always, following our usual seasonal pattern. Cash conversion rate in the third quarter amounted to a strong 104%. Despite the acquisition-driven higher capital employed, our ROCE nicely increased from 18.6% to 21%, which is an increase of 240 basis points. ROCE remains a high key priority for us, and we expect to further grow it in the future, primarily driven by a higher profitability. Let's take a closer look at the RVS performance on Slide 7. RVS once again delivered a very strong quarter in terms of order intake, reaching nearly EUR 1.2 billion. This corresponds to an organic growth of 6%, driven by solid operations and contributions from KB Signaling. Global Rain demand overall remains strong. For the current quarter, we expect that RVS should be able to post an order intake between EUR 1 billion to EUR 1.1 billion. Our book-to-bill ratio stood at 1.12, which means RVS book-to-bill ratio at or above 1 for 16 quarters in a row. As a consequence, order backlog increased by around 8% and 12% even organically, reaching again a new record level with almost EUR 5.7 billion. The high order backlog and the good quality of it provides a strong basis for the rest of the year as well as beyond. Let's move to Slide 8. Revenues in quarter 3 amounted to EUR 1.05 billion, an increase of almost 6% year-over-year following a bit of a weaker organic growth in quarter 1 and quarter 2 and even despite significant FX headwinds. Our aftermarket business developed also very nicely in Europe, North America and APAC. From a regional point of view, revenue growth was fueled by Europe and North America. In Europe, both OE and aftermarket business grew nicely. In North America, it increased aftermarket and OE business despite FX headwinds. The APAC region saw a very stable aftermarket development, while OE slightly declined. China only slightly decreased year-over-year in both OE and aftermarket. We are pleased about that stable development in China, especially in high-speed local business and the aftermarket. There are still no signs of a better metro market. We improved our operating EBIT margin by 100 basis points to 17.0%, which is already beyond our midterm guidance for next year. This superb improvement is driven by the positive aftermarket development, operating leverage, our BOOST measures as well as the positive contribution of the Signaling business. In the current quarter, we expect a book-to-bill ratio of around 1. The EBIT margin of RVS should be flat quarter-over-quarter. On a full year level, the operating margin is expected to be at around 16.5%. Let's continue with the Truck division on Chart 9. Order intake in CVS amounted to EUR 783 million below our initial expectations at the beginning of the quarter due to the missing pickup in the North American truck market after the summer break. On the other side, organically, orders increased by 4%. On a year-over-year organic level, this growth was driven by Europe and the APAC region, which recorded slight organic growth, while North America was significantly down, hit by the sharp downturn in the U.S. market. Order intake in the current quarter should be rather flat quarter-over-quarter, supported by Europe and the APAC region. The North American market remains very difficult to fully assess at this point in time, but we expect no improvement of the market dynamics until year-end. Book-to-bill reached 0.94 in the past quarter. Our order book of more than EUR 1.7 billion at the end of September is 7% below the previous year's level, but at the same time, it is only 2% organically lower. Let's move on to our CVS division on Chart 10. Revenues declined to EUR 833 million, which represents minus 9% year-over-year. This development is solely driven by the divestments of GT and Sheppard as well as the negative translationary FX impact from the U.S. dollar and the renminbi, especially. In organic terms, the development was stable, which represents a solid performance in such a challenging environment. OE business in CVS decreased as expected in North America and South America, predominantly driven by lower truck production rates and FX. Europe recorded good and the APAC region even significant growth. Our aftermarket business performed much better than OE in the past quarter. The OE business grew in Europe and China, but the strong market decrease in North America could not be compensated by aftermarket growth. In addition to the sale of Sheppard and the strong euro exchange rate compared to the U.S. dollar, the low truck production rate had a particular negative impact on our performance, especially in the U.S. In the current quarter, we expect that CVS total revenues should be flat to very slightly increasing compared to the third quarter. Coming to the bottom line. Operating EBIT of CVS amounted to EUR 87 million in the past quarter, down around 4% year-over-year. Given the massive market headwinds and unfavorable FX, a very resilient number. The profitability was impacted by lower OE volumes and an unfavorable regional mix, which could be more than compensated by benefits from our Boost measures, a higher aftermarket revenue share, solid contributions from our portfolio adjustments as well as a recovery from tariff burdens. As a result, we were able to increase our operating EBIT margin by 50 basis points year-over-year to 10.5% in such a tough environment. For quarter 4, profitability should slightly improve quarter-over-quarter, well supported by cost measures and a good aftermarket development with a foundation of stable markets in Europe and North America. Overall, we are confident to further fight ongoing market challenges with our long-term BOOST program as well as our short-term measures in North America, our robust pricing and our resilient aftermarket business. On a full year basis, CVS should be able to reach an operating EBIT margin around the same level as last year. With that, I hand over to Marc again. Marc Llistosella Y Bischoff: Thank you, Frank. So let's have a look on our guidance for 2025 on Slide 11. To make it very short and crisp, basically confirm all KPIs of our guidance shown on the chart, just another 3 months to go. Please bear in mind, however, that due to the stronger euro and the weaker truck market in North America, the lower end of our revenue guidance is more likely to be achieved. Our countermeasures are having a positive effect on the other side on the EBIT margin outlook, meaning that the midpoint represents a very, very realistic expectation. Free cash flow is also being affected by the stronger euro, but we are also comfortable to reach the midpoint at least of the guidance. Having said so, we are ready for the next year to go. We had a very, very busy year 2025. And we are very confident that with our self-healing activities, which had impact -- an impact of a reduction of workforce, for example, only in trucks from 15,000 over the last 18 months to now 12,000 people, we are ready for the lift of next year. And the 10% to 10.5%, which we are aiming for the year 2025 compared to the results of the years in '23 and '24 have a much higher value because we are ready to go for the next year based on a much better fixed cost base. Thank you very much. Operator: [Operator Instructions] And the first question comes from Sven Weier, UBS. Sven Weier: It's Sven from UBS. The first question is around -- in the past couple of years, you've always given kind of indications for the year ahead. You didn't do this time. Is the reason because you feel quite happy with where consensus sits? Or do you refer that simply to lack of visibility that you have, especially on the truck side? That's the first question. Frank Weber: Thank you very much, Sven. So in the past years, there have been mixed feedbacks to us giving an outlook already in October for the next year. Some were saying, why are they doing this? And others have been highly appreciating it. So this time around, we decided not to do it. Why? Because as you rightfully said, we are totally fine with where the consensus currently sits for next year, I would say. This is it. And of course, markets are also a bit of less predictable these days, especially when it comes to the truck market, I would say, and especially the region of North America. But that's the answer to it, Sven. Sven Weier: Yes. And it's fair to say that when I look at current consensus, probably the risk is more on the downside on truck, but maybe on the upside on rail. So that could be a bit of a wash from today's point of view at least Andreas Spitzauer: Yes. Nothing to add, Sven. Sven Weier: The follow-up, if I may, is just on truck margins, right? I mean you will be around 10.5%. And I guess it's probably fair to say that reaching the 13.5% next year is really tough to say the least, but we know that, of course. I just wonder, I mean, how prepared and how far are you ready to go to reach that target within the foreseeable future, let's say, in terms of additional measures that you take? I mean, you talked about this in the past, right, where I think there are still some very obvious areas such as R&D, but still seems extremely high for the truck business and the way it performs at the moment. But at the same time, it also seems a bit of a no-go zone for me. So are there any sacred cows in terms of your willingness to achieve the target? Frank Weber: Yeah, thanks, Sven. Let me put this a bit into a broader perspective. When we gave the midterm guidance some 3 years ago, obviously the market assumptions, even though we were not at all anyhow aggressive looking at the market, because we always wanted to make it kind of a self-help story at all, were significantly different, especially when it comes to the U.S., but also when it comes to Europe. The market expectations back then were based on 22 levels. And so that was the starting point to it. We feel totally fine with a long-term view on truck that the margin of 13.5% is definitely not out of reach and is a targeted number that we have on the plate if the market turns out to be more favorable than it is today. Given the current situation, look at the quarter 3 alone, U.S. is minus 28% in truck production rate. We only declined 13% in revenues. I think a great sign of resilience. And with all those measures that also Marc mentioned With our adjustment of the current fixed cost structure that we are doing under BOOST plus the footprint reallocation going into the strategic future, where we are also touching quite a lot of global footprint facilities, we are right on track, I think, with a weaker market to achieve around 12% of return. So as a first step, I would see us moving up from this 10.5% levels with a disastrous market, with better fixed cost structure into a world of the 12-ish, and then strategically into above 13% return level. I also mentioned to you many times, Sven, that maybe the 15% that we had in the all-time high, one or two years at CVS is maybe not achievable anymore, but the 13.5% is strategically a perfect fit for the profitability target of this company. And R&D, let me remind us all, is not a no-touch area for us. We had a certain range of products that hit the market recently and are still going to hit the market, so we have a certain time where we have high R&D spendings, but we have also told you that going into the future we see our 6% to 7% range of R&D for the group, rather to go down to the lower end of that range towards the 6-ish number over time. So we're heavily working on prioritizing our R&D, but we will not be penny-wise pound-foolish, and spoil our future by cutting some of the R&D costs in innovation and customization for our customers. Sven Weier: And did I understand this correctly, Frank, that with the measures that you have put in place now and even without the market really recovering, you could go from 10.5% to 12% and then the rest will come from a market recovery? That's the fair summary? Frank Weber: This is, in a nutshell, a fair summary. Operator: The next question is from Akash Gupta, JPMorgan. Akash Gupta: Thanks for your time. I have a couple of questions on M&A that you announced in the last couple of quarters. The first one is on this Travis Road Services, which is quite an exciting area to expand into. The question I have is that can you talk about the synergies with the rest of the portfolio, and can this allow you to accelerate your aftermarket spare parts revenue or directionally to acquire this company was purely based on an ecosystem that you have within you with expertise that may help growing this business? So that's the first one. Marc Llistosella Y Bischoff: Going into the services in a stagnating market, as the truck industry is, is also following the digitalization of the industry. And the more we are setting up now a platform, which is now fulfilling most of the end customers' requirements, is for us a massive access point to future and current profit sources. This market is completely different in their business ecologic and also in the logic. Here, managing mobility as a service is more and more in the up run to do. So the insurance of making assets working and the truck is an asset nothing more, nothing less. That is something where we are more investigating in the future. With our first step in 2022 with Cojali, we stepped into this business. Why did we do that? It was one part of that was, of course, to ensure that our parts will be then delivered to the customer. But this is a multi-brand. In fact, the brand is not relevant. It's a service to end customers. And that makes us a much, much wider scope and gives us a wider access to profit sources, which currently were not reachable. So to make it very short, whether this is going to break path from Knorr-Bremse or not, for this kind of businesses and services, it's not that relevant. It's a side effect. The more effect is, as you know, in platforms, the more you can cover with a platform, especially if it is directed to the customer, the more you have a control, the more you have access to profit sources, which so far were not reachable for us. What I mean with that, we are now currently having, with this acquisition, a real decisive part in our chain of pearls. The chain of pearls is 12 to 14 buckets. And now we are covering, with this acquisition, 12 of the 14 buckets. There's one more to come, and that's exactly what we are now targeting in the next 2 months to come. And then we would be the only one in the market who is covering it from A to Z, from number #1 to number #14, which is extremely exciting because that gives us a completely different picture on the Truck business. Akash Gupta: And my follow-up is on acquisition of Duagon's electronics business. I think one thing which caught my eye was that you are giving 2026 revenues and margin. Normally, either we get this year's expectation or previous year reported. So maybe if you can talk about what sort of growth we are expecting in this business, and if the business doesn't reach to EUR 175 million revenues next year, would there be an implication on selling prices? And the background of this question is that in Knorr, we have seen in the past that the company bought assets with some projection that didn't materialize. So just what sort of safety net do you have this time around? Marc Llistosella Y Bischoff: I would ask you for one thing in terms of fairness, Mr. Gupta. You take the acquisitions before 2022 and you take the acquisitions after 2022. So when you give me any evidence of failing on our predictions in any form of acquisition which we have done after 2022, I'm very happy to discuss it with you. For the acquisitions before 2022, I cannot take any form of responsibility. Of course, I can explain to you endlessly that a lot of these investments were not leading anywhere but to, I would say, dilutive business. In Cojali, we bought a company which is completely exceeding. We bought it to a company value of roughly EUR 400 million. Now we have an estimate of over EUR 1 billion. That is a fact, and then we can give you the numbers for that. The next acquisition, which we did one KB Signaling in the rail business, and this business was coming out so far extremely positive. It came out extremely positive in EBIT margin, and it came out also extremely positive in terms of revenue. So all our predictions were even overrun. Now the last acquisition was Duagon and also the Travis. And in the Duagon, we are very, very comfortable that we are not -- we are targeting the 16% because this business is also very, how you say, taking into place what we are already having with Selectron and also KB Signaling, it's a perfect fit. It's additional. It's not a new adventure. In fact, it's like a mosaic that we are parting now putting the -- all the pieces together to a one picture. So having said so, we are very, very absolutely convinced that with Duagon, we have another asset in the class of KB signaling, what we did last year. And we are very confident that the numbers which we have foreseen are absolutely realistic. I would even say they are conservative. You can see the business is already generating a very, very reasonable, very healthy profit line. And then coming to your question, which was a little bit provocative, when you compare it with all the acquisitions done before 2022, none of these businesses had a real profitability proven in the past. In Duagon, we have a profitability record, and we have also a return record, which is proven. Now it is on us to make it and to lift it. And a growth record... Frank Weber: And they also have a growth record, which we expect to be close to double digit. Marc Llistosella Y Bischoff: I think for Akash, it's more important the profitability than only the growth. Growth without profit is meaning this. And that, I think, is the main difference. The past was very, very much driven by growth, growth, growth. And the question of profitability was like it will come. This is completely different to 2022. We are first ensuring that every form of acquisition has to be accretive, either immediately like KB signaling or very short-term minded. That means within 12 to 24 months. Anything else is not touched. Operator: And the next question is from Vivek Midha of Citi. Vivek Midha: Hope you can hear me well. My first question is on CVS. It's in a similar vein to Sven's question, but just looking to better understand the mechanics. You mentioned 15% reduction in the North American CVS workforce and also broadly lowering the fixed cost base in that division. So should we think about these layoffs as permanent layoffs? I'm interested in understanding how much impact there's been from structural cost savings versus more temporary measures such as furloughs. In order to understand how the margins can improve when the volumes come back. Frank Weber: Yes. Of course, there's always a flexibility that we keep in the plants, looking at the normal market times of around, I would say, around 10% in some countries, even more kind of flex workers, temp workers, what have you, basically in the field of blue collar, not so much on the white collar side, but on the blue collar side, of course, in order to breathe through certain market conditions, that's clear. So the 15% that also Marc mentioned does include, to some extent, also the blue collars, of course, directly affected and indirect workers in the plant areas. But the thing is that also on the white collar side, we did more than 10% of cost reductions, and that's directly impacting the fixed cost, and that's why this is sustainable and is lowering the breakeven point quite significantly for that business going into the future. So it's a mixture of both, but it has a sustainable effect because the white collar had -- white collar reduction had a similar dimension like the blue collar reductions. Marc Llistosella Y Bischoff: I would like to add to Frank's comments. The company is always quoted to have 32,500 people employed. This is not the case. We have currently 30,520 people employed. The target is very clear. Whatever happens to the revenues, whatever happens to anything else, this number has to go down because what -- for the last 22 years, the revenue per employee was not moving up. I have never seen this in my life, and this is exactly why we're addressing it. It has to move up in terms of truck above EUR 300,000, and it has to move up to EUR 250,000 to EUR 260,000 for RVS. There is a difference in the structure. This is explaining why there is a difference. So far, we are below these numbers. And that means as long as we have not reached these numbers, there will be no longer substantial buildup of workforce, whatever the revenue is bringing or not. So we have a very clear target and very clear line. We want to reduce, number one, the breakeven. This is very clear. This is not for discussion, whether the market is up or down, the breakeven has to be target, number one. In the last years, we had a breakeven in derailment, I would say, for the last 24 months, we are really pressurizing down this kind of breakeven. What is the most part of this breakeven by 60% to 70% is the personnel expenses. The personnel expenses were highest in 2024. Even the numbers were fine, but this was not even noticed by others. We have noticed it. So we have to bring down the personnel expenses significantly in truck. We had reached a number which was close to 22%. Now by the last month, we're in the reach of 19%. And the target is to be below 20%. In terms of RVS, we have reached a number of exceeding 27.5% personnel expenses cost, and that has to be brought down to 25%. With that, we will improve significantly our breakeven. And with that, we will be more and more independent from the ups and downs of the market. And as you rightly described it, the self-healing has to be done and has to be proceeded. So to your question, do we have to then expect when the market is going up to see significant upscaling of workforce? The answer is a clear no way. Number two on this is we are now starting an AI campaign and initiative where exactly the white collars are addressed yes, and we want to do repetitive work more and more by digital AI agents. And that's exactly what we started with our initiative where we have now settled the first start in Chennai, where we are focusing AI experts to bring us substantial and also long-term lasting solutions to make sure that for repetitive work, we are not hiring people. So in short words, no, we are not estimating to have higher people. Second, we are breaking down absolutely our breakeven, and we have very clear targets and very clear KPIs how to lead that. Vivek Midha: Fully understood. My second question is a bit of a mid to long-term question around RVS. So you've done a 17% margin in the third quarter and guiding for a similar margin in the fourth quarter. That's above your midterm target for the division. So my question very broad is where next do you see for the division over the midterm and long term? I appreciate you maybe want to give a fuller answer to this at some point in the future, but interested in some early thoughts. Frank Weber: Yes. Thanks, Vivek. I mean I refer a bit, of course, to the question or the answer to the question of Sven. We are totally fine with the consensus as it stands for next year. There, the margin is on that level or even slightly above the 17%. This is, I think, a number that's totally fine for the Rail division. This is, as we also said quite a few times, not the end. We have plenty of measures in place, some already started to implement with also strategic, as I said before, footprint reorganizations so that margin beyond the 17% -- 17%, 18% is reachable for the Rail division, we are aiming strategically to go towards 19%. Somehow, this is the idea of the business, and that should post a very great profitable growth for this business. Now it's out. You also said so before, I think, last year. Operator: The next question comes from William Mackie from Kepler Cheuvreux. William Mackie: So my first question, Marc, to you really is to go back to the M&A that you've undertaken around service and the efforts to expand specifically in CVS. I just wonder if you can talk a little to how the development of competitive tension evolves as you push into the aftermarket in the heavy truck industry, that's somewhere, I guess, many of the OEMs, as you well know from your past lives, are also looking to expand and capture value. So how does that balance evolve in your mind between the existing installed base, supporting it, capturing the data and leveraging that for your benefit rather than -- and avoiding too much competition with your OEMs? And then the more simple question is that you have an exceptionally strong balance sheet and great cash performance. Looking forward, you've talked to capital allocation and guardrails, but just a little bit more flavor on how you see the pipeline evolving and where you can enhance your string of pearls to strengthen the business? Marc Llistosella Y Bischoff: Okay. I'll come with number 2 first. because it's not limited to CVS when I speak about potential acquisition candidates in the near future. As you can imagine, we started with Brownfields, yes, Boost was mainly Brownfield, help yourself, then you will be helped. That's what we have done. We are on our way. By the way, Boost is not finished by next year. Boost is a continuous improvement process and program now, which will last for years to come. And this is why I made so much emphasize on the breakeven on the personnel expenses on the ratios. This has to go through now with everybody. So coming to the Pearls, the platform business itself has one very important criteria. It has to be brand independent. The more you are captive, the more you limit your brand, you limit also your platform and your reach. And what we do now together with Cojali and Travis and also with the other things to come, by the way, all of them will not exceed the range what you have seen so far. So there will be midsized to small size cap, but there it is more to capture and to occupy the place than to say, "Oh, I have already the biggest in this area. And here, the problem or the competition for the captives like our customers, they are very, very centered about and around their brand. For them, it is nearly impossible to have a multi-brand approach. The multi-brand approach makes us independent. And this is why I said it's not important only to sell our pets and our brake disks via this channel. For us, it's more important to see the movement of everything what is going in this domain. And here, we have an access now where we are, especially for the second life cycle of trucks. After 3 years, the warranty is over. And then 70% to 75% of our customers are leaving the captive service facilities. And this is not only in Europe, this is also in America. So they are going to independent dealerships. And these independent dealerships have one big strength. Their strength is they are flexible, they are agile and especially they're not brand dependent. And this is where we are stepping in. So we are not really going into competition with our customers and clients in the first 3 years, we are going more for the last 7 years, which the trucks normally last in Europe or in America, it's 8 years more. So together, it's between 11 and 12 years before it will be getting to markets which eventually are a little bit different. So this kind of span we are then addressing -- this kind of span we are addressing. And there we know by ourselves that the use take, the take quota for original parts, spare parts is getting significantly lower than in the first 3 years. And this market is highly interesting, highly competitive. But what we're aiming here is to be like a spider in the net. Whatever you move, we notice and hopefully, we will participate. And I must say it's a very good -- I'm very proud of the team because they came up with that over the last 2.5 years, and they have now formed something like ally a platform strategy, which could make us very, very, very profitable in this regard because in this kind of services and platform, you have completely different propositions on profitability. William Mackie: My follow-up relates to the CVS business. Congratulations on the continual evidence of the strong muscle memory and cutting costs at Knorr-Bremse in CVS in the face of weaker markets. I noticed the gross margins were relatively flat year-on-year actually. My question goes to the general pricing environment for CVS, perhaps specifically in North America. In a market where you've seen falling volumes, how effective have the teams been in passing through prices to mitigate cost-related headwinds from tariffs or other factors or just to be able to maintain the underlying gross profitability? Marc Llistosella Y Bischoff: So the American team is very close to the market. The American team is, by the way, even more agile when it comes to swing so to lay off people is much, much faster. It's much more efficient than we see it in Europe, especially in Germany. They are closer to the customer, much closer. And in America, we have a customer which is also very, very much involved into aftersales business and that is in this regard specifically per car. So what we see is that we are very close in cooperation with our customers here. They understand when we have to increase the prices, and they understand also the pressure we are running through and going through. One thing is for sure, the American, North American truck market is by far the most profitable market in the world. Yes. The American market is a protected market that has to be very clearly mentioned. You don't see there a lot of Asians really coming in. And the market itself is very settled, saturated and also allocated. So you have players, you don't have new players. So here, it's very clear that it is a very mature market with extremely interesting margins. The European market is more competitive with much lower margins to have, yes. The margins here are roughly in average below 400 basis points below, not only for the OES, but also for the OEMs. The truck market in Asia is completely different, highly competitive, very low margin and very difficult to have a leading position to be defended because there's always a new player who is attacking you. So our focus in terms of profitability is very, very clear in the North American market. It's very, very clear also the European market. And for expansion in terms of growth and also in technology and trying out, that is the Asian market itself. You know it also by the content per vehicle, which is a fraction in China to North America, it's a fraction. So everything what in America and Europe is coming up with digitalization and any form of redundant systems, safety systems, that is the market where we are in. So it is playing in our favor because here, we can't be replaced quite easily. Here, we are not just a commodity. Here, we are a differentiating factor. So that is what plays in our cards in these 2 markets and which makes us very, very learning in the Asian market. So long story short, the team is very ready to go with that. They're very qualified. We are very technical, instrumented and technical-based salespeople. So that means they're not just salespeople on the commercial side, but mainly also on the technical side. We have a good differentiation to our competitors, and we are seen also as a leading force here when it comes to marketable market innovations. Operator: And the next question is from Ben Uglow of Oxcap. Benedict Uglow: I had a couple. First of all, on the RVS margin improvement, the 1 percentage point. I mean, historically, that is a very big number, a big gain. And I guess my question is, Frank, maybe could you give us a bit more detail of what's in that 1 percentage point? How much of this is simply just due to OE and aftermarket type mix? And is there any significant regional variation in there, i.e., have we seen one region doing better? And the reason, obviously, why I mentioned this is in the past, your China margins were higher, et cetera. So I just wanted to understand the basis of that improvement. Frank Weber: Good to hear you again, Ben. Thank you. I missed the beginning, maybe 100 basis points you talk about rail, right? The quality of... Benedict Uglow: Yes. Frank Weber: Clear, I mean, I would say regional difference is China is stable as expected, rather a bit of operating leverage, so to say, with a bit of headwinds on the FX side. So it's not China driving it. Europe has gained growth and operating leverage and North America supported by signaling. So this is from a regional view it. So all that in Europe and North America basically being a bit of a weakness on the rail freight side in North America, which goes hand-in-hand with what we see in the truck market in North America. So that's it, I would -- how I see it from a regional point of view. Of course, aftermarket share, which is the big when it comes to the sales channel mix has supported us in that improvement of profitability. We are now running at a level of around 55% of aftermarket share globally, which is an improvement compared to last year. So that is a good driver. And the third element is the continuous boost measures that we are implementing more and more. Those 3 drivers are basically the bit of positive America, Europe, aftermarket and the cost measures. Benedict Uglow: Understood. That's helpful. And then -- and I guess a question for Marc. Trying to sort of understand what's going on in the North American truck market at the moment is extremely difficult. And a lot of companies are making all kinds of different statements, I would say. In terms of your customer conversations, in terms of your kind of day-to-day dialogue with truck OEMs, how would you characterize those conversations over the last sort of couple of months? Is it just getting better -- sorry, is it just getting worse? Or are things even changing at the margin? The reason why I ask this is different companies are talking about a better line of sight on tariffs. Some companies even talking about EPA 2027. So I wanted to know from your point of view, how are those conversations? Marc Llistosella Y Bischoff: What we see is a normalization. Most of our customers are very conservative, as you can imagine. They supported the current government massively. Some of them even paid. And there -- then after the enthusiastic in the first 4 months of this year, there came a certain form of irritation for another 4 months till August. And now we are in a phase of frustration and frustration in the sense of standby. Nobody wants to move, nobody wants to make a mistake. For example, this morning, we have been informed that Mr. Xi Jinping and Mr. Trump came to conclusion when it comes to rare earth. This came for all of us a little bit by surprise. The markets developed already this week based on that. On Saturday, we had the first signals that they come. Exactly 10 days before, we had in the press and also the Capital Markets was predicting a massive friction between the superpowers. And this kind of erratic or nonpredictable movements lead in truck industry to stand by. They won't cut, they won't increase. They will just wait. The consumer confidence will be for them eventually more important. The container traffic will be -- freight movement will be more important. Currently, we see not only the trucks hammered by that, but also the freight trains. We see that it is -- this is an impact on both industries, not only on the one industry. And we would say the worst is behind us because uncertainty is even worse than bad news. You know this better than me. The uncertainty is now, I would say, the fork is clearing up. And with that, we could imagine, but we are not paying on that. Don't get me wrong. We are prepared for it, but we're not paying on that, that we can eventually see in the next quarters to come a massive release and a massive improvement on the sentiment. And we are very confident to see this message because someone wants to be in the midterms. We know the midterms next year in November, and we know it's -- the economy is stupid, and we know this has to run and everybody will do everything to make it run in America. And now we are a little bit more confident than we have been eventually in August. Frank Weber: Just a minor addition from my side, Ben, also looking at the interest rates, I think the light signals currently being set, talking to the fleet customers directly, our sales guys, of course, on a daily basis. They are also saying, okay, whatever the kind of fleet age might be, and whatever the right theoretical point towards a new buy of a truck would be, if I don't have the money, it's too costly for me to borrow money. And I think this is also the right signals that the Fed is maybe currently sending towards any recovery. Operator: The next question is from Gael de-Bray, Deutsche Bank. Gael de-Bray: I have two questions, please, two of them relating to RVS. The first one is on the share of aftermarket, which apparently dropped in Q3 pretty substantially compared to H1, 50% or so in Q3 versus 57% in the first half. So it appears that there's been a big sequential decrease in aftermarket revenues for RVS in Q3. So I guess my question is what's been driving this? And then the second question is around the growth dynamics in broader terms for RVS. I mean RVS has enjoyed very strong commercial dynamics with orders continuously surprising on the upside over the past few quarters, even over the past couple of years now. However, at the same time, RVS revenue growth has come a bit short of expectations this year with Q3 -- I mean, this was again the case this quarter. So could you elaborate on the lead times and whether one could expect to see finally some acceleration in organic revenue growth next year? Frank Weber: Yes, you're welcome. So first, let me start with the aftermarket. I mean the bigger chunk was there in the first and second quarter, driven by also some signaling replacements and aftermarket growth momentum that we have seen. And if I'm not mistaken, it was you, Gael, who asked me the questions at the quarter 2 call, why the signaling business is so strong in profitability. So it was rather a bit of exceptionally high in quarter 1 and quarter 2, that aftermarket share driven by the signaling business and where I said already in July, it will come down quite naturally, not sustainably, but naturally come down in the second half of the year '25. That is the reason. So number one question, KB Signaling, major driver to it with exceptional situation quarter 1, quarter 2. Second question, rail demand going forward, as Marc also said right in the beginning, is the least issue that we are currently seeing. We have in plenty of jurisdictions support programs out there, fueling the demand quite sustainably. EUR 1 trillion package in the U.S. the bipartisan infrastructure law. We have the German stimulus program. We have Brazil investing EUR 15 billion; Italy, EUR 25 billion over the years to come, Egypt, Turkey, what have you. So all these, so to say, programs leading to a fueling of the market growth that we kind of see between 2% to 3% as a basis should be going up with all those programs above those numbers. And we are totally fine, so to say, to reach our 5% to 7%, let me put it this way, CAGR of organic growth for the rail business over the years to come. And by the way, this is not a different number from what we said some 3 years ago as the situation in rail is noncyclical. We said back then it's 6% to 7% over several years. One year, it's 10%. The next, it's maybe 4%, then it's 7%. So something around that is what we see the lead time. Second element of your second question is very different. I mean, it depends on the product itself that we are selling ultimately a brake system, you would have at least when the design phase is finalized, you have a lead time of 12 to 18 months for more sophisticated product like a brake system, brake control unit. When it comes to a door system, it's after the design phase kind of 6 to 9, maybe 12 months, 6 to 12, let's put it this way. And towards a more simple product, HVAC system, it's 3 to 6 months. So it takes always the design phase of the train, then add these additional lead times, this is what we are looking at on a regular basis. Sometimes you have also project pushouts from one of the other customers. This is then a bit of irregularity in the market. But in a normal market, I would say those are the lead times. And with that order book that we are having, we're so pleased, so to say that we couldn't even afford much more order intake in order to get them all, so to say, produced within the next 12 months. We are, I would say, fully booked basically. Operator: And the last question is from Tore Fangmann from Bank of America. Tore Fangmann: Just one last from my side. When we look into the truck market, I think a few of the OEMs have now opened the books for '26 from September onwards. Could you just give us any indication on how your discussions with the truck OEMs are going right now? And any first idea of how this could mean into like the start of Q1 and the Q2 of '26? Frank Weber: Thanks, Tore. Nothing spectacular, I would say, sometimes it's what I recall since quite some time that after summer break, internal news in big corporations flow a bit hesitant at first and then towards October, November, basically, the sales guys come up with a good or with a rather bad news, so to say, towards their supervisors. This is what we usually say. That's why we also said a bit, we see a bit of a softening in Europe because some orders in the EDI system, then you just -- if you only have 2 more months to go, you rather shift into the new year into January and February, you realize you can't get them done in December anymore. So Christmas is coming like a surprise kind of and then you shift a bit orders into January, February, but that's the usual thing that happens basically each and every year. We don't see anything special this time around. I think we have to, in North America, see what -- how many days around Thanksgiving, the plants on the customer side will be closed down and what they do with the Christmas break. But as we also said, we expect a rather flattish market quarter 4 compared to quarter 3, maybe tiny little bit less truck production rate there. But nothing spectacular in the discussions with our customers. And what we see is what Paccar and Volvo announced, I think, is pretty straightforward. Nothing more to add on our side. Marc Llistosella Y Bischoff: Yes. Just to add from my -- for the Capital Markets, relevant whether we perform or not. And we are performing exactly to what we predicted. We performed in '24 to our predictions and announcements. We perform now to our predictions and announcement in '25. And now give me a reason why should you not believe that we are performing exactly as we planned it for 2026 with 14-plus percent EBIT margin. I wouldn't see it because the pattern certainly gives my words more gravity than anything else. So I don't see the doubt. Whether the truck is with currently 44% of revenue share, whether this is now coming up or not, as I said at the beginning, I don't believe independence of market. I believe in your own abilities to play with the market. So that it's more important whether your costs are under control than whether the market is going up by 2% or going down by 3%. It is our absolute obligation that for next year, the 14% has to be achieved. And we are doing everything on the cost situation and our -- what we can address. What we can't address, we can't address, we can hope. For markets, you can only hope. For costs, you can do. And what we do is we do what we do. And for the last, whatever it was, 16 months, we did it and we did it as predicted. We did it as announced and now you can say, yes, what makes us think that in the next 11 quarters or 12 quarters, you will do what you announced. Sorry to say, I can only offer you the past. For the last 12 quarters, we did always and overfulfilled what we announced. And I can give you absolutely our understanding and our obligation is to do the same in the next year and the same is in the fourth quarter. Whether the market is bad or good, sorry to say, with this, we will not have an excuse, then we have to overcompensate. If left is going wrong and right is going right, we have to overcompensate it because overall, the result is 13% we wanted to reach in 2025. This is what to go for, 14% plus. That is the target for '26. That's what to go for. Whether the market is good or bad, no excuse, we have to reach it. Thank you. Andreas Spitzauer: Okay. Thank you very much for your time. If you have further questions, please reach out. And yes, we wish you a great afternoon. Thanks a lot. Marc Llistosella Y Bischoff: Thank you colleagues.
Justin McCarthy: Good morning, and welcome to Westpac's Full Year 2025 Results Briefing. I'm Justin McCarthy, the General Manager of Investor Relations. Before we commence, I acknowledge the traditional custodians of the land in which we meet today. For us in Barangaroo, that's the Gadigal people of the Eora Nation. I pay my respects to elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people. I'm pleased today to be joined by our CEO, Anthony Miller; and CFO, Nathan Goonan. After the presentation, we'll move to Q&A. [Operator Instructions] With that, over to you, Anthony. Anthony Miller: Thanks, Justin, and good morning, everyone. I'm pleased to present Westpac's full year results to outline the value we're creating for customers, shareholders and the communities we serve. We began the year with a robust balance sheet and capital position. This provided us the capacity and flexibility to pursue our growth and transformation agendas. We are driving operational and business momentum supported by 5 priorities. To ensure we are there for our customers at the time and place that suits them, we've adopted a whole of bank to customer approach. Our refreshed leadership team is guiding our 35,000 people who are energized, engaged and turning our priorities into outcomes. It's not just what we deliver, but how, and that is why our focus on execution is key for Westpac. Disciplined execution is how we will achieve our goals. As Australia's first bank, we recognize the vital role we play in supporting economic prosperity. We're proud of our contribution as Australia's sixth largest taxpayer, helping to fund essential services and improve people's lives. Our employees bring this to life by volunteering their time and making pretax donations to more than 500 charities. Through our Rugby League and Cricket partnerships, we promote sport participation from grassroot clubs, including programs for schools, women and First Nations talent through to elite competition. We also offer free financial literacy programs across Australia, New Zealand and the Pacific to help educate thousands of people and small business owners every year. We're improving banking access in regional areas and investing in ag scholarships and technology to drive innovation. These initiatives create more prosperous communities while fostering trust and brand advocacy. Turning to financial performance. The result reflects our strategy of balancing growth with returns, while making necessary investments in people, innovation and transformation to support our future. Net profit, excluding notables, decreased 2% to $7 billion. Statutory net profit fell 1% to $6.9 billion. This led to a slight contraction in our key return metric, return on tangible equity. The impact was cushioned by the reduction in share count through the buyback. As we execute our transformation agenda, expenses are higher, lifting our cost to income to 53%. We're addressing the cost structure through our Fit for Growth program, which will help offset expense growth in FY '26. Our performance reinforces the need for us to focus on execution while managing RoTE and CTI. The steady financial performance and strong capital position saw the Board declared a second half dividend of $0.77, equating to a full year dividend of $1.53 per share fully franked. This equates to a payout ratio of 75% of profit after tax, excluding notable items. This is the slide I use to track our progress against our FY '29 targets. We put customers at the center of everything we do. To be Australia's best bank, more work is needed to lift customer and brand advocacy. In the past 2 years, we've gradually improved consumer NPS. We're currently ranked equal second and the gap to first place has narrowed. In business, we have established clear leadership in SME and commercial. However, our overall position shows work is needed to lift small business. For institutional customers, we aim to be #1 in our target markets by investing in our people's expertise and building stronger customer relationships. We are now executing UNITE. We will be open and transparent as we drive to complete this program. On performance, our decisions and approach are guided by delivering improvements to cost to income and RoTE. Our strategy supports our ambition to be our customers' #1 bank and partner through life. For our customers, we aim to win the whole relationship by delivering the whole bank. To meet more customer needs, we're offering the full range of products and services we have in a more timely and personalized way. For our people, we are investing in their development and leader capability while driving a high-performance culture where employees can perform at their best. On risk, we have completed the final transition of the customer outcomes and risk excellence program known as CORE. In response, APRA released the remaining $500 million of operational risk capital overlay, marking 5 years of meaningful change. Our commitment to ongoing risk improvements will continue, and our priorities for risk management to be recognized is our differentiator. Our transformation agenda is focused on delivering UNITE and 2 flagship digital innovations, Biz Edge and Westpac One. Ultimately, our performance will be reflected in how we execute on these priorities. Our service proposition is foundational to earning trust and becoming the bank of choice for our customers. Despite economic uncertainty in recent years, our customers remain resilient. We supported customers with 46,000 hardship packages with 3/4 of them back on their feet. Service quality is improving. For example, our financial market clients time to trade in the Commercial division is down by 30%. Our new brand positioning, It Takes a Little Westpac, along with our award-winning banking app and rewards program is strengthening engagement and loyalty. For businesses, we doubled our women in business commitment to $1 billion. We are growing our regional presence through new service centers. Our first location in Moree was well received by the community. Our latest Australian-first innovations, Westpac SafeCall and SafeBlock, supported a further 21% decline in reported customer scam losses. This is just a snapshot of the ways we're improving our service proposition to become #1. With a refreshed executive leadership team, we're placing a stronger focus on how we lead and support our people to perform at their best. Professional development programs, including the Business Performance Academy as well as skills training in data and AI are just some of the ways we are investing in our people. We've strengthened our employee value proposition to attract, retain and develop top talent while expanding benefits. We're also building the presence of our bankers where it matters most for our customers. Employee engagement remains strong, and we continue to invest to improve. Pleasingly, our consumer deposits grew by 10%, including offsets. This is a testament to the quality of our business and our customer base. It also reflects the effectiveness of our award-winning banking app and the competitive product suite, which we have, which provide reliable everyday banking solutions. We have expanded our capability in migrate banking. Prospective customers from several key markets can now apply for a transaction account before arriving in Australia. Our recent sponsorship with Cricket Australia will also present new opportunities in this target segment. Transaction banking is at the heart of our business strategy. New account openings of 130,000, supported transaction account growth of 13% this year. We also launched a new online payment solution, OnlinePay. With simple onboarding, it has attracted 1,000 customers within 3 months of launch. In Institutional Banking, we continue to maintain our lead in public sector deposits with growth of 11%. Financial institutions is also a target area where we are now seeing real momentum. Our goal of deepening relationships and supporting more customer needs is reflected in loan growth across business and institutional, where existing customers make up approximately 3/4 of new lending. Business lending increased by 15% with even stronger growth across target sectors of health, professional services and agriculture. Institutional lending grew by 17%. The portfolio is diversified, and we remain the country's largest lender to renewables. Growth in both areas has been accretive to RoTE. I'm very pleased that the average risk grades across the business and institutional lending books have remained stable, while absorbing this attractive level of growth. Looking more closely at mortgages. Our focus has been on getting the service proposition right, making it consistent, attractive and most importantly, easy for our customers. We've made progress. Time to decision has improved with most proprietary home loans now processed in under 5 days. In a highly competitive environment, we must get the service proposition right and then balance growth with return. Overall, I think we've managed this well. Returns have improved, supported by operating efficiency and disciplined execution. We've been more efficient in how we deploy capital with balances up and RWA down. Today's announced sale of the RAMS portfolio will further improve the operating efficiency of our mortgage business. We've targeted high-returning segments, including investors, where flows increased by around 4 percentage points to just under 40%. This was a deliberate move with our pricing competitive. In contrast, we positioned ourselves above market in owner-occupied. Momentum in early FY '26 has picked up and is tracking slightly above system. Looking further out, we see a clear opportunity to improve proprietary lending, which currently makes up just under 1/3 of new flow. We know what to do. However, progress will take time. It will be measured in years, not months. To support this, we're adding more home finance managers. We're enhancing banker incentives, and we're investing in the brand. Additionally, we're capturing insights and generating leads and opportunities by leveraging data, analytics and AI across the company to drive proprietary lending. UNITE is up and running. We finalized the scope, we have a plan, and we are now into execution. Some initiatives are progressing faster than expected, which is encouraging, while others are proving more challenging. This is typical for a project of this scale. Moving to a single deposit ledger meant we had to revisit about 1/3 of the initiatives to make sure we addressed all impacts and all interdependencies. This additional planning delayed our time line. We expect completion where we are accruing all target benefits to extend from the end of FY '28 into FY '29. To drive execution, we formed a centralized delivery team of 1,600 people focused solely on UNITE. We've also grouped the initiatives into 10 work packages to ensure we manage interdependencies and challenges effectively. In FY '26, we expect to invest between $850 million and $950 million in UNITE as we go flat out on execution. The program is expected to account for approximately 40% of annual investment spend in FY '27 and '28 before reducing in FY '29. Our progress is starting to deliver improvements that are making banking simpler and more connected for our employees and our customers. We've put some of those outcomes in front of you. Two things I want to call out. Westpac home loan customers can now set up multiple offset accounts with no additional fee. This is a key feature requested by our customers. Since February, we've opened more than 35,000 additional accounts. We've also completed the migration of private bank customers to Westpac with minimal attrition. The validation that we've done this well is shown in recent positive brand NPS. We've completed 8 initiatives and 51 are now underway. Most initiatives are green, a few are red, and we're prioritizing getting those back on track. We will provide updates on progress and continue to refine our disclosure to improve transparency. We invested $660 million in UNITE during FY '25, and this was slightly above our guidance. This was because we saw an opportunity to get additional work done now, and so we prioritized the resources to make that happen. Alongside UNITE, we're also modernizing technology through capabilities like Westpac One and Biz Edge for better customer and employee experiences. Biz Edge is our new lending origination platform, accelerating digital capabilities for bankers with AI-powered tools that support faster, more confident decision-making. This is dramatically improving how we lend to businesses by guiding applicants and bankers through the best pathway. Since launching in March, Biz Edge has processed nearly $5 billion in business lending applications. So far, time to decision has improved by 45%. More benefits are on the way for customers and bankers. For Institutional clients, Westpac One will be the new platform that brings together real-time treasury management, FX, trade and lending with powerful data insights. In December, we'll pilot the first Westpac One initiative with real-time transaction banking and a new modern digital experience for corporate clients. Advanced transaction banking capabilities like liquidity management, including multicurrency and cross-border capabilities, will be progressively dropped over the next 36 months. Once complete, the platform will deliver end-to-end liquidity and cash management, helping clients run and fund their businesses more efficiently. This capability will be market-leading and a differentiator in supporting our corporate, large commercial and institutional clients. AI represents a significant opportunity to improve the way our people work as well as the quality of their work to help us provide better, more consistent service to our customers. We're embracing new gen and agentic AI capabilities while also continuing to use traditional AI tools, like machine learning and advanced analytics. These are helping us automate tasks and modernize our technology. It's also giving our people more time back and providing bankers with more insights to serve customers better. The key is making sure we scale proven solutions. Examples with tangible benefits include strengthening defenses against fraud and scams, supporting faster approvals for mortgages and business loans, helping employees quickly answer process and policy questions and automating coding and testing. However, to realize its full potential, we must approach AI with an enterprise-wide mindset. We've appointed a global leader reporting directly to me to drive this across the entire company. We're moving at pace and recently launched the Westpac Intelligence layer, which draws on the enormous data and insights across the company to drive faster, safer and more proactive decisions. We have prioritized using the layer in consumer to support our focus on growing proprietary lending. It is already giving our home finance managers better insights to deliver faster, more personalized service. I'm really excited about what we will achieve as we broaden this intelligence layer and roll it out across the bank in the next 12 months. Nathan will now take us through the performance in more detail. Nathan Goonan: Thanks, Anthony, and good morning, everyone. It's a privilege to present my first result for Westpac. I recently took over from Michael as CFO, and I want to begin by acknowledging Michael's contribution over the past 5 years and wish him all the best for the future. I'm excited to be joining Westpac at an important time in the company's history. I look forward to doing my best to help our people deliver consistently for our customers. As foreshadowed, we've adjusted our disclosures to make peer comparison easier, now reporting net profit, excluding notable items as an equivalent measure to cash earnings among peers. Starting with the financial performance over the year before talking in detail about the half year trends. Excluding notable items, which related solely to hedging items, net profit was down 2% with higher expenses more than offsetting growth in operating income and lower credit impairment charges. EPS was flat, reflecting reduced share count from the on-market share buyback. Revenue was up 3%, comprising a 3% increase in net interest income, driven by an increase in average interest-earning assets and a 1 basis point decline in net interest margin and a 5% increase in noninterest income. Operating expenses were 9% higher, including the restructuring charge of $273 million. Excluding the charge, expenses rose 6%. These revenue and expense outcomes resulted in a decline in pre-provision profit of 3%. Credit impairment charges remained low at 5 basis points of average gross loans compared with 7 basis points the prior year. Half-on-half, we saw improving underlying trends, offset by increased investment. Pleasingly, pre-provision profit increased in Institutional, New Zealand and Consumer, while business and wealth held flat. Net profit was up 2% in the half and comprised of the following: Net interest income rose $335 million. Core net interest income was up 3%, a 2 basis point increase in core net interest margin and a 1% growth in average interest-earning assets. Noninterest income was up $143 million, mainly reflecting an increase in markets income, a combination of both client activity and market conditions. Expenses were up 9% or $520 million, including the restructuring charge. Overall, pre-provision profit was down 1%. Excluding the restructuring charge, pre-provision profit increased 4%. Asset quality metrics continued to improve, resulting in lower credit impairment charges. The charge of 4 basis points to average loans was down from 6 basis points in the prior period. The effective tax rate was 30.6%, down from 31.3%. As Anthony outlined, sustainably growing customer deposits over time underpins our ambition to improve returns. The growth of 4% in the half was pleasing and highlights the inherent strength of our customer segments. Mix improved with the reliance on term deposit decreasing from 29% to 27% of the book, while savings and transaction balances grew. We expect strong deposit growth to continue in FY '26 with our economics team forecasting system growth of 7%, reflecting continued improvement in household conditions. Strong deposit growth has supported lending growth in chosen segments. Gross loans increased 3% with growth across all customer segments. Australian Mortgages, excluding RAMS, grew by 3%, slightly below system as we balance growth and return in a competitive market. Australian business lending continues to show good momentum, growing at 8%. The larger commercial subsegment performed well, and we also saw growth in both SME and small business, which grew 9% and 5%, respectively. Prior to this half, small business had contracted or been flat in the preceding 4 halves. Institutional lending grew by 10%. The portfolio is well diversified with infrastructure, renewable energy and industrials underpinning growth. Lending grew 3% in New Zealand, where demand for credit remains subdued in a more challenging economic environment. The RAMS portfolio continued to run off. The balance at 30 September was $22 billion. The sale announced today is expected to complete in the second half of 2026. Until completion, these balances will continue to run off. Please bear with me as I spend a bit of time talking to net interest margin given the importance and likely focus. Core net interest margin increased 2 basis points to 1.82%. This follows a decline of 3 basis points in the prior half. We've seen a reduction in the amplitude of the components of NIM with all drivers having a modest impact. The lending margin was stable with an improvement in New Zealand due to fixed rate repricing, offset by a decline from auto finance, which was sold in March. Lending margins in business contributed less than 1 basis point. In Mortgages, the market remains competitive, but relatively stable, and we saw several factors play out. The cumulative impact of these was less than 1 basis point. These include the benefits from the initial timing impact from rate cuts. Deposits were also stable as benefits from the replicating portfolio and the repricing of the behavioral savings product was offset by the initial impact of rate cuts, customers switching to higher-yielding accounts and more behavioral saving customers qualifying for the bonus rate as well as the compression in TD spreads from prior period. Liquid assets contributed 3 basis points, reflecting reductions in trading securities. Whilst a positive to NIM, this is neutral to earnings. Lower earnings on capital detracted 1 basis point. The benefit from the higher replicating portfolio rate was more than offset by the impact of lower rates on unhedged largely surplus capital and the averaging impact of the share buyback. The contribution from Treasury and Markets rose from 12 to 13 basis points. Looking to first half 2026, we've included some key trends we expect to impact margin. We expect lending margins, excluding the timing impacts from rate cuts, to edge lower. Pressure on deposit spreads from the average impact of rate cuts and prior period switching to saving products is likely to continue. The replicating portfolio is expected to be a net benefit of 1 basis point. This includes a 4 basis point benefit from the total replicating portfolio, offset by a 3 basis point reduction in unhedged deposits. This reflects the decision to increase the deposit hedge by $10 billion. This was executed in September and October to provide further earnings stability through the cycle. The benefit from improved term wholesale funding markets is expected to be a slight tailwind. While mortgage margins appear relatively stable, lending competition remains difficult to predict, along with short-term funding costs and RBA rate cuts. To this end, we've provided 2 sensitivities to help understand the potential impact. The next 25 basis point rate cut, RBA rate cut, leads to an approximate 1 basis point contraction over the first 12 months, reflecting the impact on unhedged deposits and capital. Based on September balances, a 5 basis point move in the 3 months BBSW OIS spread equates to approximately 1 basis point of NIM. Quickly touching on noninterest income, which increased 10% for the half. Fee income was up 5%. Higher card fees reflected increased spending and fee changes, which are being phased in. Business and institutional lending fees increased due to strong balance sheet growth. Wealth income was up 3% with higher funds under administration. Trading and other income increased 27% from higher sales and risk management income, including foreign rates and foreign exchange and favorable DVA. Moving to investment spend, which increased 9% over the year. UNITE investment was $660 million as the project continued to step up through the period. The proportion of investment spend that was expensed increased to 60%. UNITE was the main driver with this work expensed at 74%. Notwithstanding the acceleration of UNITE, spend on growth and productivity initiatives was in line with that of FY '24. This includes Biz Edge and Westpac One. Risk and regulatory spend declined substantially after the completion of several projects, including the CORE program. Into FY '26, investment spend is expected to be approximately $2 billion, with UNITE accounting for just under half the total spend at $850 million to $950 million. This is in line with the fourth quarter run rate where UNITE spend was $225 million. Both risk and regulatory and growth and productivity investment will decline to allow the UNITE investment to accelerate within the expected $2 billion total investment spend. Moving to expenses. This slide is changed in presentation to better reflect the underlying drivers. My comments relate to movements over the year, which we believe provides a better guide to key trends. Staff costs increased $397 million as the new EBA began, superannuation rates increased, and we invested in more bankers in business, wealth and consumer. Technology costs increased $146 million, reflecting vendor inflation, increased demand to support growth and more cyber protection. Volume and other rose $199 million. Drivers include the important investment in our brand and marketing and higher operations-related expenses to support customers and prevent fraud and scams. This was offset by $402 million of structural productivity savings. This included the benefit of a simpler operating model, more automation and reductions in branch space. The ramp-up in UNITE added $399 million over the year. Looking to FY '26, staff costs will rise as we continue to invest in bankers and eligible employees receive a 3% to 4% pay rise under the EBA. The averaging impact of bankers hired from this year and higher superannuation rates will also flow through. Technology expenses are expected to remain a headwind. The expense contribution from investments will be driven by the mix shift towards UNITE with the increased cash spend expensed at approximately 75%. Assuming the midpoint of our guidance, this will translate to $190 million increase in operating expenses. This will be partially offset by the decrease in other investment. Amortization expense will continue to be a headwind in FY '26, although to a much lower extent. We remain focused on closing the cost-to-income ratio gap to peers over the medium term, and we need to structurally lower our expense base. Total productivity is expected to be at least $500 million in FY '26. This revised view of productivity will give us a consistent way to demonstrate the benefits from both UNITE and Fit for Growth initiatives. Overall, credit quality remains sound and with consumers and business portfolios performing well. Stressed exposures to total committed exposures decreased 8 basis points. This reflects a decline in mortgage arrears and reduced stress across most of our business segments. This half, we've continued to see improvement in 90-day plus Australian mortgage arrears. These have reduced from a peak of 112 basis points in September last year to 73 basis points, reflecting a combination of customer resilience and an adjustment to the reporting of loans when customers complete their hardship period. In New Zealand, mortgage arrears fell by 8 basis points to 46 basis points as rate relief began to feed through to customers rolling off higher rate fixed mortgages. We have provided the chart by industry for our non-retail portfolio. As you can see, business customers are managing conditions well with stress reducing across most sectors. Our portfolio remains well diversified across sectors and geographies. Looking forward, the 2 key drivers of asset quality outcomes are likely to remain the unemployment rate and asset prices. Total credit provisions were 2% lower at almost $5 billion. This reflects a $72 million decrease in individually assessed provisions and a reduction in model collectively assessed provisions driven by improvements in underlying credit metrics and the economic outlook. Offsetting the model-driven outcomes were 2 main items of management judgment. The weighting to the downside scenario was increased by 2.5 percentage points to 47.5% at the third quarter. The base case reduced by the same amount. In addition, we increased overlays by $108 million with overlays as a percentage of total provisions increasing from 3% to 5% in the period. As a result, overall coverage reduced by 1 basis point with total provisions now $1.9 billion above our base case. An improvement in the composition and funding and liquidity adds to our competitive positioning and helps provide medium-term earnings stability. The deposit-to-loan ratio has reached an all-time high of just under 85%. A more stable source of funds from household and business transaction accounts has reduced the reliance on term funding with issuance in FY '25, the lowest in 10 years. Our liquidity and funding metrics are above our normal operating ranges, which we believe is appropriate given the market backdrop. The strength of the capital position is a key feature of this result and provides us with flexibility and opportunities over the medium term. The CET1 capital ratio ended the half at 12.5%. Net profit added 80 basis points, while the payment of the half year dividend reduced capital by 58 basis points. Risk-weighted assets detracted 7 basis points with higher lending balances more than offsetting data refinements, improvements in delinquencies and a reduction in IRRBB risk-weighted assets. Other movements added 16 basis points, largely reflecting lower capitalized software balances and movements in reserves. There are several adjustments to consider for first half '26. These include the removal of the $500 million operational risk overlay in October added 17 basis points of CET1 capital. The new IRRBB standard came into effect on 1 October, and the extension of our non-rate sensitive deposit hedge has now been allowed for regulatory purposes. These 2 items add 39 basis points of capital. Offsetting this, the remaining $1 billion of the previously announced share buyback will reduce CET1 by 23 basis points. Following these adjustments, the standardized capital floor was met in October. Importantly, there are opportunities for us to manage the standardized floor, and we expect the impact on the CET1 ratio at the half to be modest. We've implemented a new capital target of 11.25% following APRA's changes to AT1. We have approximately $3.1 billion of capital above the new target after the payment of the second half dividend. The payout ratio, excluding notable items, was 75%, which is at the top end of our target range of 65% to 75%. This balances our strong financial and capital position while maintaining capacity to both invest and support customers. We have $1 billion of the previously announced buyback outstanding. We see value in the flexibility provided by this form of capital management. With that, I'll hand back to Anthony. Anthony Miller: The Australian economy is showing signs of improvement following a sustained period of below-trend growth. Household purchasing power is rising as real disposable incomes grow. Businesses are emerging from a period of subdued activity, partially supported by lower rates, easing input costs and some productivity gains. Westpac DataX Insights highlights an improvement in card spend growth at 6.5%, the strongest we've seen since April 2023. For business, commercial customers are feeling better, but it's still challenging for our SME customers. However, we've just started to see an improvement in cash flows off the back of firmer household spending. Underlying inflation is at the top of the RBA's target range. This will put pressure on the RBA to hold rates tomorrow. We are starting to see more growth driven by private rather than public investment. However, this transition has been slower than anyone expected. A smarter balance calls for bold, coordinated action across government, regulators and the private sector. It has been pleasing to see the focus on the productivity agenda in the national debate. Targeted action is key to unlocking Australia's long-term prosperity and resilience. An area we are focused on is addressing the housing affordability challenge. We need to tackle the structural undersupply of housing and efficiently deliver more houses in the $500,000 price range. More broadly, the global outlook is not without risk, with ongoing trade and geopolitical tensions a constant threat. Our strong financial position helps us navigate that uncertainty while being there to support our customers. It's pleasing to see business credit is expected to grow 7%, driving private investment. We're building on the strong foundations, and it is all now about execution. We have 13 million customers. However, to realize the advantage of that scale, we must drive more efficiency. We must complete our transformation agenda, and we must enhance our service proposition. Each business has a clear direction, has the right leadership team in place and must now deliver. I'm pleased with our progress and energized by the opportunities ahead. With disciplined execution driving momentum, we're deepening customer relationships and investing in our businesses to support sustainable returns for shareholders. Thank you. Justin McCarthy: Thanks, Anthony. We'll move to Q&A now. Our first question comes from Tom Strong from Citi. Thomas Strong: Just first question around the productivity benefits into '26. I mean you took $400-odd million in this year, and you've guided to $500 million in '26, but you've got the benefit of, I guess, incrementally $270 million from the Fit for Growth, which you took the restructuring charge for. So is that $500 million conservative, you think, in terms of the FY '26 opportunity? Nathan Goonan: Yes, why don't I start. Thanks for that. I think you've sort of read it the right way. That's a line item in terms of just showing on a consistent basis where we think the benefits of the restructuring charge, and then in the future, as UNITE becomes a more material piece of it, we'll continue to show our productivity benefits on a like-for-like basis through that line. As it relates to the greater than $500 million, I think that's the guidance that we've given. The benefits from the $273 million, we actually had a little bit in this year. So there's probably about -- we had $402 million productivity for FY '25. There's about $40 million of that will be benefits from the restructuring charge this year. And I think when we made the pre-release, we just made comments that we thought the rest of that will be phased reasonably evenly during FY '25 -- FY '26, and then there will be a little bit of benefit to flow into FY '27. So yes, look, we're expecting to do $500 million. We've got to wake up every day and strive to do better than that, but our guidance today is in excess of $500 million. Thomas Strong: Okay. That's very clear. And just the second question around UNITE. It was 35% to 40% of the investment envelope and you've clarified that, say, at 40%. You have kept the $2 billion per annum consistent over the next few years. Just given the reallocation towards UNITE and I guess, the decline in purchasing power over that time, do you think that $2 billion per annum is still appropriate as a view out to FY '28, FY '29? Anthony Miller: Look, I mean, that's a very good question. And you're right, we'll continue to ask ourselves, have we got that right. I mean in framing up $2 billion per year, it's really anchored around what can we do effectively and deliver, if you will, cost effectively and substantially. So it's really about the capacity of the company to deliver the change we need to undertake. If it's the case that we can prove certainly in what we deliver over the next 12 months that we can do more, then we'll remain open-minded about that. But at the same time, it's about balancing the capacity of the company to execute the change of cost effectively and also balancing -- making sure we deliver return to shareholders. So it's a balance that we'll have to navigate over the next 36 months. Justin McCarthy: Next question comes from Andrew Lyons from Jefferies. Andrew Lyons: Maybe Nathan, a question for you. I just want to try and flesh out how everything you've mentioned on expenses will ultimately impact growth in FY '26. So perhaps just referencing the various FY '26 considerations that you have provided us, can you perhaps talk in a bit more detail as to how you expect this to translate to the various moving parts that you have in your expense waterfall slide on Slide 27, please? Nathan Goonan: Thanks, Andrew. Good to hear from you. I guess I'm just going to try and find the slide, just give me 2 seconds. It's up on the screen now. So I guess a deep walk through these and maybe just happy just to go through them again and try and give a little bit more flavor as we go. I think we've looked at it on a -- the first thing is just to sort of look at it on an annual basis, Andrew, and that's what we've tried to do. I think on people costs, we do continue to think that, that will be an increase in expenses next year. We probably expect if you break that down a little bit, we've got some pull-through of things like the investment in bankers that we had this year. There's a pull-through of the superannuation guarantee coming through. So there's a few of those things. We probably expect that we'll have lower absolute wage growth. The EBA is into its second year. So it's a lower number year-on-year. But we do expect to continue to invest in bankers. So I think that number will continue to be a big feature as we look at FY '26. On tech, I guess my comment was just similar that we continue to think that, that will be a headwind. And then on volume and other, maybe just to break that one down a little bit and try and give a little flavor. Probably the one thing that's a little bit of feature of FY '25 was a reasonably material investment in the brand, which we're really pleased about and is important in investing in the business. And that was about $60 million in the year, $45 million in the half. So we'll have some of that flow through into next year, but maybe not as much. We gave the disclosure on UNITE. Clearly, that investment bucket is just going to be determined by how much skews towards UNITE and then it's expensed at a higher ratio than the other. So we tried to give a bit of guidance there. And then amortization was about $100 million for the year, and we expect that to be a significantly lower number. And then we've had the conversation about productivity. So they're the moving parts, Andrew. Happy to try and sort of be helpful or answer a follow-up on any one of those. But hopefully, in sort of laying it out that way, you get a picture of the moving buckets. Andrew Lyons: No, that's great. I appreciate that detail. I might just move on to my second one, just around volumes. You mentioned that mortgage growth ex RAMS was 0.8x system over the year, and you put that down to being a function of just focusing more on returns. But like to be honest, when we continue to speak to mortgage brokers and the like, we do still hear that even though the gap between the 2 bookends have closed, Westpac is still pretty aggressive on front book discounting. So I'm just keen to sort of understand how you recognize those or reconcile those two opposing views around pricing for growth versus still being pretty competitive from the perspective of brokers. Anthony Miller: Andrew, it's Anthony here. Definitely, we have to be competitive. And this product that is a mortgage today is a highly commoditized and very price-sensitive offering. So we just need to acknowledge that. The second thing is, yes, in certain areas where we felt it made real sense for us and the returns were right and reflected the customer base we have and want to get more of, such as investor loans, we were sharp on price. And we deliberately were because we saw the return and we felt it aligned with what we wanted to achieve. In terms of other parts of the portfolio, we were above market. And I know there's always lots of observations and commentary from participants outside the bank. Those were the two disciplines we set ourselves, which is we wanted to be sharp, we wanted to be very price-competitive in investor and then a couple of other segments that we're keen. And we were very happy to be above market on owner-occupied just given the shape of our book and the returns that we're going after. Justin McCarthy: Thanks, Andrew. Our next question comes from Ed Henning from CLSA. Ed Henning: I just want to go back to project UNITE and just dig into that a little bit more. You've told us today that you're investing more in '26 than you've previously announced and also the program is going to go longer. So the investment you're spending is more than you've previously flagged. Can you just give us a little bit more on what it's going to deliver in terms of financial outcomes and the timing of that? How much is actually during the program? And then how much is beyond the program? Or are you planning to give that at a later date? Anthony Miller: Well, certainly, what we'll be doing each year in March is giving you a comprehensive update on UNITE and giving you an opportunity to work and go through the detailed work streams with our team. So we'll definitely continue to provide that detail and that access to you. I mean in terms of the investment next year or this financial year of $850 million to $950 million, it's a deliberate range because it will be -- if we can invest that and deliver the outcomes we need to deliver, then we'll take that opportunity, point number one. The second is, in the construct of doing all of the planning that we've done and landing on the decision to go with one ledger, that necessitated us changing some of the investment profile of the program. And so therefore, we had to bring a bit more investment forward, which is why next year is a bit lumpier than we might otherwise have planned because with the decision to go to one ledger, we had to do more work upfront to be able to facilitate that migration in 24 months' time. And so that's the reason why it's a little bit lumpy thereafter. The second is that, we are keeping that investment envelope in a disciplined way at $2 billion because as I described earlier to the previous question, it's about the capacity of the company to execute and can we -- if we can deliver value and if we can, in fact, do more, then we will be open-minded to doing more. The other thing I would say is that in terms of the project itself being longer, I just sort of want to put some context in that for you. When we spoke to the market 6 months ago, we were completing and finalizing the investment and plan for a one ledger. We landed at the one ledger decision, and we had to replan accordingly. Previously, we had -- we had 30 September 2028 as the finish date, and that was just arbitrary that we wanted to have this program completed by the end of financial year '28. Now as a result of that replanning, reflecting the decision to go to one ledger, it's just worked out that we won't have all of the benefits accruing by 30 September 2028. It's likely to be a few months into financial year '29. So that's why there's a bit of an extension. There's just more accuracy that we can provide as a result of the planning we've undertaken. And the last thing I'd sort of say to the spot-on question you've raised, which is, yes, the nature of the program is that much more of the benefits do accrue later in the program. But there's nevertheless still, if you will, benefits being realized now, whether it be, for example, the small movement and consolidation into one private bank, that's already delivering us some cost savings. There's a number of other initiatives where we're already seeing benefits accrue. But the nature of this program is that what we're doing is we're taking all of these customers on two other tech systems and platforms and migrating them onto one tech platform. And only when you switch those two off and you eliminate all the products and processes that, if you will, have to be executed on those two platforms, do you start to fully realize the benefits, the cost to run that follows from that, the cost to change that follows from that. So it is tapered to the back end in terms of the benefits that will be realized. And the premise that we have with UNITE, its key feature is that it helps set us up in a way that we have structurally lowered our cost base so we can really start to achieve our aspiration, which is a cost-to-income ratio that's better than the average of our peers. Ed Henning: And just following on from that, you know, in March coming up next year, are we going to be able to get at that point what you think the savings will be through the period and at the end of the period? Or are you not ready to tell us that? Anthony Miller: Look, we have absolutely clear in our mind as to what we want to achieve as a result of the investment we're undertaking, which represents UNITE. But what I'd rather do is make sure we're delivering and we're executing before we start talking about outcomes. But rest assured, the whole focus here about UNITE is if we can consolidate the new-to-bank processes and systems onto one bank process on one system, then we would expect that, that sets us up to be able to drive to a cost-to-income ratio that's very competitive as compared to our peer. Nathan Goonan: And maybe I'd just add one thing, Ed. I think it may be different than some other programs, but I don't think it's necessarily a program where you take total spend and total benefit sort of narrowed in on just the UNITE benefits and sort of try and make sense of it that way. This is sort of large structural opportunity for us to then get our cost-to-income ratio much better than where it is today. And so I think in some ways, it's a critical enabler of what we've got to do on productivity, but it cannot be the only thing. And so what we're committing to do is just try in a transparent way, as we go through the program, highlight the benefits that we've got from our spend as we go. And then you'll also hear us continuing to talk about that productivity bar that I've already had one question on because we want to be held accountable for making the organization more efficient as we go, significantly enabled by UNITE. So it's going to be more than just the UNITE productivity that you'll hear from us. Justin McCarthy: Our next question comes from Matthew Wilson from Jarden. Matthew Wilson: Two questions, if I may. Firstly, we've seen a nice pickup in your business banking volumes. You're winning share there, which has been really good. However, it's taken 50 basis points or so off the net interest margin. Obviously, there's some reclasses in there. How should we think about how you'll manage the volume margin trade-off in that business right now? Are we at a base that we can grow within without impacting the margin too much? Or should we expect further? Anthony Miller: Why don't I invite Nathan to take first swing at that, and then I'll add some comments on top. Nathan Goonan: Thanks, Matt. And I think it is a good question. And clearly, when you get into the divisional disclosures, it is a number that stands out. I think it's just important, I think, when we're thinking about margins just to make sure we sort of go back up to the top of the house, if you like, and just think about what are the movements in the margin that are happening at the group level. And then the divisional is really a proportional impact of those. So we've made the comment that when you look at business lending margin at a group level, it contributed less than a basis point. I appreciate some of that is just the math of materiality relative to the mortgage book. But more importantly, when you look at the business lending -- business margin at a division, you've got pretty significant impacts from the deposit side of the book. So I think the right way to look at that is sort of just the business lending, which is where your comment was going. Business lending revenue was actually up 7%. So the margin point around the lending is not as material as the overall divisional thing, just given the impact of the deposits. I'd probably say just a couple more points, and then I'll let Anthony come in. I think the lending margin was more stable in business lending in the second half than it was in the first. And I sort of continue to sort of expect trends into the first half are going to be a little bit more like they were in the second half than what they were in the first. So we don't see that accelerating. I think that's really driven front book, back book in our business lending books are much closer together now. One of the features, I think, of this book maybe relative to peers is when you've been out of the market for a little while and then you do reenter the market and accelerate, you can have a bit more of a pronounced cycling from back book margins on the front book margins. And so we might have seen in any given period a little bit more here than others. But I think we're now at that spot where that's much more in equilibrium, and we should move more in line with peers. And then I'd just say sort of two more points. Looking forward, I think mix of this book will be almost more important than pricing. So there is a significant difference in margins between the subsegments, whether it be the size, so corporate versus SME versus small, there's a significant difference between sort of working capital solutions and term lending. So getting that mix right will probably be a bigger determinant than pricing itself. And then just last point on pricing, Matt, not to labor the point. But I guess I've come in and met with the team and spent a lot of time with them on this particular point. And there's probably nothing that I'm seeing in the pricing here that is that different to what I would have expected or seen elsewhere. I think the team are putting their firepower around retaining their existing customers. And so you see pretty good levels or high levels of retention of existing customers when they go to market, and that's good business, and we continue to encourage that. And then where they're trying to be a little bit more disciplined on price is just on the new-to-bank. And so we're probably seeing new-to-bank win ratios drift down a little bit in the last 6 months, but the business is still growing well, and we expect it to continue to take share next year, so a long answer. Anthony Miller: No, no, you hit all the points, and thanks for doing that. I mean I would just say that the growth that we've seen over the last 12 months, Matt, was in, call it, the higher grade part of the book. And so margins there, as you would expect, slightly tighter, but the return on tangible equity was very attractive. The other thing that we were pleased about was that, that growth with existing customers and those sort of retention rates in the sort of high 90s. And then win rates in the context of new to bank were in sort of much, much, much lower than that. So we're really, really thoughtful about where we deployed and where we grew. And we knew that there would be, if you will, some consequence to margin, but it was the right way to go after the opportunity in front of us. The only other sort of additional point to make about business bank, with that growth in the loan book being sort of 3/4 existing customers, only 1/4 new customers, what was really pleasing is that we saw a 13% growth in the transactional account, which we think is a really important sort of opportunity and capability we have at the bank. That 13% growth, what was very pleasing was that sort of about 53%, 54% of that growth was with new-to-bank. So we're bringing new customers in on a product suite that's a really attractive, a, return; but b, also a risk profile for us as a company. So we quite like the way Paul and the team are driving the shape of that growth in that division. Justin McCarthy: Matt, hopefully, your second question doesn't require such a comprehensive answer. Matthew Wilson: Hopefully not. Just with respect to your targets, so 6 months or so ago, you decided to set relative cost to income and ROE targets. In the interim, one of your key peers has sort of changed that line in the sand by producing some absolute targets. How have you responded to that? Because it makes your task a lot harder at the current scenario? Anthony Miller: Look, I expected this question. And in fact, I think I expected it from you, Matt. So thanks for playing consistently. Look, I respect Nuno immensely and what ANZ has done and he's put a marker down, and I wish him well, and we'll watch that process develop from here. We've spent a lot of time and effort to get a plan together, and we have that plan in front of us. And so I think our ambition, which is to be very focused on how do I structurally reset this company with UNITE, how do we then go after the productivity equation year-in, year-out over the next 36 months, bringing those together, we can see where we can get our cost-to-income ratio at a point which is better than our peer average. And so that's -- we've got clear goals, clear targets that we need to deliver, Matt. I'd just much rather, if you will, deliver and be dropping outcomes along the way rather than sort of putting some bold number in front of you. I think it's fair to say, as a company, we probably haven't the right to do that. We put a number in front of you 4, 5 years ago, and we didn't get to it. And so frankly, what we need to do is deliver and then talk about bold numbers and outcomes. Justin McCarthy: The next question comes from John Storey from UBS. John Storey: Firstly, obviously, on the Consumer division, you've seen quite a big improvement half-on-half. And just looking at some of the diagnostics on the actual Consumer division, reported customer surveys, NPS scores are pretty stable, Anthony, as you called out. But one thing that is pretty evident is your MFI number has dropped quite a bit. Maybe if you could give a little bit more details around that? And then just secondly, on the Consumer division, maybe just around the start of the financial year, if you could provide a little bit more color on how the division has been performing, particularly with regards to new business volumes and then also just channels in terms of where mortgages are coming through. Anthony Miller: Look, thanks for that question, John. And so Nathan, you're welcome to jump in as you see fit. Look, you're absolutely spot on. We have an aspiration to lift our MFI ranking from where it is. And if there was one aspect of the performance in Consumer, which has done some great work over the last 12 months, there's one area where we're disappointed and we're actively engaging on is the MFI outcome in Consumer. The irony is that the MFI score has come down a little bit, yet deposits have grown at a very attractive level of 10%. And we've done more work. And as we've unpacked that, we've noticed that actually it's much more in the context of what we call the regional brands, St. George, BankSA, Bank of Melbourne. And part of that is connected to the fact that we were less aggressive in how we were pricing our mortgage book in that area. And as a result, we saw some attrition in the transactional account, the MFI accounts that we really want. And so that was a really humble reminder to us that about not just looking at products like mortgages in a stand-alone only return setting, but to really think about the whole of customer and are we getting the balance right. And we've recognized that in that area, in particular, we weren't getting the balance right, and we've addressed that accordingly and are much more focused on how we grow and support those customers and obviously graduate the MFI. Pleasingly, as it relates to the Westpac offering, the MFI there has started to improve, and we're certainly pleased with the outlook and the momentum that we've got in that. I would say that the others -- if I think about also MFI in the space of 12 months in business banking, they've been able to lift it by well over 1 percentage point. So it does highlight that we do have the offering. We do have the product. We just simply got to get -- make sure it's a priority across the organization, which it now is. Nathan Goonan: Maybe I could just add a little bit on the current flows, John, just to take your second question. I would say that we've -- and Anthony mentioned this in his preprepared remarks, we've probably seen, well, one, I think the market is, in particular, your question goes to home lending, then I think that mortgage market has been accelerating. And I think that's been sort of well covered in the market, and you can see it in the system stats. We're certainly feeling that or seeing that. So we've had increases in pretty much every channel, and we're seeing increased applications. And so front-of-funnel activity, as Anthony said in his preprepared, is probably a little bit higher than where we've been trending on a market share basis over the second half. So we're probably at or around system wouldn't surprise us if our front-of-funnel actually meant that we had a couple of months here where we're a little bit above system. That has been growth in all channels. I think pleasingly, we think October, we're going to see a little bit of volume growth in proprietary. I think the team are very cautious when we talk about green shoots there, and Anthony said it's sort of years, not months. But I think as we've seen proportional increases in applications, the proprietary channel has been performing better than it was in prior periods in that period on a proportional basis. So that continues to be good. And maybe the other thing just to add that may be of interest, John, I think the first homebuyers guarantee scheme has certainly stimulated some interest, whether it was some pent-up demand there, but we saw sort of applications in the first couple of weeks when the changes were made almost went to 2.5x what they were for the first homebuyers guaranteed. It's moderated a little bit. I think last week, it was about 2x what they were. So it's still double. How much of that pulls through? So we're seeing a lot of that volume. I think how much of that actually fulfills is a bit of a wait and see, but it's certainly still a small portion of the bank, but it certainly stimulated some demand. Justin McCarthy: Our next question comes from Brian Johnson from MST. Brian Johnson: Welcome, Nathan. I had 2 questions, if I may. The first one is, I'd just like to understand, you've got a bucket load of surplus capital. You're trading at, I don't know, about 1.8x book. I just want to understand the strategic rationale behind selling RAMS when a buyback, for example, is not as accretive. And also if we could understand any kind of litigation risk or warranties that you've made to the buyers in respect of this business? And then I had another question, if I may. Nathan Goonan: Okay. I'll just start on a couple of specifics, and then Anthony can jump in. I think one of the important features of the transaction, Brian, is that it's an asset sale. So just by virtue of that structure means that we're retaining the entities. And then the assets, it's a loan sale. So effectively, the asset is transferred to the buyer. As part of that, we've given sort of customary reps and warrants and other protections for the buyer so that they know that the asset they're buying is effectively going to perform in a way that it says on the tin. So that's things like title and the enforceability of title and things like that. So all customary things. In particular, as it relates to things like indemnities, you just don't need to given the structure of the sale, that will just stays with the existing entity that we retain. Maybe just to give a little bit of a picture as to the financial impact of it, Brian, because I think prima facie, I would agree, it does -- you sort of -- every day, we wake up and compete really hard on household mortgages. And so it's a core product of the bank. And so prime facie, you've got to scratch your head a little bit when you're then willing to sell a portfolio of home lending. But there's a couple of important points here. It is on a completely stand-alone set of technology. So it's a business that runs almost independently from the rest of the business. And so you've got a cost base here that by the time that we get to completion will be almost equal its revenue base. And it doesn't necessarily give you the type of scale that you might intuitively think in your mortgage business, is sort of one of the key features of this relative to, say, just ceding a little bit of share. And maybe, Anthony, you can touch on it. The other key point is we've made quite a few statements today just about the inherent strength of the deposit franchise, the ability for us to go after transaction accounts in terms of being a strategic advantage for us as we think about our balance sheet structure. And this is a business that has, if not 0, very close to 0 crossover in terms of deposits into the mothership. Anthony Miller: I probably just develop a little bit more on one point, which is, our current mortgage book, Brian, is, let's call it, 21% market share. But essentially, we've got 3 different systems upon which it's spread. So in effect, I've got 3 small banks, 3 small bank cost challenges, 3 small bank compliance, 3 small bank risk challenges in managing the mortgage book. And so UNITE was about moving all of those onto one way of doing things on one target tech stack. And so we were always going to have to spend quite a lot of money, and we're going to have to spend a lot of effort and consume a lot of resource to move the RAMS mortgages onto the target tech stack. And so therefore, if there was an opportunity to do that much faster and more efficiently, which this asset sale represents, then we were open-minded to it because essentially, I have 1 percentage point less market share. But now instead of it being spread across 3 regional bank cost basis, it's spread across 2, and we're on our way to getting one. And importantly, if we complete this, as we target, in 2026, I'm accruing that run cost saving, operational complexity reduction, risk reduction 2 years earlier than was otherwise planned. And so therefore, that's an attractive outcome for the bank. And as I say, 21% or 20%, my scale is wasted on 3 systems. And so I've got to get to the one system to really enjoy the benefits of that scale. So that's why this opportunity made sense. And that's why when we found the right parties, who would be the right owners of these assets, it just made a lot of sense for us to get after it. Brian Johnson: Anthony, just as a subset of that, can I just clarify, there was a story in one of the media reports talking about ASIC and AUSTRAC talking about this. I think subsequently, we've seen a very, very small ASIC fine. Can I just confirm that as far as you're aware, within the RAMS business that you're effectively retaining the risk? Anthony Miller: Correct. So to the extent that we've engaged with the regulators, and it's well documented on a whole range of issues and concerns they had with the way the RAMS businesses were led, managed and prosecuted, we've now -- obviously, we retained that. We've just simply sold the assets. And more importantly, it allows us, as I say, to switch off or get off one of those bank systems. So nothing has changed in terms of the risk profile we had as a result of the ownership of that business. It's just simply much cheaper to run from here. Brian Johnson: So can you address the question, though. There is no AUSTRAC issue? Anthony Miller: Nothing that has been brought to my attention, Brian. Nothing has been brought to my attention. So I don't -- you'll have to send me the article or reference and sort of what context in which it sits. But in the context of AUSTRAC matters vis-a-vis RAMS, I don't have anything in front of me on that front. And I'm looking across at my General Counsel and my Chief Risk Officer, and they equally are acknowledging that we have no such issues at this point. Justin McCarthy: Thanks, Brian. Our next question comes from Jonathan Mott from Barrenjoey. Jonathan Mott: Just a question on UNITE, back to the topic that we talked a bit before. You give us a kind of a traffic light scheme on how the business is going, but there's been a bit of a change in the disclosure. At the first half, you had sort of the green amber red. And now you've got in scope. I'm just looking at Slide 16 here, you've got another classification in scope. And then you've had an increase in the number of amber and a small change in red. Can you give us an update on what that means? Why you're now saying this is scope confirmed? And if you're looking at 18 of the 38 are actually already in the amber and red. Anthony Miller: So thanks for the question, Jonathan. And just sort of let me break it down for you. As a result of all of the planning undertaken, we now have a plan in front of us, and we know what we need to do, in what sequence we have to do it. Those 13 scopes confirmed are essentially 13 initiatives that we now have a plan for. And at some point, over the course of the next 36 months, those, if you will, initiatives will have to be worked on. And so at the moment, not all of those 13 have commenced. And so therefore, to characterize it as green, red or amber is slightly redundant. And so therefore, the others, which we're now moving on because it's a real program of sequence. It's about what we do and how we follow up on each particular completion of work. And so these 13 initiatives will be done. And to the extent, once they start work on them, we'll then obviously recognize whether they're meeting the standards we set, meeting the time line we set, meeting the cost we set, and that will then determine whether they're characterized as green, amber or red. And when we were talking back in May results, 7 of the initiatives at that point were red, and it's now down to 5. What's happened is 4 of those 7 have now moved into Amber Green. One, in fact, has been completed or effectively exited. And so that's behind us. But we've also had 2 new -- or 2 initiatives being recharacterized as red. So that's why there's that change from 7 to 5 over the course of the last 6 months. What we'll keep doing, Jonathan, is to the extent that there's some confusion there, we will get sharper in how we set it out for you because I do want everyone at all times to see that this is a large -- this is a challenging complex program of work. We're absolutely committed to it and most importantly, committed to making sure that there is no surprises as we go through it. And so if we can do better in sharing with you where we're at, we will look to tidy that up as we go forward. Jonathan Mott: And second question, if I could. If you're looking -- I'm looking at Slide 22, 23, I think it is, which just shows the growth in deposits and consumer pretty strong at $15 billion and then $12 billion in mortgages if you exclude RAMS. But including in that number is very strong growth again in offset accounts. I think it was up another $5 billion. You've now got $73 billion in offset accounts. So two things about that. Firstly, are you comfortable with the growth in net of offset accounts because it really is lagging the system? And I know you said you want to get your service proposition right, but are you comfortable with that? And also, given the offset accounts are nearly all against owner-occupied property, it actually means your investor book, as a percentage of the total, excluding offsets, which is just sort of a deposit sitting there, is a lot larger. So can you ask us sort of that considering this net of the offset accounts? Anthony Miller: I'll make a couple of comments and invite Nathan to jump in. I mean, certainly, you're right to call out that the deposit agenda, the idea that we grow deposits and more importantly, get the shape of that right, John, is absolutely not where we want it to be, albeit we're really pleased with the progress we've made, but we would like a lot more in terms of the shape of deposits. And we were disappointed and acknowledge that, that we didn't catch what was happening in the regional brands as fast as we perhaps should have, and that's on myself. We're very much focused on now addressing that. And I think we've got that properly, if you will, tackled, and it's just about how we get after that over the next 12 months. I'm just really pleased though that the Westpac side of the portfolio is continuing to improve and is, obviously, a really critical part of our portfolio there on transactional and savings accounts. I suppose there's definitely -- there's things that if I think about our service proposition, one of the areas that I reflect on is making sure that transactional accounts, deposit services and servicing on that front is front and center for every banker in the company. And we've done a lot of work to recalibrate, for example, scorecards and incentives to make sure that all of our bankers in consumer and business bank understand the priority we attach to that. And pleasingly, we've got a good enough product suite, which means we can be very competitive. And I do feel like we're after that in the right way. I missed the second part of the question? Nathan Goonan: No, I think you've covered it well. Maybe, John, just to add 2 points. I think that you're right to call it out. There's about, as you said, 7% growth in offsets in the half, but importantly, 6% in savings as well. So we have seen strong growth in both those items. I think -- and you're right to call it out in the way you did. The growth in savings accounts is about attracting customers on the liability side and the offset is much more about the business that you do on the asset side. And there is a strong customer preference towards those. They've been growing, as you know, quite strongly as you move from a fixed rate portfolio into a variable rate portfolio, and we're pretty much exclusively there now. As we grow that side of the book, we'll continue to see growth in the offsets. Whether you're trying to target a certain amount of offsets or whether you're happy with it or not, I think it's a key feature of the mortgage product, and there is a strong customer appetite for it. Anthony Miller: Probably the other point you did raise was about investor loans. And we're very keen to continue to be competitive in the investor loan segment. That demographic, that audience is an attractive customer base for us. And we see a real value in being very supportive there on investor loans and more importantly, then converting and making sure it's a whole of bank, whole of customer relationship that follows from that. Justin McCarthy: Our next question comes from Carlos Cacho from Macquarie. Carlos? Carlos Cacho: First, I just want to ask about on your margins, your replicating portfolio benefit is expected to diminish from 3 bps to 1 bp. I was just wondering if there's any other potential tailwinds that are worth calling out as you head into FY '26 because it's mostly negatives that you mentioned as you walk through the waterfall, Nathan. Nathan Goonan: Carlos, Justin has given me the signal for one word answer. So maybe I'll jump straight into it. I think we did just try and lay out as helpfully as we can, Carlos, and happy to sort of pick it up later in the afternoon to the extent helpful. But I guess the other point that we made, if you narrow in on things where we could get a tailwind, I think term wholesale funding markets have been better. So we do expect a tailwind there. We do expect to continue to get some replicating portfolio benefits. We called out a basis point there, which is sort of net across the replicating portfolio and then the unhedged deposits. So there's a little bit of support there. And then I think maybe the other one is just to say on liquids. I think that has been a bit of a volatile item for us quarter-on-quarter. We did expect a sort of increase in investment securities at the third quarter that maybe didn't flow through to the same extent we thought. I do suspect as we go forward into the first half, just where the customer balance sheets are up to and how growth is going, we probably expect liquids to be down a little bit in the first half. And so while neutral to earnings, there might be a little bit of a benefit that flows through there. Carlos Cacho: And then just secondly, you've spoken about wanting to do better in proprietary mortgages. And obviously, it's a long-term strategy. But where are you expecting to win? Or where are you seeing wins come from? I presumably, it's either got to be a new customer who's a first home buyer or they're coming from other banks where they're proprietary or they're coming from brokers? Like do you track that? Is there particular targets you're hoping to do better in? Anthony Miller: Look, I mean, good question. I mean what we've got to do is just get the basics right in terms of how we go after proprietary. So we've got to get the service proposition right. We've made real progress. We've got to get the product right, and we've seen improvement in product NPS, time to decision down inside 5 days. We're operating and executing mortgages more efficiently than we have in the past. Our hygiene and data is in a much better place. So the returns are much more, if you will, better reflected in that. And then I think the things for us, though, is we just got to get, for example, more bankers. We lost too many home finance managers. So we're catching up on that. That takes 6 to 12 months for a good home finance manager to really get into their straps. And so we've started to get that resource allocation right. We certainly got to get a better compensation and incentive arrangement around for our home finance managers, and we've now got that right. We've got the scorecards right. We're also, at last, really taking the full power of the company in terms of the range of data and if you will, insights that come from all of what we have across the entire company to help get behind the home finance managers and give them real leads, which represent real insights and allow us to be much more proactive. And then you heard Nathan talk about investing in the brand. We spend a lot more money to get the brand profile up. So we're just putting in place all of the basics to really get after this area. And I'll be very candid with you. There's nothing more dramatic than just getting all those basics in place to allow us to get after it. It took us a number of years to get to this point. It's going to take a little bit of time to get out of this particular position. But I think we've got what we need to execute. And I was really pleased with some of the actions we took in private wealth last year, which we've already seen a really improved turnaround in first-party in private wealth, which tells us that if we get after this as we have in private wealth and consumer, we can deliver that same turnaround. It will just be, I think, a reasonable period of time of effort to get there. Justin McCarthy: Our next question comes from Andrew Triggs from JPMorgan. Andrew Triggs: I might just ask one question. Deposit mix shift, should we expect that to slow significantly next year? And maybe, Nathan, if you could break that down, please, between the percentage of deposits in behavioral savings versus the percentage of those products themselves where the customers are qualifying for the bonus rate? Nathan Goonan: Yes, I think on the deposit mix spreads, you've probably rightfully called it out. It's probably just really a story for us around the growth that we've seen in that consumer savings product. I think at an overall book level, we've had decreases in proportion to term lending. So I think the bigger determinant of going forward margins, which is really where you're going, is going to be on the savings product. And I would say a couple of things here. I think certainly, this is one of the areas where fourth quarter was a little bit -- showed a few different signs in the third quarter. So we saw, I think savings -- the savings balances in the fourth quarter grew $5 billion. They grew $2 billion in the third quarter. We've said there that we've got about 84%. I think we've given you an annual number there that are the people that are qualifying or achieving the bonus rate, that was actually probably a little bit lower through a couple of months in the middle of the year and then picked up a little bit in the fourth quarter. So I think those 2 main things are things that I'm expecting will flow through into the second half. It's probably -- into the first half. It's probably not so much a mix shift into these products, Andrew. It's much more that's where we're seeing the growth. Justin McCarthy: Our next question comes from Richard Wiles from Morgan Stanley. Richard? Richard Wiles: I'll just ask one question, too. It's following on from Matt Wilson's question around the business bank margin. In your business and wealth update a few months ago, Slide 17 showed the composition of the underlying margin decline. It was 22 basis points, and it was split across portfolio mix, deposits and lending. The decline in this half, Nathan, was 18 basis points. So actually pretty similar to the first half in terms of underlying trends. Could you give us some commentary around the mix between portfolio deposits and lending? Were the trends pretty similar? Or did they start to skew? Nathan Goonan: Yes. Thanks, Richard. Yes, I think my comments earlier to Matt, sorry if that was confusing was just really around the business lending part of that equation. So I think in the second half or in the more current period, we've seen a more moderation of the impact on the lending side. And you would have seen -- for all the reasons we've been speaking about on the deposit side, you would have seen a bigger -- a proportionately higher impact in the more recent period from deposits. Richard Wiles: Okay. So lending was 7% in the first half and deposits was 9%. Lending went down, deposits went up as a headwind for margins? Nathan Goonan: As headwinds, yes. Justin McCarthy: Our next question comes from Brendan Sproules from Goldman. Brendan Sproules: I just have a couple of questions. Firstly, on the Markets and Treasury contribution for this half, it looks like it's running at a run rate of sort of about $2.2 billion. Can you maybe talk about some of the benefits that were achieved this half? And will those sort of repeat into 2026? And how does the $2.2 billion relate to what you would think is a normalized level of earnings from these 2 divisions? Nathan Goonan: Yes. Maybe we can break it down a little bit, Brendan, and then Anthony knows that business well. I think it is very challenging in these business to grab 1 quarter and annualize that and sort of expect that that's where you're run rating -- like -- well, sorry, it is where you're run rating, but to expect that, that sustains over 4 quarters. So I think with these -- certainly, the markets business is a pretty mature business now. It's got a really strong FX, fixed income capability, and it's a pretty mature business now that would be -- should all market conditions being equal, just growing more in line with the underlying activity of our clients and the loan book growth. And then, Nell and the team have got ambition and are doing things to grow out a few more strategies that can build income sustainably in that franchise over time. But I think I would just think about that as more -- it should be producing pretty stable performance on the FX and the fixed income, and it will be more determined by underlying activity. In treasury, I think similar, we've got good disclosure on that over a long period of time. I think that number in and around $1 billion for the treasury has been a pretty consistent number. I think a couple of years ago, we might have had a $600 million, but I think in and around that area is about right. We're probably issuing a bit less wholesale funding, which gives them a few less opportunities. And even with the RAM sale, we expect to do a little bit less in that space. So maybe it comes off a little bit. But there's a few comments, Anthony. Anthony Miller: Yes. Look, I mean, definitely, the financial markets business, it's, I think, the leading franchise in the market now. A couple of just extra comments. I think there's real upside for us in the FX product suite and the penetration into consumer and business bank at Westpac is less than what it should be,, given the quality of the FX franchise we have. So there's real upside there in servicing our existing customers in consumer and business bank. Likewise, I think we're underweight in a few aspects like commodities and aspects of that business, which we see as a real positive for us. Perhaps the real sort of interesting jewel in the crown in there is just the credit business, the credit trading, the credit market making. Now that Australia with its savings bill is actually a genuine capital exporter, and we have a lot of Kangaroo bond issuance into this market, the franchise that we have there in terms of credit market making, origination and, if you will, distribution into this capital market is pretty impressive. It's the best in the street. So we're quite excited about how much more we will see in that business as Australia's position with the superannuation funds makes it a real destination for people to raise capital. Brendan Sproules: That's very helpful. My second question is just on Slide 29 around the impairment provisions. I mean, in this presentation, you've talked, Anthony, about the improving operating environment for the bank. You've also showed some lead indicators on asset quality where you're seeing impaired assets, for example, fall. I was just wondering what the thought process was around increasing the overlays and specifically the downside scenario weight and actually growing your excess provisions above base case in this period. Anthony Miller: I'll just let Nathan make a comment, but it was a robust process. And because clearly, the settings and outlook has continues to be surprisingly benign, but we need to be constantly vigilant and, if you will, balanced about what is going on and what may come our way. And so that's been a very congested and well-developed discussion inside the company with Nathan and I about what's the right outcome here. But Nathan... Nathan Goonan: Probably just to add, I think, Brendan, I think just take it as an indicator that we put a high value on medium-term earnings stability. And so I think when we think about this, it's similar to increases in hedge balances and then the management judgments around that. We've tried to just err on the side of a little bit more stability over time. Justin McCarthy: Our next question comes from Samantha Kontrobarsky from HESTA. Sam? Samantha Kontrobarsky: I'll just keep it to one. So you've recently appointed a Chief Data, Digital and AI Officer, which is a new step for the business. As you bring these areas together, how do you see this changing how Westpac competes? Is it mainly about efficiency and cost? Or could it fundamentally reshape the customer experience and growth? Anthony Miller: Thanks for the question, and that is what I work on every day in terms of how do we get that right. There's no doubt that there's a lot of hype and a lot of, if you will, excitement around the AI revolution or evolution, depending on who you speak to. We certainly think that its capacity to help us be more efficient, help our employees get their job done better, safer, more consistent is a really big and important opportunity that comes from having the right AI program. And so that was one of the key sort of drivers was to get a global thought leader working for and with me in terms of how do we look at the way we do things in the company and how can we do things better. It's a wonderful tool in the hands of employees, but you need to, therefore, invest in your employees and make sure they understand how to use this tool and how they can make it or can help them be more efficient. So that's definitely one emphasis. And there is definitely really interesting ways in which it will help us serve customers and provide a more attractive service proposition to our customers. And we're sort of already taking some of the model capability with this Westpac Intelligence layer, taking all of the data and all the signals that are coming into this company and using that to make better, faster decisions, which allow us to get back in front of our customer more proactively. So we're seeing it, Samantha, also help us in terms of being really good with our customers with a view that, that obviously drives engagement, connection and revenue ultimately. Justin McCarthy: Thanks, Sam. We'll move to some questions now from the media. So our first question comes from Luca Ittimani from The Guardian. Luca Ittimani: Can you hear me right? Justin McCarthy: We got you perfectly. Luca Ittimani: I just wanted to check. So in the wake of the Fair Work Commission decision, do you intend to change your work-from-home policies at all? Have you seen more applications or requests from staff for new or more flexible work from home request? Anthony Miller: Well, we have one of the most flexible work-from-home policies positions in the marketplace. So I think what we are going after, which is finding that balance for our people, I think we've got that right. So no, I don't need or feel a need to change that particular setting. We're also just reflecting on what we might do in response to that recent work-from-home decision by the Fair Work Commission, and we'll land on a decision as to what we will do later this week or the next. What I would also say is that we've got a tremendous level of engagement from our people. And if I look at some of the OHI scores and other engagement measures, just highlighting people are really engaged and really excited about what we're trying to go after and what we're trying to achieve as a company in terms of for our customers and in terms of how we work together as a team. So I feel really encouraged by just where we're at and motivated to go further with what we've got. Justin McCarthy: Thanks. Our next question comes from James Eyers from the AFR. James Eyers: Anthony, you've spoken about this deliberate pricing to attract investors in the residential property market. And you can see on Slide 66, your investor loans and interest-only loans, sort of the second half flow that is tracking well above the averages of the book. The sort of house price data out today showing house prices sort of growing at the fastest pace in a couple of years. And we saw that APRA data on Friday showing investor lending is pretty strong, like sort of 7% annualized, I think. You just said in response to John Mott's question, it was an attractive customer base. But could you just talk a little bit more about that? Like why are you targeting more investors? Are they sort of a better credit risk than owner occupiers? Is there a cross-sell opportunity for you? And do you foresee a little bit of a squeeze on the first homeowner buyers as a result of this investor growth that we're seeing come through? Anthony Miller: Well, I think we're seeing a squeeze on the entire market because of the demand, whether it's first-time buyer investor, there's just a lot of demand. And the key challenge of the day is we've got to get more houses built at the right price point, James. So every aspect of demand is being supported and is going fast, which is only driving the challenge and making it harder. In terms of the investor segment, I mean, yes, it's an attractive segment in terms of from a credit risk perspective. And yes, you're right in terms of, I don't like the term, cross-sell, but the idea that these are people who are investing in property who, therefore, may need an incremental services and support and how do we, therefore, bring this entire bank to them is something that I'm really drawn to, and we see it as a real opportunity for us. And we just got to, I suppose, go about it thoughtfully and be careful about the outlook and the risks that come from sort of going too far, too fast in a particular segment. But we think we've got the balance right. And it's interesting that we're forecasting a sort of 9%, almost 10% increase in residential house prices over the next 12 months. So it's certainly a positive outlook for people who can access the property market. James Eyers: Just a really quick supplementary on that risk -- go on, sorry. Justin McCarthy: No, you're right, James. Keep going, sorry. James Eyers: Just a really quick supplementary on that risk point, Anthony, we saw Lone Star make some comments in July that they begin sort of engaging with banks on implementation aspects around macro prudential tools just to make sure that could be activated in a timely manner if needed. And like back in 2015, I think you sort of had the investor loan growth sort of going above 10% and brought back to that number. And then there was an interest-only element in 2017, where they were sort of looking at that being about 30%. You're at 20% now, I think. So it's well under that. But how much sort of hotter do you think this investor lending growth trend sort of would need to get before you're in that territory again? Anthony Miller: Look, I don't have that answer, James, but we are very much or very cognizant of the balance we need to find. And we engage with the regulator. APRA is a terrific partner to us, and we engage actively often deeply with them about all of these particular issues. And so we'll be making sure there is no risk or issue there vis-a-vis the regulator. Equally, it's an opportunity that we've been pursuing over the course of the last 6 months, and we will continue to pursue it, but it will be balanced around the return. It will be balanced around the risk and it will be balanced around is it that we're converting these opportunities into broader, more substantive customer relationships and not just simply a lender loan. Justin McCarthy: Our last question comes from Steven Johnson from Seven West Media. Steven Johnson: Steven Johnson here from The Nightly news website. Anthony, earlier in your presentation, you said that you want to see more housing around the -- available for the $500,000 mark. Would you be able to explain why you want more housing available for $500,000? And what your typical debt-to-income ratio limit would be now considering the cash trades at 3.6%? Anthony Miller: So the thesis around just sort of promoting the idea that $500,000 is the right price point is really sort of predicated on the following: Median income in Australia is approximately $90,000. When we finance someone in the acquisition of a house, we will lend in the order of 5 to 6x their income subject to expense verification and the like. And so therefore, you've got something anywhere between sort of $450,000 and $550,000 of mortgage capacity. And then, of course, just assume, say, a 10% deposit. And so all of a sudden, you can see median $500,000 as a house, $500,000, $600,000 is just really critical if we're going to solve for, call it, average Australia or the median position in Australia. And the challenge is that properties are being built in major capital cities and the median house price of houses in capital cities in Australia is over $1 million. I am drawn to the fact that median house prices in regional Australia are closer to sort of $500,000, $550,000. And so I feel like Regional Australia is part of the solution potentially here. But I would say that the key is let's build more properties at the right price point to allow people to get access to the market. And so when we talk about building more properties, it just can't be building more properties that doesn't solve the actual challenge. How do we ensure the average Australian gets a chance to buy a property and live in their home of their dream. Steven Johnson: So basically, it's also a social issue that there's too many houses are at $1 million, the average full-time worker can't afford that. Are there going to be some societal challenges, some aspects that would hurt Westpac lending. Anthony Miller: Well, look, I think our success as a company is inextricably linked to the success of this country. And one of the challenges for this country is to get more housing, have more Australians being able to own their own property. And so therefore, I think it's really important. The challenge is that when you think about the cost to construct, you think about the time and cost and process for approval, all of those features contribute to it being very hard to be able to build a house at that price point. And so therefore, I think it's not sort of dependent upon developers and contractors, but it's really important that the entire community, government, regulators and all of us work out how can we create an environment where it's cost effective, it's rational and it's reasonable to expect you build house for $500,000 to $600,000 in Australia. Justin McCarthy: Thank you, Steven, and thanks, everyone, for dialing in. We'll be available over the course of the day. Thank you very much.
Operator: Good day, and welcome to BioCryst 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 Nick Wilder. Please go ahead. Nick Wilder: Good morning, and welcome to BioCryst's Third Quarter 2025 Corporate Update and Financial Results Conference Call. Participating with me today are CEO, Jon Stonehouse; President and Chief Commercial Officer, Charlie Gayer; Chief Development Officer, Dr. Bill Sheridan; and Chief Financial Officer, Babar Ghias. A press release and slide presentation about today's news are available on our Investor Relations website. Today's call may contain forward-looking statements, including statements regarding future financial results, unaudited and forward-looking financial information as well as the company's future performance and/or achievements. These statements are subject to known and unknown risks and uncertainties, which may cause our actual results, performance or achievements to be materially different from any future results or performance expressed or implied in this presentation. For additional information, including a detailed discussion of these risks, please refer to Slide 2 of the presentation. In addition, today's conference call includes non-GAAP financial measures. For a reconciliation of these non-GAAP measures against the most directly comparable GAAP financial measure, please refer to the earnings press release. I'd now like to turn the call over to Jon Stonehouse. Jon Stonehouse: Thank you, Nick. We are very pleased to report yet another strong quarter for the year. Starting with ORLADEYO, we continue to see strong revenue growth year-over-year on a growing revenue base, well on our way to $1 billion at peak. Charlie will share the details as this was the first quarter with new competition, and we continue to see strong underlying growth and a growing prescriber base as we predicted. Next, we closed the sale of our European business and paid off our Pharmakon debt. And this not only cleaned up our balance sheet, but put us in a very strong financial position, generating operating profit and positive cash flow. Babar will share more details regarding our financial position. We are also making progress with our pipeline and expect early data that should give an initial view on activity and dose from our DME program, and we plan to share this early next year. If these data are encouraging, we have also made a decision that given the program is outside our rare disease area of focus, we will look to spin out or partner this program to put it in the hands of someone better suited to advance it further. Regarding BCX17725, Bill will share encouraging data from our healthy volunteer study showing evidence that the drug does get to the skin following IV administration. This is important as this is where the target for Netherton syndrome is and with a very potent inhibitor in BCX17725, we are excited to see in Netherton syndrome patients what effect it has on the disease. Enrollment is taking a little bit longer than planned, and we now expect early data in a small number of Netherton syndrome patients later in Q1 next year. Lastly, having announced the proposed acquisition of Astria last month and the expected close in Q1 next year, we are extremely excited to add a late-stage asset, navenibart, to our pipeline to leverage our expertise in HAE and bring patients a new treatment option with a low burden of administration. So clearly, we have been busy since last reporting quarterly earnings, and this is shaping up to be another outstanding year of performance for our company. With that, I will turn it over to Charlie. Charles Gayer: Thanks, Jon. We entered the final quarter of 2025 with continued momentum. We are raising our ORLADEYO revenue guidance to between $590 million and $600 million for the year, even after closing the sale of our European operations on October 1. And the exciting possibilities of the ORLADEYO granules launch for kids with HAE and the acquisition of Astria are just ahead. ORLADEYO continues to be the most differentiated prophylaxis therapy for patients with HAE. Most HAE patients would rather prevent their attacks with an oral therapy. Physicians know this, and they trust ORLADEYO. Even as 2 new prophylaxis products launched recently, offering patients the potential of once monthly injectable dosing, new prescriptions for ORLADEYO continued at the same strong pace we have seen over the past 2 years. In fact, we slightly exceeded the new patient prescription total from the third quarter a year ago. We also continue to expand the number of ORLADEYO prescribers with 64 new prescribers in the U.S., exceeding the average of the past 8 quarters. The well-established trends in patient retention remained unchanged, and we ended the quarter with a paid patient rate of 82%, right in line with the typical second half pattern compared with the first half of the year. As always, we're very pleased with the great results, but not surprised. Our deep insight and market simulation works consistently predicted that the growth of ORLADEYO would not be affected by new competition. We updated that work over the summer, and the 2025 results were nearly identical to the 2024 results, as you can see on Slide 8 in today's presentation. With the expected addition of ORLADEYO granules on top of the existing strong growth trends for ORLADEYO capsules, our market simulation continues to predict $1 billion in peak revenue for BioCryst in 2029, even after the sale of our European business. The analysis demonstrates that new injectable therapies primarily compete with existing injectable therapies. This is why we are so enthusiastic about the prospect of adding navenibart to our portfolio. With navenibart, we could have the lowest burden, most differentiated injectable prophylactic therapy, along with a long-time leading oral therapy, significantly expanding our ability to help patients in the HAE community. We expect navenibart to drive double-digit HAE revenue growth well into the 2030s after ORLADEYO revenue reaches a steady plateau. And we expect to manage costs by using the same rare disease commercialization engine that has made ORLADEYO so successful. Today, I'm also very pleased to announce that Ron Dullinger will succeed me as Chief Commercial Officer when I move to the CEO role on January 1. Ron led the sales team at ViroPharma during the early days of CINRYZE commercialization. While that drug changed the HAE treatment paradigm at the time, Ron always knew that an oral therapy was what many patients really wanted, and he wanted to be part of making that possible. Ron joined us in 2019 to build and lead the U.S. team -- U.S. sales team for the launch of ORLADEYO. And since 2022, he has served as General Manager of our U.S. and Americas business, fostering a team culture that is deeply caring and authentically focused on serving patients while also being relentlessly driven to improve. That's a rare combination, and it has produced amazing results. I look forward to what our commercial team will achieve under Ron's leadership. As we look forward to helping a growing number of HAE patients, our excitement about the potential to help patients with Netherton syndrome is also growing. I'll turn it over to Bill to describe our progress with BCX17725. William Sheridan: Thanks, Charlie. I'm very pleased to be able to share some findings from our ongoing Phase I study of BCX17725, our novel investigational KLK5 inhibitor designed to replace functions of the natural inhibitor that are deficient in individuals living with Netherton syndrome. This trial is designed with multiple goals in mind: number one, understanding the preliminary safety profile of BCX17725; number two, quantitating its systemic exposure with serum drug levels; number three, evaluating the distribution of the drug into the epidermis. This is very important because the target enzyme, KLK5 is expressed in that location. Number four, assessing its potential early treatment effects on signs and symptoms of Netherton syndrome. We are planning to first do this in a few individuals living with NS in Part 3 of the trial. The trial has so far progressed through multiple cohorts in healthy volunteers with different cohorts administered single or multiple doses of study drug. This gives us a handle on the first 3 goals. The dose level of BCX17725 has been progressively increased with up to 12 milligrams per kilogram administered by IV infusion. In the multiple ascending dose portion, 3 doses were given on a Q2-week schedule. In this trial, administration of BCX17725 has been safe and well tolerated with no safety signals seen and preliminary assessment of systemic exposure profiles supports continued testing of up to every 2 weeks dosing regimens. Some representative images from skin biopsies taken before and after dosing in healthy subjects are shown on the accompanying slide. These small punch biopsies are taken under local anesthetic and processed for imaging. The images shown use a technique called immunofluorescence microscopy. Antibodies are applied that specifically bind to the protein you want to detect, in this case, the drug, BCX17725. These complexes are then detected with secondary antibodies, covalently tagged with a fluorochrome, which is a chemical that fluorescence typically under ultraviolet or near ultraviolet light. That means we can see a specific color based on the fluorochrome used wherever the drug is located in the tissue specimen and the more drug there is, the brighter the signal. We can also use other differently colored fluorochromes to pick out structures such as cell nuclei. Although minimally invasive, we are limited in the number of biopsies we can take. So we decided to obtain a baseline biopsy prior to the first dose as a control sample and a post-dose biopsy 5 hours after the last dose of drug. The displayed biopsy sample images from a representative healthy volunteer in the 12-milligram per kilogram multiple dose cohort show the DNA located in cell nuclei in blue and the drug located in the extracellular matrix in green. The pre-dose sample shows the loose dermis with widely spaced bright blue nuclei and the dense epidermis with tightly packed nuclei with a very faint green signal due to nonspecific binding of the assay reagents. In the post-dose sample, there is an obvious difference with much brighter green fluorescence. You can use the blue nuclei as a benchmark. In the post-dose image, drug has flooded the loose connective tissue in the dermis and distributed throughout the epidermis. These are important findings. The drug was able to diffuse across the epidermal basement membrane into the extracellular matrix of all the layers of the epidermis. Drug getting to the epidermis will allow its access to the target enzyme KLK5 in patients with Netherton syndrome. Our investigators are quite excited by these results as are we, and we look forward to enrolling patients with NS into the trial in coming months. I'd now like to turn the call to Babar to walk you through the financial progress. Babar Ghias: Thanks, Will. My first full quarter as CFO of BioCryst was extremely eventful and was marked by several significant achievements, which I believe position us well for future growth and profitability. On October 1, we successfully closed the sale of our European business, providing an immediate boost to our financial position, enabling us to fully repay our Pharmakon debt. During Q3, we worked diligently on a highly strategic and transformative acquisition of Astria Therapeutics, which we announced last month, an acquisition which is expected to strengthen our presence in HAE and solidify double-digit growth trajectory for our portfolio over the next decade. As part of this proposed transaction, we also worked on securing a strategic financing partnership with Blackstone at a highly attractive cost of capital. Upon closing of the Astria acquisition, which is expected in Q1 2026, we will access up to $400 million of cash from this facility. But all of this was only made possible due to the continued strength of ORLADEYO and our improving operating performance. Please refer to our third quarter financials in today's press release. However, I would like to take a moment to elaborate on some of these accomplishments and their impact on our trajectory. Total ORLADEYO revenue was $159.1 million, representing 37% year-over-year growth. Of that ORLADEYO revenue, $141.6 million or 89% came from the U.S. As you heard in Charlie's remarks, we continue to see strong momentum in our business despite the recently announced approvals. Non-GAAP operating expenses, excluding stock-based comp and transaction-related costs were approximately $108 million (sic) [ $118 million ] for the third quarter of 2025, up from approximately $92 million in the third quarter of 2024. Some of this increase was driven by continued investment in R&D, which continues to be a priority for us. As you heard from Bill, we are very excited about the promise of these programs. We have also made a strategic decision to seek partners for our DME program after we evaluate initial patient data, in light of sharpening our focus on rare diseases and focusing our capital allocation on programs where we can create most value. Non-GAAP operating profit, excluding stock-based compensation expense and transaction-related costs was $51.7 million for the third quarter of 2025 an increase of 107% year-over-year as we continue to benefit from significant operating leverage. Our non-GAAP net income for the quarter was $35.6 million, resulting in non-GAAP EPS of $0.17 per share. We finished the quarter strong with $269 million in cash, which included cash held for sale by European entities. Our strong cash flow profile enabled us to make a $50 million prepayment on our Pharmakon term loan during Q3. And with the closing of the sale of European business, we also paid off the outstanding amount under the term loan of approximately $200 million. Our pro forma cash balance giving effect to these adjustments is approximately $294 million and 0 term debt. Due to the strong expected cash flow generation, we anticipate reaching $1 billion in cash during 2029. However, we will continue to evaluate various capital allocation opportunities to generate value for our stockholders, much like our recently announced proposed acquisition of Astria Therapeutics. We will also explore upon closing of the transaction, a European license of navenibart and strategic opportunities for the STAR-0310 program, which may yield further upsides. Moving on to guidance. Charlie already alluded to the revenue guidance, and at the same time, we are lowering our non-GAAP OpEx guidance to $430 million to $440 million from our original guidance of $440 million to $450 million. The European divestiture allows us the opportunity to continue to streamline our base business cost structure. We remain on track to deliver non-GAAP net income and positive cash flows for full year 2025. As previously stated in our acquisition press release, we are expecting to stay profitable on a non-GAAP basis as well as cash flow positive even during the development period of navenibart. In closing, I'm proud of our team's continued focus and execution as we work to drive sustainable growth and deliver meaningful improvements in patients' lives. Our strong results and disciplined operational and financial strategies position us to capitalize on future growth opportunities, strengthen our leadership in rare diseases and continue delivering value for our stockholders. Operator, we are now ready for your questions. Operator: [Operator Instructions] First question comes from Jessica Fye with JPMorgan. Unknown Analyst: This is Jose for Jessica. Of the 37% year-over-year ORLADEYO net revenue growth, how much of that was volume? And how much of that was better paid rate or net price? And on that front, how should we think about gross to net this quarter and going into 2026? And very quickly, how confident are you that you can maintain steady patient retention rates given the increasingly competitive landscape? Charles Gayer: I can start with that question. So of the 37% year-over-year, we had really steady -- we've had very steady volume growth over time, but there was a big portion of it that was price based on the improvement in paid rate that we described earlier this year, particularly in the Medicare segment. So the volume is growing at the pace that we expect and at the pace that we need to get to the $1 billion in peak revenue in 2029. As far as the patient retention with new competition coming in, as I mentioned in the remarks, our patient retention has been identical to our ongoing trend, not affected at all by the new products coming in the market, and we expect that to continue. Jon Stonehouse: Yes. And I'd just add, the logic behind that is these patients are really well controlled. They're getting similar control to injectable drugs, and they're on a once a day pill. And so what on earth would they switch to that could be better than that. Charles Gayer: And then gross to net is still about 15%, as we've announced earlier this year. Jon Stonehouse: And next year in that 15% to 20%... Charles Gayer: Yes. Next year, it will still be in the 15% to 20%, probably a little closer to the 15%. Operator: The next question comes from Laura Chico with Wedbush Securities. Laura Chico: One question with respect to the new prescriber numbers. I think this is the second quarter in a row you've been over 60. Just curious if you have any feedback, market research that can help us understand why they're deciding to prescribe now? What has been kind of the motivating factor more recently to accelerate the adds here? And then I guess, if you could share a little bit more color on what would the expected blended royalty rate look like in '26? I know you're projecting a step down over time here, but just kind of curious how we should be thinking about it directionally from '25 to '26. Charles Gayer: I'll start with -- thanks, Laura. I'll start with the prescriber data and then hand it over to Babar on the royalties. So the motivating factors, and we've described this before, is just physicians getting more and more comfortable with the long-term evidence, the real-world evidence for how well ORLADEYO works. What they understand now is that ORLADEYO works very well, equally well to injectable products in most patients. It either works or it doesn't. And if the patients don't have the benefit that they need, they move on. So physicians are really understanding that. That's the first part. The second part is our ability to find prescribers in this market and accurately target means that we are able to find physicians who have a smaller number of patients. So if you have one HAE patient, we will find you and ORLADEYO is becoming the treatment of choice for those doctors. Overall, as we grow the number of physicians, we consistently see a pretty equal balance between those smaller prescribers as well as the top 600 or so doctors that treat 50% of the market. So we keep chipping away at those top prescribers and launch to date over 80% of those doctors have prescribed. So we're really thrilled to show this consistent progress expanding the number of prescribers. Jon Stonehouse: And just one other thing I'd like to add, Charlie is, there's still physicians out there even in the top prescribers that haven't written for ORLADEYO. And one of the things we're extremely excited about next year is the pediatric approval because these docs have pediatric patients, many of them, and there is no reason that they should use anything but ORLADEYO for prophylaxis for these patients. So we think that's going to open up even more new prescribers next year. Babar Ghias: Yes. And on the royalty section, we are pleased to share that this quarter, we are tripping over the lower threshold, and it will continue to come down. As you can see in our slides, prepared slides, the rate is in the early -- the blended rate is in early teens. And while we have not given 2026 guidance, I can assure you that rate continues to come down because there's a cap on some of those royalties when you hit the $550 million. But as you can imagine, when we are out to provide you guidance, when you do the math, it will be -- it will continue to decline. And as we've said, over time, it will be in single-digits as we pay off the OMERS liability altogether. Jon Stonehouse: Yes. So as revenue goes up, profitability gets better and better and cash flow continues to flow. So it's a very bright financial future. Operator: The next question comes from Stacy Ku with TD Cowen. Stacy Ku: Congrats on the progress. So we have a couple of questions. First, on the new entrants, our KOLs do indicate there are a couple of patients switching from ORLADEYO to injectables, but the same clinicians are also saying that they expect ORLADEYO's share to stay stable. So beyond this anecdotal feedback and obviously, you all have highlighted the 1-year 60% retention. Are you able to share any recent metrics to suggest ORLADEYO is unlikely to be impacted by these injectable entrants? That's the first question. And then the second is on that pediatric HAE approval. As we approach the PDUFA date, maybe help us understand your views on the opportunity and what commercial strategy and preparation is ongoing to really make sure you all maximize that pediatric expansion? Are many of these patients already identified? Just help us understand as we get to the new year, any type of expectations around maybe some latent patient demand. Charles Gayer: Sure. Thanks, Stacy. As far as the new entrants, yes, of course, some patients are switching from ORLADEYO because 40% of new patient starts on ORLADEYO drop off within the year. And in the past, they might have dropped off to TAKHZYRO and HAEGARDA, now maybe they're more likely to switch to some of the new entrants. So that's exactly what we expected. What we're not seeing, though, is a change in our new patient prescribing patterns or a change in our overall retention rate. And as far as the data that give us confidence in this, as I mentioned, Slide 8, we redid our market research. We redid our big conjoint analysis and market simulation with all the new information about new and future competitors. And what you see is no change to our prior versions of this market research. It shows that ORLADEYO remains -- ORLADEYO patients remain very sticky, and we expect that to continue. As far as the pediatric approval, we see that there are about 500 patients today diagnosed with HAE under age 12. And only about 40% of those patients today are on or kind of in the prophylaxis space have tried prophylaxis. So we think that there's an opportunity both to grow the use of prophylaxis within pediatrics as well as for switching because an oral therapy is important to a lot of patients, but it's particularly important to kids with HAE. So as far as our strategy, and Jon mentioned earlier, the doctors that treat kids with HAE tend to be the same physicians that are treating patients over age 12. So we're already calling on these physicians. We know who is treating kids, and the team will be ready to go with the launch shortly after approval. Operator: The next question comes from Steve Seedhouse with Cantor. Steven Seedhouse: I was hoping you could expand on the decision to deemphasize, I guess, avoralstat for DME. Have you had an early look at the Phase I data there? And then looking at the updated pipeline slide, the undisclosed programs listed for rare diseases, at least that are preclinical. Can you give us some insights into what you're working on there preclinically and how close it might be to the clinic? Jon Stonehouse: Yes, I'll take that one. So regarding avoralstat, no, we haven't seen any of the data. We just enrolled the first cohort. And so this is a decision based on focus and expense. And by bringing a late-stage product like navenibart into our pipeline, we need to create space to be able to fund and bring that to the finish line. And these DME programs get really expensive the further on you go in clinical development. And quite honestly, we don't have the expertise there we do in rare disease. And so we just think it's better in the hands of somebody who has that expertise. And then on the undisclosed, we're not going to disclose what it is. It's early. It's exciting. But when it's ready to be shared, we'll have more information to share with you. Steven Seedhouse: Okay. And just quick on Netherton. Have you had any dialogue with regulators there and forming an understanding of what a pivotal program requirement might be? Jon Stonehouse: Yes, we have. Not enough to share with you the design of the pivotal program at this point. I think the biggest thing, and Bill, you can correct me if I get this wrong, is the bigger the treatment effect, the better options we have to move fast with this program. And we'll figure that out once we start getting data. But too early to predict kind of the design of the pivotal program. Is that fair, Bill? William Sheridan: That's very fair. I think once we have evidence of the effects of the drug in patients with NS and the safety of the drug in NS, then we'll have complete conversations with regulators about how to get it approved. Operator: The next question comes from Maurice Raycroft with Jefferies. Maurice Raycroft: Congrats on the progress. I'll just ask a couple of quick ones on Netherton. Wondering if you could just talk more about the slower enrollment there and how many patients you'll have in the first quarter data update next year? And do you anticipate dosing higher than the 12 mg per kg? And I'm wondering if you're still exploring the subcu dose? Or is it going to be an IV dosing going forward? Jon Stonehouse: Yes, I'll take the first part of it. You want to take the second. We're only off by a quarter. So it's a very slight delay in the program. And the enthusiasm, as Bill said, by investigators is really high, especially when they see the healthy volunteer data. We didn't expect to see the drug get to the target in healthy volunteers. And so that has been really encouraging data. And then, Bill, do you want to take the second part of the question? William Sheridan: Sure. Yes, we're exploring both subcutaneous and intravenous administration. We'll continue to do that. And we may explore higher doses, that option is open. Operator: The next question comes from Brian Abrahams with RBC. Brian Abrahams: Congrats on the continued progress in the quarter. Maybe just continuing on Netherton. Can you elaborate a little bit more on, I guess, what you're seeing from a PK/PD standpoint in those first couple of parts of the ongoing study? And I'm also curious what the trigger was for starting that Part 4, which I know you started in recent weeks. And then just secondarily, separately on ORLADEYO, just wondering what you're seeing in terms of demand from the normal C1 inhibitor population. I think that was a growth driver you cited in the past. Jon Stonehouse: Bill, do you want to take the Netherton and Charlie can take the ORLADEYO? William Sheridan: Sure. So Netherton is a fascinating disease. So it's all about what's happening in the epidermis. There aren't any plasma or serum biomarkers to measure. Secondly, we have a very tight binding, very potent inhibitor. And you have to think about what relationship the plasma concentration is going to have to the effects in the epidermis. And there could, in fact, be a disconnect between how long the drug sits in the epidermis after binding to the target compared to how long it circulates in the plasma. That being said, of course, we're measuring the blood concentrations of the drug, nothing unexpected there. Solely on that basis, we think that it's worth continuing to explore up to every 2 weeks dosing. But really, it's going to be looking at the effects on the disease. There aren't any pharmacodynamic markers to measure. It's the effects on the disease in patients with Netherton and when we get into that. Just a clarification, we have not disclosed whether we've started Part 3 or Part 4. Part 3 is just a few subjects with short-term dosing. That's the design. Part 4 enables longer-term dosing, and we look forward to stepping through both of those. Jon Stonehouse: Yes. And the expectation is that the data we'll have in the first quarter is Part 3. Charlie? Charles Gayer: Yes. Brian, on C1 normal patients, launch to date, that's been about 1/3 of the patients on ORLADEYO, and that's what we saw in Q3. Q2, you might recall, we had an exceptional best ever quarter for new patient starts. There was an additional bolus of C1 normal patients in Q2 because we released some new data. Q3 looked like the steady high demand that we've seen over the last 2 years with about 1/3 of the patients being C1 normal. Operator: The next question is from the line of Jon Wolleben with Citizens. Jonathan Wolleben: Just looking at sales so far this year in your guidance, it's implying that we're going to see a drop in quarter-over-quarter sales for the first time. We haven't seen that seasonality before. So hoping you could talk a little bit about your expectations, what's driving that? And if that's something we should expect moving forward or if this is going to be a one-time seasonality effect? Charles Gayer: Yes, Jon, it's going to be a one-time seasonality because we just sold our European business. So we're losing the sort of $10 million to $15 million of revenue that otherwise would have occurred. So next year, you will not see a drop in Q4. Operator: Mr. Jon, does that answer your question? Jonathan Wolleben: Yes. Operator: The next question comes from Belanger Serge with Needham & Co. John Todaro: This is John on for Serge today. Just wanted to touch on pediatric ORLADEYO with the ongoing review and the PDUFA in mid-December. Just curious if you guys have seen any impacts from the government shutdown, whether you've had continuous feedback from the FDA and whether you expect them to still meet that PDUFA. And then pending product availability, do you have any expectations for how the payer landscape will look in this segment? And whether or not you could expect a bolus of patients to come on board early upon product launch? Jon Stonehouse: So I'll take the first part. Charlie, you take the second. So with regard to the interactions with FDA, we're getting closer to the PDUFA date, and we're going through the things you think you would be going through at this point, late-stage in the review process. So there's nothing that we see that gives us concern about the government shutdown, that could change, but at least where we sit today, nothing that we see. Charles Gayer: And John, as far as payer landscape, we are in a really great spot with payers with ORLADEYO, and we expect the peds indication to slide right into that. So nothing special on the payer front. As far as the bolus of patients, we know that there's a lot of anticipation for this product. I'm sure we'll update you after we launch and get product into the market, we'll update you in 2026 as to the pace of patient growth. Operator: The next question comes from Gena Wang with Barclays. Huidong Wang: Wanted to ask about the Netherton syndrome also regarding the 12-milligram per kg IV dosing, by the way, very impressive biomarker data. I'm wondering what kind of safety you see in the patient -- in the healthy volunteer data? And then also, regarding the first quarter, the Part 3 data. So maybe if you can lay out what we should expect from this 1Q '26 data update from Part 3? And quickly, just housekeeping questions regarding ORLADEYO. I know you mentioned some of the comments, but I do wanted to double check with the actual numbers regarding the retention rate, are we still similar around 60% and the pay rate, I think last quarter, we talked about could be by year-end, 82% to 83%. Is that still the same? And then lastly is the patient segment, 50% switch from other prophy, is that still the same? Jon Stonehouse: All right. So Bill, why don't you take the safety and the design of the Part 3? And then Charlie, you can take the ORLADEYO. William Sheridan: So there's -- really, the thing to say about safety in healthy subjects is that it's very safe so far, it's been very safe and well tolerated. So there have been no safety signals emerging with multiple doses of the drug through the dose that you mentioned. So that's really good news. I think that with regard to what you can expect from Part 3, this is very short-term administration of the drug in Part 3. We're at the cutting edge of clinical science and investigations into Netherton syndrome with a parenteral drug. So we'll be discovering how long it takes in order to get an effect. So I don't know that yet. Will that short-term administration be enough to see an effect? Don't know. If we do, that would be very encouraging. If we don't, we'll just give the drug for longer and maybe we'll increase the dose. So I think I would temper expectations with regard to what we might see from short-term dosing in a few subjects with Netherton. Obviously, we'll be looking at safety. So we'll learn a lot and look forward to extending the dosing in Part 4 of the study. The sorts of things that you would measure are pretty obvious, itch, pain, skin redness and the like. Jon Stonehouse: And Bill, we're testing multiple doses in the Part 3. So we'll get that and start to zoom in on what we then want to look at Part 4. Is that right? William Sheridan: It's the first step for more extensive testing in Part 4. Jon Stonehouse: Great. Charlie? Charles Gayer: And Gena, as far as the ORLADEYO numbers, so yes, the patient retention rate is in line with exactly what we've seen over the last several years. So 60% of patients who start ORLADEYO make it to a year. And everything that we saw in Q3 tells us we're right on track with that same number. The paid rate, we ended Q3 at 82%, which is right about where we thought we would be. In Q4, I wouldn't be surprised if we end closer to 81%, even 80%. Typically, in the second half of the year, the paid rate starts to decline because we have all these new patients coming in and less of an opportunity to switch people from long-term free product to paid product. That opportunity comes in Q1 into early Q2 of the new year. And so we're right on track for where we need to be, and we expect to have a lot of those patients then switching to paid therapy earlier in 2026. And then as far as the source of business for patients, yes, the same basic trends where we get close to 50% of the people switching from other prophy history with other prophy products and then other patients switching from acute only coming over to prophy. And then a good number of patients, best we can tell, are starting ORLADEYO as their first HAE treatment ever because more of those are newly diagnosed patients. Operator: Thank you. This concludes the question-and-answer session. I would like to turn the conference back over to Jon Stonehouse for any closing remarks. Jon Stonehouse: Yes. We thought about ending the call with the rolling stones. This will be the last time, but thought different of it. But let me say this, it's been an honor to lead the employees of BioCryst for nearly the last 2 decades. Proud of what we built, what we've accomplished together and extremely excited and confident to see this team take the company into the future by delivering more and more innovative treatments for patients living with rare disease because in this industry, that's how you create real value. So thank you for your interest in our company and have a great day. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Greetings, and welcome to the Kontoor Brands Q3 2025 Earnings Conference Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Michael Karapetian, Vice President, Corporate Development, Strategy and Investor Relations. Michael, please go ahead. Michael Karapetian: Thank you, operator, and welcome to Kontoor Brands Third Quarter 2025 Earnings Conference Call. Participants on today's call will make forward-looking statements. These statements are based on current expectations and are subject to uncertainties that could cause actual results to materially differ. These uncertainties are detailed in documents filed with the SEC. We urge you to read our risk factors, cautionary language and other disclosures contained in those reports. Amounts referred to on today's call will often be on an adjusted dollar basis, which we clearly defined in the news release that was issued earlier this morning and is available on our website at kontoorbrands.com. Reconciliations of GAAP measures to adjusted amounts can be found in the supplemental financial tables included in today's news release. These tables identify and quantify excluded items and provide management's view of why this information is useful to investors. Unless otherwise noted, amounts referred to on this call will be in constant currency, which exclude the translation impact of changes in foreign currency exchange rates. Joining me on today's call are Kontoor Brands President, Chief Executive Officer and Chairman, Scott Baxter; and Chief Financial Officer and Global Head of Operations, Joe Alkire. Following our prepared remarks, we will open the call for questions. Scott? Scott Baxter: Thanks, Mike, and thank you all for joining us today. Our third quarter results highlight the power of our expanded brand portfolio. Helly Hansen grew double digits. Wrangler gained market share for the 14th consecutive quarter, and we launched Lee's first equity campaign in years, while taking proactive steps to improve the health of the marketplace. While the timing shift impacted growth in the quarter, stronger gross margin expansion and disciplined expense management drove better-than-expected earnings. Based on our year-to-date performance and improving profitability, we are raising our full year outlook while the environment remains dynamic, we are well positioned to finish the year strong and enter '26 with momentum. Now let's review highlights from Q3, starting with Helly Hansen. Third quarter results exceeded expectations with revenue growth of 11% and $0.03 of earnings accretion. Growth was broad-based across both Sport and Workwear in all regions. The business is performing at a high level, the integration is progressing well, and we continue to uncover new opportunities to create significant value together. To build on this momentum, we are focused on our strategic pillars. First, accelerate growth. It starts with product. Our iconic platforms, including Crew, Alpha, Legendary and LIFA Merino continue to differentiate Helly in the marketplace and generate strong demand from our consumers. And our latest product launches have made '25 a record year. We won 6 Red Dot Design awards, our most ever in a single year. Award-winning products include the Odin Ultimate Infinity jacket, Arctic Patrol Down Parka and within Workwear, the Magne Evolution Jacket. These are scalable platforms that we will drive global growth and nowhere is that opportunity greater than in the U.S. We see significant room to grow through a combination of new distribution D2C growth and investments in demand creation to increase brand awareness. Currently, awareness in the U.S. is only 29%. This has grown by 6 points since 2019, while revenue has more than doubled. Starting next year, we will be making investments in top funnel demand creation to increase awareness and fuel accelerated growth. Within Workwear, there are considerable market share opportunities, leveraging Helly's unique dual brand position. The connection to technical outdoor products worn by professionals on the mountain or water has made Helly a leader in pro-grade workwear in Europe. In the U.S., we are leading with footwear in regions where Helly Sport penetration is greatest. Over time, this will expand to include the broader apparel assortment, supported by further development of our lightweight and cooling platforms to drive growth in warmer climates. Outside the U.S., we see opportunities entering new markets in Asia and increasing penetration in key markets within Europe, including Germany, Austria and Switzerland. In addition, we will continue to support our business in China, which we operate through a joint venture. China is on track for over 70% growth this year. And second, double operating margin. We expect to increase operating margin from high single digits today to mid-teens through a combination of gross margin expansion and SG&A benefits. We are leveraging our global operating model, supply chain and technology platforms as well as Project Jeanius. This will create greater back-end efficiency and increased investment capacity to support our growth initiatives. Helly is headed into the fourth quarter with incredible momentum, and I could not be more confident in the opportunities ahead. Turning to Wrangler. Global revenue increased 1%, including 12% growth in digital. Wholesale growth was impacted by a timing shift into the fourth quarter. Excluding this shift, global revenue increased at a mid-single-digit rate. The third quarter marked Wrangler's 14th consecutive quarter of share gains according to Circana. In our core men's and women's bottoms business, we gained 80 basis points of market share. Our female business had another strong quarter with growth of 20%. Our collaboration with Lainey Wilson continues to exceed expectations. Her latest collection is performing very well while supporting more premium AURs and increase penetration with younger consumers, and Bespoke is now the #1 female style at select specialty retailers. This has been a banner year for our female business, and we expect double-digit growth for the year. Western grew high single digits in the quarter as the #1 Western apparel brand, we have never been stronger. At the upcoming Wrangler National Finals Rodeo in Las Vegas, we will be represented by some of the top athletes in the world as well as host events at the annual Cowboy Christmas where the Western world converges to showcase the best of Western apparel. In addition, Wrangler Country Music Star's Lainey Wilson and Cody Johnson will perform sold-out shows. Western is on track for double-digit growth this year. To support this momentum, we will continue to invest behind our demand creation platforms, including live sports, streaming and social media. In particular, our highly successful, Good Mornings Make for Better Days campaign will continue through the balance of the year as we build momentum for the holidays and '26. Turning to Lee. Revenue declined 9% as we took proactive steps to improve the health of the marketplace in China. Excluding these actions, revenue declined 4%. We are encouraged by the progress we are making against our brand realignment. Digital is leading the way with growth of 15% in the U.S. As we previewed last quarter, we launched our Built Like Lee equity campaign in September, the first of this scale in years. While early days, we are encouraged by the reaction in the marketplace and have seen improvements in both brand equity and perception. We are also making progress in aligning products to our refreshed brand position. In addition to activating our iconic platforms, we are seeing success with new introductions such as Velocity Pant and collaborations with Crayola and Buck Mason. Crayola will be Lee's strongest collaboration ever and our second collaboration with Buck Mason is outperforming the initial launch. Importantly, our 2025 collabs are attracting 3x more millennial purchasers. While the lead turnaround will not be linear, we will do this the right way. We expect sequential improvement in the fourth quarter. Finally, we announced this morning, we made an additional $25 million voluntary debt repayment in the third quarter, and we expect to further reduce debt by $185 million in Q4. We are tracking ahead of our deleverage plan and expect to return to approximately 2x by year-end while consolidating a significant increase in earnings and cash flow. Deleverage is our near-term priority, but we will take an offensive posture to deploy our cash generation to support our capital allocation framework, including our dividend and share repurchase programs. Before turning it over to Joe, let me reiterate the confidence we have in achieving our '25 plan, our expanded brand portfolio provides significant opportunities to create value through strong fundamentals and increasing capital allocation optionality and while the environment remains uncertain, we are being proactive with initiatives such as Project Jeanius to offset headwinds in the marketplace. We are executing at a high level, and I am confident we are on a path to drive strong value for shareholders. Joe? Joseph Alkire: Thanks, Scott, and thank you all for joining us today. Our third quarter results reflect the strength of our operating model and the benefits from our expanded brand portfolio. In what remains a highly dynamic environment, our fundamentals are strong, and we are operating from a position of strength. While a timing shift impacted revenue growth in the quarter, better-than-expected revenue and profitability from Helly Hansen stronger gross margin expansion and further improvement in operating efficiency drove earnings upside relative to our outlook. Based on our year-to-date performance and increased visibility into the fourth quarter, we are raising our full year revenue, gross margin, earnings and cash flow outlook. We are well positioned to finish off a record year with good momentum as we enter 2026. Let's review our third quarter results. Global revenue increased 27%, including the contribution from Helly Hansen. By brand, Wrangler Global revenue increased 1%. Revenue growth was impacted by a shift in the timing of wholesale shipments from the third to the fourth quarter. Excluding the shift, global revenue increased at a mid-single-digit rate as a result of strong demand for the brand around the globe. In the U.S., revenue increased 1%, driven by 11% growth in DTC. Wholesale was flat to prior year. However, excluding the previously mentioned timing shift, U.S. wholesale revenue increased at a mid-single-digit rate. Growth was broad-based, driven by strong increases in female, Western as well as continued market share gains. Denim grew at a low single-digit rate. Following a strong July and August, POS moderated to a low single-digit increase in September, consistent with the year-to-date average. October POS was flat compared to prior year, with POS increasing at a mid-single-digit rate over the past 2 weeks. Wrangler international revenue increased 2%, driven by 19% growth in digital and 1% growth in wholesale. Turning to Lee. Global revenue decreased 9%. During the quarter, revenue was impacted by proactive actions in China to address challenges in the marketplace. We discussed our intent to execute these actions on our second quarter call. Excluding the actions taken in China, global Lee revenue decreased 4%, reflecting sequential improvement in the revenue comparison from the second quarter, and we expect further improvement in the fourth quarter. U.S. revenue decreased 9% as we work to address challenges within certain segments of our distribution footprint and drive more consistency with the brand's realignment and go-forward strategy. Digital revenue increased 15%. We remain encouraged by the momentum in our digital business, which has continued into the fourth quarter. Lee international revenue decreased 9%, with declines in wholesale offsetting mid-single-digit growth in our brick-and-mortar stores. Excluding the actions taken in China, Lee international revenue increased approximately 3%. Now turning to Helly Hansen. Global revenue of $193 million increased 11% compared to prior year reported results. Growth was broad-based across both Sport and Workwear and in all geographic regions. We are encouraged by the stronger-than-expected results. The integration is progressing well, and we are confident Helly will be a significant contributor to both revenue and earnings growth in the coming years. We now have line of sight to greater than $25 million of run rate synergies, which will begin to meaningfully impact profitability in 2026. These synergies will help fund investments in business, including geographic and category expansion, demand creation, DTC, supply chain capabilities and our technology platform. As we look forward to 2026, we expect Helly's momentum to continue to build. The spring/summer order book has accelerated from fall/winter 2025 and Workwear preorders are up at a double-digit rate. We recently kicked off the fall/winter 2026 selling season, and the feedback from the marketplace has been strong, reflecting the robust product and innovation pipeline of the brand. Moving to the remainder of the P&L. Adjusted gross margin expanded 80 basis points to 45.8%. Excluding Helly Hansen, adjusted gross margin expanded 140 basis points, driven by the benefits of Project Jeanius, channel and product mix as well as targeted pricing actions. This was partially offset by increased product costs and the impact from recently enacted increases in tariffs. Helly Hansen was diluted adjusted gross margin by approximately 60 basis points. During the quarter, we took actions to improve inventory turnover, increase cash generation and accelerate debt repayment. There is a significant opportunity at Helly Hansen to improve both gross margin and net working capital by leveraging our supply chain capabilities in the areas of planning, procurement and inventory management. Adjusted SG&A expense was $269 million. Excluding Helly Hansen, adjusted SG&A was flat compared to prior year, supported by lower distribution and freight expenses and the benefits of Project Jeanius. We remain focused on driving further improvements in operating efficiency in light of the environment. And adjusted earnings per share was $1.44, increasing 5% compared to prior year. Adjusted EPS was $0.09 above our prior outlook. Helly Hansen contributed $0.03 per share compared to our prior outlook of breakeven earnings. Turning to the balance sheet. Inventory at the end of the third quarter was $765 million. Excluding Helly Hansen, inventory increased 21% to $560 million, driven by a temporary increase in inventory to support our supply chain transformation, earlier-than-expected inventory receipts as a result of improved sourcing lead times as well as the impact of tariffs. We expect inventory to normalize in the fourth quarter and decreased approximately $120 million from the third quarter to approximately $645 million. We finished the quarter with net debt of $1.3 billion and $82 million of cash on hand. Our $500 million revolver remains undrawn. On a pro forma basis, our net leverage ratio was 2.5x. During the quarter, we made a voluntary $25 million debt repayment. We are tracking ahead of our deleverage plan and expect to make an additional $185 million voluntary payment in the fourth quarter. We anticipate returning to approximately 2x net leverage by year-end. Share repurchase activity remains on pause near term as we focus on paying down acquisition-related debt and reducing leverage. We have $215 million remaining under our current share repurchase authorization. And as previously announced, our Board declared a regular quarterly cash dividend of $0.53 per share, a 2% increase. And finally, on a trailing 12-month basis, adjusted return on invested capital was 23%, improving from 22% in the second quarter. Now let's review our updated outlook. Full year revenue is now expected to be at the upper end of our prior outlook range of $3.09 billion to $3.12 billion, representing growth of approximately 19% to 20%. Helly Hansen is now expected to contribute $460 million to full year revenue compared to our prior outlook of $455 million. Excluding Helly Hansen, we expect revenue growth of approximately 2% and compared to our prior outlook of 1% to 2% growth. For the fourth quarter, we expect revenue to be in the range of $970 million to $980 million, representing growth of 39% to 40%, including the expected contribution from Helly Hansen. Our outlook includes the impact of a 53rd week, which is expected to benefit the fourth quarter by approximately 4 points of revenue growth. We continue to plan the business conservatively. For Wrangler and Lee, our updated outlook assumes no meaningful change in POS trends or inventory positions at retail for the balance of the year. This is consistent with our prior outlook. Excluding Helly Hansen, October revenue growth was approximately 6%, tracking slightly ahead of our anticipated organic revenue growth for the fourth quarter, excluding the 53rd week. For Helly Hansen, our revenue outlook is supported by current demand trends and the fall/winter 2025 order book, which accounts for the majority of support revenue. Moving to gross margin. Adjusted gross margin is now expected to be approximately 46.4% compared to our prior outlook of approximately 46.1%. Our outlook represents an increase of approximately 130 basis points compared to prior year. We expect fourth quarter adjusted gross margin of approximately 45.8%, representing an increase of approximately 110 basis points compared to prior year. Adjusted SG&A expense is expected to increase approximately 24%, reflecting the contribution from Helly Hansen as well as increased investments, primarily in the areas of demand creation, technology and direct-to-consumer. Excluding Helly, we expect SG&A to increase at a low single-digit rate, consistent with our prior outlook. We continue to anticipate Project Jeanius savings to mature to a full run rate in excess of $100 million of annual savings over the course of 2026. Adjusted EPS is now expected to be approximately $5.50, representing an increase of 12%. This compares to our prior outlook of approximately $5.45. Helly Hansen is expected to benefit full year 2025 adjusted EPS by approximately $0.20, consistent with our prior outlook. We have not included any benefit from synergies in our outlook. We expect fourth quarter adjusted EPS of approximately $1.64, reflecting growth of about 19%. Finally, we continue to expect another year of strong cash generation. Cash from operations is expected to approximate $400 million, including the contribution from Helly Hansen. This compares to our prior outlook for cash from operations to exceed $375 million. Starting in the fourth quarter, we will begin to leverage and expand our supply chain and AR financing programs to include Helly Hansen. These programs and capabilities will be a significant unlock for the business while supporting accelerated cash generation and deleverage. Before opening it up for questions, let me reiterate the confidence we have in achieving our 2025 objectives. While the environment remains dynamic, we are operating from a position of strength. The integration of Helly Hansen is progressing well. We are ahead of our planned deleverage path and Wrangler and Lee are on track to deliver a strong fourth quarter. Our operational execution and discipline continues to drive further improvements in our business fundamentals, supporting higher returns on capital and significant capital allocation optionality moving forward. This concludes our prepared remarks. I will now turn the call back to the operator. Operator: [Operator Instructions] Our first question is coming from Ike Boruchow from Wells Fargo. Irwin Boruchow: A couple from me. I guess, Joe, could you just clarify Wrangler U.S. wholesale, it seems like it was probably up mid- to high single digits in the third quarter ex the shift. Can you confirm that? And then on the 4Q, can you kind of work with us on what's embedded in your -- in the Wrangler wholesale number there, both with the ship and then also organic? And I know you said POS flattened out in October, but then it sounds like it's accelerated the last couple of weeks. So kind of curious what's in the plan. Joseph Alkire: Yes. So on the timing shift, so the timing shift impacted Q3 revenue by about 2 points, with the primary impact being on the Wrangler brand. Excluding the shift, total revenue would have been above our prior outlook driven by Helly with Wrangler increasing at a mid-single-digit rate. So we had our largest September ever as a company. However, order flow, shipment flow was more back half weighted than what we anticipated in our prior outlook. So the demand was solid. We just had a shift in shipment timing focused on a couple of the key accounts. We did see that pull through in October. I think I said in the prepared remarks; October was up 6% organically compared to the prior year. That's a little ahead of what we have contemplated in 4Q. In terms of growth, excluding the 53rd week. So nothing we see from a demand standpoint. In fact, we've moved to the high end of the revenue range based on our year-to-date performance and our visibility into Q4 and Wrangler is probably the biggest part of that. Irwin Boruchow: Got it. So no red flags on the consumer thus far in terms of what you're seeing. Scott Baxter: And Ike, I would tell you, with our broad distribution and the campaigns that we're running right now with both of our denim brands right now that are out in the marketplace. In addition to the product and the design and just the demand, 14 consecutive quarters now. I mean you've seen that of market share gains with Wrangler, we've put ourselves in a really good position, really like where we sit now for the foreseeable future, and we'll continue to really work that through design great product, tell great stories, broad distribution. It's been a really nice formula of success for us going forward. Irwin Boruchow: Okay. Great. Moving to Helly. So up 11% pro forma growth. I think your first half, you were kind of trending more 1% to 2%, so a nice acceleration. What's driving the near-term inflection in Helly's brand revenue already? And then I guess based on the order book commentary, which is accelerating into next year, could we see Helly growth rates actually continue to accelerate over the next 12 months? Scott Baxter: So I'll go ahead and start. What you're seeing is you're seeing a company that's thriving inside of another apparel company. They haven't had that ecosystem before relative to where they've sat the last decade or so, and now they're inside our ecosystem. We're thriving as far as partners working together. They're accelerating in all fronts, the European business, the China business, the U.S. business is really starting to take off. But obviously, we're feeding that. So we're investing in that and we're seeing really good results. And I think the thing it starts with is they're really building great product. And I think they're having a lot of fun being part of our organization. I think the 2 companies are working really well together. And I think we see a bright future. And I think one of the things that's been really important because we talked about it and it's important that we talk about it again, is we see a big opportunity in North America in addition to what we already have. And that is starting to come to fruition, just having the capability, having our resources in North America to lean on and then now going ahead and making it a priority because we have made that a priority, we're starting to see those results early. So we're really, really excited about what's happening there in the future. Joe, anything to add? Joseph Alkire: Yes, I'd say on the order book, I mean spring/summer '26, that order book for sport reflects an acceleration compared to fall/winter '25, fall/winter '25 accelerated versus spring/summer '25 and even fall/winter '24. So that business is performing really well. Workwear preorders have been strong, up at a low double-digit rate, and we just kicked off the fall/winter '26 selling season, and it's off to a really good start. The feedback from the marketplace has been really good. We also will put more investment behind the business in '26, which should help further accelerate growth. So just a tremendous opportunity for the brand globally across both sport and work. Scott Baxter: And I think one of the things that's really been beneficial is management and the team is intact from the acquisition. So they were already a strong team, and we're only making it stronger by adding and helping, but we've got a good core team that we kept through the merger and the acquisition, and it's really played out really well for us. Irwin Boruchow: That's great. And then just a quick one, lastly. On the inventory, Joe, can you help us get comfortable with that number? I think you said up 21% organic Q3, $645 million for the end of the year, which implies mid-teens organic. Just -- it doesn't sound like there's any issues at all but can you kind of hold our hand a little bit because it is a decent growth rate above where the core growth rate is for the business. So any more color there would be helpful. Joseph Alkire: Sure, Ike. So we ended the quarter, excluding Helly Hansen, up about 21%, about $98 million versus the prior year. So roughly $25 million of that increase related to inventory investments we made to support our supply chain transformation. So we closed our Torreón manufacturing facility in Mexico during the third quarter as part of Project Jeanius, and we carried excess inventory to support the operational transition. So that excess inventory will wind down over the course of the fourth quarter and into the first quarter, and that transition has gone really, really well. About $25 million of the increase relates to higher tariffs. So the cost of that is now embedded in our inventory and about $20 million related to earlier-than-expected receipts of sourced product as a result of lead times improving. So the remaining increase is really in support of the growth plans that we have for the business. We said in our prepared remarks, we expect about $120 million reduction in Q4, and we remain pleased with the overall quality and composition of our inventory. Operator: Our next question is coming from Bob Drbul from BTIG. Robert Drbul: Just a question on pricing. When you look at your business and you look at sort of the plans into next year, what's happening with pricing with your own product? And I guess, I'd be curious to just see what you're seeing competitively on pricing as well. Joseph Alkire: Yes. Bob, I would say for us, pricing has been part of a holistic strategy to combat the impact of the tariffs, right? Pricing for us went into effect mid-June in our own DTC and in July at Wholesale. So something we're watching very closely with our retail partners and look, these plans were put together in collaboration with them and all of the elasticity assumptions are reflected in the outlook. We were very surgical, as you would expect, in terms of where we took price just as we have been in the past. And these price increases were not just a U.S.-focused effort. I think that's part of the power of a global multi-brand portfolio. So overall, the price elasticity equation has been largely consistent with our expectation. It varies a bit by brand and category and channel, certainly, certain parts of the market are more sensitive, other more premium areas less so. But overall, the pricing elasticity equation has been in line with what we expected. Scott Baxter: And Bob, one of the things that we pay particular attention to as an organization is that if you look at all of our brands globally and in the marketplaces where each operates, we really like from a hierarchy standpoint, where we sit. So we're really comfortable with where our brands are positioned and how they're priced than compared to our competitors within those marketplaces. So we've been very thoughtful for a long time about how we price in the product that we have. So I'm comfortable with where we sit right now. Robert Drbul: Got it. And just 2 questions on Helly, if I could. I guess the first one, Scott, I think you mentioned you're seeing new opportunities. Just wondering if you could elaborate on that. And within the U.S. business, growing it from the $150 million level, is it like new distribution targets? I just -- if you could expand a bit on the plan in the U.S., that would be helpful. Scott Baxter: Absolutely, Bob. Actually, it's everywhere and everything. So it's ski shops, it's independents. It's definitely U.S. wholesale. It's across the board. It's digital, it's owned and operated retail. So we've got multiple plans that come into different stages. As you can imagine, we've thought it out from a capital standpoint on how we're going to embrace each one. And it's really interesting, Bob, we sat back, and we said to ourselves, it's even better than we thought at acquisition time. We think there's more than we thought about. It's more robust than we thought. And people are really reacting and responding very positively to our brand because they've seen it around the world before and they just haven't seen it enough here in the United States and its new and it's fresh and it's creating some excitement, but they haven't had the distribution to go ahead and purchase it for themselves. But now we're going to give them that, and that is starting. And then just so you know, because we'll talk about this in the future, we are adding some really key personnel here over the next 12 to 18 months in some significant leadership positions to help support that going forward. So like we said before, it was a big opportunity, one of the strategic reasons we bought it. But as we sat back and now [indiscernible] gotten ourselves involved in this business; we think the opportunity is even bigger than we thought across the board. Operator: Next question is coming from Jonathan Komp from Baird. Jonathan Komp: I want to follow up and ask the raise to the high end of the organic revenue growth to 2% for the year. Can you just maybe talk a little bit more directly what's driving that confidence? And then Joe, it sounds like from your inventory buildup, you may be planning healthy organic growth into 2026. Just any color there would be helpful. Scott Baxter: Yes, Jon, it's Scott. I'll go ahead and start. Really, Jon, we're looking at our business and we're just seeing real strength across the board. Let me start with Helly. I mean we've talked about the fact that Helly is really coming online very quickly, faster than we thought. The companies are working really well together, and we're seeing opportunity across the board. And more importantly than anything we're seeing our consumer want to take out our business. So our POS is strong. We watch really closely our digital business because it's an opportunity for our consumer to purchase immediately, and it's been very strong across our brands and strong with Lee too, which gives us confidence in our turnaround because it's the first opportunity that people can interact with us after we put our turnaround in play. But across the board, really strong from a digital standpoint. So that gave us confidence. The strength of our business here in the third quarter as we reached towards the end of the third quarter and saw this really strong uptick in POS gave us a lot of confidence. And then I would tell you that October gave us a lot of confidence. October came in on plan, no issue at all. So really feeling good about that as we come through the first month of the fourth quarter, feel confident there. And then more than anything, our team is designing really good product and we're telling. We've got 2, right now, 2 national campaigns going on with Wrangler and Lee, which has got us in the marketplace in a fairly significant way, which is really important. And weather is really cooperating. I'll give you a great example. Helly is a rainwear and outdoor and ski and active and pro-business. And we've had more rain across this world, Europe, Asia and the United States. And now we've got early snow across Europe and also here, which we didn't have last year at this stage. So that gives us a really, really good push forward as we enter into that really critical period. So lots to be thankful for right now, but mostly for our great folks here that have got their heads down and working hard. Joe? Joseph Alkire: Yes, Jon. And on inventory, I know it's a little noisy here with the addition of Helly and some of the transitory impacts that I highlighted. But we're comfortable with the composition of the inventory, the sequential progression we have planned, how that's positioned in support of the growth plans and Helly as well. We've talked on prior calls about the net working capital opportunity. At Helly, you'll begin to see the impact of that starting in the fourth quarter and into the first half of next year, which will help contribute to some strong cash generation as we move into next year. Jonathan Komp: Okay. Great. That's helpful. And maybe as a follow-up, as we look to 2026, could you help to frame up as we think about the contribution from Jeanius where you stand and the incremental benefit that you may achieve? And then also the Helly Hansen operating contribution, I think you reiterated $0.20 for this year. But what are some of the factors that might impact how that can grow into next year? Joseph Alkire: Yes, I'll take that, Jon. So on '26, certainly not giving an outlook today, but I'll give you a high-level framework just given all of the moving parts. So we expect the organic business to continue to grow. We are performing well. That's going to be mainly driven by the Wrangler brand. '26 will be a transition year for Lee. The Helly business is performing really well. As you've seen, we will delever quickly, which will create an earnings tailwind as well as additional capital allocation optionality as we consolidate and grow that cash flow and that earnings stream, you'll have synergies that will scale more meaningfully across 2026, and you've got Project Jeanius savings that will be maturing to more of a full run rate. We will have a bigger impact of tariffs next year. For 2026, the full year unmitigated impact is about $135 million, which we're clearly working to mitigate a significant portion of that. But those are the biggest factors influencing '26. We like where we are. We like our model, and we've got a lot of optionality to continue to drive the growth and returns that we expect. Operator: Next question is coming from Mauricio Serna from UBS. Mauricio Serna Vega: First, maybe could you tell us or confirm like what's kind of like the Q4 organic revenue growth that you're expecting in your guide? I mean, you talked about October being 6%. I just wanted to get a sense of what's the expectation for the fourth quarter. And then on Helly Hansen, you raised revenue contribution a little bit for the year, but there was no really change in the EPS revision of $0.20. So just wondering what were the puts and takes on that. Joseph Alkire: Mauricio, I'll take those. So for the full year outlook, we raised the outlook, right? Part of that was the Q3 outperformance that we had. Part of that is the increased visibility into the fourth quarter. So we now expect to be at the high end of the prior outlook range on revenue organically. We've got a stronger contribution from Helly Hansen, and we increased our gross margin, earnings and cash flow. For the fourth quarter, our outlook implies about 6% growth on an organic basis. That includes the 53rd week, which is contributing about 4 points to the growth. You also have the benefit of the timing shift that impacted us in the third quarter. So when you put all that together, we have modest growth contemplated for the business in the fourth quarter. Helly Hansen is expected to contribute close to $240 million of revenue as well in the fourth quarter, growing nicely compared to the prior year. So the assumptions underlying the organic revenue, we've assumed POS trends that are modestly positive, which is what we've seen for the majority of the year. Things have been a little stronger over the last couple of weeks as weather has been more cooperative. And then inventory levels at retail, we really haven't assumed any meaningful change. Our retail partners remain in a fairly conservative posture as they have all year, and we don't expect that to change. Mauricio Serna Vega: Got it. Very helpful. And then maybe just very quickly on Lee, you sound very positive about the feedback that you're getting from the equity campaign. Maybe could you talk a little bit more about more green shoots on the brand? And you've mentioned like sequential improvement for fourth quarter. Is that sequential improvement versus the 9% decline or versus like the 4%, excluding the China proactive actions? Joseph Alkire: Yes. Mauricio, I'll take the latter part, and then Scott can take the first part. So the sequential improvement that we referenced is excluding the impact of the China actions in the third quarter. So I would think about sequential improvement relative to the 4% decline that we saw in the third quarter. Scott Baxter: So Mauricio, I would tell you, similar to some of the comments that I've already made, we're seeing that our investment is paying off. And what I mean by that is we've invested dramatically in both our product engine and also our advertising and marketing. And so creating the right product for the marketplace, specifically in the channels that we sell the product in at the right price, as I mentioned earlier, and then telling a really great story behind that takes a little bit of time because, as you know, this business, you order out over a period of time. So to see your results, it takes 6, 9 months, sometimes a year, except for in the digital component. And what we've seen here early on is a very strong response in the digital component from both male and female, which is really important to us. Our female business is doing exceptionally well. So our conversations with our wholesale partners across the globe and also our own retail stores across the globe have been very positive. I've been pleased. We've been at this, as you know, for about 18 months now and still have a little ways to go. We're never going to be satisfied obviously, going forward. But those are some of the key components as to how we look at the business and how we measure and monitor how it's doing. And the sequential improvement has been really important because it's also a shot from a morale standpoint to the team, too, as you can imagine, when they're making product that's really working and the marketplace is talking about it, they feel really good about it. So we've got that type of momentum, too. So more to come over time because I think we've been very transparent in sharing the story as we've gone along, and we'll continue to do that. But right now, the way I would describe it is that everything is on track to how we planned it from the very beginning. Operator: Next question is coming from Paul Kearney from Barclays. Paul Kearney: My first is clarifying on the October organic growth of 6%. Is that including the shift of timing from Q3 into Q4? And then on the Q4 guidance, I'm just curious on -- is it assumed in the Q4 guidance a continuation of the POS at mid-single digit that you saw in the last 2 weeks? And then a follow-up. Joseph Alkire: Paul, it's Joe. On October, yes, it does include the impact of the timing shift that we talked about. And for POS, the POS assumptions for Q4 does not assume that the mid-single-digit increases that we've seen over the past several weeks continue for the balance of the quarter. Our POS assumptions for Q4 are modestly positive. Paul Kearney: Okay. And then my next is on -- I think you pointed to $25 million of run rate synergies for Helly Hansen for 2026. I guess, can you speak to any clarity on timing on achieving some of those synergies? How should we think about flowing those through in our model versus reinvestment? And just when should we expect to achieve those and which ones. Scott Baxter: Yes, I'll take that, Paul. So we do have direct line of sight to pretty significant synergies across the business. That list of synergies is growing. The deeper we get into the business, as you can imagine. Part of that is just -- we are a more synergistic owner as a global brand operator and a lot of the pain points for the Helly business are -- there are strengths. So they'll benefit greatly. Helly will benefit greatly from being part of our platform as we more fully integrate the business. The $25 million that we talked about, we're starting to see it now. It's smaller for 2025. We're starting to see some of those benefits now. Those will scale more meaningfully across the course of '26, and we'll lay that out in the full context of our '26 outlook in February. Operator: Next question today is coming from Brooke Roach from Goldman Sachs. Brooke Roach: Scott, Joe, I'm hoping you could provide an update on where you stand on Project Jeanius savings realization. What proportion of the greater than $100 million savings have been realized to date? What's still on the horizon into 4Q and to 2026 as you mature into those savings? And how should we be thinking about the opportunity for flow-through to the bottom line as you contemplate continued investments into each of your core brands, including demand creation? Joseph Alkire: Yes. Brooke, so for 2025, we've got about $50 million of gross savings embedded in the outlook. That's above our previous expectations. So those savings compared to our initial outlook have allowed us to reinvest back into the business at a level beyond what we previously anticipated, and those investments are certainly part of the fuel for the growth and the momentum that we're seeing. The benefits of Jeanius and the investments we've made, like I said, they're fully reflected in the outlook. We do expect those benefits to scale materially in 2026 and reach the $100 million of annual savings run rate. We will reinvest a portion of those savings. But as we've said from the very beginning, a portion of these savings will be reinvested back into the business and a portion of these savings will drop to the bottom line and drive profitability and returns improvement. Brooke Roach: Great. And just a follow-up. I was hoping we could double-click on the Lee China business. Are you fully reset in that business today? And do you expect that business to begin to return to growth as we turn the corner into 2026? Where are we in the transition? Joseph Alkire: Yes, I'll start, Brooke. So there's no change to the significant opportunity we see in China longer term. We're more confident in our approach going forward than we've been over the past couple of years, we've got a strong team on the ground there. For the past 18 months or so, we've been working to reestablish our foundation in China for Lee as part of the brand's global approach to the turnaround. Our results have improved over the past year, but there's still more work to be done, and this market remains very dynamic, as you know. The actions we discussed in our prepared remarks reflect the next set of initiatives to really strengthen our presence in the market and build a stronger foundation going forward. So more specifically, we've been consolidating distribution partners. We've been partnering with larger, more sophisticated partners in the market that can invest with us to build and drive the brand going forward. We've taken actions to address inventory challenges in the market. We've elevated our own DTC presence. So there's a number of things that we've been working on behind the scenes. But I'd say the majority of the heavy lifting is behind us from here. Scott Baxter: And I would just add, if you step back a little bit, Brooke, some of the things that came out of COVID and what the world went through, there were some things that happened and some bad practices and what have you. And we've got ourselves now at a point where we've got a really impressive leadership team and a great leader over there. But in addition to that, probably the most important thing is we really have a real strategy there now that makes a lot of sense for what this marketplace is going to look like going forward. So over the last 9 to 12 months, I've become much, much more happy with kind of how we're thinking about it and kind of really like the thought process and the strategy that's gone into it. So we felt -- and this is the point, we felt really confident to make this investment, and that's what drove that. We like the strategy. We like where it's heading. We're happy to make an investment to put them in really good footing and then we move forward from there. So I think that from the standpoint of what's happened here in the last 5 or 6 years with the whole world that we're in a better place than we've been in China in a long time. And I think the future looks bright. Brooke Roach: Best of luck going forward. Operator: Next question is coming from Laurent Vasilescu from BNP Paribas. Laurent Vasilescu: Joe, I was hoping to get a little bit more color again around FY '26. I remember last year on the third quarter call, you provided preliminary thoughts, particularly on the top line. I think you mentioned 1H '25 should grow 4%. Just curious to know, is there any rationale why we're not getting any preliminary thoughts for 1H '26 top line on an organic basis? And then I think, Scott, you mentioned Lee is not going to be linear, but how do we think about when should Lee actually return to growth in all markets? Joseph Alkire: Yes. Laurent, I'll start. Yes, I'd say on '26, I gave the framework, if you will. I'd say, this year versus last year, there are a few more moving pieces, as you know, and we're right in the middle of our planning process now. So we'll be back in February and give the detailed outlook as we normally do. Scott Baxter: Laurent, as product flows and how we create and make product and go to market, I think our confidence is really building that late '26, fall/winter '26, you're going to see us even out and then start our growth algorithm right after that. So feeling really good entering this year, feeling really good about how the product is going to flow in and feeling really good about the product itself that will go ahead and resonate with some stabilization by the end of the year and then growth by the end of the year, beginning of the next year. Laurent Vasilescu: Okay. Great, helpful. And then, Joe, just one sticking point here. There's $0.78 of adjustments is actually larger than the actual GAAP EPS number. Curious to know what the adjustments we should contemplate so we can actually have our models buttoned up for 4Q. What kind of adjustment should we have for 4Q? And when longer term, I think you mentioned to Brooke, there's $50 million of gross savings from Project Jeanius, but when should we see the adjusted and GAAP EPS converge? And of the $100 million, how much of it actually flows through to the bottom line? Joseph Alkire: Yes, I'll take that, Laurent. So as we've discussed on prior calls, we will have onetime adjustments as we move through Project Jeanius as we move through the acquisition of Helly Hansen. I think those are pretty difficult given the transformational nature of those projects. I would say the cost to date have been in line with our expectations. The onetime adjustments that we saw in the third quarter, primarily related to the closure of our Torreón manufacturing facility as well as the integration of Helly Hansen on the SG&A side. But look, we don't pay our bills with adjusted earnings. We don't pay our shareholders with adjusted cash. So we're measuring the cash returns of Jeanius and the returns on Helly and our cash generation remains robust. We raised the cash flow outlook for '25, and we expect another year of strong cash generation in '26, and that includes the impact of the onetime adjustments. Operator: Next question is coming from Peter McGoldrick from Stifel. Peter McGoldrick: I am interested on the cash flow guidance following up on Laurent's question. The -- so the step-up is significantly higher than the adjusted earnings increase in the outlook. So I'm curious if you can bridge the gap on working capital adjustments or any other items influencing the outlook to $400 million operating cash flow. Joseph Alkire: It's really the working capital, Peter. It's the sequential reduction in the inventory in addition to the earnings growth for both the organic business as well as Helly. Peter McGoldrick: Okay. And then on the increased gross margin guidance for the year, can you work through the puts and takes here, whether it be by brand, Helly Hansen versus the denim brands, any fundamental drivers or if there's any influence from the tariff assumption and inventory timing flow-through? Joseph Alkire: Yes, I'll take that, Peter. So on Q3, we were up 80 basis points overall, 140 basis points, excluding Helly Hansen. For the organic piece, mix was about 170 basis point benefit, that's channel mix, product mix, business mix. Our Project Jeanius benefited gross margin by about 90 basis points. And then tariffs net of our mitigating actions as well as higher product costs hurt us by about 120 basis points. For the fourth quarter, we've got 110 basis points contemplated. The organic business will be up modestly with Jeanius, and mix being offset by tariffs, net of the mitigating actions as well as higher product costs. So the year-over-year increase in Q4 gross margin is primarily Helly related, which will be nicely accretive for us in the fourth quarter. Operator: We reached the end of our question-and-answer session. I'd like to turn the floor back over to Scott for any further closing comments. Scott Baxter: Thank you. I just wanted to say a big thanks for spending time with us today and all your thoughtful questions and -- as you can see, we're working really hard here and our consumers are trusting us because they're choosing us going forward, which is really important, and we certainly appreciate that. We've got a much broader story to tell as Helly Hansen unfolds, but I just wanted to mention that we couldn't be more pleased with our acquisition and how it's going and really enjoy working with the team there, a really good team, and it's been a really thoughtful merger of our 2 companies and just going really well, which we'll spend some more time talking about going forward. And because we won't spend any time together before the end of the year, I want to wish everybody a happy holiday season, and we'll look forward to seeing you after the first of the year. But again, thanks for your interest in our company. We really appreciate it. Operator: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
Operator: Good morning, and welcome to the Axsome Therapeutics Third Quarter 2025 Earnings Conference Call. My name is Daryl, and I will be your operator for today's call. [Operator Instructions] Please note that this call is being recorded. I would now like to hand the call over to Darren Opland, Senior Director of Corporate Communications. Please go ahead. Darren Opland: Thank you, Daryl. Good morning, everyone. Thank you for joining us for Axsome's Third Quarter 2025 Earnings Conference Call. With us today are Dr. Herriot Tabuteau, our Chief Executive Officer; Nick Pizzie, our Chief Financial Officer; and Ari Maizel, our Chief Commercial Officer, who will begin our call with prepared remarks. Mark Jacobson, our Chief Operating Officer, and Hunter Murdock, our General Counsel, will also be available for Q&A. This morning, we issued our press release providing a business update and detailed financial results for the quarter. I encourage everyone to visit the Investors section of our website to find the press release and accompanying presentation to today's call. Please note that today's discussion includes forward-looking statements regarding our financial performance, commercial strategy and operational plans, including research, development and regulatory activities. These statements are based on current expectations and assumptions and are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our SEC filings, including our quarterly and annual reports for a description of these and other risks. You are cautioned not to rely on these forward-looking statements, which are made only as of today, and the company disclaims any obligation to update such statements. And now I'll turn the call over to Herriot. Herriot Tabuteau: Thank you, Darren, and good morning, everyone. Axsome continues to lead in CNS innovation, driven by disciplined execution and a clear focus on sustained growth and value creation. In the third quarter, we delivered strong revenue growth with total revenue of $171 million across our 3 marketed products, representing a 63% increase year-over-year. AUVELITY continues to gain traction as a differentiated treatment for major depressive disorder, driven by strong underlying demand. We're pleased with the pace of AUVELITY's performance, which is tracking well against our long-term expectations and underscores the significant opportunity for continued growth ahead. SUNOSI remains on a steady trajectory with year-to-date sequential growth nearly double that of the same period last year, a testament to the product's durable performance and expanding adoption. SYMBRAVO completed its first full quarter of commercial launch in Q3. Our focus now is to continue strengthening the foundation for long-term success by broadening patient access and driving awareness with clinicians. Nick and Ari will speak in more detail about our financial and commercial performance and the strategic execution driving momentum across Axsome's portfolio. Beyond our continued commercial growth, Axsome's R&D engine is advancing a robust pipeline of late-stage programs with the potential to deliver transformative therapies for patients and significant value to our shareholders. Over the coming months, we expect meaningful activity across our late-stage programs, including 2 NDA stage programs and multiple registrational trials underway or initiating. I'd like to start with our top priority areas in psychiatry and neurology, Alzheimer's disease agitation, narcolepsy and ADHD. These are areas where we see substantial opportunity to transform patient outcomes, leverage our commercial infrastructure and unlock significant value. First, we are pleased to share that we have submitted our supplemental NDA for AXS-05 in Alzheimer's disease agitation. And we look forward to announcing the FDA's decision on acceptance of the filing. This submission is an important milestone for AXS-05 and for the millions of patients and caregivers affected by the serious and underserved condition. The addressable market for Alzheimer's disease agitation is substantial, and the unmet need is high with currently only one product approved. AXS-05 represents a first-in-class mechanism of action that has the potential to set a new standard in the treatment of AD agitation. Work is already underway to efficiently scale our commercial platform to deliver an impactful launch if approved. As a reminder, we are also developing AXS-05 in smoking cessation, and we are on track to initiate a Phase II/III trial in this indication this quarter. Our next pipeline priority area is narcolepsy. We continue to target the submission of our NDA for AXS-12 for the treatment of cataplexy in narcolepsy in the fourth quarter of this year. AXS-12 represents a highly differentiated opportunity to address critical gaps in current treatment. Up to 70% of patients suffer from cataplexy and many continue to experience inadequate relief or poor tolerability to existing treatment options. We are excited about AXS-12's potential to make a meaningful difference for patients living with narcolepsy. We also like its strategic fit with our existing sleep franchise, which we anticipate will enable highly efficient and synergistic launch, if approved. For ADHD, solriamfetol has demonstrated positive results in adults in the FOCUS Phase III trial completed earlier this year. The next step is a Phase III trial in children and adolescents, which we plan to initiate in the fourth quarter of this year. If successful, this indication could substantially expand the opportunity for solriamfetol beyond its currently approved indications. As a reminder, we are also developing solriamfetol in 3 additional indications, MDD with excessive daytime sleepiness, binge eating disorder and shift work disorder. For MDD, we anticipate the initiation of a Phase III trial in adults with MDD with excessive daytime sleepiness this quarter. Next year, we expect top line results from the ongoing ENGAGE Phase III trial in binge eating disorder and the SUSTAIN Phase III trial in shift work disorder, and we look forward to providing progress updates in the near future. Turning to AXS-14, we are finalizing preparations for our planned Phase III trial in fibromyalgia, which we expect to launch before year-end. These milestones highlight the continued expansion of Axsome's leading neuroscience pipeline, spanning multiple psychiatry and neurology indications with significant unmet medical needs and substantial long-term growth potential. All in all, our portfolio of novel medicines is robust and diverse and our late-stage pipeline is deep and rapidly advancing, uniquely positioning Axsome to deliver substantial near- and long-term value through multiple highly differentiated paths. With just 3 years as a fully integrated R&D and commercial organization, Axsome is shaping the frontier of differentiated innovation in brain health. The fundamentals of our business have never been stronger, and we are excited to continue building on this foundation to drive further growth. With that, I'll hand the call over to Nick to review our financial results for the quarter. Nick Pizzie: Thank you, Herriot, and good morning, everyone. Our third quarter performance underscores the continued momentum of Axsome's commercial portfolio and the breadth of our capabilities as an organization. We continue to advance multiple innovative therapies addressing diverse and critical needs in brain health, a foundation that is driving meaningful growth across our entire business. As Herriot mentioned, total product revenues for the quarter reached $171 million, representing a 63% increase year-over-year. AUVELITY continues to demonstrate impressive growth. Net product sales for the quarter were $136.1 million, up 69% versus last year. SUNOSI net product revenues for the quarter were $32.8 million, up 35% versus the prior year. SUNOSI revenues consisted of $31.6 million in net product sales and $1.2 million in royalty revenue associated with SUNOSI sales in out-licensed territories. SYMBRAVO in its first full quarter on the market generated $2.1 million in net sales. These results reflect our continued top line growth and focused execution, driving increasing operating leverage across the business. AUVELITY and SUNOSI gross-to-net discounts for the third quarter were both in the high 40% range. We anticipate that AUVELITY and SUNOSI gross-to-net discounts will increase in Q4 to the low 50% range. SYMBRAVO gross-to-net discount for the quarter was in the mid-70% range, which we anticipate will remain elevated during the launch phase. Turning now to expenses. Total cost of revenue were $11.9 million compared to $8.4 million for the third quarter of 2024. Our research and development expenses of $40.2 million decreased 11% compared to last year, primarily driven by the completion of our clinical trials for solriamfetol in ADHD and MDD. Our selling, general and administrative expenses of $150.2 million increased 57% compared to last year, primarily driven by commercialization activities for AUVELITY including the sales force expansion and our recently launched direct-to-consumer advertising campaign, along with the commercial launch of SYMBRAVO. Our net loss for the quarter was $47.2 million or $0.94 per share compared to a net loss of $64.6 million or $1.34 per share for the same period last year. The $47.2 million net loss this quarter includes $23.1 million of noncash stock-based compensation expense and a $13.2 million noncash charge related to contingent consideration. We ended the third quarter with $325.3 million in cash and cash equivalents compared to $315.4 million at the end of 2024. We continue to believe that our current cash balance is sufficient to fund anticipated operations into cash flow positivity based on the current operating plan. And with that, I'd like to turn the call over to Ari, who will now provide a commercial update. Ari Maizel: Thank you, Nick. Q3 represented Axsome's first full quarter with 3 products, and our commercial team advanced efforts across multiple fronts of Axsome's commercial business highlighted by strong performance for AUVELITY, a foundational first full quarter for SYMBRAVO and steady growth for SUNOSI. AUVELITY's momentum in major depressive disorder continues to build with strong prescription growth, increased new writer activation and the initiation of strategic commercial investments. For the quarter, approximately 209,000 prescriptions were written for AUVELITY representing 46% year-over-year growth and 9% sequential growth. By comparison, the antidepressant market grew 1% year-over-year and was flat versus the second quarter of 2025. Since our expansion of the psychiatry sales force earlier this year, average weekly new-to-brand prescriptions or NBRx has increased by approximately 35%. Our expanded team continues to drive broader and deeper engagement across prescriber segments, and we have made meaningful progress in the primary care setting. Approximately 1/3 of AUVELITY prescribers are primary care clinicians, and NBRxs from the primary care setting have increased by approximately 50% since the expansion. Approximately 5,000 new prescribers were activated this quarter, bringing the total number of unique prescribers to 46,000 since launch. In addition to strong demand growth, we continue to make progress with market access for AUVELITY. Commercial coverage increased from 73% to 75% this quarter, bringing total coverage to 85% of all lives across channels. Importantly, we have also contracted with a third large commercial group purchasing organization or GPO effective August 1, which will support continued coverage efforts moving forward. Turning now to SYMBRAVO. The third quarter marks SYMBRAVO's first full quarter on the market with early progress that is helping to establish a strong foundation for long-term growth. More than 5,000 prescriptions were written and over 3,300 new patients started SYMBRAVO in the quarter. Our targeted approach, including focused sales and marketing activity among headache specialists who drive the majority branded migraine prescriptions is effectively building awareness and driving trial. Feedback from patients continues to reinforce SYMBRAVO's robust clinical profile. SYMBRAVO's MoSEIC technology, which enables rapid absorption while maintaining a long half-life resulting in strong efficacy is resonating with HCPs. In a recent survey of migraine treaters, key drivers of prescribing include SYMBRAVO's multi-mechanistic targeting of the CGRP and prostaglandin pathways, fast migraine symptom relief, improvements in patient functioning and sustained freedom from migraine pain. We continue to make progress with SYMBRAVO market access and coverage with overall payer coverage at approximately 52% of all lives as of October 1. The proportion of covered lives in the commercial and government channels is 48% and 56%, respectively. We have also contracted with a second large GPO effective August 1 for potential coverage of SYMBRAVO. We anticipate coverage for SYMBRAVO to expand and evolve throughout the balance of the year and into 2026. And finally, SUNOSI delivered another quarter of strong and steady performance with approximately 53,000 prescriptions representing 12% year-over-year and 5% sequential growth. By comparison, the wake-promoting agent market grew 4% year-over-year and 3% quarter-over-quarter. More than 460 new clinicians prescribed SUNOSI in the quarter, bringing the total cumulative prescriber base to approximately 15,100 since launch. Payer coverage for SUNOSI remains at approximately 83% of lives covered across channels. Overall, the third quarter represented another period of strong commercial performance across Axsome's growing portfolio of differentiated CNS products. With continued execution on AUVELITY and SUNOSI and the establishment of the growth foundation for SYMBRAVO, Axsome is driving increased demand, growing prescriber and patient engagement and expanding access to our products. We remain confident in Axsome's continued growth potential and look forward to sharing future updates on our commercial progress. I will now turn the call back to Darren for Q&A. Darren Opland: Thanks, Ari. That concludes our prepared remarks. Daryl, please open the line for Q&A. Operator: [Operator Instructions] Our first questions come from the line of Leonid Timashev with RBC Capital Markets. Leonid Timashev: Congrats on the quarter. I actually wanted to ask on SYMBRAVO and your ability to extrapolate what you're seeing in the third quarter out to fourth quarter in 2026. I guess maybe can you talk about the increased depth of prescribing you're seeing and maybe what you'd like to see on the ground before you invest more in the launch and potentially in areas of bottleneck that are stopping additional patients from coming on therapy? Ari Maizel: Leon, thanks for the question. This is Ari. Obviously, it's still very early in the SYMBRAVO launch. And our -- what we're seeing so far is very positive in terms of HCP and patient response. The drug is performing as well as we expected in the real-world setting. We are -- as a reminder, we've taken a very targeted and focused approach, focused on the top 150 headache centers as well as large neurology practices around the country. And our intent is to try to penetrate as many of those providers as possible. And as we observe the impact, we'll make further decisions around expansion or incremental investment for SYMBRAVO. But at this time, we're really pleased with the early response. There's still a lot of work to do, and we're in the early days. But we are really focused on increasing prescribing in our targeted clinicians. As we mentioned earlier, we've seen improvements in market access, which is also a key area of focus for us, and we'll share additional updates as the brand progresses. Operator: Our next questions come from the line of Marc Goodman with Leerink Partners. Basma Radwan Ibrahim: This is Basma on for Marc. We have a question on AUVELITY regarding the primary care segment, which seems to be contributing more and more to the scripts right now. Do you see this segment as a key growth driver for AUVELITY? And how do you envision growing this segment? Is it mainly through sales force expansion? That's it for us. Ari Maizel: Yes. Thanks so much for the question. Yes, we believe primary care is a really important specialty area for AUVELITY in MDD, is largely because most patients in the U.S. present to primary care office upon diagnosis and many stay with primary care throughout the course of their depression episodes. As you mentioned, we are seeing very positive response in the primary care setting. It now represents roughly 1/3 of our subscriber base, and we're seeing strong performance in terms of new patient starts as well as overall prescriptions. In terms of how do we further grow the primary care segment, part of that is just our focused sales force effort. Obviously, we've expanded the team several times, and that has enabled us to reach more primary care clinicians on a routine basis. We believe the expanded market access that we've been able to accomplish over the past couple of years is also helping to ease the prescribing path for a primary care treater that may not have as many resources to support PA processing. And then finally, our direct-to-consumer campaign, which launched in the quarter, we're seeing early positive signals in terms of patient awareness, patient requests for the product, and we expect that to facilitate further growth in the primary care setting along with the psychiatry setting. Operator: Our next question comes from the line of Pete Stavropoulos with Cantor Fitzgerald. Pete Stavropoulos: Congrats on the quarter. There is a clear distinction in the clinical profile of AXS-05 versus antipsychotic. Given the differences in clinical data for Alzheimer's agitation and the mechanisms, what are your expectations for AUVELITY adoption if approved? And how do you plan to drive uptake in the various channels? And have you identified key elements from REXULTI commercialization and marketing strategy, you would do differently to ensure a greater uptake and success? Ari Maizel: Yes. Thanks for the question. Obviously, we're very optimistic about the impact AXS-05 can have on the Alzheimer's agitation market. In terms of our focus area, what we have seen in our early launch preparation is that there are a mix of specialties that are treating agitation. Primary care is the largest. There are also geriatric psychiatrists, neurologists and then traditional psychiatrists. Of course, long-term care is an important setting of care for Alzheimer's patients. And our anticipation is that we'll cover all of those different specialties and settings of care with our efforts. We see a high degree of overlap between Alzheimer's agitation and major depressive disorder in terms of prescriber base. And so we'll be able to leverage our existing sales force. We see high synergies related to promotion there. And of course, we will need to invest in long-term care promotion, which is something we don't currently have, but do anticipate bringing online if the drug is approved. In terms of REXULTI's promotion, our -- we don't typically comment on other companies and their promotional mix. But we have been following along, and they're having really nice success with REXULTI. And so there are some learnings that we'll incorporate into our launch strategy if an AXS-05 is approved. Operator: Our next question comes from the line of Sean Laaman with Morgan Stanley. Sean Laaman: I'm just wondering on the sales force expansion. I think you just mentioned on the call, you're up to 46,000 prescribers, added 5,000. Given the bump in SG&A, I'm wondering how much capacity you think you've got in the existing sales force and when you might have to go again and how that ties into your thinking about the time to cash flow positivity? Ari Maizel: Yes, I'll take the first part of the question. We are pleased with the size of our sales force at the moment. It is driving considerable growth in terms of new prescribers as well as new patients. We previously shared that we intend to add some additional representatives in support of the Alzheimer's agitation approval. And we have started our efforts in terms of laying the groundwork for future expansions, although we haven't quite settled on a final number. That is something that we're looking to do early in 2026. Nick Pizzie: Yes. Maybe just a little bit on the SG&A for the quarter. This is Nick. So in Q3, the SG&A increased slightly. That was really driven by our launch of the DTC campaign that we launched in September. Additionally, we had a full quarter of commercialization activity for SYMBRAVO. So even with that, if you take a look at our net loss on a cash basis, we continue to improve quarter-over-quarter as well as on a GAAP basis, continue to improve on the net loss. So no changes as it relates to our outlook for cash flow positivity. Operator: Our next question comes from the line of Ash Verma with UBS. Ashwani Verma: Just on the AD agitation application, can you comment on how many days past you are after the application filing? Are there some investor discussion going on whether you're past the 60 days and that's unlikely to get a priority review? And then any implications that you can draw from the government shutdown to your filing application process review and how this may play out? Ari Maizel: Sure. So as is our practice, we haven't disclosed the data of the submission, but the FDA typically let sponsors know, say, up to 74 days following the submission when -- on a potential acceptance. We don't see any potential impact from the shutdown for the timing. So we'll -- as we said, the next update that we expect to share is potential acceptance decision. Operator: Our next question comes from the line of Andrew Tsai with Jefferies. Lin Tsai: Great execution this quarter. Maybe shifting gears to the pipeline. You've got 2 Phase III readouts with SUNOSI for binge eating and shift work disorder. So can you talk a little bit about the study designs, what positive data would entail for -- in order for you guys to file 2 more sNDAs next year or 2027? Herriot Tabuteau: Sure. As it relates to binge eating disorder, it's a standard parallel-group study design. And that would be the first study that we would need in order to be able to file an sNDA. So then based upon the results of that study, we would intend to initiate another trial, so we would need 2 studies for that. Other indications for solriamfetol include ADHD and where we currently have one positive Phase III trial for that in adults, and we're looking to start our second study, which would be in pediatric subjects or pediatric patients in the fourth quarter. Operator: Our next question comes from the line of Ami Fadia with Needham & Company. Ami Fadia: My question is just sort of broader, stepping back. You've got a couple of products in the market, making your way towards cash flow positively and several other late-stage assets. Sort of from a long-term strategic perspective, where are you in terms of your thinking around the portfolio? Are you looking to add additional assets to drive sort of operational efficiencies over the next couple of years? Or do you think that you've got enough in late stage that focuses really more on execution on those assets? Herriot Tabuteau: Thank you for the question. We're in a very -- we're in a unique position from the perspective of -- as you mentioned, we do have 3 marketed products which are still in relatively early stages of launch. So there's a lot of growth ahead. And also we're very fortunate that the period of exclusivity for these products goes out into the next decade or a couple of decades. So that's a great position to be in. And on the back of that, there is the next wave of products which we would -- products and indications, which we would expect to be approved over the next couple of years. We talked about the sNDA filing for Alzheimer's disease agitation and the planned NDA filing for AXS-12. And then of course, there's AXS-14 for which we intend to launch our next Phase III trial. So all of that means that we really do not need to do anything extra as it relates to the pipeline in the near term. But that would be, I think, the standard approach, and our approach is always to make sure that we're ahead of the curve. And so as it relates to that, we are taking the opportunity of the position that we're in to field inbound as it relates to potential additions to the pipeline, which could be complementary. So we're not going to quit while we're ahead. And we'll continue to make sure that we make very good strategic decisions as it relates to potentially enhancing the pipeline, and we're in a position whereby we can be very choosy about what we bring on board. Operator: Our next question comes from the line of David Amsellem with Piper Sandler. David Amsellem: I had a question on reboxetine. I wanted to get your latest thoughts on how you're thinking of the commercial opportunity, particularly given that you'll be entering the market more or less around the same time as oveporexton, the first orexin 2 receptor agonist. So how are you thinking about the competitive dynamics here? How are you thinking about sizing this opportunity? Just wanted to get your latest thoughts on the product. Herriot Tabuteau: Yes. So I think we'll all tackle that. One thing which is really interesting about reboxetine is its focus on norepinephrine reuptake inhibition. And that is a common pathway for the orexins. So the pathophysiology of the disease is orexin neuron loss, then decreases the production of norepinephrine. And so then -- so we -- this is -- the reboxetine works in very logical, rational way in terms of the pathophysiology of the disease. So we're very excited about the product profile because we know from our experience in the sleep space with SUNOSI that there is still very high unmet medical need. Ari? Ari Maizel: Yes. And I'll just add, when you look at the clinical profile that was observed in the Phase III trials, great efficacy in cataplexy, nonstimulant daytime treatment, favorable tolerability profile. These is a lot to like about it, and what we hear from KOLs and sleep experts is that many patients require a polypharmacy. There's a lot of trial and error. And even with the entry of a new mechanistic approach, we believe that there will still be significant unmet need, which creates opportunity for AXS-12 in those patients. Mark Jacobson: And maybe just one other add is with respect to sizing, we see incredibly high synergy, almost near perfect synergy with the current sales and marketing infrastructure that we have in place for SUNOSI right now. So very, very, very complementary to what's already in place. So we're excited about that. Operator: Our next question comes from the line of Joon Lee with Truist Securities. Joon Lee: Congrats on the strong quarter. Your commercial execution on SUNOSI is quite impressive. Any idea where the demand for SUNOSI is coming from? Is it NT1, NT2, IH or something else? And given your strength in combining products, any thoughts on combining SUNOSI with AXS-12 to address both EDS and cataplexy? Or do you think it's just better to keep them a la carte? Ari Maizel: Yes, I'll take the first part of that question. We're seeing sort of -- the predominant growth is coming from the OSA segment. There is significant unmet need in terms of excessive sleepiness with OSA patients. And it represents roughly 2/3 or so of the overall prescribing for SUNOSI, and we are seeing very strong demand for SUNOSI with those patients. Narcolepsy, of course, is an important component of the SUNOSI sales mix, but what we've seen particularly over the past couple of years is a greater awareness of excessive sleepiness among OSA patients. And as a consequence, we're seeing increased utilization there. Herriot Tabuteau: Yes. And as it relates to your question about whether it should be an a-la-carte approach for AXS-12 and SUNOSI, given how complementary the planned indications are. Our priority is to make sure that we get the product approved. That's first and foremost. So let's start with that. And that's going to accomplish our main goal, which is to provide clinicians extra treatment options. And clearly, given how the patients are treated with narcolepsy, given the varied symptomatology, probably undoubtedly, there would be patients who receive both SUNOSI and AXS-12. And our goal is to provide clinicians the data such that they can treat the patients in the best way that they see fit. Operator: Our next question comes from the line of Ram Selvaraju with H.C. Wainwright. Raghuram Selvaraju: Congratulations on all the progress. Just with respect to SYMBRAVO, I was wondering if you could elaborate on the number of centers that you expect to target in the next wave after the initial 150 headache centers. And also if you could tell us a little bit about the timing with which you expect the DTC campaign for SYMBRAVO to be engaged, if we should be thinking about the time line as being similar to the time line with which you initiated the DTC promotional activity in support of AUVELITY. Ari Maizel: Thanks, Ram. So regarding the, I guess, increase in number of centers, the way to think about it is right now, we are really focused on the predominant headache centers and headache specialists in the country. A future expansion would enable us to actually expand out more into the primary care market where you might have a heavy proportion of migraine treaters. And so right now, we feel very good about our coverage of headache centers and headache specialists, but that next wave would really be more about primary care expansion. As it relates to DTC, I think it's a little premature to talk about potential timing. If you look at AUVELITY and our timing related to our DTC launch, it really was a function of ensuring we had a strong foundation of HCP prescribers support from a prescriber perspective. We have reached a critical mass in terms of market access, and we had a sales force size that was big enough to support the increase in patient requests coming from a DTC campaign. So when that might happen, obviously, we're focused on execution across all fronts, and we'll evaluate as the brand progresses. Operator: Our next question comes from the line of Jason Gerberry with Bank of America. Dina Ramadane: It's Dina on for Jason. Congrats on the quarter. Just on AXS-05 for Alzheimer's disease agitation, could you maybe share your understanding of the clinical profile bar that's necessary for priority review under breakthrough designation? Is there a requirement that AXS-05 shows efficacy benefit relative to REXULTI? And maybe how do you think investors should think about that scenario and the read-through to the ACCORD trial? And then just a quick follow-up on your comment on AXS-05 ADA long-term care promotion. Could you just maybe detail what those efforts look like? Are there docs that are affiliated with long-term care facilities? I appreciate any additional color there. Mark Jacobson: So just one thing just to share, our base case here is always a standard review for the application. And we are eligible and -- for a potential priority review, but our understanding is that currently, the default position for the FDA for any application is standard review. And with respect to like quantitative efficacy bars, that's not how it works, right? It's -- so it's not a specific or again, quantitative analysis that the agency does. So it's hard to give you anything there for what may or may not go into an analysis like that. But again, our base case has always been standard review. And I think we will -- as we said, we'll keep people posted on a potential acceptance decision as I think the next thing that we'd expect for the course of the review. Ari Maizel: Yes. And Dina, in terms of your long-term care question, it's a little different than traditional outpatient facilities where you may be calling on MDs, NPs, PAs along with office staff. In long-term care facilities, there's a significant nursing staff, pharmacy directors, medical directors. Of course, there are physicians, NPs and PAs that will make rounds in long-term care, but they also are treating patients in the community. And so there is a synergistic effect of the community-based promotion for those clinicians that go into long-term care. So it is a little bit of a different approach, which is why we feel it's necessary to have a dedicated team focused on long-term care facilities if the drug is approved. Operator: Our next question comes from the line of Yatin Suneja with Guggenheim Partners. Yatin Suneja: One more question on the ADA. How do you think about the AdCom? Is that going to be required given that we already had one for the space with REXULTI? Just curious to hear your thoughts on how you are thinking about it. Mark Jacobson: In AdCom, that's something companies find out on potential acceptance decisions for FDA. So stay tuned on that. Operator: Our next question comes from the line of Graig Suvannavejh with Mizuho Securities. Graig Suvannavejh: Congrats on the continued success across the board, both commercially and on the pipeline. Just want to talk about AUVELITY commercially. I just wanted to revisit the gross to net and its evolution. I think you mentioned that the gross to net was in the high 40s in the third quarter. I'm wondering what led to that happening and whether there are any unique onetime events or items that contributed to that. And also just looking forward on the progress you've made with contracting. Are there any other significant gains that you're looking forward to? I mean it seems like you're in a pretty good place, but just wondering just in the future, how we should think about that dynamic. Nick Pizzie: Graig, this is Nick. Thanks for the question. You're correct, AUVELITY discount for the quarter improved from the mid-50s to the high 40s in Q3. So pleased with the net price improvement around AUVELITY. And something that did change during the quarter is that we received additional 28 million lives in Q3. And so we were able to see those lives covered in an improved fashion in first-line or first switch. So improved access, improved amount of patients covered along with improved net price from a GTN perspective. Ari, do you want to take the second question? Ari Maizel: Yes. So I think, first and foremost, we're at 85% total lives covered, which we're really pleased with. We shared on the opening remarks that we signed the third large GPO. Our expectation is to continue to add additional covered lives. Our goal is to try to get to as close as 100% as we can. Obviously, with the third GPO signed, that will enable additional covered lives moving forward. As you know, it's very difficult to predict exactly when those new PBM contracts will come online. But we do feel optimistic that there's great interest and the team is continuing to focus on driving additional covered lives moving forward. Operator: Our next question comes from the line of David Hoang with Deutsche Bank. David Hoang: Congrats on the quarter. I just wanted to go back to the planned sales force expansion for ADA. Recognize that it's early days, but could you maybe bookend or at least point us towards maybe a minimum number of reps that you think would be sufficient to execute a successful launch in that indication? And are those numbers already contemplated in your guidance for reaching cash flow positivity? Ari Maizel: Yes. Thanks, David. The plan would be to expand the team if the drug is approved. In terms of the overall number, we're still working through that. There's obviously 2 pieces to it. One is, are there clinicians we don't -- we would like to cover that, we don't currently cover with the current team and what sort of incremental headcount numbers that we need to reach them. And then the long-term care area is something that we'll need to think through in terms of overall headcount needed to appropriately educate and engage with long-term care setting. So a little early to share a specific number, but the goal is to expand the team if AXS-05 is approved, and we'll share additional updates in the future. Unknown Executive: And David, would you mind just repeating, I think you had a question about cash flow positivity. David Hoang: Yes, whether the ADA -- anticipated ADA sales force expansion is already contemplated within the existing guidance or cash flow positivity? Nick Pizzie: Yes, David, it's Nick. Absolutely, it's contemplated. We -- the way that we forecast our cash is assuming that everything is positive as it relates to clinical and regulatory outlooks and then the additional associated costs with that. So obviously, upon the launch, you would have -- it would be capital intensive in the first few quarters. And then ultimately seeing an ROI. So yes, the answer is we have already included that in our cash flow. Operator: Our next question comes from the line of Troy Langford with TD Cowen. Troy Langford: Congrats on all the progress in the quarter. Just with respect to AUVELITY, approximately how many quarters do you think it will take to see an impact from the recently launched DTC campaign on prescriptions? And do you think we'll see any sort of inflection in the current trajectory of prescriptions? Or do you think we'll see just more of a continued gradual upward trend? Ari Maizel: Yes. Thanks, Troy, for the question. In terms of number of quarters, it's hard to predict exactly when the most significant impact from DTC will hit. But one of the things that we're looking at is changes in our weekly new patient starts. We have begun to see an increase in new patient starts. In general, it's sort of 8 to 12 weeks is when we'd be looking for anything significant in terms of DTC impact. Right now, we feel like it's still early days, but we're pleased with some of the trends that we've observed, and we'll continue to provide updates. Operator: Our next question comes from the line of Myles Minter with William Blair. Myles Minter: Just the first on the third GPO contract in those P&T meetings coming online. Would you expect that commercial covered lives moving from 75% to somewhere in the mid-90% to have a similar favorable gross to net impact, as you saw with the 28 million lives coming online in the third quarter there? And then secondly, just given the FDA news this morning with uniQure and then George Tidmarsh, obviously, resigning. Just anything you can say about the confidence of the FDA as you work through the regulatory process on the CDER side? Nick Pizzie: Myles, I'll take the first one on GTN. I think it's too early to say where GTN will land with an additional contract now at hand. So -- but we are pleased, as we shared with where we are with the improvement in GTN as well as the improvement in the amount of lives covered and the formulary access. So stay tuned for where that -- where we will land. But we will continue to negotiate in a similar fashion as we have previously, ensuring that we maintain long-term value and try to have as many patients covered as possible. Mark Jacobson: And on the FDA side, right now, things are status quo for us in terms of our dialogue and interactions with -- across the various divisions that we engage with. Operator: Our next question comes from the line of Madison El-Saadi B. Riley Securities. Madison Wynne El-Saadi: Congrats on the quarter. On AUVELITY and SUNOSI as well, but more so AUVELITY, are you seeing per prescriber activity trending upward? Just trying to kind of get a sense of how much growth here is sensitivity to promotion versus more organic growth? Obviously, the sensitivity to promotions is great. But my sense is that there's also some organic growth here as well. If you could just comment and then maybe a follow-up. Ari Maizel: Yes. Thanks for the question, Madison. We are -- I guess the way that I would recommend sort of thinking about the growth is it's a function of 2 things: productivity among the existing writer. So the number of prescriptions per existing writer and then our ability to add additional new writers into the prescriber mix. And for both brands, we're seeing those things come to fruition, which I think is a testament to the impact that these medicines are having on patients' lives, the positive reinforcement that these clinicians are hearing from their patients and our team's ability to engage with them and educate them on a routine basis. So those are things that we'll continue to look to drive moving forward. Madison Wynne El-Saadi: Got it. Understood. And then secondly -- so we have 4 Phase III trials planned to initiate this quarter. Just wondering on the cadence of those, should we think of these as almost parallel launches? Or will these kind of come in a sequence throughout the remaining quarter? Herriot Tabuteau: Yes. So with 4 Phase III trials launching, there are a lot of moving parts from an operational perspective to make sure that, that happens. So it's very unlikely that they're all going to happen on the very same day. So do expect a natural cadence. It's nothing that we're preplanning. However, we are working towards and are on track for the initiation of those studies in the fourth quarter. Operator: Our last questions will come from the line of Benjamin Burnett with Wells Fargo. Unknown Analyst: This is Craig on for Ben. So just a couple from us here. So given your successful track record of getting products through the finish line, I'm curious, can you provide a little bit of color of how your regulatory interactions in regards to the sNDA for AXS in ADA has maybe differed from some of those past programs? And I guess second question, in regards to narcolepsy, I feel like we're seeing a lot of estimates of the epidemiology of those indications kind of expanding and expanding further. So out of curiosity, what do you guys think is driving that? And are you seeing growth in IH, NT1, NT2, any one particular area? Yes, any color there would be helpful. Mark Jacobson: I'll take the first part. So it's ordinary course at the moment based on where we are in the cycle, in terms of the submission for AXS-05 in AD agitation. Herriot Tabuteau: Yes. And from an epidemiological perspective, for narcolepsy you've got to look at the surveys that are done and the quality of the surveys. And however, one aspect of the market that we've always pointed to is the fact that in this orphan indication, there's still a large percentage of patients who, one, have remained diagnosed in the past; and secondly, who are treated. So certainly, as there is more interest in the space as more products are being developed and coming to market, one would expect that there would be an increase in awareness and maybe that's what you're seeing. Anything that you would add, Ari? Ari Maizel: No. I think you mentioned NT1, NT2, IH, I think that there's a lot of symptomatology overlap in different formalized diagnoses, which may muddy the waters a little bit. But from our perspective, we feel good about our current estimates, which is around 185,000 people in the U.S. suffering from narcolepsy, and that's what we're building our plans around. Operator: There are no further questions at this time. I would now like to hand the call back over to management for any closing comments. Herriot Tabuteau: Thank you. And thanks, everyone -- thank you to everyone for joining us this morning. As we've highlighted today, Axsome delivered another strong quarter. We continue to drive robust growth across our commercial portfolio, and we are well positioned to deliver significant long-term value through our advancing pipeline. We look forward to sharing our continued progress over the coming months. Thank you. Operator: Thank you. This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.
Operator: Good morning, ladies and gentlemen, and welcome to the NAPCO Security Technologies Fiscal First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Monday, November 3, 2025. I would now like to turn the conference over to Mr. Francis Okoniewski. Please go ahead. Francis J. Okoniewski: Thank you, Emma. Good morning, everyone. This is Fran Okoniewski, Vice President of Investor Relations for NAPCO Security Technologies. Thank you all for joining today's conference call to discuss financial results for our fiscal first quarter 2026. By now, all of you should have had the opportunity to review our earnings press release discussing our quarterly results. If you have not, a copy of the release is available in the Investor Relations section of our website, www.napcosecurity.com. On the call today are Dick Soloway, Chairman and CEO of NAPCO Security Technologies; Kevin Buchel, President and Chief Operating Officer; and Andrew Vuono, Chief Financial Officer. Before we begin, let me take a moment to read the forward-looking statement as this presentation contains forward-looking statements that are based on current expectations, estimates, forecasts and projections of future performance based on management's judgment, beliefs, current trends and anticipated product performance. These forward-looking statements include, without limitation, statements relating to growth drivers of the company's business such as school security products, reoccurring revenue services, potential market opportunities, the benefits of our reoccurring revenue products to customers and dealers, our ability to control expenses and costs, and expected annual run rate for reoccurring monthly revenue. Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. These factors include, but are not limited to, such risk factors described in our SEC filings, including our annual report on Form 10-K. Other unknown or predictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, level of activity, performance or achievements. You should not place undue reliance on these forward-looking statements. All information provided in today's press release and this conference call are as of today's date, unless otherwise stated, and we undertake no duty to update such information, except as required under applicable law. I'll turn the call over to Dick in a moment. But before I do, I want to mention we will be attending the International Security Conference trade show, November 18 through the 20th, in New York City's Javits Center. We'll be showcasing an array of exciting new products. And if anyone is interested in attending, please contact me, and I will arrange to get you a guest pass. In addition, we're actively planning our Investor Relations calendar for non-deal roadshow and conference attendance in the near future. Investor outreach is important to NAPCO, and I'd like to thank all those who assist us in these type of events. In the coming weeks, we'll be attending the [ Robert Baird ] Global Industrial Conference in Chicago; the Stephens Annual Investment Conference in Nashville; the UBS Global Industrials & Transportation Conference in Palm Beach, Florida; the Melius Research Conference in New York City; and Needham's 28th Annual Growth Conference also in New York City. With that out of the way, let me turn the call over to Dick Soloway, Chairman and CEO of NAPCO Security Technologies. Dick, the floor is yours. Richard Soloway: Thank you, Fran. Good morning, everyone, and welcome to our conference call. We appreciate you joining us as we review our fiscal first quarter 2026 performance. Our first quarter results, which reflects record Q1 revenue, continues the momentum we reported from Q4 of fiscal 2025 and is a reflection of our continued focus on long-term growth and resiliency of our business. Our recurring revenue model has continued its steady growth, while maintaining its substantial profitability. We remain encouraged with our equipment revenue performance and our ability to weather the various microeconomic challenges we encountered in fiscal 2025 as we started to realize some of the benefits from our pricing strategies in response to tariff uncertainties. We have started fiscal 2026 with a positive momentum and confidence in our ability to continue to execute on our plan to provide enhanced shareholder value and growth through the balance of the fiscal year. Now, I'll turn the call over to our President and Chief Operating Officer, Kevin Buchel, who will comment on some of our operational and financial performance highlights. Following Kevin's remarks, our CFO, Andy Vuono, will go through the financials in more detail, and then I will return to delve deeper into our strategies and market outlook. Kevin, the floor is yours. Kevin Buchel: Thank you, Dick. Good morning, everyone. I'm pleased to share a few highlights from what was a very strong start to fiscal 2026. Total revenue for the quarter was $49.2 million, and that's a Q1 record and up 12% compared to the same period last year. Within those results, equipment sales reached $25.7 million, also up 12% year-over-year, demonstrating the continued strength of our relationships with our distributors and our dealers. And this increase was also supported in part by the early impact of 2 price adjustments: one related to tariffs, and that was implemented at the end of April; and our normal annual price increase, and that took effect in mid-July. We did not see the full impact of those price adjustments in Q1, but we expect to see a larger benefit in the upcoming quarters of fiscal 2026. Recurring revenue remained strong as well, growing 11% over last year's Q1 and maintaining an impressive gross margin of 90.3%, with StarLink commercial fire radios continuing to be the key driver within that mix. Our equipment gross margin improved as well to 26%, representing a 300 basis point sequential increase from fiscal 2025's Q4. From a profitability standpoint, operating income increased 15% year-over-year. Net income rose 9% to a Q1 record of $12.2 million, and that represents 25% of revenue. And our adjusted EBITDA was up 21%, and we now have an adjusted EBITDA margin of 30.4%. Finally, cash continues to grow. It reached $106 million as of September 30, 2025. Cash from operations was $11.6 million. And of course, we have no debt. As such, we are pleased to announce that we are continuing our dividend program, as our Board of Directors declared a quarterly dividend of $0.14 per share, payable on January 2, 2026 to shareholders of record on December 12, 2025. Overall, this was a strong start to fiscal 2026, and I'm very proud of the team's execution across the board. With that, I will turn the call over to our CFO, Andy Vuono, for a deeper look at the financials. Andy? Andrew Vuono: Thank you, Kevin, and good morning, everyone. Net revenue for the 3 months ended September 30, 2025 increased 11.7% to $49.2 million as compared to $44 million for the same period a year ago. Recurring monthly service revenue continued its strong growth, increasing 11.6% in Q1 to $23.5 million as compared to $21.1 million for the same period last year. Our recurring revenue service now has a prospective annual run rate of approximately $95 million based on our October 2025 recurring service revenues, and that compares to $94 million based on July 2025 recurring service revenues, which we reported back in August. These increases reflect the continued demand for our line of StarLink radios. Equipment revenue increased 11.8% to $25.6 million as compared to $22.9 million for Q1 of fiscal '25, which is a result of increased volume in our door locking product line and the impact of certain product pricing increases that went to effect in the quarter. Gross profit for the 3 months ended September 30, 2025 increased 13.1% to $27.8 million with a gross margin of 56.6% as compared to $24.6 million with a gross margin of 55.9% for the same period last year. Gross profit for recurring services revenue for the quarter increased 10.7% to $21.2 million with a gross margin of 90.3% as compared to $19.2 million with a gross margin of 91.1% last year. Gross profit for equipment revenues in Q1 increased 21.8% to $6.6 million with a gross margin of 25.7% as compared to $5.4 million with a gross margin of 23.6% last year. The increase in equipment gross profit was primarily a result of product mix as door locking products have a higher gross margin than intrusion. That, coupled with certain price increases and improved overhead absorption as a result of increased volume, contributed to the improvement in the equipment margins. R&D costs for the quarter increased 6% to $3.2 million or 6.6% of revenue as compared to $3.1 million or 6.9% of revenue for the same period a year ago. The increase for the 3 months primarily resulted from increased labor costs, which was partially offset by reduced consulting fees. Selling, general and administrative expenses for the quarter increased 13% to $11 million or 22.3% of net revenue as compared to $9.7 million or 22.1% of net revenue for the same period last year. The increase in SG&A for the 3 months were primarily due to increased legal fees and sales commissions, partially offset by decreased bonuses and compensation and benefits. Operating income for the quarter increased 15.1% to $13.6 million as compared to $11.9 million for the same period last year. Interest and other income for the 3 months decreased 13.5% to $1 million as compared to $1.1 million last year. The decrease for the 3 months ended September 25 was due to lower interest income from the company's cash and short-term investments as a result of lower interest rates. The provision for income taxes for the 3 months increased 36% or $655,000 to $2.5 million with an effective tax rate of 16.9% as compared to $1.8 million with an effective tax rate of 14% last year. The increase in the provision for 3 months was due to higher pretax income, as well as a larger portion of the company's taxable income being attributable to U.S. operations, and the remeasurement of certain deferred tax liabilities due to tax rate changes enacted in the One Big Beautiful Bill Act in the current period. Net income for the quarter increased 8.8% to $12.2 million or $0.34 per diluted share as compared to $11.2 million or $0.30 per diluted share for the same period last year and represented 25% of net revenue. Adjusted EBITDA for the quarter increased 21.1% to $14.9 million or $0.42 per diluted share as compared to $12.3 million or $0.33 per diluted share for the same period a year ago and equates to an adjusted EBITDA margin of 30.4%. As it relates to our balance sheet, as of September 30, the company had $105.8 million in cash and cash equivalents and marketable securities as compared to $99.1 million as of June 30, 2025, a 6.6% sequential increase. The company had no debt as of September 30. And cash provided by operating activities for the 3 months ended September 30, 2025 was $11.6 million as compared to $12 million for the same period last year, a 3% decrease. Working capital, which is defined as current assets less current liabilities, was $159.2 million as of September 30 as compared with working capital of $149.9 million on June 30, 2025. Our current ratio was 7.5:1 on September 30 as opposed to 7.3:1 on June 30, 2025. And our CapEx for the quarter was $193,000 as compared to $680,000 in the prior year period. That concludes my formal remarks, and I would like to return the call back to Dick. Richard Soloway: Thanks, Andy. Let me close with a few reflections on where we've been and where we're headed. This quarter, NAPCO once again demonstrated the strength and resilience of our business model. We remain focused on delivering lasting value to our customers, partners and shareholders, and the results speak for themselves. Recurring revenue now represents nearly half of our total sales, supported by a sustained 90%-plus gross margin. This steady high-margin income continues to drive consistent cash generation and reinvestment in innovation and growth. A key contributor remains our StarLink Fire radio platform, which has become the industry standard for commercial fire communications. Operationally, our team is executing exceptionally well. We manage inventory tightly, continue to invest in product development, compliance and infrastructure, and return capital through dividends, all while maintaining a debt-free balance sheet. Looking ahead, we remain optimistic. Market dynamics continue to evolve, but we're not standing still. We've implemented pricing actions, diversified our distribution base and invested in automation and enhancements to the StarLink platform, aimed at sustained growth and protecting margins. Our strong balance sheet provides flexibility for both organic investments and potential strategic acquisitions, while keeping us committed to shareholder returns. One area where NAPCO continues to make a real impact is school security, one of the most critical challenges of our time. We're proud to partner with school districts nationwide, providing integrated solutions that include our Trilogy and ArchiTech lock sets and enterprise-scale access control systems. These platforms are secure, scalable and aligned with the Partner Alliance for Safer Schools, or PASS, program standards, giving educators and administrators solutions they can trust. What truly differentiates NAPCO is our ability to integrate locking, access control and alarm technologies into a unified interoperable platform, protecting students and staff every day, while driving future growth. At the same time, we continue to expand recurring revenue opportunities through innovation. A great example is our MVP cloud-based access control platform, which integrates seamlessly with our locking hardware. MVP introduces a new subscription-based revenue stream for NAPCO and our dealers, and it's available in 2 configurations: MVP Access, an enterprise-grade solution supporting unlimited users; and MVP EZ, a mobile-first version for locksmiths and smaller facilities. We believe MVP has the potential to be a game changer, extending our leadership into hosted access control and reinforcing our strategy of pairing innovative hardware with cloud-based services to drive higher-margin recurring revenue. Beyond education, our Alarm Lock and Marks hardware lines continue to gain traction in health care, retail and multi-dwelling applications, as well as airport infrastructure upgrades. And as the transition away from legacy copper phone lines accelerates, our StarLink radios, which operate on both AT&T and Verizon networks and now also T-Mobile, are well positioned to capture additional market share across millions of commercial and residential buildings. Operationally, our Dominican Republic manufacturing facility continues to be a key competitive advantage, offering cost efficiency, stable logistics and low tariff exposure, a benefit versus many competitors manufacturing in higher-tariff regions. While external market and regulatory conditions remain fluid, we're focused on what we can control, driving innovation, executing with discipline and growing our base of recurring revenue. We're confident that our strong net income, adjusted EBITDA and cash flow trends will continue to strengthen. In summary, we have begun fiscal 2026 with a solid momentum, a clear focus, a stronger financial foundation than ever before. I'm incredibly proud of our team, what our team has accomplished and excited about the opportunities ahead. Thank you all for your continued support and confidence in NAPCO. Our formal remarks are now concluded. We'd like to open the call for the Q&A session. Operator, please proceed. Operator: [Operator Instructions] Your first question comes from Matt Summerville with D.A. Davidson. Matt Summerville: A couple of questions. First, on locking. Can you talk about what percent of your locking mix today is represented by that networked product? And then, can you also discuss how your MVP technology differs from other major locking players in the space today? And then, I have a follow-up. Kevin Buchel: I'll answer the first part, and then Dick could answer the second part. So the first part, most of our sales in locking are the traditional products. MVP is just starting out. It's gaining some traction. We're going to show it again at ISC East, which is in a couple of weeks. We're going to show upgrades to what we showed at ISC West back in April. The expectation is, once we show that and start shipping that, we'll start to gain more traction in the new stuff. But the old stuff, the traditional stuff is powerful stuff. Locking is 66% of equipment sales. And that includes all the categories we mentioned in our prepared remarks, including schools and lots of things. We don't announce all the school wins. The schools, sometimes they don't want us to talk about it. But believe me, they're there, and that's part and parcel of why locking was so strong. It was very strong in this quarter, and the expectation is it will continue to be strong. Now Dick, maybe you can comment on why our MVP is different than anybody's product out there. Richard Soloway: Sure. So the MVP product that we introduced is a new recurring revenue generator for locksmiths, as well as system integrators. And what's interesting about it is that we have a totally integrated system because we manufacture the locks. We've been gold standard lock manufacturers under the Trilogy brand for many, many years. It's considered the best locking product. Now, we've added the radio aspect to it, which communicates to our cloud and the cloud is owned by us. We built it. So we're a total integrated manufacturer, which allows us to add a lot of extra functionality to the concept of locking with a recurring revenue tail to it. So if you're an administrator in a hospital, you're in charge of the security division, you can get instantaneous information with all the equipment up in the cloud. No longer does it have to be on the site and where the dealer has to go back and make upgrades to the software. It can all be done in the cloud, and we do it all for the dealer. And we charge $3 a door for each door, and there are millions and millions of doors out there. While we're very successful with the fire alarms and the burglar alarm radio products, which generate recurring revenue, there's millions of those type of buildings where there's one radio per building usually. In this case, you could have 15, 20, 100 doors generating $3 per door with all these services. So it's a totally integrated hardware-software package, and we made it in 2 different ways. One is for basic smaller offices, doctors' offices. You have 6 doors. And that's the MVP EZ. And then, the full-blown access control cloud system is for system integrators to do larger jobs. So we can control our own destiny unlike a lot of our competitors, which have to get locks from one manufacturer, then they do the software themselves or vice versa. We do it all in-house. We have an engineering staff that develops everything from soup to nuts, from the hardware, all the way up to the middle and software of these systems. So it makes us very unique. It's going to be very powerful in the future. It's a way for dealers and locksmiths to build equity in their business now by getting recurring revenue from each door where they install the locks. Matt Summerville: And then, just as a follow-up, can you parse out a bit, in the fiscal first quarter, how much of the hardware revenue growth would have been price versus volume? I'm trying to get a feel for how much price has yet to be realized. And any high-level thoughts as to how the remainder of the fiscal year cadences out would be beneficial. Kevin Buchel: So that's -- it's a combination, Matt. As I said earlier, it's -- we didn't get the full benefit of the price, but we will as the year progresses. Andy could give us some color of kind of what it was in Q1, but we know that there's a lot more to come from the benefit of the pricing. Andy, do you want to comment on it? Andrew Vuono: Sure. Matt, so in response to that, so of the approximate 12% increase in equipment revenue for the period, our preliminary analysis has indicated approximately 60% of that is related to volume increases and 40% is tied to the pricing increases that went into effect in Q1. Operator: Your next question comes from Jim Ricchiuti with Needham & Co. James Ricchiuti: Maybe a follow-up to that, and I know this information is going to be in the Q later today, but can you give us a sense as to what the overall growth was in the door locking products business and whether, when you talk about the early pricing benefits, you saw some benefit in that part of the business as opposed to the radio business? Kevin Buchel: So locking -- and you'll see this in the Q that's going to be filed today, a little later today. Locking for Q1 was $17,083,000. Last year's Q1, it was $13,854,000. So that's a substantial increase. Locking was very strong. Some of it did come from orders that were placed by distributors trying to beat the price increases. We carried a backlog of several million into Q1 from Q4. But a lot of it was not that. So it was really some of it guys going ahead, trying to beat the rush, but a lot of it is locking being strong. This is one of the strongest locking quarters, maybe the strongest we've ever had. It was right up there. And the expectation is, it's going to continue. We don't have situations in the channel where guys are loaded up and presumably, they're not going to skip when we come to then this quarter, Q2. You never know with distributors. They behave funny sometimes, but the channel is good. The sell-through is strong. The expectations are all very good in the locking segment. James Ricchiuti: Helpful, Kevin. And I wonder, maybe just to the comment you just made, just the overall tone of demand, what you're hearing from some of your channel partners? You alluded to a good sell-through that you're seeing on the door locking side, maybe on both parts of the hardware business. Any color you could provide in terms of what you're seeing, hearing sell-through stats or otherwise? Kevin Buchel: Right. So sell-through stats -- this is as of Q1. I can't really comment on what's Q2, which is a month old. But for Q1, we saw very good sell-through stats for all of our locking partners. And we have 2 locking companies, and it was good on both. On the intrusion side, we saw tremendous improvement there, too. So as -- and I look at this very closely every month. So I was [indiscernible] what I'm seeing. I always caution because I never know what distributors are going to do. It's their year-end in December. Who knows what's going to happen. But if we're going to base it solely on what stats we're seeing, and that's their inventory levels and the sell-through, we should be in good shape in both areas, locking and intrusion. Operator: Your next question comes from Peter Costa with Mizuho. Peter Costa: I'd like to maybe dig a little bit further into the service margins. That 80 basis point year-over-year decline was a little bit more than expected. What's kind of causing that pressure? Is there anything on underlying radio margins, an acceleration in MVP? Anything there? Kevin Buchel: So Peter, there were really 2 factors that affected the margin for the recurring, which still is tremendous. 90.3% is still tremendous. It did go down from a little bit over 91%. So 2 factors. Factor number one, we now have a triple carrier radio. That introduces T-Mobile into the mix. We have to buy minutes to support that. We haven't really charged anybody for that. And even though it's not a lot of money, it did move the needle a little bit. The expectation is, we will increase our radio -- our recurring radio charge to cover that. It's not going to be a lot, but it might be enough to move the needle back to where it was. That's one factor. Another factor is, we are gaining a lot of business from some very large dealers. I don't want to mention any names, but there are large dealers out there. One in particular has been buying a lot of the smaller dealers. It seems like they do an acquisition every week. And as a result of that, we're picking up more radio business, and we will be picking up more in the future. This consolidation, if you want to call it that, from the big guys buying up some of the smaller guys, and the radio segment has all moved in our favor. But the big guy loves our fire radio. And when he buys a smaller dealer, he is going to make sure that the smaller dealer's customers get our StarLink Fire radio, if they weren't using it. Maybe they were using it. But if they weren't, opportunity for us to pick up even more share. The one negative of this, and it's mostly positive, is a big guy can command a little bit of a better price. Maybe the big guy pays $1 less than what the smaller guy is paying. We honor that. We're happy to get more business. So if a guy was paying $8 and we have to lower it to $7, just to use an example, we will do that. We'll do that all day long because we're picking up more radio recurring revenue business. So that, too, can move the needle a little bit. Absent of that, it's all the same powerful margins that you've been seeing. Peter Costa: Makes a lot of sense. Richard Soloway: Let me add something else to that. I network a lot with the dealers, and some of the dealers in certain parts of the country have told me that T-Mobile is more reliable on their cell phones than the other services. So evidently, the towers are different or the way the reception is for the radios on their towers is different. So by adding T-Mobile to our mix of AT&T and Verizon, now we have all the major carriers. And the areas where T-Mobile is the strongest in pickup and communications is now in our radios. So we're going to pick up market share -- additional market share with a more stable radio network with T-Mobile. So that's going to help us a lot. So overall, it should be a net positive having T-Mobile as part of our mix. Peter Costa: Awesome. Maybe just thinking about the price on the radio, I think that's kind of intended to be under the RSR, and that seems like a pretty big deal. How would you kind of approach that? Is that just the entire installed base would get a little bit of price, just incremental sales or just like the T-Mobile radios? How would you tackle that? Kevin Buchel: If it's a triple carrier, it's going to be in everybody's radio. So to cover it, everybody would probably get a little bit of an increase, not much. Believe me, we don't want to mess with a very good formula. But I -- like the shareholders, I want to keep that 91% margin as well. And if we have to raise it a little bit to keep it up there, we're going to do that. So we're looking at that now, Peter. Operator: [Operator Instructions] Now our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group. Jeremy Hamblin: Congrats on the strong results. Just wanted to start a little bit with kind of the manufacturing facility, making sure that in terms of the hurricane that had some impact in the DR, just understanding what you've seen there. And then, just kind of related note, in terms of how the tariffs are being applied at this point and impact, as you look forward in calendar '26, do you feel like you're going to have kind of normal pricing increase on products? Or is there any incremental that you need to take to cover where tariffs stand today? Richard Soloway: This is Dick Soloway. I moved down there to the Dominican Republic after I searched around in China and Mexico and decided Dominican is great for a lot of advantages, closest to the U.S., stable government and being able to get the workers that we needed. And we built this custom building. After we were in individual smaller buildings, we built a custom building, which is Category 5 proof. It's all concrete building. So we don't have any issues. We had no problem with the hurricane that passed by. We generate our own power, make our own water. We're self-contained like city down there. And of course, we have our workers come from around the area. And it's actually a shelter for them in a hurricane because it's stronger than the houses. So it works out really, really well. So we had no issues with that, and we don't expect there's anything that's going to be able to cause us any grief in the future. And what was the second part of the question? Jeremy Hamblin: Just in terms of tariff impact and thinking about pricing in 2026 and whether or not you take kind of your more typical price increase or whether or not you would take slightly more, just given how kind of the tariffs are playing out here. I mean, we've seen some stabilization in kind of tariff mandates, but... Kevin Buchel: The tariffs for the DR, very stable. It's not like some of the other countries where it's going up, it's down, it's here, it's there. We know what it is, 10%. That's what it is. That's what it's been. We took an increase to cover that back in -- we announced it back in April. We don't need to do anything more on that front. We took a general price increase that we announced in July. We don't expect to do another one until we get to the end of this fiscal year that we're in. So pricing-wise, we're good. The only thing is, we haven't felt it all yet. We expect to feel good about it -- better. We feel good already. We expect to feel better about it as we get deeper into the year as the full effect is felt. We haven't felt it yet. Jeremy Hamblin: Great. And then, just coming back to the service revenues. You saw a nice little bit of sequential year-over-year improvement from what you had in the June quarter. And you just had a strong quarter with locking. I wanted to just get a sense with the evolution of that business and potentially getting some recurring revenue associated with that in combination with kind of the radio alarms and so forth. When do you think you might kind of see that show up here in recurring service revenue growth as FY '26 plays out? Kevin Buchel: When we released it, when we first talked -- started talking about it, showed it at ISC West in April, and we said at that time, give it 18 months to 2 years. That's how long this kind of thing takes. We hope it's sooner, but I would give it time. I think we'll feel a little bit more as this fiscal year progresses. I think fiscal '27 is when I think we'll really start to feel it. So you got to give it time. We're like 6 months removed basically from when we really had a coming out party for it. Now, we're going to have another coming out party in a couple of weeks to show the other versions of MVP. Give it another year after that, and I think it could be meaningful. Richard Soloway: I went through -- because I've been in the alarm business for a long time, I went through alarms without recurring revenue. Imagine, in the early years, it was just a hardware job that was put in by a dealer. There was no recurring revenue, and the dealer went on to another hardware job. And then, the intro of recurring revenue in the alarm business revolutionized that business. Every job that goes in, intrusion of fire, has a recurring revenue communicator in it, and it gives great service to the occupant of the building, the owner of the building. So, that change, it took a couple, 3 years for dealers to understand why you want to build equity in your business. You just don't want to do a job and do another job after that without having a recurring revenue tail. We're going through the same situation now in the locking business, 25 years later. The locking business is such that a dealer will put in a locking job, either a large building or smaller buildings, and then they go on to the next job, but there's no equity building, no recurring revenue. We are unique in the business, having the fact that we make the locks, we make the radios and that the locksmiths and the integrators don't get recurring revenue from this type of service. And we believe, like it happened in the alarm business, there's going to be a changeover that locksmiths are going to want to get recurring revenue tail to everything they do. And that's what we're doing now. Patterning ourselves after the original alarm business, now we're bringing it to the locking business, and we're unique in the fact that we're the company that can do that because we have all these different facets that we've knitted together to make an integrated manufactured locking product and a cloud product for these locksmiths and for the system integrators. So it's going to be an exciting ride going forward. Just piling on more recurring revenue is the name of the game for us. We've become a communications type of company, and it's going to grow ever larger. Jeremy Hamblin: Just as a quick follow-up on that point, so as we look to FY '27, do you have a sense for what portion of your total service revenues could be tied to the locking products as opposed to the alarm? Kevin Buchel: I think it's premature for us to throw out projections like that. I would just say, I think it would be meaningful and just leave it at that. Richard Soloway: Just think about how many doors are out there and how many commercial buildings. This is all commercial. This is not residential. And what information you can get from every door who comes in, in case of emergencies, what's going on in the hospital, in the drug area, where the drug cabinets are, and you get instant information and reports, doing time and attendance and all kinds of other great things, knowing everything that goes on in every door in the building that has an MVP system, locking system installed on it. I would say that if you don't have this type of system a couple of years from now, you're really in the blind as a management company or as a security department in an industrial building. You've got to have this information. You shouldn't be in the blind. And MVP will give it to everybody. And it's very, very economical, very reliable because it's all built using our StarLink communications program. Operator: Next up, we have Jaeson Schmidt with Lake Street. Jaeson Schmidt: Curious if you can give us an update on how ADI is progressing. Kevin Buchel: ADI relationship, excellent. They do a great job over there. They move a lot of intrusion equipment on our behalf. I couldn't be happier with the exception of one thing. I'd like more locking sales out of them, and we told them this. They're great with the alarm side. We think there's an opportunity for locking through them. They have over 100 branches. I think it's 115 branches, and it would be nice to move locking through those 115 branches. Absent of that, they're doing a very good job, very happy. Richard Soloway: Let me add something to that. There's lots -- there are many, many dealers, and a larger percentage of dealers are going to be doing locking jobs. These are the alarm dealers that do fire and burger alarm jobs, but they're not doing -- not a large percentage of doing locking. They're just staying into the alarm sector of the business. Now, with recurring revenue added on to the locking jobs, it's not just a hardware installation. It's a recurring revenue generator for them. It adds to their fire and burger alarm recurring revenue. And we're going to be training lots of these locking dealers to utilize it and lots of the alarm dealers to utilize it and vice versa. So we're going to be doing a lot of cross-training so that a dealer can be a total wraparound business. He gets recurring revenue from his alarms and he gets recurring revenue from his locking installations and vice versa. So ADI is a great vehicle because they're the largest distributor. They should -- they will, I'm sure, enter into the locking business all across the country, and it's going to be great for market share for us because we're the only alarm manufacturer that has a locking division, and we're the only locking manufacturer that has an alarm division designing and manufacturing all these things. So we're a natural play for the whole locking and alarm industry. We have 3 locking companies, Marks and Alarm Lock and Continental, and we have the NAPCO burglar and the fire alarm business. So we really have the widest range of products out there. Great partners with ADI, and they're a great company. They're really buttoned up. Jaeson Schmidt: Okay. That's helpful. And then, just as a follow-up, sorry if I missed it, but when will the price increase go into effect to account for the T-Mobile compatibility? Kevin Buchel: We're studying that now, Jaeson. We're very cautious with the pricing for the recurring. But it's very clear that we're adding a cost that we're not being compensated for. So we're looking at it. And I would say it's imminent, but we haven't decided it yet. Operator: [Operator Instructions] Our next question comes from Lance Vitanza with TD Cowen. Lance Vitanza: So I wanted to talk a little bit about the school security side. And I think it was about a year ago that you announced the Pasadena school contract. I'm wondering what the status is of that, how far along that is or how it went? Any sort of lessons to learn or just how that sort of leaves you feeling about the opportunity more broadly? Kevin Buchel: That project went well. It's been completed. The opportunities are still tremendous throughout the country. You see all the shootings that are still going on. You still see the announcement that barricade chairs in front of the doors. These are all things we all have been hearing for over 10 years. And unfortunately, a lot of the schools, school districts move very slowly. We do our best to go around the country and show the school districts if they have any issues with money, how to go about getting the money. There's lots of money available. A lot of funds have been allocated to school security. It's there. The universities have no issues. They have the money, and they have the needs as well. Despite the shooting has been going on for over 10 years, we're in the early innings, I would say, fourth or fifth inning of this. Still tremendous opportunity. We win a lot of business, and we don't -- we're not able to tell you about it unless the school grants it, grants us permission. And sometimes, we don't even know about it because the distributors just are doing a job for a school district and they buy a lot of our equipment. We know it's meaningful. We know there's a lot more to go. We know we have the solutions. We know we're the only company because we do locking and access and alarms. We're the one-stop shop that a lot of schools need. So we just keep going out there and getting that word out. Richard Soloway: Yes. We manufacture locks, which are inexpensive for K-12s, and then we manufacture versions of that lock with remote control to them, so you can lock doors remotely, do wide area campuses with our locks. And it's a very diversified line of wide-ranging locks. And as Kevin said, we manufacture the locking, the lock set. We make the parts. We assemble it. We do the radios. We have the cloud. We have all of that experience, and schools appreciate it, and we're doing very nice school work. And -- but still, even after hundreds of shootings a year in the U.S. -- it's a tragedy -- a lot of schools haven't installed it yet. So the fourth or fifth inning of the installation availability. So there's a lot more to do. So schools that make great choices will select the NAPCO system, and we can be flexible from the smallest to the largest campuses out there. So it's a great thing that we're manufacturing that. We want to protect the students and the faculty. And with NAPCO, you can. So our guys are beating the bushes and showing this to these facilities. And eventually, everybody will get armed up against intruders that come into schools and cause havoc. Lance Vitanza: If I could just get one more in on the balance sheet. Cash at $106 million, that's as high as it's been in my memory, recent memory. What do you plan to do with all that cash? I know you talked about possible M&A. The dividend, I mean, you're covering that out of your cash flow. So -- and I'm guessing that the amount of cash that you actually need to run the business is a small fraction of what you had -- what you have. So can we be thinking about any kind of accelerated return of capital to shareholders in 2026? Kevin Buchel: It's a good problem to have, Lance. We keep generating more and more cash. There's not a lot of M&A that's required to run the business. You heard in Andy's comments that CapEx was minimal. We need lots of labor, and we can get it in the Dominican Republic. So the needs for cash dividends, potential acquisition, we have lots of bankers talking to us. Every banker tells us they have the perfect deal for us, but we're pretty fussy. There's a lot of boxes it has to check. We don't want to be distracted. But if it's the right deal, we certainly would proceed. And there are -- I'm sure there are companies out there, and we go through -- as the bankers present them, we go through them all. And if one hits the right spot, we'll go after it. The last thing we want to do though is get distracted by something that's not accretive from day 1. We don't want to overpay, but it could be a good thing. And we're in a good position to do it much better than the position we were in when we did our last one 15 years ago when we had minimal cash, lots of debt and no recurring revenue. So we got a lot of cash, lots of recurring, no debt. We could do it. It's got to be right. Operator: There seems to be no further questions at this time. So I will now turn the call over back to Richard. Please continue. Richard Soloway: Thank you, everyone, for participating in today's conference call. As always, should you have any further questions, feel free to call Fran, Kevin, Andy or myself for further information. We thank you for your interest and support, and we look forward to speaking to you all again in a few months to discuss NAPCO's fiscal Q2 results. Have a wonderful day, everybody. Bye-bye. Operator: Thank you, Richard. Thank you, everyone. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.
Operator: Good day, everyone, and welcome to the Pinnacle West Capital Corporation Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the floor over to your host, Amanda Ho. Ma'am, the floor is yours. Amanda Ho: Thank you, Matthew. I would like to thank everyone for participating in this conference call and webcast to review our third quarter earnings, recent developments and operating performance. Our speakers today will be our Chairman, President and CEO, Ted Geisler; and our CFO, Andrew Cooper. Jacob Tetlow, COO; and Jose Esparza, SVP of Public Policy, are also here with us. First, I need to cover a few details on the slides. The slides that we will be using are available on our Investor Relations website, along with our earnings release and related information. Today's comments and our slides contain forward-looking statements based on current expectations, and actual results may differ materially from expectations. Our third quarter 2025 Form 10-Q was filed this morning. Please refer to that document for forward-looking statements, cautionary language as well as the risk factors and MD&A sections which identify risks and uncertainties that could cause actual results to differ materially from those contained in our disclosures. A replay of this call will be available shortly on our website for the next 30 days. It will also be available by telephone through November 10, 2025. I will now turn the call over to Ted. Theodore Geisler: Thank you, Amanda, and thank you all for joining us today. In the third quarter, we delivered strong operational and financial performance, underscoring the discipline and focus that define our strategy. Today, I'll share how we plan to continue to meet rising customer demand and how we successfully navigated a dynamic summer season. I'll also highlight our long-term planning efforts and strategic investments that position us for sustainable growth. Then Andrew will walk through how increased sales and transmission revenue have led us to revise our 2025 earnings guidance, along with our forward-looking financial expectations. Importantly, our long-term planning and resource procurement paid off as we reliably serve customers over multiple record peak days this quarter. I'm proud of our entire team for stepping up during the summer season to support our customers and communities with industry-leading reliability, a hallmark of our company. Our crews battled storms, flooding and extreme heat, yet we are prepared to ensure customers were taking care of with rapid response and operational excellence. Additionally, Palo Verde Generating Station operated at 100% capacity factor the entire summer, delivering a solid performance for our customers and the entire Desert Southwest region. Our peak demand record reflects the strong underlying economic growth in our service territory with weather-normalized sales growth of 5.4% and residential sales growth of 4.3% in the third quarter alone. Arizona's population growth remains robust, fueled by major employers, expanding their operations and driving demand for skilled labor. The state's ability to attract and retain high-quality talent is truly a key differentiator and a powerful signal of the long-term economic vitality we're helping support. SEMICON West, recognized as North America's largest Microelectronic Exhibition and Conference was held outside California for the first time in more than 50 years with Phoenix being selected as the host city. Our region's economic momentum continues to accelerate. Site Selection Magazine recently named Maricopa County, the top county in the nation for economic development in 2025, citing its success in attracting high-growth industries like semiconductors, data centers and logistics. Taiwan Semiconductor reaffirmed its commitment to Arizona, accelerating production of 2-nanometer wafers and advanced technologies. They also announced plans to acquire a second location in Phoenix to support their vision for a stand-alone giga-fab cluster. Meanwhile, Amkor Technology broke ground on a $7 billion advanced semiconductor packaging and testing facility, which is an increased investment of $5 billion over their original plans. The first phase is expected to be completed by mid-2027 with production beginning in early 2028. To support this growth, we're executing our plan for long-term investments in both transmission and baseload generation, which are essential to secure a reliable grid for the long term. In Q2, we announced our role as the anchor shipper on the Desert Southwest expansion project. And just days ago, we announced our plans to develop a new generation site near Gila Bend just southwest of Phoenix, which could add up to 2,000 megawatts of reliable and affordable natural gas generation to our customers. The Desert Sun Power Plant is a 2-phase project designed to serve both existing customers and the rising demand from extra-large energy users like data centers and manufacturers. Phase 1 is expected to begin serving committed customers by late 2030. Phase 2 is expected to support new demand from our queue of high load factor customers. Importantly, we're working with customers now to contract for the Phase 2 capacity using our subscription model, a commercial construct designed to ensure growth pays for growth while protecting affordability for all customers. Investment in generation alone will not be enough to support the growth in customer demand. We're making significant investments in transmission as well with multiple projects underway and more in development. These projects are expected to enhance reliability, resiliency and integration of new resources. They also expand our access to out-of-state generation and regional markets. Transmission investment benefit from constructive and timely recovery through our FERC formula rate and creates opportunities for additional wheeling revenues that support affordability for our retail customers. Turning to our pending rate case. We remain actively engaged with intervenors in responding to data requests and remain on track for a hearing in Q2 of next year. As we approach the end of 2025, our priorities remain clear: executing our mission to deliver reliable and affordable service to our customers, investing in baseload generation and transmission to serve growth, and achieving a constructive regulatory outcome that protects customer affordability while reducing regulatory lag. Thank you for your time today. I'll now turn it over to Andrew. Andrew Cooper: Thank you, Ted, and thanks again to everyone for joining us today. This morning, we released our third quarter 2025 financial results. I'll walk through the key drivers behind our performance, provide context on our updated 2025 guidance and share our outlook for 2026 and beyond. We reported earnings of $3.39 per share for the quarter, a modest increase of $0.02 year-over-year. This result was primarily attributable to higher transmission revenues and higher sales driven by robust sales growth across customer classes. These gains were partially offset by lower weather-driven sales compared to last year's Q3, higher interest expense, reduced pension and OPEB benefits and an increase in our outstanding share count. Based on strong sales growth along with above normal weather, an increase in transmission revenues and contributions from El Dorado, we are raising our 2025 EPS guidance from a range of $4.40 to $4.60 per share, up to $4.90 to $5.10 per share. With the ability to derisk future operating expenses, our updated guidance reflects an increase to our forecasted O&M for the year to a range of $1.025 billion to $1.045 billion. Sales growth across all customer classes continues to be strong. We experienced 5.4% weather-normalized sales growth for the quarter, including 6.6% C&I growth, supported by the continued ramp-up of our large load customers and 4.3% residential growth. Year-to-date residential sales growth stands at 2%, exceeding our expectations and fueled by continued customer growth to the top end of our range. We are, therefore, narrowing our customer growth guidance range to the high end of 2% to 2.5% for the year. As we look ahead to 2026, we anticipate earnings per share of $4.55 to $4.75 per share. The expected year-over-year decrease compared to our revised 2025 earnings guidance is due to the projection of normal weather and higher financing and D&A costs as we work through the rate case process. We continue to expect robust customer and sales growth increased transmission revenues, focused O&M management and some positive contributions from our El Dorado subsidiary. Customer growth next year is expected at 1.5% to 2.5%, supported by Arizona's ongoing population and business expansion. Last year, we set a post-recession record with nearly 35,000 new meter sets. We're on track to match that figure again in 2025, and our forecast for 2026 customer additions remained strong. For overall sales growth, we expect weather normalized sales to continue to grow at 4% to 6% in 2026. And with the strong residential sales growth trends and continued ramping and acceleration plans by our extra high load factor customers, including in the advanced manufacturing space, we are increasingly confident in our forecasted long-term sales growth range and are raising it up from 4% to 6% to 5% to 7% and extending it through 2030. Our capital and financing strategy remain focused on enabling growth while maintaining affordability and financial discipline. We've updated our capital plan through 2028 to include critical strategic investments in transmission and generation that support reliability and the demands of our rapidly growing service territory. As highlighted by Ted, we look forward to developing these new resources for the benefit of our customers. These investments are expected to drive rate base growth of 7% to 9% through 2028, an increase from our prior guidance of 6% to 8% through 2027. To support this plan, we've updated our financing strategy for '26 through '28, maintaining a balanced mix of debt and equity aligned with our balance sheet targets. For 2026, approximately 85% of our equity need has already been priced with an additional $1 billion to $1.2 billion of Pinnacle West equity forecasted through 2028. On the O&M front, our 2026 outlook reflects our commitment to cost efficiency. We expect a slight year-over-year decrease despite continued customer growth, and we remain focused on reducing O&M per megawatt hour over the long term. Finally, we are affirming our long-term EPS growth guidance range of 5% to 7% based on the midpoint of our original 2024 guidance range. We recognize that regulatory lag will continue to be a factor in 2026. However, we remain confident in our long-term financial strategy. Our service territory offers unique advantages, including strong growth across all customer classes and a diversified economic base that includes advanced manufacturing, data centers and continued population growth. Working closely with the Arizona Corporation Commission and stakeholders, we're committed to addressing regulatory lag, improving recovery timing and ensuring affordability as we continue serving new and existing customers. This concludes our prepared remarks. I will now turn the call back over to the operator for questions. Operator: [Operator Instructions] Your first question is coming from Julien Dumoulin-Smith from Jefferies. Julien Dumoulin-Smith: Nicely done, I got to say again. Look, let me -- if I can kick it off here, obviously, the gas build is front and center here for you guys, good progress. How are you thinking about just eventually giving visibility on '29 and '30, especially what you've seen up here? Can you speak a little bit to the extent possible of what that trajectory as you rolled it forward here would potentially look like in that context? And maybe speak a little bit more to the sequencing of getting this pipeline built in time and in service to align with what seems like a fairly tight time frame altogether to build out this generation. Theodore Geisler: Yes, Julien, thanks very much. And I'll start and then Andrew can talk about the capital plan. The pipeline is expected to be in service in 2029. We're staying very close to that project and remain confident in the milestones between here and there. And so as you know, that was the first key step. Second step then is starting to announce some of the generation capacity projects that we've been working on, Desert Sun being the first major announcement and project that we would expect. And so as we've said, we think about this in really 2 phases. The first phase is going to be necessary to support committed customers. That's a part of the 4.5 gigawatts that we've already committed to and are building out to serve. And we'd expect to be able to have that phase in service in 2030. So still a healthy margin past when the pipeline is in service, but a schedule that we're comfortable with meeting. Importantly, we've got all the key equipment secured, land interconnection is in place. So I think we're in a good spot to be able to deliver on that time line. And then the second phase of that project, we've identified the opportunity to be able to serve our subscription customers with. We've rolled out an opportunity to subscription customers for 1.2 gigawatts and we're actively working with those counterparties on their desired timing and ramp rate to be able to take advantage of that second phase. And that's one of the benefits of the subscription model is we can ensure that the delivery time line of that second phase corresponds with the counterparties ramp rate, and we make sure that reliability is protected by keeping those 2 in sync. Both will, of course, take service from the new pipeline, but we're comfortable with the timing and how that coincides with the pipelines in service. And we'll continue to monitor pipeline progress along the way. And be prepared to adjust if needed. But we're comfortable with the time line we've laid out. Andrew, do you want to speak to the capital plan? Andrew Cooper: Sure. Yes. Julien, as specifically relates to the Desert Sun project. There is some of the capital related to that project, both on the generation side as well as a small amounts on the transmission side in the current plan. You've got long lead equipment and land and things like that, that are in the plan. And certainly, given the in-service date that Ted is talking about for Phase 1, you would see that CapEx ramp up as we get closer to the end of the decade. Certainly around the broader capital plan as we work through the rate case and understand the dynamics of the formula grade and continue to develop our subscription model with our customers that will provide us the opportunity to give more visibility as we certainly want to make sure that, that growth pays for growth. But the plan that we've put forward through '28 reflects the beginnings of some of those really big longer lead time investments we're making on the generation and the transmission side. You could see it in the 2028 kind of new run rate for transmission investments and some of the additional information we provided about our ability to start to look at that additional $6 billion backlog of FERC-regulated transmission assets and start to begin to develop those in parallel with a project like Desert Sun. So that's the plan. We feel good about the plan through '28. And as we are able to certainly provide more information about the time line through the end of the decade, and we've tried to start to do that with some of the construction work in progress disclosure that we've been providing over the last few quarters. Julien Dumoulin-Smith: Got it. And excellent. Just you kind of teed up the next piece. How is that progress going on the subscription part? You talked about this 1.2 gigawatt opportunity. Where are you in sort of "filling that bucket" or that opportunity? Theodore Geisler: Yes, we've got active dialogue. This was Tranche 1 of our subscription and recognize that the timing of Tranche 1 coincides with developing that Phase 2 of Desert Sun as well as the in-service of the new pipeline. So we're working with counterparties now to match that up with their desired in-service timing. But conversations are active, and we remain optimistic in being able to deploy subscription model to both continue to serve part of the 20-gigawatt queue that is ready to begin service in our service territory while also designing it in a way that helps with financing and protects customer affordability. So I think the key elements of the model has been well received by the market. We're actively working with counterparties and it's going to be a good way to be able to serve that queue both now and going forward. Julien Dumoulin-Smith: Yes. Fair enough. One little detail here on '26, you've got this $0.55 bump here on transmission. That's a sustainable level, right? That's a pretty big bump. Andrew Cooper: Yes. Julien, we'll provide guidance as we go forward, obviously, on that. But I think it's reflective of the trend. We've been very committed to investing in our FERC-regulated transmission business, and that's some of the capital that I was talking about. So it's because of that need to access resources from further field and to serve our growth. And given the FERC construct, the formula rate, and the amount of capital that we've stepped into there, this is just a natural reflection of the plan that we've put forward and converting it now into annual earnings opportunity. Operator: Your next question is coming from Nicholas Campanella from Barclays. Fei She: This is Fei for Nick today. So quickly, just one clarification on equity dilution, if I could. So since 2026 equity need is 85% taken care of, which is the $550 million already priced as you put in the slide. What's the true incremental equity needs for '26 through '28, especially when we look at the $1 billion to $1.2 billion total equity used for the 3-year guidance period? And also, I guess, how should we think about the cadence of issuing through '26 and '27? And how should we think about any equity mitigation given the strong sales growth backdrop that you just provided in the update? Andrew Cooper: Thanks Fei. So yes, on the equity, as you pointed out, we have substantially derisked the need in '26 through all the equity that we've priced both through the block issuance we did in 2024 and our use of our ATM over the last 2 years. So it would feel like we're in a good position. If we look over the incremental need over the 3 years, that '26 to '28 period, that's what that $1 billion to $1.2 billion represents. And so certainly, these projects are lumpy. So the cadence of issuance need kind of goes with that. That's where an ATM has worked well for us to date to be able to time our drawdowns and our issuance with the CapEx as we go through some of these larger projects. But your last question around mitigation is really the key one. When you think about that range and our ability to meet our long-term aspirations around a balanced capital structure and to minimize the amount of equity dilution within that balanced capital structure, it really comes back to all the work we're doing both around reducing regulatory lag through the rate case process, to improve retained earnings and our ability to fund that capital from internally generated funds. And then to look to our large load customers in the subscription discussion to make sure that to the extent that we could secure cash upfront to fund those investments that it reduces the need for us to go out to the market for equity. So while that's the range today of forecasted need, we're going to continue to work through the rate case process and the engagement on the large load side to try to mitigate that as much as possible. Fei She: Got it. That's very helpful. And secondly, just on the transmission capital investment slide you laid out, if I could. I appreciate the clarity on the $2.6 billion cumulative transmission CapEx through '28, and also the $6 billion plus through 2034. Could you just comment on your assumption on annual transmission CapEx post 2028? And how should we interpret the $6 billion plus, especially on what's contributing and driving the upside? Andrew Cooper: Yes. So we haven't laid out the specifics of the plan post 2028 because these are really the projects that are reflected in the 10-year strategic transmission plan that we file with the commission every other year. There are a host of projects in their, 500 or 600 miles of high-voltage lines that we're developing to meet different needs. And there's some fungibility in terms of do you develop this line with or that line? So we're doing a lot of that work today. The way I would think about it overall is that we went from under $200 million a year of run rate CapEx 5 years ago in transmission for just sort of the local area projects, the things that we do that are 69-kV plus. That number is increasing to the $300 million to $400 million range of just the blocking and tackling CapEx we do on the transmission side. And so the increments above that, that you see almost in the potential for that $850-plus million number to be a run rate. There is a baseline $300 million to $400 million in there. And then the increment above that is reflective of the beginning of investing in the strategic transmission projects. But it's a really long runway, and the number will vary from year-to-year. But I think if you look at 2028, that is a reflection of the opportunity on an ongoing basis through the combination of core transmission and that increment from strategic transmission. Fei She: Got it. That's super helpful. If I could, just another quick clarification. On the robust sales growth guidance you refreshed. I guess seeing a really elevated level of 5% to 7% through 2030, while looking at a 7% to 9% rate base growth is through 2028. I guess can you comment on your confidence level to possibly extend the 7% to 9% rate base growth further into the horizon? And I guess, what could be the key drivers contributing to that? Andrew Cooper: Yes. So we've laid out through 2028 on the rate base side. And one of the reasons stepped up is that you're beginning to see some of those long lead projects come into service in '28. The best example being Redhawk, the expansion of our natural gas facility there. As you get into 2029 and 2030 and beyond, more of these larger projects come in, in service of, to your point, the higher sales growth we're seeing, especially from the large load type customers. And so as we continue to kind of move forward and develop the CapEx plan around Desert Sun, around those strategic -- that $6 billion strategic transmission that we were just talking about, we'll continue to look at that rate base growth rate. Our confidence is that, that runway is quite long. What the level is, is what we'll be able to kind of continue to work through. That CWIP disclosure that I mentioned earlier, it's also a good way to think about some of the projects that we know are already in the hopper that take us into '29 and '30 and a good way to extrapolate if you do some of that math. Operator: Your next question is coming from Shar Pourreza from Wells Fargo. Unknown Analyst: This is actually Alex on for Shar. So just on the growth rate outlook, just you guys are still targeting that 5% to 7% of the '24 midpoint. Just in the context of today's new '26 guidance, can you just help frame what you might use as your new base? And will you roll forward the plan as soon as the rate case is concluded? Andrew Cooper: Sure. Yes. So really, the rate case becomes precipitant for us to look at all that. And if you think about base years, we really try to set as high a bar for ourselves as we can to make sure that we're consistently meeting or exceeding expectations and doing so in the right way. And so we want to get to the point where the -- that 5%, 7% becomes evergreen. Right now, we're in a situation where earnings are lumpy. We go and we have a rate case and we get a rate increase, and then there's regulatory lag through a lengthy rate case process. The formula rate is really an important element here to be able to convert that earnings growth rate from being kind of a long term look at '24 and then look at '28 to something that can be more evergreen. And so I think, as we work through the rate case process and the structure of the formula rate, we'll be much better positioned to talk about what all that looks like. And ultimately, that's the goal is to be able to deliver year in, year out, produce more modest increases year-over-year for customers as well. That's a really important part of it. And ultimately, that creates the better stability for us around our earnings growth. Unknown Analyst: Got it. Okay. That's helpful. And then just switching gears here, just give you a sense -- more of a sense on the megawatt pipeline you have around the hyperscaler side and just sort of how you think about capacity first generation needs? Theodore Geisler: Yes, sure, Alex. So we continue to see just a robust pipeline of demand. As we've articulated in the slides, we've got 4.5 gigawatts of incremental demand that we've already committed to. That's in part what Desert Sun is going to be serving as well as future generation and transmission investments that are included in our guidance period and will have to be developed even beyond. But in addition to that, we want to start making progress on committing and serving part of the 20 gigawatts of uncommitted load that is in our current queue. And so that's also a part of what Desert Sun will begin to be able to allow us to serve. But of course, we anticipate wanting to be able to offer much more than just that initial tranche of 1.2 gigawatts. So the intent is contract that first tranche, and then we'll continue to identify generation and transmission capacity expansion opportunities as we get to a certain point in the predevelopment of those projects to where we are confident in the timing and level of capacity available for us to be able to offer, we'll go to the market and offer another tranche service to that uncommitted queue. And that's the model that we anticipate being able to deploy going forward. Bottom line is we anticipate being able to continuously offer capacity to eat into that 20 gigawatts, and we think the 1.2 gigs that we've offered recently is just the first step into that trajectory. Operator: Your next question is coming from Travis Miller from Morningstar. Travis Miller: I just want to confirm on the guidance for '26. There's no contribution from the rate case. Is that correct? And then if that's correct, any ideas or guidance you could give on what maybe a dollar increase, so to speak, would be in the back end of the year? Any thoughts there? Theodore Geisler: Yes, Travis, you're correct. We have not made any assumptions for rate case conclusion that's informed 2026 guidance. As we said, we do anticipate the case resolving in the last quarter of the year. And given that such a small quarter for us anyhow and the timing just didn't seem prudent for us to be able to make any assumptions at this point. But certainly, once the case concludes, that will allow us to step back and reevaluate the constructive nature of the outcome and what that means in terms of forward-looking guidance. So we'd look to do that at that time as well as the details around how the formula rate would work both timing and level on a go-forward basis. So look for further updates once the case concludes on all those aspects. Travis Miller: Okay. Makes sense. And then separately, that 4.5 gigawatts of committed customers, can you kind of elaborate on who those customers are? And maybe is any of that going to kind of your system wide base with residential or small commercial? How do you -- how would you break up that 4.5 gigawatts? Theodore Geisler: Yes. The 4.5 gigawatts is a nice balance and blend between incremental industrial growth, such as chip manufacturing, TSMC and Amkor being examples of that as well as their supply basis, as well as, of course, data centers that are already in development or even in service, but we expect to ramp through this period. And then importantly, we continue to see just steady and robust residential and small business growth. So I'd say that's one of the hallmarks of our growth story is a very diversified story, not too dependent on one industry or customer base or another. Maricopa County just recently ranked top County for economic development in 2025, and it's the third fastest in the U.S., Phoenix just rank #1 of the top 15 growth markets for manufacturing. And all of that is separate from a data center story. It just shows the true underlying growth. We're also pleased to see that affordability still is a hallmark of our service territory, favorable cost of living. Phoenix inflation is growing at about 1.4% versus national average at 2.9%. So I think there's a lot of drivers behind why we're seeing diversified growth in that 4.5 gigawatts represents all sectors, which gives us confidence in the growth rate, but also means that we've got a lot of infrastructure to deploy to continue to keep up with the various sectors that are demanding it. Travis Miller: Okay. Yes. No, that sounds good. And then -- so would most of that 4.5 gigawatts go into rate base? Or some of that the subscription model that you were talking about that might be outside of rate base? Theodore Geisler: Well, let's be clear, all of our investment goes in the rate base. The subscription model still goes into rate base. We are just contracting with those customers. Think about it as more of a special rate agreement rather than out of rate base, and that special rate agreement just ensures that growth pays for growth and that the timing of their ramp coincides with the timing of the ramp of the infrastructure to be built to serve them as well as potentially getting their help to finance some of that infrastructure so that we maintain a healthy balance sheet as we grow these rate base investments, specifically for data centers. So it's all going in the rate base. It's just a matter of how you recover the dollars is really the difference in the subscription model. Operator: Your next question is coming from Steve D’Ambrisi from RBC Capital Markets. Stephen D’Ambrisi: I just was hoping for a little bit more color on the year-over-year change in sales growth as an EPS driver. I know for '25 guidance, you had embedded $0.58. And for '26 guidance, it looks like you're embedding $0.39. I guess I would just step back and say it doesn't seem like the magnitude or mix is really that different given both years were 4% to 6% total, of which 3% to 5% was from large C&I. So can you just give a little color there? Is it mix within the C&I classes? Or what's driving the difference in EPS magnitude uplift from sales growth? Andrew Cooper: Steve, it's Andrew. Sure. Yes, so you're right, '26 does have a bit of a smaller contribution there. And that's really the fact that we're talking about a pretty big group of customers that has puts and takes in their ramp rate from year to year. And some of those -- as we've been an early data center market, we've been able to develop more sophisticated forecasting on a customer-by-customer basis, who's testing equipment, who's actually ramping. And so you do see some variation within the customer class. So the residential small business number is relatively stable. And as we've seen this quarter and our guidance for this year, the expectation of continued pretty large new customer additions and an actual positive contribution from residential sales despite the fact that we've continued to have energy efficiency and distributed generation pressed up against that. So it really is the year-to-year variability in some of our large load customers. I think where we really want to focus is the fact that this is a long-term set of customers with the trajectory now that we feel confident about through [indiscernible], including raising that sales growth guidance by 100 basis points over that period. And the fact that, that means that the extra load factor contribution to that steps up by 100 basis points as well. So over the long term, feeling really good. There is some intra-year variability. But once you pair that with continued customer growth, residential growth and then the continued conversion of our transmission investments into revenue through our FERC formula, we're feeling pretty confident about the ultimate outcome. Stephen D’Ambrisi: That's really helpful. And I guess like that would be like the put and take versus what kind of we were assuming is just the sales growth versus transmission. I know Julien asked about it, but can you talk a little bit more about that? Clearly throughout the rest of the plan, transmission growth steps up materially into '28? And so does that $0.55 benefit scale linearly with the increase in transmission spending? Or is there something that's causing super normal growth in recoveries... Andrew Cooper: Yes. No. Over time, it should be proportionate to the investment. We earn pretty quickly, right, when we're putting assets into service. I think the thing that will happen is we'll get a little bit lumpier because in the near term, that $300 million to $400 million of run rate projects, those are smaller projects that get done within a given year, maybe over 2 years at max. And we're moving forward into lines that may take longer to build. Some of the things that we're looking at are, can you energize them on a sectionalized basis so that we can reduce the regulatory lag if we're building a 100-mile line, can you do it in segments? That's the type of thing that we're thinking about to make sure that we continue to translate that opportunity into earnings. The other thing that's been nice about the transmission opportunity is that it's part of the broader wholesale market. And so the opportunity to offset some of the impact to our retail customer base through willing -- others rolling over our system has been a big part of our customer affordability story as well. So there's multiple benefits to doing it. We are doing some larger projects. So the scaling will ultimately get there over the long term. But intra-year, there could be some lumpiness just given you're talking about that increment above the core $300 million to $400 million being longer lead time projects that can take a few years to get into service. Operator: Thank you. That completes our Q&A session. Everyone, this concludes today's event. You may disconnect at this time, and have a wonderful day. Thank you for your participation.
Justin McCarthy: Good morning, and welcome to Westpac's Full Year 2025 Results Briefing. I'm Justin McCarthy, the General Manager of Investor Relations. Before we commence, I acknowledge the traditional custodians of the land in which we meet today. For us in Barangaroo, that's the Gadigal people of the Eora Nation. I pay my respects to elders past and present and extend that respect to all Aboriginal and Torres Strait Islander people. I'm pleased today to be joined by our CEO, Anthony Miller; and CFO, Nathan Goonan. After the presentation, we'll move to Q&A. [Operator Instructions] With that, over to you, Anthony. Anthony Miller: Thanks, Justin, and good morning, everyone. I'm pleased to present Westpac's full year results to outline the value we're creating for customers, shareholders and the communities we serve. We began the year with a robust balance sheet and capital position. This provided us the capacity and flexibility to pursue our growth and transformation agendas. We are driving operational and business momentum supported by 5 priorities. To ensure we are there for our customers at the time and place that suits them, we've adopted a whole of bank to customer approach. Our refreshed leadership team is guiding our 35,000 people who are energized, engaged and turning our priorities into outcomes. It's not just what we deliver, but how, and that is why our focus on execution is key for Westpac. Disciplined execution is how we will achieve our goals. As Australia's first bank, we recognize the vital role we play in supporting economic prosperity. We're proud of our contribution as Australia's sixth largest taxpayer, helping to fund essential services and improve people's lives. Our employees bring this to life by volunteering their time and making pretax donations to more than 500 charities. Through our Rugby League and Cricket partnerships, we promote sport participation from grassroot clubs, including programs for schools, women and First Nations talent through to elite competition. We also offer free financial literacy programs across Australia, New Zealand and the Pacific to help educate thousands of people and small business owners every year. We're improving banking access in regional areas and investing in ag scholarships and technology to drive innovation. These initiatives create more prosperous communities while fostering trust and brand advocacy. Turning to financial performance. The result reflects our strategy of balancing growth with returns, while making necessary investments in people, innovation and transformation to support our future. Net profit, excluding notables, decreased 2% to $7 billion. Statutory net profit fell 1% to $6.9 billion. This led to a slight contraction in our key return metric, return on tangible equity. The impact was cushioned by the reduction in share count through the buyback. As we execute our transformation agenda, expenses are higher, lifting our cost to income to 53%. We're addressing the cost structure through our Fit for Growth program, which will help offset expense growth in FY '26. Our performance reinforces the need for us to focus on execution while managing RoTE and CTI. The steady financial performance and strong capital position saw the Board declared a second half dividend of $0.77, equating to a full year dividend of $1.53 per share fully franked. This equates to a payout ratio of 75% of profit after tax, excluding notable items. This is the slide I use to track our progress against our FY '29 targets. We put customers at the center of everything we do. To be Australia's best bank, more work is needed to lift customer and brand advocacy. In the past 2 years, we've gradually improved consumer NPS. We're currently ranked equal second and the gap to first place has narrowed. In business, we have established clear leadership in SME and commercial. However, our overall position shows work is needed to lift small business. For institutional customers, we aim to be #1 in our target markets by investing in our people's expertise and building stronger customer relationships. We are now executing UNITE. We will be open and transparent as we drive to complete this program. On performance, our decisions and approach are guided by delivering improvements to cost to income and RoTE. Our strategy supports our ambition to be our customers' #1 bank and partner through life. For our customers, we aim to win the whole relationship by delivering the whole bank. To meet more customer needs, we're offering the full range of products and services we have in a more timely and personalized way. For our people, we are investing in their development and leader capability while driving a high-performance culture where employees can perform at their best. On risk, we have completed the final transition of the customer outcomes and risk excellence program known as CORE. In response, APRA released the remaining $500 million of operational risk capital overlay, marking 5 years of meaningful change. Our commitment to ongoing risk improvements will continue, and our priorities for risk management to be recognized is our differentiator. Our transformation agenda is focused on delivering UNITE and 2 flagship digital innovations, Biz Edge and Westpac One. Ultimately, our performance will be reflected in how we execute on these priorities. Our service proposition is foundational to earning trust and becoming the bank of choice for our customers. Despite economic uncertainty in recent years, our customers remain resilient. We supported customers with 46,000 hardship packages with 3/4 of them back on their feet. Service quality is improving. For example, our financial market clients time to trade in the Commercial division is down by 30%. Our new brand positioning, It Takes a Little Westpac, along with our award-winning banking app and rewards program is strengthening engagement and loyalty. For businesses, we doubled our women in business commitment to $1 billion. We are growing our regional presence through new service centers. Our first location in Moree was well received by the community. Our latest Australian-first innovations, Westpac SafeCall and SafeBlock, supported a further 21% decline in reported customer scam losses. This is just a snapshot of the ways we're improving our service proposition to become #1. With a refreshed executive leadership team, we're placing a stronger focus on how we lead and support our people to perform at their best. Professional development programs, including the Business Performance Academy as well as skills training in data and AI are just some of the ways we are investing in our people. We've strengthened our employee value proposition to attract, retain and develop top talent while expanding benefits. We're also building the presence of our bankers where it matters most for our customers. Employee engagement remains strong, and we continue to invest to improve. Pleasingly, our consumer deposits grew by 10%, including offsets. This is a testament to the quality of our business and our customer base. It also reflects the effectiveness of our award-winning banking app and the competitive product suite, which we have, which provide reliable everyday banking solutions. We have expanded our capability in migrate banking. Prospective customers from several key markets can now apply for a transaction account before arriving in Australia. Our recent sponsorship with Cricket Australia will also present new opportunities in this target segment. Transaction banking is at the heart of our business strategy. New account openings of 130,000, supported transaction account growth of 13% this year. We also launched a new online payment solution, OnlinePay. With simple onboarding, it has attracted 1,000 customers within 3 months of launch. In Institutional Banking, we continue to maintain our lead in public sector deposits with growth of 11%. Financial institutions is also a target area where we are now seeing real momentum. Our goal of deepening relationships and supporting more customer needs is reflected in loan growth across business and institutional, where existing customers make up approximately 3/4 of new lending. Business lending increased by 15% with even stronger growth across target sectors of health, professional services and agriculture. Institutional lending grew by 17%. The portfolio is diversified, and we remain the country's largest lender to renewables. Growth in both areas has been accretive to RoTE. I'm very pleased that the average risk grades across the business and institutional lending books have remained stable, while absorbing this attractive level of growth. Looking more closely at mortgages. Our focus has been on getting the service proposition right, making it consistent, attractive and most importantly, easy for our customers. We've made progress. Time to decision has improved with most proprietary home loans now processed in under 5 days. In a highly competitive environment, we must get the service proposition right and then balance growth with return. Overall, I think we've managed this well. Returns have improved, supported by operating efficiency and disciplined execution. We've been more efficient in how we deploy capital with balances up and RWA down. Today's announced sale of the RAMS portfolio will further improve the operating efficiency of our mortgage business. We've targeted high-returning segments, including investors, where flows increased by around 4 percentage points to just under 40%. This was a deliberate move with our pricing competitive. In contrast, we positioned ourselves above market in owner-occupied. Momentum in early FY '26 has picked up and is tracking slightly above system. Looking further out, we see a clear opportunity to improve proprietary lending, which currently makes up just under 1/3 of new flow. We know what to do. However, progress will take time. It will be measured in years, not months. To support this, we're adding more home finance managers. We're enhancing banker incentives, and we're investing in the brand. Additionally, we're capturing insights and generating leads and opportunities by leveraging data, analytics and AI across the company to drive proprietary lending. UNITE is up and running. We finalized the scope, we have a plan, and we are now into execution. Some initiatives are progressing faster than expected, which is encouraging, while others are proving more challenging. This is typical for a project of this scale. Moving to a single deposit ledger meant we had to revisit about 1/3 of the initiatives to make sure we addressed all impacts and all interdependencies. This additional planning delayed our time line. We expect completion where we are accruing all target benefits to extend from the end of FY '28 into FY '29. To drive execution, we formed a centralized delivery team of 1,600 people focused solely on UNITE. We've also grouped the initiatives into 10 work packages to ensure we manage interdependencies and challenges effectively. In FY '26, we expect to invest between $850 million and $950 million in UNITE as we go flat out on execution. The program is expected to account for approximately 40% of annual investment spend in FY '27 and '28 before reducing in FY '29. Our progress is starting to deliver improvements that are making banking simpler and more connected for our employees and our customers. We've put some of those outcomes in front of you. Two things I want to call out. Westpac home loan customers can now set up multiple offset accounts with no additional fee. This is a key feature requested by our customers. Since February, we've opened more than 35,000 additional accounts. We've also completed the migration of private bank customers to Westpac with minimal attrition. The validation that we've done this well is shown in recent positive brand NPS. We've completed 8 initiatives and 51 are now underway. Most initiatives are green, a few are red, and we're prioritizing getting those back on track. We will provide updates on progress and continue to refine our disclosure to improve transparency. We invested $660 million in UNITE during FY '25, and this was slightly above our guidance. This was because we saw an opportunity to get additional work done now, and so we prioritized the resources to make that happen. Alongside UNITE, we're also modernizing technology through capabilities like Westpac One and Biz Edge for better customer and employee experiences. Biz Edge is our new lending origination platform, accelerating digital capabilities for bankers with AI-powered tools that support faster, more confident decision-making. This is dramatically improving how we lend to businesses by guiding applicants and bankers through the best pathway. Since launching in March, Biz Edge has processed nearly $5 billion in business lending applications. So far, time to decision has improved by 45%. More benefits are on the way for customers and bankers. For Institutional clients, Westpac One will be the new platform that brings together real-time treasury management, FX, trade and lending with powerful data insights. In December, we'll pilot the first Westpac One initiative with real-time transaction banking and a new modern digital experience for corporate clients. Advanced transaction banking capabilities like liquidity management, including multicurrency and cross-border capabilities, will be progressively dropped over the next 36 months. Once complete, the platform will deliver end-to-end liquidity and cash management, helping clients run and fund their businesses more efficiently. This capability will be market-leading and a differentiator in supporting our corporate, large commercial and institutional clients. AI represents a significant opportunity to improve the way our people work as well as the quality of their work to help us provide better, more consistent service to our customers. We're embracing new gen and agentic AI capabilities while also continuing to use traditional AI tools, like machine learning and advanced analytics. These are helping us automate tasks and modernize our technology. It's also giving our people more time back and providing bankers with more insights to serve customers better. The key is making sure we scale proven solutions. Examples with tangible benefits include strengthening defenses against fraud and scams, supporting faster approvals for mortgages and business loans, helping employees quickly answer process and policy questions and automating coding and testing. However, to realize its full potential, we must approach AI with an enterprise-wide mindset. We've appointed a global leader reporting directly to me to drive this across the entire company. We're moving at pace and recently launched the Westpac Intelligence layer, which draws on the enormous data and insights across the company to drive faster, safer and more proactive decisions. We have prioritized using the layer in consumer to support our focus on growing proprietary lending. It is already giving our home finance managers better insights to deliver faster, more personalized service. I'm really excited about what we will achieve as we broaden this intelligence layer and roll it out across the bank in the next 12 months. Nathan will now take us through the performance in more detail. Nathan Goonan: Thanks, Anthony, and good morning, everyone. It's a privilege to present my first result for Westpac. I recently took over from Michael as CFO, and I want to begin by acknowledging Michael's contribution over the past 5 years and wish him all the best for the future. I'm excited to be joining Westpac at an important time in the company's history. I look forward to doing my best to help our people deliver consistently for our customers. As foreshadowed, we've adjusted our disclosures to make peer comparison easier, now reporting net profit, excluding notable items as an equivalent measure to cash earnings among peers. Starting with the financial performance over the year before talking in detail about the half year trends. Excluding notable items, which related solely to hedging items, net profit was down 2% with higher expenses more than offsetting growth in operating income and lower credit impairment charges. EPS was flat, reflecting reduced share count from the on-market share buyback. Revenue was up 3%, comprising a 3% increase in net interest income, driven by an increase in average interest-earning assets and a 1 basis point decline in net interest margin and a 5% increase in noninterest income. Operating expenses were 9% higher, including the restructuring charge of $273 million. Excluding the charge, expenses rose 6%. These revenue and expense outcomes resulted in a decline in pre-provision profit of 3%. Credit impairment charges remained low at 5 basis points of average gross loans compared with 7 basis points the prior year. Half-on-half, we saw improving underlying trends, offset by increased investment. Pleasingly, pre-provision profit increased in Institutional, New Zealand and Consumer, while business and wealth held flat. Net profit was up 2% in the half and comprised of the following: Net interest income rose $335 million. Core net interest income was up 3%, a 2 basis point increase in core net interest margin and a 1% growth in average interest-earning assets. Noninterest income was up $143 million, mainly reflecting an increase in markets income, a combination of both client activity and market conditions. Expenses were up 9% or $520 million, including the restructuring charge. Overall, pre-provision profit was down 1%. Excluding the restructuring charge, pre-provision profit increased 4%. Asset quality metrics continued to improve, resulting in lower credit impairment charges. The charge of 4 basis points to average loans was down from 6 basis points in the prior period. The effective tax rate was 30.6%, down from 31.3%. As Anthony outlined, sustainably growing customer deposits over time underpins our ambition to improve returns. The growth of 4% in the half was pleasing and highlights the inherent strength of our customer segments. Mix improved with the reliance on term deposit decreasing from 29% to 27% of the book, while savings and transaction balances grew. We expect strong deposit growth to continue in FY '26 with our economics team forecasting system growth of 7%, reflecting continued improvement in household conditions. Strong deposit growth has supported lending growth in chosen segments. Gross loans increased 3% with growth across all customer segments. Australian Mortgages, excluding RAMS, grew by 3%, slightly below system as we balance growth and return in a competitive market. Australian business lending continues to show good momentum, growing at 8%. The larger commercial subsegment performed well, and we also saw growth in both SME and small business, which grew 9% and 5%, respectively. Prior to this half, small business had contracted or been flat in the preceding 4 halves. Institutional lending grew by 10%. The portfolio is well diversified with infrastructure, renewable energy and industrials underpinning growth. Lending grew 3% in New Zealand, where demand for credit remains subdued in a more challenging economic environment. The RAMS portfolio continued to run off. The balance at 30 September was $22 billion. The sale announced today is expected to complete in the second half of 2026. Until completion, these balances will continue to run off. Please bear with me as I spend a bit of time talking to net interest margin given the importance and likely focus. Core net interest margin increased 2 basis points to 1.82%. This follows a decline of 3 basis points in the prior half. We've seen a reduction in the amplitude of the components of NIM with all drivers having a modest impact. The lending margin was stable with an improvement in New Zealand due to fixed rate repricing, offset by a decline from auto finance, which was sold in March. Lending margins in business contributed less than 1 basis point. In Mortgages, the market remains competitive, but relatively stable, and we saw several factors play out. The cumulative impact of these was less than 1 basis point. These include the benefits from the initial timing impact from rate cuts. Deposits were also stable as benefits from the replicating portfolio and the repricing of the behavioral savings product was offset by the initial impact of rate cuts, customers switching to higher-yielding accounts and more behavioral saving customers qualifying for the bonus rate as well as the compression in TD spreads from prior period. Liquid assets contributed 3 basis points, reflecting reductions in trading securities. Whilst a positive to NIM, this is neutral to earnings. Lower earnings on capital detracted 1 basis point. The benefit from the higher replicating portfolio rate was more than offset by the impact of lower rates on unhedged largely surplus capital and the averaging impact of the share buyback. The contribution from Treasury and Markets rose from 12 to 13 basis points. Looking to first half 2026, we've included some key trends we expect to impact margin. We expect lending margins, excluding the timing impacts from rate cuts, to edge lower. Pressure on deposit spreads from the average impact of rate cuts and prior period switching to saving products is likely to continue. The replicating portfolio is expected to be a net benefit of 1 basis point. This includes a 4 basis point benefit from the total replicating portfolio, offset by a 3 basis point reduction in unhedged deposits. This reflects the decision to increase the deposit hedge by $10 billion. This was executed in September and October to provide further earnings stability through the cycle. The benefit from improved term wholesale funding markets is expected to be a slight tailwind. While mortgage margins appear relatively stable, lending competition remains difficult to predict, along with short-term funding costs and RBA rate cuts. To this end, we've provided 2 sensitivities to help understand the potential impact. The next 25 basis point rate cut, RBA rate cut, leads to an approximate 1 basis point contraction over the first 12 months, reflecting the impact on unhedged deposits and capital. Based on September balances, a 5 basis point move in the 3 months BBSW OIS spread equates to approximately 1 basis point of NIM. Quickly touching on noninterest income, which increased 10% for the half. Fee income was up 5%. Higher card fees reflected increased spending and fee changes, which are being phased in. Business and institutional lending fees increased due to strong balance sheet growth. Wealth income was up 3% with higher funds under administration. Trading and other income increased 27% from higher sales and risk management income, including foreign rates and foreign exchange and favorable DVA. Moving to investment spend, which increased 9% over the year. UNITE investment was $660 million as the project continued to step up through the period. The proportion of investment spend that was expensed increased to 60%. UNITE was the main driver with this work expensed at 74%. Notwithstanding the acceleration of UNITE, spend on growth and productivity initiatives was in line with that of FY '24. This includes Biz Edge and Westpac One. Risk and regulatory spend declined substantially after the completion of several projects, including the CORE program. Into FY '26, investment spend is expected to be approximately $2 billion, with UNITE accounting for just under half the total spend at $850 million to $950 million. This is in line with the fourth quarter run rate where UNITE spend was $225 million. Both risk and regulatory and growth and productivity investment will decline to allow the UNITE investment to accelerate within the expected $2 billion total investment spend. Moving to expenses. This slide is changed in presentation to better reflect the underlying drivers. My comments relate to movements over the year, which we believe provides a better guide to key trends. Staff costs increased $397 million as the new EBA began, superannuation rates increased, and we invested in more bankers in business, wealth and consumer. Technology costs increased $146 million, reflecting vendor inflation, increased demand to support growth and more cyber protection. Volume and other rose $199 million. Drivers include the important investment in our brand and marketing and higher operations-related expenses to support customers and prevent fraud and scams. This was offset by $402 million of structural productivity savings. This included the benefit of a simpler operating model, more automation and reductions in branch space. The ramp-up in UNITE added $399 million over the year. Looking to FY '26, staff costs will rise as we continue to invest in bankers and eligible employees receive a 3% to 4% pay rise under the EBA. The averaging impact of bankers hired from this year and higher superannuation rates will also flow through. Technology expenses are expected to remain a headwind. The expense contribution from investments will be driven by the mix shift towards UNITE with the increased cash spend expensed at approximately 75%. Assuming the midpoint of our guidance, this will translate to $190 million increase in operating expenses. This will be partially offset by the decrease in other investment. Amortization expense will continue to be a headwind in FY '26, although to a much lower extent. We remain focused on closing the cost-to-income ratio gap to peers over the medium term, and we need to structurally lower our expense base. Total productivity is expected to be at least $500 million in FY '26. This revised view of productivity will give us a consistent way to demonstrate the benefits from both UNITE and Fit for Growth initiatives. Overall, credit quality remains sound and with consumers and business portfolios performing well. Stressed exposures to total committed exposures decreased 8 basis points. This reflects a decline in mortgage arrears and reduced stress across most of our business segments. This half, we've continued to see improvement in 90-day plus Australian mortgage arrears. These have reduced from a peak of 112 basis points in September last year to 73 basis points, reflecting a combination of customer resilience and an adjustment to the reporting of loans when customers complete their hardship period. In New Zealand, mortgage arrears fell by 8 basis points to 46 basis points as rate relief began to feed through to customers rolling off higher rate fixed mortgages. We have provided the chart by industry for our non-retail portfolio. As you can see, business customers are managing conditions well with stress reducing across most sectors. Our portfolio remains well diversified across sectors and geographies. Looking forward, the 2 key drivers of asset quality outcomes are likely to remain the unemployment rate and asset prices. Total credit provisions were 2% lower at almost $5 billion. This reflects a $72 million decrease in individually assessed provisions and a reduction in model collectively assessed provisions driven by improvements in underlying credit metrics and the economic outlook. Offsetting the model-driven outcomes were 2 main items of management judgment. The weighting to the downside scenario was increased by 2.5 percentage points to 47.5% at the third quarter. The base case reduced by the same amount. In addition, we increased overlays by $108 million with overlays as a percentage of total provisions increasing from 3% to 5% in the period. As a result, overall coverage reduced by 1 basis point with total provisions now $1.9 billion above our base case. An improvement in the composition and funding and liquidity adds to our competitive positioning and helps provide medium-term earnings stability. The deposit-to-loan ratio has reached an all-time high of just under 85%. A more stable source of funds from household and business transaction accounts has reduced the reliance on term funding with issuance in FY '25, the lowest in 10 years. Our liquidity and funding metrics are above our normal operating ranges, which we believe is appropriate given the market backdrop. The strength of the capital position is a key feature of this result and provides us with flexibility and opportunities over the medium term. The CET1 capital ratio ended the half at 12.5%. Net profit added 80 basis points, while the payment of the half year dividend reduced capital by 58 basis points. Risk-weighted assets detracted 7 basis points with higher lending balances more than offsetting data refinements, improvements in delinquencies and a reduction in IRRBB risk-weighted assets. Other movements added 16 basis points, largely reflecting lower capitalized software balances and movements in reserves. There are several adjustments to consider for first half '26. These include the removal of the $500 million operational risk overlay in October added 17 basis points of CET1 capital. The new IRRBB standard came into effect on 1 October, and the extension of our non-rate sensitive deposit hedge has now been allowed for regulatory purposes. These 2 items add 39 basis points of capital. Offsetting this, the remaining $1 billion of the previously announced share buyback will reduce CET1 by 23 basis points. Following these adjustments, the standardized capital floor was met in October. Importantly, there are opportunities for us to manage the standardized floor, and we expect the impact on the CET1 ratio at the half to be modest. We've implemented a new capital target of 11.25% following APRA's changes to AT1. We have approximately $3.1 billion of capital above the new target after the payment of the second half dividend. The payout ratio, excluding notable items, was 75%, which is at the top end of our target range of 65% to 75%. This balances our strong financial and capital position while maintaining capacity to both invest and support customers. We have $1 billion of the previously announced buyback outstanding. We see value in the flexibility provided by this form of capital management. With that, I'll hand back to Anthony. Anthony Miller: The Australian economy is showing signs of improvement following a sustained period of below-trend growth. Household purchasing power is rising as real disposable incomes grow. Businesses are emerging from a period of subdued activity, partially supported by lower rates, easing input costs and some productivity gains. Westpac DataX Insights highlights an improvement in card spend growth at 6.5%, the strongest we've seen since April 2023. For business, commercial customers are feeling better, but it's still challenging for our SME customers. However, we've just started to see an improvement in cash flows off the back of firmer household spending. Underlying inflation is at the top of the RBA's target range. This will put pressure on the RBA to hold rates tomorrow. We are starting to see more growth driven by private rather than public investment. However, this transition has been slower than anyone expected. A smarter balance calls for bold, coordinated action across government, regulators and the private sector. It has been pleasing to see the focus on the productivity agenda in the national debate. Targeted action is key to unlocking Australia's long-term prosperity and resilience. An area we are focused on is addressing the housing affordability challenge. We need to tackle the structural undersupply of housing and efficiently deliver more houses in the $500,000 price range. More broadly, the global outlook is not without risk, with ongoing trade and geopolitical tensions a constant threat. Our strong financial position helps us navigate that uncertainty while being there to support our customers. It's pleasing to see business credit is expected to grow 7%, driving private investment. We're building on the strong foundations, and it is all now about execution. We have 13 million customers. However, to realize the advantage of that scale, we must drive more efficiency. We must complete our transformation agenda, and we must enhance our service proposition. Each business has a clear direction, has the right leadership team in place and must now deliver. I'm pleased with our progress and energized by the opportunities ahead. With disciplined execution driving momentum, we're deepening customer relationships and investing in our businesses to support sustainable returns for shareholders. Thank you. Justin McCarthy: Thanks, Anthony. We'll move to Q&A now. Our first question comes from Tom Strong from Citi. Thomas Strong: Just first question around the productivity benefits into '26. I mean you took $400-odd million in this year, and you've guided to $500 million in '26, but you've got the benefit of, I guess, incrementally $270 million from the Fit for Growth, which you took the restructuring charge for. So is that $500 million conservative, you think, in terms of the FY '26 opportunity? Nathan Goonan: Yes, why don't I start. Thanks for that. I think you've sort of read it the right way. That's a line item in terms of just showing on a consistent basis where we think the benefits of the restructuring charge, and then in the future, as UNITE becomes a more material piece of it, we'll continue to show our productivity benefits on a like-for-like basis through that line. As it relates to the greater than $500 million, I think that's the guidance that we've given. The benefits from the $273 million, we actually had a little bit in this year. So there's probably about -- we had $402 million productivity for FY '25. There's about $40 million of that will be benefits from the restructuring charge this year. And I think when we made the pre-release, we just made comments that we thought the rest of that will be phased reasonably evenly during FY '25 -- FY '26, and then there will be a little bit of benefit to flow into FY '27. So yes, look, we're expecting to do $500 million. We've got to wake up every day and strive to do better than that, but our guidance today is in excess of $500 million. Thomas Strong: Okay. That's very clear. And just the second question around UNITE. It was 35% to 40% of the investment envelope and you've clarified that, say, at 40%. You have kept the $2 billion per annum consistent over the next few years. Just given the reallocation towards UNITE and I guess, the decline in purchasing power over that time, do you think that $2 billion per annum is still appropriate as a view out to FY '28, FY '29? Anthony Miller: Look, I mean, that's a very good question. And you're right, we'll continue to ask ourselves, have we got that right. I mean in framing up $2 billion per year, it's really anchored around what can we do effectively and deliver, if you will, cost effectively and substantially. So it's really about the capacity of the company to deliver the change we need to undertake. If it's the case that we can prove certainly in what we deliver over the next 12 months that we can do more, then we'll remain open-minded about that. But at the same time, it's about balancing the capacity of the company to execute the change of cost effectively and also balancing -- making sure we deliver return to shareholders. So it's a balance that we'll have to navigate over the next 36 months. Justin McCarthy: Next question comes from Andrew Lyons from Jefferies. Andrew Lyons: Maybe Nathan, a question for you. I just want to try and flesh out how everything you've mentioned on expenses will ultimately impact growth in FY '26. So perhaps just referencing the various FY '26 considerations that you have provided us, can you perhaps talk in a bit more detail as to how you expect this to translate to the various moving parts that you have in your expense waterfall slide on Slide 27, please? Nathan Goonan: Thanks, Andrew. Good to hear from you. I guess I'm just going to try and find the slide, just give me 2 seconds. It's up on the screen now. So I guess a deep walk through these and maybe just happy just to go through them again and try and give a little bit more flavor as we go. I think we've looked at it on a -- the first thing is just to sort of look at it on an annual basis, Andrew, and that's what we've tried to do. I think on people costs, we do continue to think that, that will be an increase in expenses next year. We probably expect if you break that down a little bit, we've got some pull-through of things like the investment in bankers that we had this year. There's a pull-through of the superannuation guarantee coming through. So there's a few of those things. We probably expect that we'll have lower absolute wage growth. The EBA is into its second year. So it's a lower number year-on-year. But we do expect to continue to invest in bankers. So I think that number will continue to be a big feature as we look at FY '26. On tech, I guess my comment was just similar that we continue to think that, that will be a headwind. And then on volume and other, maybe just to break that one down a little bit and try and give a little flavor. Probably the one thing that's a little bit of feature of FY '25 was a reasonably material investment in the brand, which we're really pleased about and is important in investing in the business. And that was about $60 million in the year, $45 million in the half. So we'll have some of that flow through into next year, but maybe not as much. We gave the disclosure on UNITE. Clearly, that investment bucket is just going to be determined by how much skews towards UNITE and then it's expensed at a higher ratio than the other. So we tried to give a bit of guidance there. And then amortization was about $100 million for the year, and we expect that to be a significantly lower number. And then we've had the conversation about productivity. So they're the moving parts, Andrew. Happy to try and sort of be helpful or answer a follow-up on any one of those. But hopefully, in sort of laying it out that way, you get a picture of the moving buckets. Andrew Lyons: No, that's great. I appreciate that detail. I might just move on to my second one, just around volumes. You mentioned that mortgage growth ex RAMS was 0.8x system over the year, and you put that down to being a function of just focusing more on returns. But like to be honest, when we continue to speak to mortgage brokers and the like, we do still hear that even though the gap between the 2 bookends have closed, Westpac is still pretty aggressive on front book discounting. So I'm just keen to sort of understand how you recognize those or reconcile those two opposing views around pricing for growth versus still being pretty competitive from the perspective of brokers. Anthony Miller: Andrew, it's Anthony here. Definitely, we have to be competitive. And this product that is a mortgage today is a highly commoditized and very price-sensitive offering. So we just need to acknowledge that. The second thing is, yes, in certain areas where we felt it made real sense for us and the returns were right and reflected the customer base we have and want to get more of, such as investor loans, we were sharp on price. And we deliberately were because we saw the return and we felt it aligned with what we wanted to achieve. In terms of other parts of the portfolio, we were above market. And I know there's always lots of observations and commentary from participants outside the bank. Those were the two disciplines we set ourselves, which is we wanted to be sharp, we wanted to be very price-competitive in investor and then a couple of other segments that we're keen. And we were very happy to be above market on owner-occupied just given the shape of our book and the returns that we're going after. Justin McCarthy: Thanks, Andrew. Our next question comes from Ed Henning from CLSA. Ed Henning: I just want to go back to project UNITE and just dig into that a little bit more. You've told us today that you're investing more in '26 than you've previously announced and also the program is going to go longer. So the investment you're spending is more than you've previously flagged. Can you just give us a little bit more on what it's going to deliver in terms of financial outcomes and the timing of that? How much is actually during the program? And then how much is beyond the program? Or are you planning to give that at a later date? Anthony Miller: Well, certainly, what we'll be doing each year in March is giving you a comprehensive update on UNITE and giving you an opportunity to work and go through the detailed work streams with our team. So we'll definitely continue to provide that detail and that access to you. I mean in terms of the investment next year or this financial year of $850 million to $950 million, it's a deliberate range because it will be -- if we can invest that and deliver the outcomes we need to deliver, then we'll take that opportunity, point number one. The second is, in the construct of doing all of the planning that we've done and landing on the decision to go with one ledger, that necessitated us changing some of the investment profile of the program. And so therefore, we had to bring a bit more investment forward, which is why next year is a bit lumpier than we might otherwise have planned because with the decision to go to one ledger, we had to do more work upfront to be able to facilitate that migration in 24 months' time. And so that's the reason why it's a little bit lumpy thereafter. The second is that, we are keeping that investment envelope in a disciplined way at $2 billion because as I described earlier to the previous question, it's about the capacity of the company to execute and can we -- if we can deliver value and if we can, in fact, do more, then we will be open-minded to doing more. The other thing I would say is that in terms of the project itself being longer, I just sort of want to put some context in that for you. When we spoke to the market 6 months ago, we were completing and finalizing the investment and plan for a one ledger. We landed at the one ledger decision, and we had to replan accordingly. Previously, we had -- we had 30 September 2028 as the finish date, and that was just arbitrary that we wanted to have this program completed by the end of financial year '28. Now as a result of that replanning, reflecting the decision to go to one ledger, it's just worked out that we won't have all of the benefits accruing by 30 September 2028. It's likely to be a few months into financial year '29. So that's why there's a bit of an extension. There's just more accuracy that we can provide as a result of the planning we've undertaken. And the last thing I'd sort of say to the spot-on question you've raised, which is, yes, the nature of the program is that much more of the benefits do accrue later in the program. But there's nevertheless still, if you will, benefits being realized now, whether it be, for example, the small movement and consolidation into one private bank, that's already delivering us some cost savings. There's a number of other initiatives where we're already seeing benefits accrue. But the nature of this program is that what we're doing is we're taking all of these customers on two other tech systems and platforms and migrating them onto one tech platform. And only when you switch those two off and you eliminate all the products and processes that, if you will, have to be executed on those two platforms, do you start to fully realize the benefits, the cost to run that follows from that, the cost to change that follows from that. So it is tapered to the back end in terms of the benefits that will be realized. And the premise that we have with UNITE, its key feature is that it helps set us up in a way that we have structurally lowered our cost base so we can really start to achieve our aspiration, which is a cost-to-income ratio that's better than the average of our peers. Ed Henning: And just following on from that, you know, in March coming up next year, are we going to be able to get at that point what you think the savings will be through the period and at the end of the period? Or are you not ready to tell us that? Anthony Miller: Look, we have absolutely clear in our mind as to what we want to achieve as a result of the investment we're undertaking, which represents UNITE. But what I'd rather do is make sure we're delivering and we're executing before we start talking about outcomes. But rest assured, the whole focus here about UNITE is if we can consolidate the new-to-bank processes and systems onto one bank process on one system, then we would expect that, that sets us up to be able to drive to a cost-to-income ratio that's very competitive as compared to our peer. Nathan Goonan: And maybe I'd just add one thing, Ed. I think it may be different than some other programs, but I don't think it's necessarily a program where you take total spend and total benefit sort of narrowed in on just the UNITE benefits and sort of try and make sense of it that way. This is sort of large structural opportunity for us to then get our cost-to-income ratio much better than where it is today. And so I think in some ways, it's a critical enabler of what we've got to do on productivity, but it cannot be the only thing. And so what we're committing to do is just try in a transparent way, as we go through the program, highlight the benefits that we've got from our spend as we go. And then you'll also hear us continuing to talk about that productivity bar that I've already had one question on because we want to be held accountable for making the organization more efficient as we go, significantly enabled by UNITE. So it's going to be more than just the UNITE productivity that you'll hear from us. Justin McCarthy: Our next question comes from Matthew Wilson from Jarden. Matthew Wilson: Two questions, if I may. Firstly, we've seen a nice pickup in your business banking volumes. You're winning share there, which has been really good. However, it's taken 50 basis points or so off the net interest margin. Obviously, there's some reclasses in there. How should we think about how you'll manage the volume margin trade-off in that business right now? Are we at a base that we can grow within without impacting the margin too much? Or should we expect further? Anthony Miller: Why don't I invite Nathan to take first swing at that, and then I'll add some comments on top. Nathan Goonan: Thanks, Matt. And I think it is a good question. And clearly, when you get into the divisional disclosures, it is a number that stands out. I think it's just important, I think, when we're thinking about margins just to make sure we sort of go back up to the top of the house, if you like, and just think about what are the movements in the margin that are happening at the group level. And then the divisional is really a proportional impact of those. So we've made the comment that when you look at business lending margin at a group level, it contributed less than a basis point. I appreciate some of that is just the math of materiality relative to the mortgage book. But more importantly, when you look at the business lending -- business margin at a division, you've got pretty significant impacts from the deposit side of the book. So I think the right way to look at that is sort of just the business lending, which is where your comment was going. Business lending revenue was actually up 7%. So the margin point around the lending is not as material as the overall divisional thing, just given the impact of the deposits. I'd probably say just a couple more points, and then I'll let Anthony come in. I think the lending margin was more stable in business lending in the second half than it was in the first. And I sort of continue to sort of expect trends into the first half are going to be a little bit more like they were in the second half than what they were in the first. So we don't see that accelerating. I think that's really driven front book, back book in our business lending books are much closer together now. One of the features, I think, of this book maybe relative to peers is when you've been out of the market for a little while and then you do reenter the market and accelerate, you can have a bit more of a pronounced cycling from back book margins on the front book margins. And so we might have seen in any given period a little bit more here than others. But I think we're now at that spot where that's much more in equilibrium, and we should move more in line with peers. And then I'd just say sort of two more points. Looking forward, I think mix of this book will be almost more important than pricing. So there is a significant difference in margins between the subsegments, whether it be the size, so corporate versus SME versus small, there's a significant difference between sort of working capital solutions and term lending. So getting that mix right will probably be a bigger determinant than pricing itself. And then just last point on pricing, Matt, not to labor the point. But I guess I've come in and met with the team and spent a lot of time with them on this particular point. And there's probably nothing that I'm seeing in the pricing here that is that different to what I would have expected or seen elsewhere. I think the team are putting their firepower around retaining their existing customers. And so you see pretty good levels or high levels of retention of existing customers when they go to market, and that's good business, and we continue to encourage that. And then where they're trying to be a little bit more disciplined on price is just on the new-to-bank. And so we're probably seeing new-to-bank win ratios drift down a little bit in the last 6 months, but the business is still growing well, and we expect it to continue to take share next year, so a long answer. Anthony Miller: No, no, you hit all the points, and thanks for doing that. I mean I would just say that the growth that we've seen over the last 12 months, Matt, was in, call it, the higher grade part of the book. And so margins there, as you would expect, slightly tighter, but the return on tangible equity was very attractive. The other thing that we were pleased about was that, that growth with existing customers and those sort of retention rates in the sort of high 90s. And then win rates in the context of new to bank were in sort of much, much, much lower than that. So we're really, really thoughtful about where we deployed and where we grew. And we knew that there would be, if you will, some consequence to margin, but it was the right way to go after the opportunity in front of us. The only other sort of additional point to make about business bank, with that growth in the loan book being sort of 3/4 existing customers, only 1/4 new customers, what was really pleasing is that we saw a 13% growth in the transactional account, which we think is a really important sort of opportunity and capability we have at the bank. That 13% growth, what was very pleasing was that sort of about 53%, 54% of that growth was with new-to-bank. So we're bringing new customers in on a product suite that's a really attractive, a, return; but b, also a risk profile for us as a company. So we quite like the way Paul and the team are driving the shape of that growth in that division. Justin McCarthy: Matt, hopefully, your second question doesn't require such a comprehensive answer. Matthew Wilson: Hopefully not. Just with respect to your targets, so 6 months or so ago, you decided to set relative cost to income and ROE targets. In the interim, one of your key peers has sort of changed that line in the sand by producing some absolute targets. How have you responded to that? Because it makes your task a lot harder at the current scenario? Anthony Miller: Look, I expected this question. And in fact, I think I expected it from you, Matt. So thanks for playing consistently. Look, I respect Nuno immensely and what ANZ has done and he's put a marker down, and I wish him well, and we'll watch that process develop from here. We've spent a lot of time and effort to get a plan together, and we have that plan in front of us. And so I think our ambition, which is to be very focused on how do I structurally reset this company with UNITE, how do we then go after the productivity equation year-in, year-out over the next 36 months, bringing those together, we can see where we can get our cost-to-income ratio at a point which is better than our peer average. And so that's -- we've got clear goals, clear targets that we need to deliver, Matt. I'd just much rather, if you will, deliver and be dropping outcomes along the way rather than sort of putting some bold number in front of you. I think it's fair to say, as a company, we probably haven't the right to do that. We put a number in front of you 4, 5 years ago, and we didn't get to it. And so frankly, what we need to do is deliver and then talk about bold numbers and outcomes. Justin McCarthy: The next question comes from John Storey from UBS. John Storey: Firstly, obviously, on the Consumer division, you've seen quite a big improvement half-on-half. And just looking at some of the diagnostics on the actual Consumer division, reported customer surveys, NPS scores are pretty stable, Anthony, as you called out. But one thing that is pretty evident is your MFI number has dropped quite a bit. Maybe if you could give a little bit more details around that? And then just secondly, on the Consumer division, maybe just around the start of the financial year, if you could provide a little bit more color on how the division has been performing, particularly with regards to new business volumes and then also just channels in terms of where mortgages are coming through. Anthony Miller: Look, thanks for that question, John. And so Nathan, you're welcome to jump in as you see fit. Look, you're absolutely spot on. We have an aspiration to lift our MFI ranking from where it is. And if there was one aspect of the performance in Consumer, which has done some great work over the last 12 months, there's one area where we're disappointed and we're actively engaging on is the MFI outcome in Consumer. The irony is that the MFI score has come down a little bit, yet deposits have grown at a very attractive level of 10%. And we've done more work. And as we've unpacked that, we've noticed that actually it's much more in the context of what we call the regional brands, St. George, BankSA, Bank of Melbourne. And part of that is connected to the fact that we were less aggressive in how we were pricing our mortgage book in that area. And as a result, we saw some attrition in the transactional account, the MFI accounts that we really want. And so that was a really humble reminder to us that about not just looking at products like mortgages in a stand-alone only return setting, but to really think about the whole of customer and are we getting the balance right. And we've recognized that in that area, in particular, we weren't getting the balance right, and we've addressed that accordingly and are much more focused on how we grow and support those customers and obviously graduate the MFI. Pleasingly, as it relates to the Westpac offering, the MFI there has started to improve, and we're certainly pleased with the outlook and the momentum that we've got in that. I would say that the others -- if I think about also MFI in the space of 12 months in business banking, they've been able to lift it by well over 1 percentage point. So it does highlight that we do have the offering. We do have the product. We just simply got to get -- make sure it's a priority across the organization, which it now is. Nathan Goonan: Maybe I could just add a little bit on the current flows, John, just to take your second question. I would say that we've -- and Anthony mentioned this in his preprepared remarks, we've probably seen, well, one, I think the market is, in particular, your question goes to home lending, then I think that mortgage market has been accelerating. And I think that's been sort of well covered in the market, and you can see it in the system stats. We're certainly feeling that or seeing that. So we've had increases in pretty much every channel, and we're seeing increased applications. And so front-of-funnel activity, as Anthony said in his preprepared, is probably a little bit higher than where we've been trending on a market share basis over the second half. So we're probably at or around system wouldn't surprise us if our front-of-funnel actually meant that we had a couple of months here where we're a little bit above system. That has been growth in all channels. I think pleasingly, we think October, we're going to see a little bit of volume growth in proprietary. I think the team are very cautious when we talk about green shoots there, and Anthony said it's sort of years, not months. But I think as we've seen proportional increases in applications, the proprietary channel has been performing better than it was in prior periods in that period on a proportional basis. So that continues to be good. And maybe the other thing just to add that may be of interest, John, I think the first homebuyers guarantee scheme has certainly stimulated some interest, whether it was some pent-up demand there, but we saw sort of applications in the first couple of weeks when the changes were made almost went to 2.5x what they were for the first homebuyers guaranteed. It's moderated a little bit. I think last week, it was about 2x what they were. So it's still double. How much of that pulls through? So we're seeing a lot of that volume. I think how much of that actually fulfills is a bit of a wait and see, but it's certainly still a small portion of the bank, but it certainly stimulated some demand. Justin McCarthy: Our next question comes from Brian Johnson from MST. Brian Johnson: Welcome, Nathan. I had 2 questions, if I may. The first one is, I'd just like to understand, you've got a bucket load of surplus capital. You're trading at, I don't know, about 1.8x book. I just want to understand the strategic rationale behind selling RAMS when a buyback, for example, is not as accretive. And also if we could understand any kind of litigation risk or warranties that you've made to the buyers in respect of this business? And then I had another question, if I may. Nathan Goonan: Okay. I'll just start on a couple of specifics, and then Anthony can jump in. I think one of the important features of the transaction, Brian, is that it's an asset sale. So just by virtue of that structure means that we're retaining the entities. And then the assets, it's a loan sale. So effectively, the asset is transferred to the buyer. As part of that, we've given sort of customary reps and warrants and other protections for the buyer so that they know that the asset they're buying is effectively going to perform in a way that it says on the tin. So that's things like title and the enforceability of title and things like that. So all customary things. In particular, as it relates to things like indemnities, you just don't need to given the structure of the sale, that will just stays with the existing entity that we retain. Maybe just to give a little bit of a picture as to the financial impact of it, Brian, because I think prima facie, I would agree, it does -- you sort of -- every day, we wake up and compete really hard on household mortgages. And so it's a core product of the bank. And so prime facie, you've got to scratch your head a little bit when you're then willing to sell a portfolio of home lending. But there's a couple of important points here. It is on a completely stand-alone set of technology. So it's a business that runs almost independently from the rest of the business. And so you've got a cost base here that by the time that we get to completion will be almost equal its revenue base. And it doesn't necessarily give you the type of scale that you might intuitively think in your mortgage business, is sort of one of the key features of this relative to, say, just ceding a little bit of share. And maybe, Anthony, you can touch on it. The other key point is we've made quite a few statements today just about the inherent strength of the deposit franchise, the ability for us to go after transaction accounts in terms of being a strategic advantage for us as we think about our balance sheet structure. And this is a business that has, if not 0, very close to 0 crossover in terms of deposits into the mothership. Anthony Miller: I probably just develop a little bit more on one point, which is, our current mortgage book, Brian, is, let's call it, 21% market share. But essentially, we've got 3 different systems upon which it's spread. So in effect, I've got 3 small banks, 3 small bank cost challenges, 3 small bank compliance, 3 small bank risk challenges in managing the mortgage book. And so UNITE was about moving all of those onto one way of doing things on one target tech stack. And so we were always going to have to spend quite a lot of money, and we're going to have to spend a lot of effort and consume a lot of resource to move the RAMS mortgages onto the target tech stack. And so therefore, if there was an opportunity to do that much faster and more efficiently, which this asset sale represents, then we were open-minded to it because essentially, I have 1 percentage point less market share. But now instead of it being spread across 3 regional bank cost basis, it's spread across 2, and we're on our way to getting one. And importantly, if we complete this, as we target, in 2026, I'm accruing that run cost saving, operational complexity reduction, risk reduction 2 years earlier than was otherwise planned. And so therefore, that's an attractive outcome for the bank. And as I say, 21% or 20%, my scale is wasted on 3 systems. And so I've got to get to the one system to really enjoy the benefits of that scale. So that's why this opportunity made sense. And that's why when we found the right parties, who would be the right owners of these assets, it just made a lot of sense for us to get after it. Brian Johnson: Anthony, just as a subset of that, can I just clarify, there was a story in one of the media reports talking about ASIC and AUSTRAC talking about this. I think subsequently, we've seen a very, very small ASIC fine. Can I just confirm that as far as you're aware, within the RAMS business that you're effectively retaining the risk? Anthony Miller: Correct. So to the extent that we've engaged with the regulators, and it's well documented on a whole range of issues and concerns they had with the way the RAMS businesses were led, managed and prosecuted, we've now -- obviously, we retained that. We've just simply sold the assets. And more importantly, it allows us, as I say, to switch off or get off one of those bank systems. So nothing has changed in terms of the risk profile we had as a result of the ownership of that business. It's just simply much cheaper to run from here. Brian Johnson: So can you address the question, though. There is no AUSTRAC issue? Anthony Miller: Nothing that has been brought to my attention, Brian. Nothing has been brought to my attention. So I don't -- you'll have to send me the article or reference and sort of what context in which it sits. But in the context of AUSTRAC matters vis-a-vis RAMS, I don't have anything in front of me on that front. And I'm looking across at my General Counsel and my Chief Risk Officer, and they equally are acknowledging that we have no such issues at this point. Justin McCarthy: Thanks, Brian. Our next question comes from Jonathan Mott from Barrenjoey. Jonathan Mott: Just a question on UNITE, back to the topic that we talked a bit before. You give us a kind of a traffic light scheme on how the business is going, but there's been a bit of a change in the disclosure. At the first half, you had sort of the green amber red. And now you've got in scope. I'm just looking at Slide 16 here, you've got another classification in scope. And then you've had an increase in the number of amber and a small change in red. Can you give us an update on what that means? Why you're now saying this is scope confirmed? And if you're looking at 18 of the 38 are actually already in the amber and red. Anthony Miller: So thanks for the question, Jonathan. And just sort of let me break it down for you. As a result of all of the planning undertaken, we now have a plan in front of us, and we know what we need to do, in what sequence we have to do it. Those 13 scopes confirmed are essentially 13 initiatives that we now have a plan for. And at some point, over the course of the next 36 months, those, if you will, initiatives will have to be worked on. And so at the moment, not all of those 13 have commenced. And so therefore, to characterize it as green, red or amber is slightly redundant. And so therefore, the others, which we're now moving on because it's a real program of sequence. It's about what we do and how we follow up on each particular completion of work. And so these 13 initiatives will be done. And to the extent, once they start work on them, we'll then obviously recognize whether they're meeting the standards we set, meeting the time line we set, meeting the cost we set, and that will then determine whether they're characterized as green, amber or red. And when we were talking back in May results, 7 of the initiatives at that point were red, and it's now down to 5. What's happened is 4 of those 7 have now moved into Amber Green. One, in fact, has been completed or effectively exited. And so that's behind us. But we've also had 2 new -- or 2 initiatives being recharacterized as red. So that's why there's that change from 7 to 5 over the course of the last 6 months. What we'll keep doing, Jonathan, is to the extent that there's some confusion there, we will get sharper in how we set it out for you because I do want everyone at all times to see that this is a large -- this is a challenging complex program of work. We're absolutely committed to it and most importantly, committed to making sure that there is no surprises as we go through it. And so if we can do better in sharing with you where we're at, we will look to tidy that up as we go forward. Jonathan Mott: And second question, if I could. If you're looking -- I'm looking at Slide 22, 23, I think it is, which just shows the growth in deposits and consumer pretty strong at $15 billion and then $12 billion in mortgages if you exclude RAMS. But including in that number is very strong growth again in offset accounts. I think it was up another $5 billion. You've now got $73 billion in offset accounts. So two things about that. Firstly, are you comfortable with the growth in net of offset accounts because it really is lagging the system? And I know you said you want to get your service proposition right, but are you comfortable with that? And also, given the offset accounts are nearly all against owner-occupied property, it actually means your investor book, as a percentage of the total, excluding offsets, which is just sort of a deposit sitting there, is a lot larger. So can you ask us sort of that considering this net of the offset accounts? Anthony Miller: I'll make a couple of comments and invite Nathan to jump in. I mean, certainly, you're right to call out that the deposit agenda, the idea that we grow deposits and more importantly, get the shape of that right, John, is absolutely not where we want it to be, albeit we're really pleased with the progress we've made, but we would like a lot more in terms of the shape of deposits. And we were disappointed and acknowledge that, that we didn't catch what was happening in the regional brands as fast as we perhaps should have, and that's on myself. We're very much focused on now addressing that. And I think we've got that properly, if you will, tackled, and it's just about how we get after that over the next 12 months. I'm just really pleased though that the Westpac side of the portfolio is continuing to improve and is, obviously, a really critical part of our portfolio there on transactional and savings accounts. I suppose there's definitely -- there's things that if I think about our service proposition, one of the areas that I reflect on is making sure that transactional accounts, deposit services and servicing on that front is front and center for every banker in the company. And we've done a lot of work to recalibrate, for example, scorecards and incentives to make sure that all of our bankers in consumer and business bank understand the priority we attach to that. And pleasingly, we've got a good enough product suite, which means we can be very competitive. And I do feel like we're after that in the right way. I missed the second part of the question? Nathan Goonan: No, I think you've covered it well. Maybe, John, just to add 2 points. I think that you're right to call it out. There's about, as you said, 7% growth in offsets in the half, but importantly, 6% in savings as well. So we have seen strong growth in both those items. I think -- and you're right to call it out in the way you did. The growth in savings accounts is about attracting customers on the liability side and the offset is much more about the business that you do on the asset side. And there is a strong customer preference towards those. They've been growing, as you know, quite strongly as you move from a fixed rate portfolio into a variable rate portfolio, and we're pretty much exclusively there now. As we grow that side of the book, we'll continue to see growth in the offsets. Whether you're trying to target a certain amount of offsets or whether you're happy with it or not, I think it's a key feature of the mortgage product, and there is a strong customer appetite for it. Anthony Miller: Probably the other point you did raise was about investor loans. And we're very keen to continue to be competitive in the investor loan segment. That demographic, that audience is an attractive customer base for us. And we see a real value in being very supportive there on investor loans and more importantly, then converting and making sure it's a whole of bank, whole of customer relationship that follows from that. Justin McCarthy: Our next question comes from Carlos Cacho from Macquarie. Carlos? Carlos Cacho: First, I just want to ask about on your margins, your replicating portfolio benefit is expected to diminish from 3 bps to 1 bp. I was just wondering if there's any other potential tailwinds that are worth calling out as you head into FY '26 because it's mostly negatives that you mentioned as you walk through the waterfall, Nathan. Nathan Goonan: Carlos, Justin has given me the signal for one word answer. So maybe I'll jump straight into it. I think we did just try and lay out as helpfully as we can, Carlos, and happy to sort of pick it up later in the afternoon to the extent helpful. But I guess the other point that we made, if you narrow in on things where we could get a tailwind, I think term wholesale funding markets have been better. So we do expect a tailwind there. We do expect to continue to get some replicating portfolio benefits. We called out a basis point there, which is sort of net across the replicating portfolio and then the unhedged deposits. So there's a little bit of support there. And then I think maybe the other one is just to say on liquids. I think that has been a bit of a volatile item for us quarter-on-quarter. We did expect a sort of increase in investment securities at the third quarter that maybe didn't flow through to the same extent we thought. I do suspect as we go forward into the first half, just where the customer balance sheets are up to and how growth is going, we probably expect liquids to be down a little bit in the first half. And so while neutral to earnings, there might be a little bit of a benefit that flows through there. Carlos Cacho: And then just secondly, you've spoken about wanting to do better in proprietary mortgages. And obviously, it's a long-term strategy. But where are you expecting to win? Or where are you seeing wins come from? I presumably, it's either got to be a new customer who's a first home buyer or they're coming from other banks where they're proprietary or they're coming from brokers? Like do you track that? Is there particular targets you're hoping to do better in? Anthony Miller: Look, I mean, good question. I mean what we've got to do is just get the basics right in terms of how we go after proprietary. So we've got to get the service proposition right. We've made real progress. We've got to get the product right, and we've seen improvement in product NPS, time to decision down inside 5 days. We're operating and executing mortgages more efficiently than we have in the past. Our hygiene and data is in a much better place. So the returns are much more, if you will, better reflected in that. And then I think the things for us, though, is we just got to get, for example, more bankers. We lost too many home finance managers. So we're catching up on that. That takes 6 to 12 months for a good home finance manager to really get into their straps. And so we've started to get that resource allocation right. We certainly got to get a better compensation and incentive arrangement around for our home finance managers, and we've now got that right. We've got the scorecards right. We're also, at last, really taking the full power of the company in terms of the range of data and if you will, insights that come from all of what we have across the entire company to help get behind the home finance managers and give them real leads, which represent real insights and allow us to be much more proactive. And then you heard Nathan talk about investing in the brand. We spend a lot more money to get the brand profile up. So we're just putting in place all of the basics to really get after this area. And I'll be very candid with you. There's nothing more dramatic than just getting all those basics in place to allow us to get after it. It took us a number of years to get to this point. It's going to take a little bit of time to get out of this particular position. But I think we've got what we need to execute. And I was really pleased with some of the actions we took in private wealth last year, which we've already seen a really improved turnaround in first-party in private wealth, which tells us that if we get after this as we have in private wealth and consumer, we can deliver that same turnaround. It will just be, I think, a reasonable period of time of effort to get there. Justin McCarthy: Our next question comes from Andrew Triggs from JPMorgan. Andrew Triggs: I might just ask one question. Deposit mix shift, should we expect that to slow significantly next year? And maybe, Nathan, if you could break that down, please, between the percentage of deposits in behavioral savings versus the percentage of those products themselves where the customers are qualifying for the bonus rate? Nathan Goonan: Yes, I think on the deposit mix spreads, you've probably rightfully called it out. It's probably just really a story for us around the growth that we've seen in that consumer savings product. I think at an overall book level, we've had decreases in proportion to term lending. So I think the bigger determinant of going forward margins, which is really where you're going, is going to be on the savings product. And I would say a couple of things here. I think certainly, this is one of the areas where fourth quarter was a little bit -- showed a few different signs in the third quarter. So we saw, I think savings -- the savings balances in the fourth quarter grew $5 billion. They grew $2 billion in the third quarter. We've said there that we've got about 84%. I think we've given you an annual number there that are the people that are qualifying or achieving the bonus rate, that was actually probably a little bit lower through a couple of months in the middle of the year and then picked up a little bit in the fourth quarter. So I think those 2 main things are things that I'm expecting will flow through into the second half. It's probably -- into the first half. It's probably not so much a mix shift into these products, Andrew. It's much more that's where we're seeing the growth. Justin McCarthy: Our next question comes from Richard Wiles from Morgan Stanley. Richard? Richard Wiles: I'll just ask one question, too. It's following on from Matt Wilson's question around the business bank margin. In your business and wealth update a few months ago, Slide 17 showed the composition of the underlying margin decline. It was 22 basis points, and it was split across portfolio mix, deposits and lending. The decline in this half, Nathan, was 18 basis points. So actually pretty similar to the first half in terms of underlying trends. Could you give us some commentary around the mix between portfolio deposits and lending? Were the trends pretty similar? Or did they start to skew? Nathan Goonan: Yes. Thanks, Richard. Yes, I think my comments earlier to Matt, sorry if that was confusing was just really around the business lending part of that equation. So I think in the second half or in the more current period, we've seen a more moderation of the impact on the lending side. And you would have seen -- for all the reasons we've been speaking about on the deposit side, you would have seen a bigger -- a proportionately higher impact in the more recent period from deposits. Richard Wiles: Okay. So lending was 7% in the first half and deposits was 9%. Lending went down, deposits went up as a headwind for margins? Nathan Goonan: As headwinds, yes. Justin McCarthy: Our next question comes from Brendan Sproules from Goldman. Brendan Sproules: I just have a couple of questions. Firstly, on the Markets and Treasury contribution for this half, it looks like it's running at a run rate of sort of about $2.2 billion. Can you maybe talk about some of the benefits that were achieved this half? And will those sort of repeat into 2026? And how does the $2.2 billion relate to what you would think is a normalized level of earnings from these 2 divisions? Nathan Goonan: Yes. Maybe we can break it down a little bit, Brendan, and then Anthony knows that business well. I think it is very challenging in these business to grab 1 quarter and annualize that and sort of expect that that's where you're run rating -- like -- well, sorry, it is where you're run rating, but to expect that, that sustains over 4 quarters. So I think with these -- certainly, the markets business is a pretty mature business now. It's got a really strong FX, fixed income capability, and it's a pretty mature business now that would be -- should all market conditions being equal, just growing more in line with the underlying activity of our clients and the loan book growth. And then, Nell and the team have got ambition and are doing things to grow out a few more strategies that can build income sustainably in that franchise over time. But I think I would just think about that as more -- it should be producing pretty stable performance on the FX and the fixed income, and it will be more determined by underlying activity. In treasury, I think similar, we've got good disclosure on that over a long period of time. I think that number in and around $1 billion for the treasury has been a pretty consistent number. I think a couple of years ago, we might have had a $600 million, but I think in and around that area is about right. We're probably issuing a bit less wholesale funding, which gives them a few less opportunities. And even with the RAM sale, we expect to do a little bit less in that space. So maybe it comes off a little bit. But there's a few comments, Anthony. Anthony Miller: Yes. Look, I mean, definitely, the financial markets business, it's, I think, the leading franchise in the market now. A couple of just extra comments. I think there's real upside for us in the FX product suite and the penetration into consumer and business bank at Westpac is less than what it should be,, given the quality of the FX franchise we have. So there's real upside there in servicing our existing customers in consumer and business bank. Likewise, I think we're underweight in a few aspects like commodities and aspects of that business, which we see as a real positive for us. Perhaps the real sort of interesting jewel in the crown in there is just the credit business, the credit trading, the credit market making. Now that Australia with its savings bill is actually a genuine capital exporter, and we have a lot of Kangaroo bond issuance into this market, the franchise that we have there in terms of credit market making, origination and, if you will, distribution into this capital market is pretty impressive. It's the best in the street. So we're quite excited about how much more we will see in that business as Australia's position with the superannuation funds makes it a real destination for people to raise capital. Brendan Sproules: That's very helpful. My second question is just on Slide 29 around the impairment provisions. I mean, in this presentation, you've talked, Anthony, about the improving operating environment for the bank. You've also showed some lead indicators on asset quality where you're seeing impaired assets, for example, fall. I was just wondering what the thought process was around increasing the overlays and specifically the downside scenario weight and actually growing your excess provisions above base case in this period. Anthony Miller: I'll just let Nathan make a comment, but it was a robust process. And because clearly, the settings and outlook has continues to be surprisingly benign, but we need to be constantly vigilant and, if you will, balanced about what is going on and what may come our way. And so that's been a very congested and well-developed discussion inside the company with Nathan and I about what's the right outcome here. But Nathan... Nathan Goonan: Probably just to add, I think, Brendan, I think just take it as an indicator that we put a high value on medium-term earnings stability. And so I think when we think about this, it's similar to increases in hedge balances and then the management judgments around that. We've tried to just err on the side of a little bit more stability over time. Justin McCarthy: Our next question comes from Samantha Kontrobarsky from HESTA. Sam? Samantha Kontrobarsky: I'll just keep it to one. So you've recently appointed a Chief Data, Digital and AI Officer, which is a new step for the business. As you bring these areas together, how do you see this changing how Westpac competes? Is it mainly about efficiency and cost? Or could it fundamentally reshape the customer experience and growth? Anthony Miller: Thanks for the question, and that is what I work on every day in terms of how do we get that right. There's no doubt that there's a lot of hype and a lot of, if you will, excitement around the AI revolution or evolution, depending on who you speak to. We certainly think that its capacity to help us be more efficient, help our employees get their job done better, safer, more consistent is a really big and important opportunity that comes from having the right AI program. And so that was one of the key sort of drivers was to get a global thought leader working for and with me in terms of how do we look at the way we do things in the company and how can we do things better. It's a wonderful tool in the hands of employees, but you need to, therefore, invest in your employees and make sure they understand how to use this tool and how they can make it or can help them be more efficient. So that's definitely one emphasis. And there is definitely really interesting ways in which it will help us serve customers and provide a more attractive service proposition to our customers. And we're sort of already taking some of the model capability with this Westpac Intelligence layer, taking all of the data and all the signals that are coming into this company and using that to make better, faster decisions, which allow us to get back in front of our customer more proactively. So we're seeing it, Samantha, also help us in terms of being really good with our customers with a view that, that obviously drives engagement, connection and revenue ultimately. Justin McCarthy: Thanks, Sam. We'll move to some questions now from the media. So our first question comes from Luca Ittimani from The Guardian. Luca Ittimani: Can you hear me right? Justin McCarthy: We got you perfectly. Luca Ittimani: I just wanted to check. So in the wake of the Fair Work Commission decision, do you intend to change your work-from-home policies at all? Have you seen more applications or requests from staff for new or more flexible work from home request? Anthony Miller: Well, we have one of the most flexible work-from-home policies positions in the marketplace. So I think what we are going after, which is finding that balance for our people, I think we've got that right. So no, I don't need or feel a need to change that particular setting. We're also just reflecting on what we might do in response to that recent work-from-home decision by the Fair Work Commission, and we'll land on a decision as to what we will do later this week or the next. What I would also say is that we've got a tremendous level of engagement from our people. And if I look at some of the OHI scores and other engagement measures, just highlighting people are really engaged and really excited about what we're trying to go after and what we're trying to achieve as a company in terms of for our customers and in terms of how we work together as a team. So I feel really encouraged by just where we're at and motivated to go further with what we've got. Justin McCarthy: Thanks. Our next question comes from James Eyers from the AFR. James Eyers: Anthony, you've spoken about this deliberate pricing to attract investors in the residential property market. And you can see on Slide 66, your investor loans and interest-only loans, sort of the second half flow that is tracking well above the averages of the book. The sort of house price data out today showing house prices sort of growing at the fastest pace in a couple of years. And we saw that APRA data on Friday showing investor lending is pretty strong, like sort of 7% annualized, I think. You just said in response to John Mott's question, it was an attractive customer base. But could you just talk a little bit more about that? Like why are you targeting more investors? Are they sort of a better credit risk than owner occupiers? Is there a cross-sell opportunity for you? And do you foresee a little bit of a squeeze on the first homeowner buyers as a result of this investor growth that we're seeing come through? Anthony Miller: Well, I think we're seeing a squeeze on the entire market because of the demand, whether it's first-time buyer investor, there's just a lot of demand. And the key challenge of the day is we've got to get more houses built at the right price point, James. So every aspect of demand is being supported and is going fast, which is only driving the challenge and making it harder. In terms of the investor segment, I mean, yes, it's an attractive segment in terms of from a credit risk perspective. And yes, you're right in terms of, I don't like the term, cross-sell, but the idea that these are people who are investing in property who, therefore, may need an incremental services and support and how do we, therefore, bring this entire bank to them is something that I'm really drawn to, and we see it as a real opportunity for us. And we just got to, I suppose, go about it thoughtfully and be careful about the outlook and the risks that come from sort of going too far, too fast in a particular segment. But we think we've got the balance right. And it's interesting that we're forecasting a sort of 9%, almost 10% increase in residential house prices over the next 12 months. So it's certainly a positive outlook for people who can access the property market. James Eyers: Just a really quick supplementary on that risk -- go on, sorry. Justin McCarthy: No, you're right, James. Keep going, sorry. James Eyers: Just a really quick supplementary on that risk point, Anthony, we saw Lone Star make some comments in July that they begin sort of engaging with banks on implementation aspects around macro prudential tools just to make sure that could be activated in a timely manner if needed. And like back in 2015, I think you sort of had the investor loan growth sort of going above 10% and brought back to that number. And then there was an interest-only element in 2017, where they were sort of looking at that being about 30%. You're at 20% now, I think. So it's well under that. But how much sort of hotter do you think this investor lending growth trend sort of would need to get before you're in that territory again? Anthony Miller: Look, I don't have that answer, James, but we are very much or very cognizant of the balance we need to find. And we engage with the regulator. APRA is a terrific partner to us, and we engage actively often deeply with them about all of these particular issues. And so we'll be making sure there is no risk or issue there vis-a-vis the regulator. Equally, it's an opportunity that we've been pursuing over the course of the last 6 months, and we will continue to pursue it, but it will be balanced around the return. It will be balanced around the risk and it will be balanced around is it that we're converting these opportunities into broader, more substantive customer relationships and not just simply a lender loan. Justin McCarthy: Our last question comes from Steven Johnson from Seven West Media. Steven Johnson: Steven Johnson here from The Nightly news website. Anthony, earlier in your presentation, you said that you want to see more housing around the -- available for the $500,000 mark. Would you be able to explain why you want more housing available for $500,000? And what your typical debt-to-income ratio limit would be now considering the cash trades at 3.6%? Anthony Miller: So the thesis around just sort of promoting the idea that $500,000 is the right price point is really sort of predicated on the following: Median income in Australia is approximately $90,000. When we finance someone in the acquisition of a house, we will lend in the order of 5 to 6x their income subject to expense verification and the like. And so therefore, you've got something anywhere between sort of $450,000 and $550,000 of mortgage capacity. And then, of course, just assume, say, a 10% deposit. And so all of a sudden, you can see median $500,000 as a house, $500,000, $600,000 is just really critical if we're going to solve for, call it, average Australia or the median position in Australia. And the challenge is that properties are being built in major capital cities and the median house price of houses in capital cities in Australia is over $1 million. I am drawn to the fact that median house prices in regional Australia are closer to sort of $500,000, $550,000. And so I feel like Regional Australia is part of the solution potentially here. But I would say that the key is let's build more properties at the right price point to allow people to get access to the market. And so when we talk about building more properties, it just can't be building more properties that doesn't solve the actual challenge. How do we ensure the average Australian gets a chance to buy a property and live in their home of their dream. Steven Johnson: So basically, it's also a social issue that there's too many houses are at $1 million, the average full-time worker can't afford that. Are there going to be some societal challenges, some aspects that would hurt Westpac lending. Anthony Miller: Well, look, I think our success as a company is inextricably linked to the success of this country. And one of the challenges for this country is to get more housing, have more Australians being able to own their own property. And so therefore, I think it's really important. The challenge is that when you think about the cost to construct, you think about the time and cost and process for approval, all of those features contribute to it being very hard to be able to build a house at that price point. And so therefore, I think it's not sort of dependent upon developers and contractors, but it's really important that the entire community, government, regulators and all of us work out how can we create an environment where it's cost effective, it's rational and it's reasonable to expect you build house for $500,000 to $600,000 in Australia. Justin McCarthy: Thank you, Steven, and thanks, everyone, for dialing in. We'll be available over the course of the day. Thank you very much.
Operator: Greetings. Welcome to Freshpet's Third Quarter 2025 Earnings Call. [Operator Instructions] Please note today's conference is being recorded. At this time, I'll now turn the conference over to Rachel Ulsh, Vice President, Investor Relations and Corporate Communications. Thank you, Rachel. You may now begin. Rachel Perkins-Ulsh: Good morning, and welcome to Freshpet's third quarter 2025 earnings call and webcast. On today's call are Billy Cyr, Chief Executive Officer; and Ivan Garcia, Interim Chief Financial Officer. Nicki Baty, Chief Operating Officer, will also be available for Q&A. Before we begin, please remember that during the course of this call, management may make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements related to our strategies to accelerate growth, progress and opportunities and capital efficiencies, timing and impact of new technology, capital spending, adequacy of capacity, expectations to be free cash flow positive, 2025 guidance and 2027 targets. They involve risks and uncertainties that could cause actual results to differ materially from any forward-looking statements made today, including those associated with these statements and those discussed in our earnings press release and most recent filings with the SEC, including our 2024 annual report on Form 10-K, which are all available on our website. Please note that on today's call, management will refer to certain non-GAAP financial measures such as EBITDA and adjusted EBITDA, among others. While the company believes these non-GAAP financial measures provide useful information for investors, the presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with GAAP. Please refer to today's press release for how management defines such non-GAAP measures, why management believes such non-GAAP measures are useful, a reconciliation of the non-GAAP financial measures to the most comparable measures prepared in accordance with GAAP and limitations associated with such non-GAAP measures. Finally, the company has produced a presentation that contains many of the key metrics that will be discussed on this call. That presentation can be found on the company's investor website. Management's commentary will not specifically walk through the presentation on the call, rather, it is a summary of the results and guidance they will discuss today. With that, I'd like to turn the call over to Billy Cyr, Chief Executive Officer. William Cyr: Thank you, Rachel, and good morning, everyone. The message I would like you to take away from today's call is that we are quickly adjusting to the new economic reality and remain one of the best-performing pet food businesses. We continue to outperform the U.S. dog food category. We are building market share across every channel, and we are winning a disproportionate share of new pet parents. We also continue to deliver strong operating performance despite the slowdown in volume growth. Further, we have maintained financial discipline and appropriately manage our capital spending to match our growth. And that, in combination with strong operating performance has enabled us to achieve positive free cash flow in the third quarter and will enable us to become free cash flow positive for the full year, which is 1 year ahead of our original 2026 target. Taking a step back, the deceleration in sales growth this year was unprecedented. We clearly started this year expecting to operate in a much different environment and have had to shift our strategy to address these challenging and dynamic times. While we can't control consumer sentiment, we can adapt our consumer proposition and make sure we are best positioned to increase household penetration by winning both new and existing pet parents, while also improving our profitability and free cash flow generation. We believe we are taking all of the necessary steps to stabilize and then reaccelerate our top line growth by continuing to focus on areas that are within our control. To address the consumer environment, we have adjusted our media and go-to-market strategy to both reach and appeal to more households, while super serving our MVPs who account for 70% of our volume. This includes starting to test new digital touch points and expanding our focus and resources on e-commerce channels, including DTC. The transition to this updated and improved commercial framework began earlier this year, but it is an evolution, so we will gradually increase the investment behind it as we get increased evidence of its effectiveness. We are also doubling down on our 3 key strategies designed to expand the appeal of Freshpet, particularly amongst our MVPs. Those strategies are: first, best food. We believe that Freshpet's highly differentiated product offers an enhanced experience for our consumers that we need to highlight in order to expand our franchise. We launched a new media campaign at the end of August and early September, showing the lengths, we go to produce the best food and at the end of October, launched another new ad showcasing our ingredients. The new ads are much more focused on the benefits of fresh food than our previous creative and early in-market data is encouraging. Second, strong value proposition. We are operating in an environment where economic uncertainty has led to less trade-up than in the past. To address this, we have now launched our new complete nutrition bag product in select retailers to help encourage trial as well as new multipacks and bundles, both online and in-store for the more value-focused consumer. We have also sharpened our price point on our 1-pound chicken roll, which we believe will help drive more trial and increase household penetration. Third, improved accessibility. We continue to make good progress on the visibility and the availability of Freshpet, one of our greatest competitive advantages. You may recall that we showed a rendering of a fridge island back in February at the CAGNY conference, which is a new concept with a mix of both open air and closed-door fridges. It is designed to change the way the consumer shops the fresh pet food category, changing it from a search for a packaged good in an aisle to grocery shopping for your pet. We believe this is the next big unlock in our retail visibility and availability strategy and will create increased awareness of the brand and greater trial of our wide range of items. Last month, we started testing new fridge islands in the first 16 stores of a large mass retailer, and we've included a picture in our earnings presentation. It is still very early days, but we believe this expansion demonstrates how leading retailers view Freshpet as the future of the dog food category because of its enormous growth potential. We've also further increased distribution in a large club customer. We are in our first store in this retailer in April, 125 stores at the end of July and are now in 590 stores as of the end of September. The sales are still ramping up. However, we are very encouraged by the launch so far and the future potential. At another club retailer, we've also expanded our range to have a third SKU in select stores and have also just started a small test in a rural lifestyle retailer. As we look to the next leg of distribution, we expect the majority of growth to come from stores where we have or can have second and third fridges or outside of aisle placements like fridge islands as well as the online channel. We plan to leverage our retail strength where we are the clear category growth driver. And at the same time, we are really excited about our continued growth of e-commerce. We had another strong quarter of growth in digital orders, up 45%, and we recognize we are significantly underpenetrated in the e-commerce channel, including DTC. We are keenly focused on increasing our presence to capture the omnichannel and online customers and plan for this to be a more meaningful part of the business as we head into 2026. In total, we believe these strategies will enable us to reaccelerate our growth. Each of these strategies drive actions that we can control and leverage our unique capabilities and proposition. That will ensure that we will continue to outperform the category and drive the transition of the dog food business to fresh food regardless of the macro environment. Our efforts to adapt to the current environment are not limited to driving the top line. We are also focused on driving operational efficiency through a variety of approaches. First, via our new technology. The current demand environment means that our team has more available line time to lean in and test new technologies and formulations. We have been working on new bag technology since 2019 that is designed to produce significantly better products at a lower cost. It does this by increasing throughput, improving yields and reducing the amount of product that requires secondary processing. We expect this to result in increased bagged product margins and decrease the margin gap between bags and rolled products. Our goal is to deliver both meaningful product improvements and significantly improved economics. It can also unlock new innovation capabilities. The first new production scale line that uses this new technology is now fully installed and in the final stages of commissioning. We expect to produce salable products on that line in Q4, and we are very excited by what we have seen so far. Second, we are also taking a pragmatic approach to managing our capacity. It is not clear how long this period of consumer uncertainty will last, so we are using a variety of approaches to ensure that we have adequate capacity to meet our growing demand, but also don't get too far ahead of ourselves on capital spending and staffing. Fortunately, our facilities are running very well now, and that has provided us with free capacity. In conjunction with further operating improvements that we expect to deliver, we expect to have adequate capacity to support our growth for a while. We are a much more stable business than we were 3 or 4 years ago. And when you couple that with the new technology, it enables us to reduce our capital spending this year and next year. We do not believe that this reduction in CapEx will limit our ability to grow over the next 2 to 3 years as we already have $1.5 billion of installed capacity available to us if the growth reaccelerates and can add staffing as needed. Now I'll provide some highlights from the third quarter. Our third quarter net sales were $288.8 million, up 14% year-over-year, primarily driven by volume. Adjusted gross margin in the third quarter was 46.0% compared to 46.5% in the prior year period, and adjusted EBITDA in the third quarter was $54.6 million, up approximately $11 million or 25% year-over-year. From a category perspective, we continue to be the #1 dog food brand in U.S. food with a 95% market share within the gently cooked fresh, frozen branded dog food segment in Nielsen brick-and-mortar customers, defined as xAOC plus pet. We compete in the nearly $56 billion U.S. pet food category per Nielsen omnichannel data for the 52 weeks ended September 27, 2025. And within the nearly $38 billion U.S. dog food and treats segment, we have increased our market share to 3.9%. From a retail perspective, competitive entrants have not slowed our expansion to date. In fact, we believe that new competition will ultimately grow the category as we have seen many times before in other categories, such as Greek yogurt and coffee. Freshpet products are now in 29,745 stores, 24% of which have multiple fridges in the U.S. Looking ahead, we expect this percentage to increase as we add more fridges to the highest velocity stores. We ended the third quarter with 38,778 fridges or nearly 2.1 million cubic feet of retail space with an average of 20.1 SKUs in distribution. Our percent ACV in grocery, where we're the dog food market leader was 79% at quarter end and xAOC only 68%. From a household penetration and buy rate standpoint, we remain one of the only dog food companies that consistently grows both. Our household penetration as of September 28 was 14.8 million households, up 10% year-over-year, and total buy rate was $111, up 4% year-over-year. MVPs, which are our super heavy and ultra-heavy users are continuing to grow faster with a total of 2.3 million of those households, up 15% year-over-year. MVPs represented 70% of our sales in the latest 12 months with an average buy rate of $490. We are still growing households across every age and income group and gaining market share. The dog food category is declining, but Freshpet continues to be a clear winner. We are seeing that we are attracting a large portion of new pet parents, which is very encouraging. Turning to capacity. We feel good about our manufacturing footprint today. Ennis continues to be the most profitable Freshpet kitchen and accounts for approximately 38% of sales volume. Our overall operating effectiveness, or OEE, our measure of operating efficiency continues to improve and the new technology line in Bethlehem is expected to produce salable product later this quarter, as I mentioned a few minutes ago. This will be our 16th line across the network, and we are very excited by its potential. The technology to make fresh pet food is still very nascent, and we constantly try to push the limits and come up with ways to drive greater returns. Next spring, we also plan to retrofit another bag line in our Bethlehem kitchen with the light version of the new technology that could prove to deliver a meaningful portion of the same benefits of the full technology line with minimal line downtime to install the new technology and minimal CapEx. Our capital efficiency framework is center around 3 key areas: first, getting more volume out of existing lines, primarily through OEE improvements; second, getting more out of existing sites where whether that be finding ways to add more lines on our campuses or network optimization; and third, developing and implementing new technologies. We've made tremendous progress with this framework and believe there is still a significant opportunity to create incremental shareholder value. Now turning to our outlook for the remainder of the year. We are currently tracking to the lower end of our previous net sales and adjusted EBITDA guidance ranges. So we now expect net sales growth to be approximately 13% for the year and adjusted EBITDA to be between $190 million and $195 million. We are updating our CapEx guidance to approximately $140 million as we're able to shift more projects out. The silver lining of the slower-than-expected sales growth this year is it has now positioned us to achieve positive free cash flow a year earlier than anticipated, a significant company milestone. Ivan, our Interim CFO, will walk through more details of our 2025 guidance in a few minutes. In regard to our fiscal 2027 targets, we remain confident in our ability to achieve 48% adjusted gross margin and 22% adjusted EBITDA margin in 2027 if our sales volume growth is at least low teens. If we were to grow high single digits, we believe we can still achieve an adjusted EBITDA margin of approximately 20%. In summary, we have taken actions in strategic areas to focus on what we can control and make sure we continue to deliver category-leading growth, despite the current category softness and competitive entrants. Dog food has historically been one of the best, most recession-resistant categories, and we believe we are best positioned to capture the future growth of the category. We expect to continue to build market share, grow household penetration and win a disproportionate share of new pet parents to ultimately capture the lion's share of profit in the category, too. Before I hand it to Ivan, I want to address the ongoing CFO search. We've hired an independent executive search firm, and we have a very long list of very exciting candidates. We hope to select the next CFO quickly, but we will take our time to find the right person. In the interim, we are confident in Ivan and his team's capabilities and believe we can still deliver the necessary business results until we find a permanent successor. Ivan has been with Freshpet for 11 years, having joined the company shortly before the company went public in 2014 from KPMG. He has been involved in every aspect of our financial operations since then, including leading accounting, financial planning, systems development and our data analytics operation. Ivan is a trusted member of our team, and his move into the interim CFO role has been seamless. With that, I'll turn it over to Ivan to walk through more details of our financial results. Ivan? Ivan Garcia: Thanks, Billy, and good morning, everyone. The highlight of the third quarter results is that we demonstrated our ability to deliver category-leading growth, while also achieving positive free cash flow. Now let me provide more details on our financials and updated guidance. Third quarter net sales were $288.8 million, up 14% year-over-year. Volume contributed to 12.9% growth, and we had positive price/mix of 1.1%, primarily driven by mix. We saw broad-based consumption growth across channels. For Nielsen measured dollars, we saw 10% growth in xAOC, 10% in total U.S. Pet Retail Plus, 8% in U.S. Food and 2% growth in Pet Specialty. As a reminder, the third quarter benefited by about 1 point of growth from a slight shift in timing of orders from the end of June to early July, which we shared on the Q2 call. We also expanded into most of our major club retailer stores in the third quarter and initial pipeline shipments helped boost our shipments growth versus last year. When you net all of that out, we believe that consumption growth in the quarter was approximately 12%. Third quarter adjusted gross margin was 46% compared to 46.5% in the prior year period. The 50 basis point decrease was driven by reduced leverage on planned expenses, partially offset by lower input costs. The deleveraging of planned costs are a result of ending the quarter with lower inventory. Third quarter adjusted SG&A was 27.1% of net sales compared to 29.3% in the prior year period. This decrease was primarily due to a lower variable compensation accrual, partially offset by increased media as a percentage of net sales. We spent 11.2% of net sales on media in the quarter, up from 10.8% of net sales in the prior year period. Logistics costs were 5.5% of net sales in the quarter compared to 5.6% in the prior year period. This continues to be a great strength of ours and something that we're very proud of. Third quarter net income was $101.7 million compared to $11.9 million in the prior year period. The significant increase in net income was primarily due to the deferred income tax benefit resulting from the release of a $77.9 million valuation allowance in the current period, higher sales and decreased SG&A expense and was partially offset by a decrease in gross profit as a percentage of net sales. The release of the $77.9 million valuation allowance is being taken now because we have demonstrated consistent profitability over a meaningful period of time. As a result, our accumulated NOLs are now believed to have meaningful value. So they must flow through the P&L and end up on our balance sheet as an asset. We view this as another milestone in our progress towards becoming a highly profitable company. Third quarter adjusted EBITDA was $54.6 million compared to $43.5 million in the prior year period. This improvement was primarily driven by higher gross profit, partially offset by higher adjusted SG&A expenses. Capital spending for the third quarter was $35.2 million, while operating cash flow was $66.8 million, and we had cash on hand of $274.6 million at the end of the quarter. As Billy mentioned, we achieved positive free cash flow in the third quarter and now expect to be free cash flow positive for the full year. We intend to utilize our balance sheet to support our growth going forward with no need to raise outside capital. Now turning to guidance for 2025. As Billy said earlier, we are tracking to the lower end of guidance ranges we provided last quarter. So we now expect net sales growth of approximately 13% compared to our previous guidance of 13% to 16% growth year-over-year. We now expect adjusted EBITDA in the range of $190 million to $195 million compared to the previous guidance of $190 million to $210 million. We continue to expect adjusted EBITDA dollars and margin to improve in the fourth quarter compared to the third quarter. Media as a percent of sales for the year is expected to be greater than 2024. However, the fourth quarter will be the lowest total dollars spent and as a percent of net sales, in line with our past practices. We now anticipate adjusted gross margin to be flat year-over-year based on lower plant leverage related to our inventory levels, which caused a timing impact to our P&L. We have been able to successfully tighten our inventory without seeing any impact to fill rates. In regards to tariffs, we are currently seeing a small impact on vegetables sourced from Europe and mitigating them where we can. Capital expenditures are now projected to be approximately $140 million this year compared to our guidance last quarter of approximately $175 million and original guidance earlier this year of $250 million. We have included some impact from tariffs in the updated CapEx projection. The majority of our CapEx spend is focused on the installation of new capacity to support demand in the out years and the implementation of our new technology. But as Billy mentioned, we are seeing greater capital efficiencies in our existing facilities. While it's too early to provide guidance for next year, we do expect that ordinary CapEx for new capacity, fridges and maintenance will be in line with this year's spending. However, if our new production technology demonstrates the potential we are expecting and we have the opportunity to accelerate either conversions of existing lines or the installation of new lines using that technology, we would certainly consider those opportunities. We believe the new technology could generate sizable economic benefits, improve our competitive position and elevate the quality we can deliver to consumers. Similarly, if we have a breakthrough in the new distribution, particularly if it's a sizable expansion of the island fridges, we would also fund that initiative due to the significant growth it could deliver. In either case, it would not impact our ability to deliver positive free cash flow in 2026, but our CapEx spending could be higher than 2025. In summary, despite a challenging year, we are proud to have delivered another quarter of best-in-class CPG growth and demonstrated our cost discipline to deliver even stronger adjusted EBITDA margin expansion and become free cash flow positive. We believe Freshpet has a long runway for growth and is well positioned to capture the sales growth and profit growth of the high-growth fresh, frozen dog food category. That concludes our overview. We will now be glad to answer your questions. As a reminder, we ask that you please focus your questions on the quarter, guidance and the company's operations. Operator? Operator: [Operator Instructions] Our first question comes from the line of Peter Benedict with Baird. Peter Benedict: So my first is around kind of the new production technologies. Curious kind of maybe the time line on when you would make a decision on accelerating those implementations, I guess, next year. Maybe give us a little sense of maybe how this light version coming in the spring compares with maybe the full version. And Billy, as you -- if you roll this new technology out, you talked about improved quality. What does it mean for pricing? I mean, at these lower levels of sales, do you intend to kind of turn that into a more aggressive pricing structure in order to kind of reaccelerate the top line and take more share? Or how do you think about reinvesting those potential benefits? William Cyr: Great. Great. Thanks, Peter. Let me just start with, we're very excited by this new technology. As you heard in the recorded comments, the reality is we've been working on this for a long time. And what we see is the upside potential on it is enormous. We're still really early in the qualification of the first line. And so it's really hard for us to say exactly how long we'll watch that until we make a decision on expanding. It depends on how reliable the line is, how much of a benefit we get, the performance of the products in the market. So I don't want to get on the record with any comment about when we would make that decision because it's really going to be dependent upon the operating performance and the quality of the products we produce. The second line, the first conversion of an existing line, the light version that we talked about, will start up in the second quarter of this year. In terms of what's different about it and what makes it any different than the original technology, think of it as it has many of the same attributes, just not to the same degree. So there is a throughput benefit, but it may not be as significant. There's a yield benefit, but it may not be as significant. There could be some quality benefits and may not be quite as significant. But what is significant is that it can be -- those lines can be converted much more quickly at a much lower capital cost. And so we'll be watching as we start up that line and comparing the performance of that line against the initial line that we're putting in that's starting up now and having to make a decision about is less capital done more quickly on existing lines, a better idea than installing a new line that gives you all the benefits. And we really won't know that until we get the line up and running. So think of it as sometime in the back half of next year, we'll be able to make that assessment about whether or not that makes sense for us to accelerate the expansion of those lines. So in the end, I think it's a great place to be. We have 2 very promising technologies that are very, very different and that can make a big difference. On the second part of your question, which is about how we deal with the quality improvements and also potentially pricing. It's also too early for us to commit on whether or not we would do anything related to pricing. Our focus right now is to demonstrate the quality benefits of the product. Obviously, we have a strong interest in improving the margins on our bags because they're below our roles. But it's -- we'll be in a nice place when you can actually look at significant margin pickup and the opportunity to choose where you invest that, whether it goes to the bottom line or whether that goes into making -- sharpening our price point. I suspect that over time, you'll see a little bit of both. But for the most part, we are very determined to drive the margins up on our bag business, and that's one of the real benefits of this technology. Peter Benedict: That's helpful, Billy. And then I guess my follow-up question would be around the competitive dynamics in the space. You alluded to the recent entry, said it has not affected your kind of retail placement plans at this point, but maybe just any early learnings in terms of pricing, positioning? Just anything you would say about how you're seeing new competition, both at retail, but then also in some of the frozen areas, which are tangential and coming more online? William Cyr: Yes. Let me frame it at the -- I'll give you some top line thoughts. I'm going to hand it to Nicki to talk to you about what we're seeing with our retailers in their actions. But obviously, there's been an unusually large amount of activity in the space this year. We view that as a validation that the fresh category is a big long-term potential. Retailers have seen that. Retailers are recognizing that. And so that is a good validator for us, and it kind of gives us a sense that the investments that we've made, the position we've carved out is a really attractive one. So far, from a top line perspective, we haven't seen much impact on our business, certainly not from the executions that have happened to retail. Most of the things that have happened in retail to date have been relatively small and not very significant in their total size. It's just still a little too early to talk about what happened -- what's happening with the Blue Buffalo launch. It's only been out there for a couple of weeks. The one thing I would notice is we have seen a little bit of price discounting done by them already, which is something that we're not surprised by. That's sort of their calling card. That's the way they do business. Our approach so far has been to stick to the game plan that we've executed over the long haul, and we'll continue to stick to that game plan, but we also are very determined that we won't lose consumers on a price or value basis. But that's how I see the competitive environment. I'm going turn to Nicki, and she can talk a little bit more about how our customers are reacting to it. Nicola Baty: Thanks, Billy, and thanks also, Peter. So despite the increasing competition coming into the category at the moment, we've been really pleased with, I think, a number of the metrics that we would use to just assess our retailer engagement. As Billy said in the upfront comments, we've grown our cubic feet by 12% this year. We've had 13% improvement in distribution as well and also been making some good ground either in some new retailers where we've been testing some other ones where we've had some full national rollout with certainly in the club area. And then a strong signal, I think, from one of the largest retailers of really starting to get behind improved visibility for fresh and have us leading the way with some new island units. So despite that competitive backdrop, I think we've actually had one of our best years in terms of fridge placements and support from retailers. I think where that's going is for us, a very strong endorsement that the fresh/frozen segment is very much here to stay and the only area that's leading growth. And to touch on the velocity point that Billy made, it's very early days. The competitive set at retail level is certainly relatively small in terms of velocities that they're seeing per store per week. We've been seeing, again, very strong velocities in those stores that new players are coming into. So we've certainly seen no impact. But we are watching very closely. The key data set we'll be using in the coming months is much more of our panel data to just make sure that there's no switching, certainly with our occasional households or any loss of retention. So we'll keep a really close eye on it, and we've got some strong plans to make sure that, that doesn't happen. Operator: The next question is from the line of Brian Holland with D.A. Davidson. Brian Holland: Maybe sticking along the lines of the distribution dynamic at retail, obviously, the fridge island test. Maybe a little more context, if you could, about the conversations with that customer and how long that's been progressing, the logic behind the magnitude of that expansion just on a per store basis and maybe what you're looking for, what they're looking for to help determine what would be a successful test and maybe timing for a subsequent expansion on that? Nicola Baty: Great. Thanks, Brian. I'll take this one. So look, as you're no doubt aware, this retailer doesn't make decisions overnight, and there's a lot of discipline that goes into making sure that the operational effectiveness runs smoothly for something like these island units. The capacity of each of the island units is around 2.5x an individual chiller. So these island units allow not just fantastic retail visibility and brand visibility to lead the category, but they also allow more assortment and a breadth of assortment to be coming into each store. So what that's done, and I think as you know already, with this retailer, we typically don't have perhaps as many SKUs as we do to compete with some of the grocery retailers. So it's allowed us to actually launch some of our innovation in the more affordable price bracket. So that would include things like the multipacks, the entry-level bag, a number of items really that can bring in new households through. So as of this week, we installed 16 of these island units. We have another burst coming of island units as well. And there's some criteria that we're working with Walmart on to really be able to set exactly what the sales velocity needs to be for future rollout. Now one caveat I would say is making sure that the islands perform to our mutual criteria because these are also a bigger capital investment is important. And then there will be likely somewhere in the region of a 4-month lead time before we're able to execute at scale as well. Brian Holland: Appreciate the color. And then Billy, appreciating it's November 3, and you typically start to provide a little more color around how '26 is shaping up in early January. Just a sense about some of the building blocks here, right? Because obviously, we're in a very dynamic environment. But relative to maybe this time a year ago, you've got a better handle on what's happening with the consumer or at least we've been in this dynamic for longer now. You also have some of these distribution moving pieces here that are coming together. So really interested in 2 parts. One, just thinking about the building blocks for '26 on the top line at this juncture and also how that informs your media spend? Obviously, you've talked about a lot of plans in place. But how do you think about the magnitude of the investment you want to put behind media when there are clearly fewer incremental pet parents to go after in this environment? William Cyr: Yes. I'll give you a couple of thoughts on that. So first of all, as you know, we'll give our guidance when we get to the end of February. And in an environment as dynamic as this, I'm frankly very grateful to have the couple of extra months of an opportunity to observe what's happening. Recall, the world looked very different last year on the same day than it end up looking back when we got to the end of February and changed even further. As you know, we are very, very focused on trying to drive up household penetration, particularly looking at MVPs. So we're watching that data very, very carefully and seeing what the trends are, what directions it's going. And that will be a big driver of how we determine what our expectations are for revenue for next year. We're still going to be very much a media-driven business. We are very focused on using media to drive our business, but we're not going to be irrational about it. We're going to make sure that the media that we're spending is getting us a decent return. As Nicki has commented, we've done quite a bit to drive the efficiency of our media plan, and we need to make sure that we're really focusing on those things that are as most efficient as possible and give us the highest likelihood of a return. And so that's a big part of the planning process that we're in right now. And then the last part is obviously what are retailers going to be doing? And how does that influence the visibility and availability of the brand. As you know, we are not of the school that thinks that we are just creating demand via white space. We think it's really visibility, meaning amplifying the advertising and availability, meaning having a wider range of items available. But having good visibility on what that's going to look like will inform us quite a bit. As we mentioned previously, the island fridges is a big step change. It's probably not going to have much of an impact in the first half of next year. There's a chance to get have some impact in the second half of next year. But there are also a bunch of other retailers who are looking at doing some fairly sizable things, either new retailers, as we mentioned in the call, there's a rural lifestyle retailer who's now in test. We also have quite a bit of new distribution coming with existing customers in the forms of the second and third fridges. So we'll put all those things together, and we'll give you what our view is. But I think it's way too early to say right now. It's just going to be built on the same building blocks we talked about in the past. Operator: The next question is from the line of Tom Palmer with JPMorgan. Thomas Palmer: Maybe kicking off, I just wanted to ask on the CapEx next year, $140 million as kind of a starting point. What projects is most of this going to? I guess the commentary on the $1.5 billion in production capacity would seem like you've got a couple of years before you really run into constraints at least. And so just kind of wondering, are there -- is it because there are certain products that are facing constraints even if from a dollar standpoint, you're fine? Any color? William Cyr: Yes. I'll frame this, and then I'm going to hand it to Ivan. But always start with the understanding that we are a growing business. Even though we're not growing at the rate we were growing before, we are a growing business and adding capacity takes time. So we'll be investing in '26 for capacity that we won't need until probably '27 or '28. And you're right in your assumption that there is some form specific elements to this. So bags are different than rolls, our home style creations and our chicken bites require different technology, different capacity. And then don't forget that we have the new technology that we can always pull forward, which is what we were talking about before, but the new technology, investing in new technology is something we can do. But let me turn it to Ivan, and he can characterize for you sort of how you think about that $140 million being spent next year and the optionality that he described in his comments. Ivan Garcia: Yes. Thanks, Billy. Tom, so another thing to also keep in mind with our CapEx spend is we currently have $1.5 billion of capacity in front of us currently on the business. So any spend that we're doing is for the out years. When we look at the $140 million, that is -- that includes our current spend, what we're currently looking at as far as the projects. And we're also looking at wrapping up some of the technology that we are currently going to go live with next year. That being said, there -- if we have any new distribution such as the island chillers that we want to lean into, we're willing and able to go ahead and make those investments, and that will be above and beyond the $140 million. Also, if we want to lean into technology, if we start to see that play out, we're also willing and able to go ahead and lean into that, and that will also be above and beyond the $140 million. Thomas Palmer: Understood. On the EBITDA margin longer term, you gave some helpful color on kind of different levels you could hit at different growth rates. Just when we're bridging the high single-digit potential growth to that 20% EBITDA margin you noted, the 2% difference, where would we mainly see that? Is the gross margin target kind of holding at multiple levels and it's more about SG&A leverage or perhaps a bit different? Ivan Garcia: Yes, that's a great question. That's obviously something that we're currently looking at. And as you noted, high single digits, we're looking at 20%, low teens, we're looking at 22%. So let's just break apart the P&L for a second. On the gross margin level, we feel very confident that we will be able to hit our 48% at both high single digits and low teens. There might even be potential for us to be a little bit above that 48%, and that's excluding any new technology. I want to make sure everyone appreciates that. And then from there, it's just the leverage that you would get flowing through your SG&A. We currently believe that at single digits, we'd be at 20% and then double digits we would be at 22% at that point at scale. But we continue to be very confident with our ability to hit both the adjusted EBITDA as well as our gross margin. Operator: Next questions come from the line of Rupesh Parikh with Oppenheimer. Rupesh Parikh: So I just want to go to the -- I guess, the Q4 implied sales guidance. It does imply a moderation versus even maybe the 12% consumption you saw in Q3. So just curious the drivers there and maybe it also embeds conservatism. So yes, just curious on the drivers there. William Cyr: Yes, Rupesh, we're frankly just reflecting what we're seeing in the market today, what we're seeing in the consumption data that's coming through. We also have to be mindful that we've seen years past where retailers move up or down their inventory at the year-end around the holidays. We want to be cautious about that. And also just recognizing that we have a new competitive set, and we want to be mindful that there are things that could change in the dynamics in the coming months. But at this point, we're looking at the Nielsen every week, just like everybody else is. We feel good about the trends that we're seeing in delivering the guidance we talked about. And hopefully, that continues. Rupesh Parikh: Great. And then maybe my follow-up question, just on gross margins. So I know this year, there's pretty minimal gross margin expansion. But as you look towards getting to that 48%, what are the bigger buckets we should be thinking about? Ivan Garcia: Yes. Good question, Rupesh. So as we look at the gross margin for this quarter, I want to really maybe peel back the -- I mean, just one layer and look at the drivers that we're seeing during this quarter. So when we look at input costs, we're very happy with the progress we've made throughout the year. We continue to make slight progress on yield every quarter. When we look at quality, we continue to be in the low 2% throughout the year. And more importantly, we're having a lot of consistency with our quality, which is going to be very important as we look at gaining leverage on gross margin in the coming years. And then we have plant cost. So our conversion cost this quarter was actually really good. We were happy with that conversion cost. What occurred during the quarter is there was a timing issue between our inventory in Q2 versus Q3, we went ahead and decrease our inventory. That was a hurt of 130 basis points, which we should get back in Q4. That's what we're expecting in Q4 to have a gross margin handle of 47%. And that's where we believe we are currently. We're a 47% gross margin company. So as we look at getting to 48%, we will continue to leverage our plant costs. That's the main lever that we have in front of us currently. William Cyr: Yes. Let me just add to that. One of the things that we're very focused on is getting ourselves in a position where we have the right amount of inventory, very healthy inventory to deliver great customer service, good in-stock conditions, not have surplus inventory because that obviously doesn't serve us well. But we believe we're now in a position where we have the staffing that can carry us through next year. And to Ivan's point about conversion cost, that's the single biggest driver of our margin improvement. We'll be getting better leverage on the conversion cost, and it's basic leverage on the staffing, and that comes because we're driving the ROE. The team that we've got, the training, the stability in our manufacturing operations has delivered the capability to get more volume out of existing staffing, and that's a critical driver for us of building margin. Operator: Our next question comes from the line of Robert Moskow with TD Cowen. Robert Moskow: Billy, on Slide 17, you mentioned $1.5 billion of installed capacity today that is not fully staffed. And then in terms of priorities for next year, retrofitting existing bag lines with light versions. I guess 2 questions. The $1.5 billion, how quickly can you fully staff that much capacity? And then secondly, what's the -- is there a way to quantify what the benefit of this light version is? Like what does it provide to you from a gross margin perspective? William Cyr: Yes. So on the timing question, typically, if we have the line installed in an existing building, adding staffing can be done on, call it, 90- to 120-day kind of timetable. You wouldn't want to do 2 or 3 lines at the same time that way because you would be diluting the talent that you have at that site. But if we had an increase in demand and we had a line that had available capacity, meaning it was running only half time or it's partial schedule, then we could add staffing in, call it, 90, 120 days. And so we feel very comfortable about our ability to do that. The labor market supported. Our training and development teams are in a good position to do that. In terms of the value of this -- the new technology and how that might impact the capacity, that's one of the most important questions we want to get answered as we go through the testing and qualification phase. Every one of the test runs we do, we're tinkering with what the throughput rates will be. We're tinkering with the amount of time we can run the line continuously between stopping it and doing the maintenance and clean out. And all those variables will have a big impact on what the total increase in capacity will end up being. It's too early for me to commit to it. But when you think about the margin gain, what we've described is if we execute this new technology, the gap between our bags and our rolls could close considerably. It won't get all the way back to where our rolls are, but it will get pretty close once it's fully expanded across our entire lineup across all of our lines. So it's not something you have in '26 or '27. But by the time you get into '28, you could start seeing the gap between bags and rolls close considerably. Operator: Next question is from the line of Angeline Goh with Deutsche Bank. Voon Pang Goh: This is Angeline on for Steve. A quick question on how would you approach trade promotions going forward given that [indiscernible] is promoting heavily? William Cyr: Yes. Let me frame this, and then I'll turn it to Nicki. But first of all, welcome to the call. It's nice to meet you. I would just tell you; our position has been that we believe when you're in the perishable products business that trade promotion, which just creates spikes in demand, short-term stocking up and then troughs that follow behind it, it's not a very efficient way to run the business. And so we are going to avoid that practice as much as we possibly can. It's also good for the long-term profitability, and it also means that our advertising model is the primary driver of bringing consumers in the franchise. So people buy the product for the first time at full price. So that's the overall philosophy. I'll turn it to Nicki, and she can just comment on how we're thinking about it in the context of having new competitors in the market. Nicola Baty: Thanks. Nice to meet you, Angeline. So we've done a lot of work really reviewing both category dynamics in terms of promotions, price elasticity on our portfolio and also deeply assessing the media ROI. We come out in a place where we still believe what's right for our brand is media. It's the critical driver overall for growth. Trade promotions, as Billy indicated, don't seem to be doing anything other than driving what we would call occasional households into the brand. And as it stands, we're here to build long-term brand equity and also to build a loyal franchise of consumers in Freshpet. We haven't seen any strong results really in the competitive environment of brands succeeding with promotions in the dog food category. So our focus right now is very much to make sure that our media delivers both long-term equity and near-term ROI. And that's really the model that we're using. You will see us investing less in areas like linear TV, where we've seen a little bit of diminishing returns with the current consumer sentiment. But you're also going to see us investing more in digital touch points that drive that direct conversion, in particular, through e-commerce, which we believe is a very big opportunity for growth for Freshpet in the future. Operator: The next question comes from the line of Michael Lavery with Piper Sandler. Michael Lavery: Just want to touch on -- you announced a CFO transition in the quarter. And in the time that from when Todd was there until just now, there's been significant improvement, obviously, in a lot of different ways, most notably the margin momentum. But it was always our sense that he changed some of the sort of discipline and institutional things that could last beyond him quite well. So can you maybe just touch a little bit on some of how that comes to life and what to expect kind of being sticky from some of the changes or momentum that was in place for these last few years? And maybe then what you're looking for and who's next in terms of kind of taking it from there? William Cyr: Yes. I'll take a shot at this. I'll ask Ivan to chime in, in a minute with what he's observed that changed because he's been here for a very long time, and he's got a long view on it. But obviously, we love having Todd here. He added an enormous amount of value. He was a healthy skeptic on anything that the most optimistic members of our organization viewed as slam dunks, and it was a healthy balance that it created in our organization. Also brought a lot of practical discipline, and he had a relentless desire to keep things simple. And I think that, that's a calling card of his, and I think that's something that's been embraced as part of our organization. When I look forward, obviously, as I said in the scripted remarks, the reality is that this is viewed as a very attractive position being the CFO at Freshpet. We have a very robust amount of interest in the position. I am highly confident we're going to be able to attract really high-quality talent for this position. What's really going to be important for us, though, is -- and its sort of the root of your comment is how this person fits in with the team. We need somebody who is going to be complementary to what the team's skills are. And the skills that we have today are dramatically different than the skills that we had a couple of years ago when we hired Todd. We are much deeper. We have a much stronger capability across our broad leadership team within our finance team. And the requirements for the person stepping into this job are going to be probably much more strategic, much more conceptual leadership because we've built a lot of the technical capability inside the organization today. And so we're looking for somebody who can play at that level. But I'll turn it to Ivan to just give you any observations he has about what he observed in the pre-Todd days to Todd days and what he hopes to carry forward. Ivan Garcia: Yes. Thank you. Michael, I think you touched on something that's really important that Todd was able to drive, and that was culture, right? And culture permeates. And the great thing about culture is that when someone leaves, that culture stays behind. And there's a few things that he definitely brought healthy optimism, as Billy noted, practicality. And also when we look at planning, the thing that we also -- we always ensure is that there's various paths to get to the goal. And that's something that we continue to have when we look at our long-term guidance for 2027. There's more than one path there. And when -- we'll see where it all ends up, but we continue to feel very confident that we'll be able to deliver on the goals that Todd assisted us in building out. And Todd, if you're listening. Hello. I love you. Michael Lavery: That's all really helpful. And just a follow-up on 4Q. You pointed out that you're basically guiding that implied 4Q momentum right at around what it's selling through. But you've also got some of the new advertising. You've got a new competitive launch that's pushing into fresh. You've got the bag, the complete nutrition bag launch. Are your assumptions that all of those are sort of a push? Or would you say you expect a lift or a risk? Or I guess, how would you unpack some of those pieces and what to keep an eye on from our side in terms of how things might unfold for the rest of the year? William Cyr: Yes. Let me just balance it out and just tell you, obviously, the level of precision we had in this business 1.5 years ago doesn't exist today given the environment that we're operating in. But you described many of the things that I would characterize as sort of the initiatives that are going to drive growth and then some of the things that are headwinds to work against. Obviously, the new advertising is a big help. We've seen it on air. We are very optimistic about the performance is going to drive the retailer engagement and the actions the retailers are taking is helping us. The expansion that we described in the club channel is obviously helping us quite a bit. The complete nutrition product is helping us quite a bit. We have to put all that against the backdrop of the consumer sentiment remains weak. The consumer sentiment for October was in line with where it was in April and May, which is not a healthy place to be. The category is still in a tough place. So that's a fairly sizable headwind that we have to address. We believe that we are outperforming the category by a significant margin, call it, in the range of 10 points, and it's something we'd expect to be able to sustain, but it's just the category is having a tough time right now. In addition to that, there's the uncertainty created by the expanded number of competitors that we have. And again, so far, so good. We feel pretty good about the position that we're in and the relative outperformance that we have. But we're also going to be very mindful that things are still going to come down the pike, and we'll have to see how we play against those. So you balance them all out and kind of say, okay, what's in the market and what we're seeing in Nielsen today, it looks like is what we're going to see for the balance of the quarter. And that's sort of the way we're thinking about it. Operator: The next question comes from the line of Peter Galbo with Bank of America. Peter Galbo: Not to harp on the Q4 implied guidance, but I do have an additional question there. Look, I think if we're reading the math right, right, the implied actual dollars of revenue in Q4 is probably flat to down versus Q3. And I know you don't want to give guidance on '26 today, but maybe we could just pressure test the logic of if we run out kind of the current environment into the front half of next year before island bridges coming in the back half, it just -- to me, it seems like there's a possibility that sequentially, things kind of stay the same, at least through the first half, which I think would imply what you've seen in the past, some kind of flattish revenue quarters, at least sequentially. So again, I know you don't want to give an official '26, but maybe we can just kind of think about that logic as we think about the first half of next year and any thoughts there? William Cyr: Yes. Yes. Let me just recharacterize what we believe is happening sequentially, and you can then project it forward as you see fit. But remember that the Q3 number we described, we had 1 point of help of stuff that carried over from Q2 into Q3, and another point of help that came from the Sam's pipeline fill that happened in the quarter. So you're seeing is Q3 was probably a little bit bigger than it normally would be. When you go to Q4, while it hasn't happened every year, Q3 to Q4 has been probably the smallest sequential gain we have historically. There have been some years where it's basically been flat Q3 to Q4. Part of that is the way the trade manages their inventory. Part of that is it's our lowest advertising spend quarter. There's a whole lot of reasons for that to happen. So I wouldn't take a relatively flat sequential Q3 to Q4 to mean anything about what the trend will be going into Q1 because we've seen stuff like that before, and Q1 then bounces back and is a fairly significant increase. On top of that, the other part of it is, I would say that the biggest anomaly for us was Q2 of this year. Q2 obviously gave up some volume to Q3 and that shift that we saw. But Q2 was relatively flat compared to Q1, and that was the real anomaly. And that really matched up with all the concern around tariffs, all the change in the consumer sentiment was so dramatic. As you project going forward, I would expect that next year would have a more normal cadence that the market has adapted to this environment. And so you see sequential cadence that look more like it has historically rather than what it looked like in 2024 -- 2025. But under any set of circumstances, you should recognize we will be building market share. We will be outpacing the category. And so no matter what the sentiment is, no matter what's going on, we will be outperforming the category sequentially as well as on a year-on-year basis. So that's sort of how we're seeing it. Peter Galbo: Okay. That's very helpful. And Ivan, maybe just a slightly more technical one. Just the NOL tax benefit in the quarter, I mean, is there a changed assumption in the tax status now? Should we be actually modeling cash taxes going forward? Just anything on that, please? Ivan Garcia: Yes. And maybe I'll take a little bit of a step back and explain that entry a little bit more. It's not that common of an entry actually. So it's something that throughout our time here, our goal has always been to be a highly profitable company. And on that journey, every now and then, you hit certain milestones, and this is definitely one of the big milestones that we are hitting. What this is saying is all those NOLs that we incurred since the start of Freshpet, they have a tax benefit associated with it. Unfortunately, the auditors, the accounts don't allow you to take that benefit to your P&L until you're able to prove that you will be able to utilize them. And this is the first quarter where we've been able to utilize or to prove to our accountants that we will actually be able to utilize the NOLs. So we now have an asset -- a significant asset on our books, and we also see the offset flowing through the P&L. That's a onetime benefit that's flowing through. And yes, going back to your specific comment, we will now start to see a tax expense flow through our P&L in the coming quarters. That being said, we will not be a taxpayer. We will actually offset that with the asset that we have on the books. But it's something that we're really proud of for all the Freshpet team members that are listening in, please be very proud of this. This is a huge thing that we're all really excited about. William Cyr: Yes. And just comment on when you think we would become a cash taxpayer. Ivan Garcia: Yes. No, it's a good point. Right now, we're looking at -- depends on the growth algorithm, but around 2028 is when we think we'll start to be a taxpayer -- cash taxpayer. Peter Galbo: Ivan, just if I could sneak one in. Like what's the estimated book tax rate just book versus cash, but just the book tax rate we should put in the model going forward? Ivan Garcia: Yes. We're still -- I mean, we're still looking into that, but we're going to -- just the normal corporate tax rate and then the New Jersey tax rate on top of that. But we'll keep on sharpening the pencil on that. But once again, in the short term, we will not be paying tax, we'll be utilizing the NOLs against that. Operator: Our last and final question will be from the line of Jon Andersen with William Blair. Jon Andersen: I'll put 2 in here and then listen. Billy, you mentioned in the prepared comments that you expect the online business to have a more material impact in 2026. You've been underpenetrated historically. I assume that that's not -- you're not underpenetrated with respect to kind of your clicks and bricks part of that strategy, fulfillment from your fridges is strong, but more on the DTC side. Can you talk about some of the actions that you might take on that front, what to expect, how impactful that could be? And then second, just in light of all the discussion around competition lately, if you could just remind us where you are in terms of your moat. I think when I think about early days of Freshpet, it was about the fridge footprint. It seems like it's perhaps the manufacturing scale and maybe even now the technology that you're considering implementing that represent maybe the bigger parts of your moat, but I think it would be helpful if you have some thoughts on that as well. William Cyr: Yes. So I'll take the second part first, and then I'll turn it to Nicki to answer the first part about the e-commerce DTC part. Your characterization of the moats is fairly accurate. I think the moats evolve and develop over time. As you recall, we launched Feed the Growth in 2017, it was because we believe that Fresh was inherently a scale-driven business. And we also had a first mover, and we wanted to maximize the benefit of both the first move and also get scale before others entered the market. We've now gotten to the point where we've delivered on those, the advantages we've got, the head start we've got, the scale that we've created are delivering sizable advantages. In 2019, we made the decision to start investing in technology and manufacturing because we believe the manufacturing technology in the space was very premature or immature. And so we start investing. And that's sort of the long-term thinking that we brought to this business. And today, we're now about to realize the benefit of that long-term thinking and that investment that we've made, where it's not only going to be the manufacturing scale, it's going to be the manufacturing technology and the quality and the margins that, that produces that will be a big advantage. Along the way, we've been building a brand, a brand that stands for the virtues and benefits of this category. We've been broadening our product lineup. So now we have product assortments that meet a wider range of needs than any of the people who have come into the category after us. We've gotten the retail visibility and availability from the number of stores and the fridges we had, and we continue to invest in that by changing the way in which people shop this category with the fridge islands. So you should think about us as continually investing in those things that will create an even bigger and more sizable moat. And frankly, the struggles that everybody has had in competing with us would suggest that those investments have served us very, very well. So at this point, I think you should expect that we're probably working on some stuff behind the scenes that you aren't aware of yet that are going to build that moat further. But we're right now going to focus on driving the moats that we have created, the technology, manufacturing scale, the brand equity, the product assortment and driving get maximum leverage from those. So let me turn to Nicki to talk about the e-commerce side of this. Nicola Baty: Great. Thanks, Billy. Jon. So e-commerce, as you rightly point out, is a big opportunity for us here at Freshpet. It's only 14% share of our business. And we've had another quarter. This quarter was 45% growth, the previous 2 quarters around 40% growth. So it's also becoming a really important part of our growth algorithm going forward, too. The category is over 30% e-commerce penetration. And we know when we dig into our consumer that it is a preferred place to shop as well and also very important for that millennial and Gen Z consumer that we're a bit underpenetrated in. So this year, we've spent a lot of time building out our capabilities and focus to really start to win in e-commerce, and you'll see more of that as we go into next year, too. The fridge network, yes, you rightly point out, that's the biggest part of our e-commerce business serviced through click and collect and also last mile delivery. But we also think that there is an opportunity, obviously, with pure play. You've seen the news on AmazonFresh and Chewy clearly is opportunity space for us to drive into. But our D2C business is also going to be an important part of the mix. I would say that D2C for us won't be a primary channel that we will drive, but it absolutely plays a role in terms of incremental households to the brand. So we stood up a small D2C business earlier this year. We're seeing some really encouraging green shoots coming through. 70% of our households are incremental, first time trying the Freshpet brand with very, very high buy rates, typically more than double what our current MVP buy rate is, we're seeing coming through in that area. So all the metrics are looking like it has got some good headroom to be part of our growth for the future. Operator: At this time, we have reached the end of our question-and-answer session. I'd like to turn the floor back over to management for closing comments. William Cyr: Great. Thank you, everyone. Thank you for your interest. Let me leave you with this thought. It's from an unknown offer. Without my dog, my wallet would be full, my house will be clean, but my heart would be empty. To that, I would add, fill your dog summit with Freshpet every day and your heart will be forever full. Thank you very much for your interest. Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.
Operator: Greetings, and welcome to the TG Therapeutics' Third Quarter Earnings Call and Webcast. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to your host, Jenna Bosco, Chief Communications Officer. Please go ahead. Jenna Bosco: Thank you. Welcome, everyone, and thank you for joining us this morning. I'm Jenna Bosco, and with me to discuss TG Therapeutics' Third Quarter 2025 financial results are Michael Weiss, our Chairman and Chief Executive Officer; Adam Waldman, our Chief Commercial Officer; and Sean Power, our Chief Financial Officer. Following our safe harbor statement, Mike will begin with an overview of our recent corporate developments. Adam will provide an update on our commercial efforts, and Sean will review our financial results before we open the call for Q&A. Before we begin, I would like to remind everyone that today's discussion will include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may include expectations regarding our future operating and financial performance, including sales trends, revenue guidance, projected milestones, development plans and the outlook for our marketed products. Please note that these statements are subject to risks and uncertainties that could cause our actual results to differ materially from those indicated. These risks are detailed in our SEC filings. Additionally, any forward-looking statements made today reflect our views only as of this date, and we disclaim any obligation to update or revise them. As a reminder, this conference call is being recorded and will be available for replay for the next 30 days on our website at www.tgtherapeutics.com. With that, I'll turn the call over to Mike Weiss, our CEO. Mike? Michael Weiss: Thank you, Jenna, and good morning, everyone. I'm pleased to report that TG delivered another strong quarter. Our flagship product, BRIUMVI for relapsing MS continues to outperform, exemplifying what happens when innovation meets execution. We've always believed BRIUMVI had a best-in-class profile, and we've built what we believe is the best-in-class team around it. That combination, great product, great people tends to work out pretty well in most businesses, and it seems to be working out pretty well for us, too. We're equally committed to continuing to innovate to improve outcomes for those living with MS. That's what's driving the 2 pivotal studies we launched last quarter. The first, ENHANCE, explores in a randomized cohort whether we can consolidate the BRIUMVI day 1 and day 15 doses into a single day 1 infusion while maintaining bioequivalent exposure, making treatment easier for patients and more efficient for centers. The response from sites and patients has been tremendous, so much so that we've already completed enrollment. If all goes as planned, we should have data by the middle of next year and potentially a launch of this new simplified dosing schedule in 2027. The second is our Phase III subcutaneous ublituximab study, what I'd like to call a true subcu product, short push, auto-injector compatible and designed for self-administration. We're testing two dosing schedules, once every other month and once quarterly. Enrollment is going quite well, and we believe we're on track to finish enrollment in the first half of next year, deliver top line pivotal data in late '26 or early '27 and if positive, setting the stage for potential approval and launch in '28. We view subcutaneous ublituximab as a major opportunity that can nearly double the total addressable market for BRIUMVI. And if approved, it would make TG the only company offering both IV and self-administered CD20 options, we believe providing us with a unique competitive advantage. Subcu ublituximab may also open up new opportunities for us. For example, we continue to explore the potential of BRIUMVI in MG and have treated a small number of patients with encouraging results. Beyond BRIUMVI, we're developing azer-cel, our allogeneic CAR T therapy for individuals with progressive MS. It's still early, but for people living with progressive MS, this type of therapy could be life-changing. Looking across our pipeline, I can envision the possibility of meaningful new launches in '27, '28 and '29, each with the potential to drive continued growth into the next decade. While we innovate, we also remain financially disciplined. We've seen a lot of deals in the market lately. Some look tempting, but we've chosen to stay patient and true to our principles. And when we can't deploy capital better inside the business, we return it to shareholders. During the quarter, we completed our initial $100 million share repurchase program, buying back 3.5 million shares at an average price of about $28.50. The Board has now authorized another $100 million program, giving us flexibility to keep doing what makes sense. Operationally, we continue to be profitable and growing and expect that trend to continue, barring any onetime business development moves that might change the picture temporarily, but strengthen it in the long term. In closing, Q3 was another quarter of strong execution and meaningful progress. We're delivering on our commercial goals, advancing our development programs and maintaining financial discipline, all while keeping patients at the center of everything we do. Now I'll hand the call over to Adam Waldman, our Chief Commercial Officer, to provide a detailed BRIUMVI launch update. Adam, go ahead. Adam Waldman: Thank you, Mike, and good morning, everyone. I'm excited to share our third quarter commercial performance. As Mike mentioned, TG continues to execute exceptionally well across both our clinical and commercial fronts. And that progress is clearly reflected in another strong quarter for BRIUMVI. U.S. net sales for BRIUMVI in Q3 totaled approximately $153 million, extending our track record of strong sequential and year-over-year growth. BRIUMVI’s performance once again exceeded both our internal targets and the Street's expectation, underscoring the depth and consistency of demand we continue to see across the marketplace. We continue to see favorable dynamics across key commercial indicators. Demand remains strong, supported by sustained physician engagement and increasing patient awareness. Persistence and repeat prescribing both exceeded expectations, reinforcing our confidence in BRIUMVI’s clinical profile and the positive real-world experiences being reported by physicians and patients. We also continue to add new prescribers and accounts, broadening our base across academic centers and community neurology practices. We believe the anti-CD20 class will continue to expand as more physicians and patients choose the efficacy, safety and convenience of this treatment approach. The CD20 class now represents nearly $10 billion in annual U.S. MS sales and yet approximately half of all patients remain on other types of disease-modifying therapies, underscoring the significant opportunity that still exists for CD20s and BRIUMVI. The BRIUMVI value proposition is stronger than ever, a convenient twice yearly 1-hour infusion backed by 6 years of data showing consistent efficacy, durable safety and proven real-world performance. At the 2025 ACTRIMS Conference, data further validated BRIUMVI's long-term benefits and captured significant attention across the MS community. Results from the open-label extension of the ULTIMATE I and II trials showed that after 6 years of continuous treatment, nearly 90% of patients remain free from disability progression with an annualized relapse rate in the 6th year of treatment of just 0.012, equivalent to 1 relapse every 83 years of patient treatment. The safety profile remains stable with no new safety signals identified, reaffirming BRIUMVI's long-term tolerability and consistency. Complementing these clinical findings, there was real-world data from the ENABLE observational study, which demonstrated that BRIUMVI's efficacy and infusion tolerability are translating into meaningful measurable outcomes for people living with MS in everyday practice. Together, these data strengthen BRIUMVI's differentiated position as a therapy that we believe combines best-in-class efficacy, a proven safety record and unmatched infusion convenience. This powerful combination continues to resonate with healthcare providers across all settings from large academic centers to community practices and the VA system, where BRIUMVI remains the preferred anti-CD20 therapy. Another key driver of our ongoing success has been the strategic expansion of our commercial field organization. As outlined in our launch plan, we have methodically grown the team over the last 2 years to align with the market opportunity, ensuring the right reach, capabilities and expertise as adoption of BRIUMVI continues to build, while maintaining the discipline and the precision that defines TG's commercial approach. This strategy has proven highly effective, expanding our reach and helping us drive continued growth. We will continue to expand selectively as opportunities arise, maintaining a balanced focus on coverage, productivity and operational efficiency. We believe our approach have resulted in one of the most capable and experienced commercial teams in the MS industry, a team that executes with professionalism, consistency and a clear commitment to educating both patients and providers. Complementing our strategic growth, Q3 also marked the first full quarter of our national television campaign, supported by expanded digital streaming and social media initiatives. These efforts are designed to work together to drive awareness, engagement and patient activation, hopefully sparking meaningful conversations between patients and their healthcare providers about treatment options. Early indicators that these efforts are working are encouraging. Branded search activity, website traffic and quality website visits and overall brand -- a patient brand awareness are all elevated relative to pre-campaign baselines. And as we move into Q4, we plan to grow and optimize this investment to continue to build awareness and support long-term growth. Looking ahead, we remain confident in our trajectory. Based on the strong year-to-date performance, continued new patient growth and positive persistence trends, we are again raising our full year 2025 U.S. BRIUMVI net revenue guidance from $570 million to $575 million to now approximately $585 million for the full year 2025. This updated guidance reflects favorable demand trends and consistent execution by our commercial team. Looking beyond 2025, we remain highly confident in BRIUMVI’s long-term potential. With a growing prescriber base, expanding patient engagement, a proven commercial infrastructure and continued investment in our product life cycle, we believe BRIUMVI is on track to become a multibillion-dollar brand in RMS. In summary, Q3 was another strong quarter of execution, consistent performance and continued strategic progress. We're proud of what the team has accomplished this year and look forward to carrying that momentum into year-end and beyond. I want to thank our team for their ongoing dedication and professionalism. Your commitment continues to drive meaningful results for people living with MS and for TG. With that, I'll turn it over to Sean to walk through the financials. Sean Power: Thank you, Adam, and good morning, everyone. Earlier this morning, we released our detailed third quarter 2025 financial results via press release, which is available on the Investors and Media section of our website. Let's begin with a closer look at our revenue performance. Our third quarter results reflect sustained commercial strength with total revenue reaching $161.7 million, an increase of 93% compared to Q3 '24 and 15% over Q2 '25. Product revenue totaled $159.3 million, driven primarily by $152.9 million in U.S. BRIUMVI net sales. Turning to expenses. Our total operating expenses, defined as R&D and SG&A, excluding noncash compensation, totaled approximately $86.6 million in the third quarter and approximately $239 million for the 9 months ended September 30. While the quarterly figure is up compared to the second quarter of '25, which came in at approximately $71 million, we remain on track to meet our full year OpEx guidance of approximately $300 million to $320 million. The quarter-over-quarter increase in OpEx was primarily driven by continued investment in R&D for subcutaneous BRIUMVI as well as higher SG&A spend to support the continued expansion of the BRIUMVI commercial footprint. On the balance sheet side of things, as Mike mentioned, we completed our initial share repurchase program. During the third quarter, we repurchased approximately $78 million of shares at an average price of approximately $28. Following this activity, we ended the third quarter with approximately $178 million in cash, cash equivalents and investment securities. We believe this strong capital position enables us to continue executing on our long-term strategy while preserving flexibility for future investments in our pipeline and operations. On the bottom line, we are pleased to report GAAP net income of $390.9 million or $2.43 per diluted share for the third quarter of 2025. This compares to $3.9 million or $0.02 per diluted share in the same period last year. Our third quarter results include a nonrecurring income tax benefit of approximately $365 million, driven by the release of our deferred tax asset valuation allowance. For reference, a valuation allowance is recorded against deferred tax assets when it is more likely than not that those assets will not be realized. Given our track record of profitability, projected operating income and positive outlook, we concluded that a release of the valuation allowance was appropriate as of September 30, 2025. While this release impacts reported GAAP net income and earnings per share, it does not affect our cash position or our day-to-day operating performance. This represents our sixth consecutive quarter of profitability, driven by BRIUMVI revenue growth and disciplined expense management. In summary, the third quarter was a meaningful step forward for TG. We delivered strong commercial performance, continued to invest in long-term growth opportunities and achieved our sixth consecutive quarter of profitability. With that, I will now turn the call over to the conference operator to begin the Q&A. Operator: [Operator Instructions] And our first question will come from Tara Bancroft with TD Cowen. Tara Bancroft: So my question is regarding the guidance. So this updated figure, it implies just a slight slowing of sequential growth in this Q4 versus what we've seen in prior Q4 reports in previous years. So I'm curious to get your thoughts on what kind of headwinds that you're expecting this quarter compared to prior years and maybe also a discussion of which tailwinds from here that can support maybe better-than-expected growth like the DTC efforts, the ENHANCE data, et cetera? Michael Weiss: Thanks for the question. Adam, do you want to tackle that one? Adam Waldman: Sure. A number of factors in Tara. I think the growth that we assumed in Q4 is actually quite good, 14% quarter-over-quarter in the third year here. I think that's a pretty good growth rate. And the guidance is based on a number of factors. Probably most is patient retention at this point and better-than-expected patient retention that is helping us see demand growth. But as I mentioned, field expansion is also helping us. And hopefully, those media investments will start to see some demand increases as we go forward here, too. Operator: Our next question comes from Brian Cheng with JPMorgan. Lut Ming Cheng: Just curious if you're starting to see additional demand coming from the permanent J-code that's in place in April? And then I have a quick follow-up. Sean Power: Adam? Adam Waldman: I think maybe you have the wrong product. We've had a J-code for several years at this point. Lut Ming Cheng: And then when you think about the expansion of your field operation, where is the focus of expansion specifically as we turn into fourth quarter and into next year? And how are you measuring the return here? Michael Weiss: Adam, you're on a roll, keep going. Adam Waldman: Sorry. So the question was expansion of the field force. Is that what you're getting at? Lut Ming Cheng: Yes, the expansion of the field force. How are we thinking about the focus here as you think about fourth quarter and into next year? Where is the focus? Where are you expanding specifically? Adam Waldman: Sure. Yes. I mean we're seeing growth across all segments, but we're focused on continuing to drive the hospital business. In Q3, we saw hospital demand growth continue to outpace actually the private practice setting. And the addition of our new sales reps has certainly expanded our reach, and we believe that's having a positive impact on the growth that we're seeing. We continue to add new prescribers and new accounts on a very consistent basis. And so we think all that is having an impact. And we think, as I mentioned in the prepared remarks here, I think that's certainly contributing to the growth that we're seeing. Operator: And moving on to Corinne Johnson with Goldman Sachs. Corinne Jenkins: You mentioned in the prepared remarks that the subcutaneous products could double the market opportunity for BRIUMVI and MS. Maybe if you could just provide some color on the factors that are underpinning that estimate. Michael Weiss: Yes, I'll lead off. Thanks for the question. I'll lead off, Adam, and you can certainly jump right in. But Corinne, just using some real simple math is how we're getting there. So right now, we think that the subcu portion of the market is about 35% closer to 40% now and growing. So at that level, that would almost double the market opportunity for us again. And if that subcu continues to grow as a percentage of the new starts, so this is -- just to take one step ahead, this is based on dynamic share. So not total share, but dynamic share. So on a dynamic share basis, subcu -- self-administered subcu is approximately 35% closer probably to 40% at this point, potentially growing 3 years, 2.5 years or so before we'll be on the market for 3 years, whatever it is, give or take. So we think there's a chance that it will continue to grow. Obviously, 50% of new starts, that would double the opportunity. So we're somewhere approximately in that range. That's how we're getting to that number. Adam, anything to add on top? Adam Waldman: No. Operator: And we'll go next to Michael DiFiore with Evercore ISI. Michael DiFiore: Congrats on the continued progress. A few for me. Any notable inventory channel dynamics to note in 3Q as well as gross to net changes? And also, any color that you care to offer on the competitive dynamics versus the current at-home subcu competitor, which seems to be growing? And I have a follow-up. Michael Weiss: Adam, I think those both probably fall directly on you. Adam Waldman: Yes. Yes. The first part, Michael, thanks for the question. No inventory changes or gross to net changes in the quarter. Gross to net is still within the range that we've provided. And then the second question was on subcu. Can you repeat the question on subcu? Michael DiFiore: Just any color you could offer on the competitive dynamics versus the current at-home subcu competitor, which seems to be growing. Adam Waldman: Yes. As Mike mentioned, the subcu that's in the market today does appear to be growing. They had a good quarter. And that segment of the market is overall has been growing over the last few years, probably faster than the IV market. But it seems to have settled right here, about 65-35 IV to subcu. In the future, it's hard to predict how that will change. But certainly, with more subcu products in the market, it's possible you could see continued growth in the subcu section or segment of the market. But today, it looks like things have pretty much settled out in the 65-35, 60-40 IV to subcu. It's not stagnant. It can go up and down a little bit between quarters. But that's generally where it has been and has settled out over the last 12 months -- 12 to 18 months or so. Michael DiFiore: Very helpful. And my last one is just on BRIUMVI subcu. Any update to when we could possibly see initial PK or exposure data from Phase I? Michael Weiss: Yes. So the hope is that we'll be able to get that presented sometime in the first half of next year. Yes, I think we're targeting first half. I think the team, as you recall, I've been saying for a while, the team has been sort of overwhelmed getting these studies up and running. They haven't really sat down to do the presentation yet, but I think they're now preparing for that. So I think we'll hopefully see something in the first half of next year. Operator: [Operator Instructions] And moving on to Emily Bodnar with H.C. Wainwright. Emily Bodnar: I was wondering if you can walk us through a bit on the ex-U.S. sales of $6.4 million and just general accounting of the Neuraxpharm collaboration? Michael Weiss: Broke up a little bit for me in the middle of that question. But Sean, it sounds like it's -- if you heard it, it's for you. Sean Power: Yes, I heard it. Thanks, Emily. So the accounting for ex-U.S. sales has been consistent since we entered into the deal with NXP. When we sell products through to them, that's recorded to product revenue. And then, of course, royalties show up on the license milestone and royalty line. Operator: And we'll go next to Prakhar Agrawal with Cantor Fitzgerald. Prakhar Agrawal: Congrats on another strong quarter. So maybe firstly, any initial thoughts on 2026 trends? What could be the positives and negatives that we should be keeping an eye out for? And then secondly, I think, Mike, you talked about in the introductory remarks that about deals that look tempting. Can you talk about what were the reasons not to pursue these transactions? Was it the price or something else? And even if you decide to do BD, any details on what stage, therapeutic area or size of the deal would make sense? Michael Weiss: Sure. Adam, do you want to tackle the first part in terms of any thoughts on '26, positives or negatives you can envision today? Adam Waldman: Yes. I mean the things that we would be looking for, obviously, is continued growth in new patients. As I mentioned, people coming back now represent a larger and increasingly large part of our business. So the rate at which patients continue to come back at weeks 48, 72, 96 and out will be important. As I mentioned, that continues to look very strong right now and continues to drive the growth that we're seeing and better than expected. Obviously, we're going to continue to monitor and see how our direct-to-consumer efforts has an effect and impact on overall patient conversions on to treatment and whether that's continuing to work. Like I said in my prepared remarks, the key indicators at this point are very encouraging, but we'll continue to see how that plays out in 2026 as well. Michael Weiss: Thanks, Adam. And in terms of deals, look, we've been quite candid in that we've been looking to increase our portfolio, looking for opportunities. I think we've seen every announced deal that you think is within reason of something that we'd be interested in, we've obviously evaluated and looked at extensively. I think for us, we have a high standard for ROI. We have revenue. We're using our money. We're making investments. We've got a pretty high hurdle to get over the hump. It's all about risk reward and potential ROI as we see it and as we calculate it. So I think we've got a lot of good things in the portfolio already. Like I said, we're looking to expand, but we're not -- we don't have any desperation to do so, so we have a lot of flexibility to pick and choose what we want to do and how we want to do it and make sure it makes sense. So for us, it's all about ROI and risk reward. And I think the ones that we passed on just didn't meet the threshold as far as we see it. But like I said in the prepared remarks, we continue to look for opportunities. And if we do something, we'll be sure that we believe in it. And in any event, we're always looking to manage our risk versus the reward. It's always a very important concept for us. Operator: And moving on to William Wood with B. Riley Securities. William Wood: Really nice quarter. Maybe one and one follow-up. I was just curious if you could provide a little bit more clarification on how, when and maybe expectations for fiscal year 2026 guidance on -- maybe not guidance per se, but expectations on where you sort of see the revenues and trying to really understand -- you mentioned that a lot of this was -- a lot of your growth was sort of pegged to maintenance. And maybe if you could just speak to what you're seeing on sort of maintenance drop-offs or switches away from BRIUMVI? And then I have a follow-up. Michael Weiss: Sure. Thanks. Adam, go ahead. Adam Waldman: Sure. Not to -- we're not going to get specific here on 2026 guidance quite yet, but patient persistence remains above expectations. And my comment was that, that's an increasingly bigger and will become an increasingly bigger part of our business going forward. Obviously, we continue to expect new patient growth. We continue to expect market share gains and as we continue to expand our field force and with the DTC efforts that we're having. So both things work together in driving growth over the long term. And I think the DTC investments, as I said, remains to be seen. We're encouraged by what we're seeing so far. We're looking to optimize the investment and really refine our targeting and making sure that we're getting the right message to the right patient. And it's something that we want to continue to lean into. We'll be strategic about it. We'll be thoughtful about it, but we think it can help meaningfully into the future. It remains to be seen. But of course, we think so far, what we're seeing is encouraging. William Wood: Appreciate it. And then maybe just thinking about the Roche data in SLE from Gazyva this morning. I was curious how much read-through you may -- you sort of see in terms of that going to your BRIUMVI program? And then also if there's anything specifically from the BRIUMVI MG data that shows potential outside of MS in autoimmune? Michael Weiss: Yes. Thanks for that, William. I actually haven't had a chance to review the SLE data very carefully this morning as we're preparing for this call. So I apologize for not being fully briefed on that at the moment. But in terms of MG, yes, I mean, CD20s have applicability across multiple indications. We think MG is one of them. We've certainly seen the CD19 data. We wouldn't expect to see too many differences between CD19 and CD20 in terms of its ability to perform in a certain indication. So we think that MG is interesting. We've treated a handful of patients with some encouraging results. So I think there's something there. We're still tiptoeing around it for the moment. But if we dive in, we'll certainly let you know. And again, now that's part of our same risk-reward ROI analysis we're doing in terms of how we want to invest our money. So -- but yes, we do think that MG is potentially interesting for us still, and we'll keep everyone posted on that if we do move forward. Operator: And we'll go next to Cha Cha Yang with Jefferies. Cha Cha Yang: This is Cha Cha on for Roger Song. I was hoping that you can give some color on how you expect the simplified dosing regimen for BRIUMVI to expand the market share. Do you have any numbers that you can put on that like you did for the subcutaneous product? Michael Weiss: Yes. I mean I'll jump in and save Adam from this one. I don't know that there's an easy way to put numbers on top of it. I think this is -- this one doesn't have a clearly different addressable market. So this is within our current addressable market. We do think that it's through market research that we've done that people are attracted to this and interested. And we think the enrollment -- the rapidity of the enrollment is also a clue that people are excited about this potential update to the dosing schedule. But I think it's more challenging to put numbers to it like we're able to do for the subcu, which again is really a separate TAM. Adam, anything you want to add on top of that? Adam Waldman: No, just other than reiterating that there seems to be customer excitement about the simplified regimen, and we've heard this consistently from customers. Operator: And this now concludes our question-and-answer session. I would like to turn the floor back over to Mike Weiss for closing comments. Michael Weiss: Thank you, and thanks, everyone, again, for joining us today. As we look ahead to the remainder of 2025, our priorities are clear: continue to grow BRIUMVI sales, execute on our subcu and ENHANCE Phase III trials, drive enrollment into our azer-cel program and position TG for long-term leadership in MS and beyond. Our progress to date, I believe, speaks volumes to the value BRIUMVI delivers to patients, healthcare providers and MS centers alike and reflects the dedication of the entire TG team who wake up every day focused on one simple idea, helping those with MS live better lives. I want to thank the entire TG team for their hard work and dedication as well as the HCPs and people living with their MS who continue to place their trust in BRIUMVI and TG. Thanks again for joining us, everyone, and have a great day. Operator: Ladies and gentlemen, thank you for your participation. This does conclude today's teleconference. You may disconnect your lines and have a wonderful day.
Operator: Hello, everyone, and welcome to the Ryanair Holdings plc H1 FY '26 Earnings Release. My name is Nadia, and I'll be coordinating the call today. [Operator Instructions] I will now hand over to your host, Michael O'Leary, Group CEO of Ryanair Holdings plc to begin. Please go ahead. Michael O'Leary: Thank you, Nadia. Good morning, ladies and gentlemen. Welcome to the H1 results conference call. I'm joined by the entire team here in London and on other phone lines. We published the results this morning, Neil and myself have done a 30-minute Q&A on the website. So I would direct you to the ryanair.com website for that while you're there, book a low-fare flight. Quick couple of comments. One, as you see, I'd prefer to deal with Q2 because the H1 was distorted by the very ridiculously strong Q1 and the weak prior year comp. But if you look at Q2, so traffic is up 2% because of the Boeing delivery delays. They have improved in the last couple of months. We've now taken 23 of the 29 aircraft that they should have delivered to us at the start of the summer. That gives a little bit of headroom to increase traffic growth this year from 206 million to 207 million. So we should get growth of about 3.5% this year. Fares in Q2 were up 7%, very strong recovery. That is the recovery of last year's 7% fare decline, and we think we will continue that through the remainder of the year. I caution, we do have slightly stronger prior year or tougher prior year comps in the second half when we began to repair the OTA boycott or the impact of the OTA boycott was less significant. So the fare growth in the second half won't be as strong as it is in the first half. But overall, on the year, we're pretty confident now we get back all of last year's 7% fare decline, maybe a little bit above that, but it won't be much. Much more important, as always, unit costs well under control, only up 1% in the second quarter despite significant cost inflation on air traffic control and a little bit on the engineering side. Clearly, the lower hedge cost this year playing a significant role in that. And as a result, Q2 profits are up 20% to EUR 1.72 billion. Taking forward, in kind of themes I would give you that we want to cover in the call, Boeing are doing a much better job. I think they asked us to take those -- could we take the aircraft through August, September, October. We said didn't -- there were no use to us at that stage, but we would work with them. We would take those aircraft if they could deliver them. They've delivered 23 of the 29 aircraft in the last 3 months. We get 2 more in November and then the final 4 will be delivered in January, February of next year. So we will have all 210 Gamechangers in the fleet by the end of March next year or in advance of summer '26, which puts us well on track, I think, for traffic growth to 215 million, 216 million passengers in FY '27. And that will be the first year since the MAX groundings that we're not dealing with Boeing delivery delays in the spring or disruptions to our summer schedule. So we think that will lead to strong traffic growth and hopefully maintaining pricing and profit recovery into summer '26. The good news this morning is we've taken advantage of our recent fuel weakness. As you know, we were 85% hedged out to March 2026 or for this year at $76 a barrel, down from $84 a barrel last year. Today, we're able to announce that we're 80% hedged for FY '27 at just under $67 a barrel. That will be a very significant 10% saving on our fuel bill, will save us about EUR 600 million next year, which I think will enable us to incentivize and stimulate growth, but also fund what will be another painful increase in emissions ETS taxes and viral taxes in Europe, where Europe continues to damage its own competitiveness by taxing only intra-EU travel, whereas all the extra or the non-EU travel or people arriving to and from Europe are exempt from these egregious environmental taxes. Balance sheet continues to strengthen. We paid back the EUR 850 million bond in September. We have the final EUR 1.2 billion bond we will pay in May, and then we will be entirely debt-free with a fleet of 640 aircraft. We have hedged, and I think the treasury team has done a wonderful job start this year, the dollar was about 1.08 to the euro. It weakened in recent months with some of the Trump spectaculars to 1.24. And we've now hedged the first 50 of our 150 firm MAX 10 aircraft orders at 1.24, which is about a 15% euro cost saving -- euro saving on CapEx on those first 50 aircraft, and we're looking for opportunities to extend those CapEx hedges. And you can only do that with the kind of strong balance sheet Ryanair have. The real underlying, I think, story, though, is here that Europe capacity continues to be constrained and will remain constrained out to 2030 because of manufacturer delivery delays, Airbus fleet still largely grounded repairing engines, a program that won't be completed until 2028 or 2029. And therefore, I think as we add capacity next year, there's a reasonable prospect that we would grow traffic, but we'll see modest fare increases coming through the system. The one negative in Europe is Europe is continuing to fail on competitiveness. We've had the Draghi report, now it's 14 months old. He pointed to a whole series of areas where Europe can and must be more competitive. von der Leyen has committed herself to delivering on that competitiveness agenda and then done absolutely nothing for the last 14 months. All of Europe's airlines are calling for 2 competitive initiatives. One moved the ETS environmental tax emissions trading system tax rates in line with CORSIA, which is what the non-European airlines are paying. It is indefensible that Europe is harming itself by having these excessive environmental taxes, move ETS in line with CORSIA, and it would result in dramatic improvements in competitiveness and also lower fares for consumers traveling on intra-EU air services. And then second, reform Europe's broken ATC services. We need the protection of overflights during national ATC strikes. We cannot have a single market if it can be shut down every time some air traffic control union wants to go on strike. It isn't much of an ask. The legal mechanism already exists because in Spain, Italy and Greece, they already protect overflights during ATC strikes and they ground the domestic flights. But as we all know, in France, they protect a disproportionate amount of the domestic flights and cancel all the overflights. This is unsustainable and von der Leyen should take action. I think with what is a very impressive new Transport Commissioner, Tzitzikostas. He wants to reform, but everything ties in the dead hand of von der Leyen's office. So she should stop talking about reform and competitors and start delivering it, protect over flights and then fix staffing on the first wave of ATC staffing on the first wave of flights, which, again, Germany, France and NATS in the U.K. are inexplicably short staffed. It's inexcusable. The airlines we roster standby pilots and standby cabin crew. ATC, they just allowed the system to fall over and they cut capacity. It's not acceptable. Air traffic control fees have gone up 14% this year, and we're still getting a s***** third rate, third world service. And if von der Leyen can't deliver competitiveness, frankly, she should leave and be replaced by somebody competent who can deliver competitiveness in Europe. Other than that, I think the good news is we're seeing a sea change in environmental taxation at national level. Governments in Sweden, Hungary, Italy, Slovakia and regional Italy are all abolishing their environmental taxes. And we are switching an enormous amount of capacity away from high-tax economies like Germany, France and the U.K., where Rachel Reeves is increasing APD by another GBP 2 in April. And moving that capacity to Sweden, Hungary, Italy, et cetera, where governments are get it, they're abolishing the environmental taxes and they're also incentivizing traffic growth. So we want to reward those countries that are incentivizing growth and penalize those countries like Germany, France and the U.K. who are incentivizing tax increases and damaging growth. And that will continue. But I think the fact that countries like Sweden, the home of Greta Thunberg and flight shaming 5 years ago are now have worked out. They're abolishing the environmental taxes, gives us hope and I think some degree of optimism that the way forward is not penalizing Europeans. It is abolishing those taxes and allow airlines like Ryanair to invest heavily in new engine technology. Our new MAX 10s will carry 20% more passengers, but burn 20% less fuel per flight. So a 40% reduction in fuel and emissions on a per seat basis. Other than that, there's also some other government and competencies, the Irish government, which was elected last year on a program to abolish the Dublin Airport cap 12 months later, nothing done. We have a do-nothing Prime Minister and a do-nothing Deputy Prime Minister, both of whom have been sitting on their arses for the last 12 months, talking about passing legislation despite the fact they have a 20-seat majority. They're now talking about legislation might be moved by the end of 2026. Ireland and growth cannot wait for these do-nothing politicians. They have a 20-seat majority, they should pass the legislation scrapping the cap at Dublin Airport before the end of 2025 and allow the airlines, Ryanair and the other airlines to get on with growing traffic at Dublin Airport, the way we're growing, and we're adding aircraft in Shannon and Cork. So there's always some stupid government and some incompetent politician holding back the growth. But thankfully, there's better politicians in Sweden, Italy, Hungary, Slovakia, all of whom are working closely with Ryanair to abolish taxes and allow us to grow strongly. I think we're looking forward particularly with the improvements Boeing have made in the deliveries, the quality of the deliveries. Kelly Ortberg and Stephanie Pope are doing a terrific job. They have got -- they've gone up from rate 38 to rate 42 in October. We think the FAA will increase that to rate 46 in March, April next year. They are gradually catching up on the delivery delays. They are pretty confident that they'll certify the MAX 7 even with the current government shutdown in Q2 next year, the MAX 10 in Q3, which will be about 6 months in advance of our first 15 MAX 10 deliveries in the spring of 2027. So we have the 29 aircraft delivered this winter that enables us to grow to 215 million passengers in FY '27. The first 15 MAX 10s coming in the spring of '27 will enable us to grow to about 225 million passengers by FY '28. And then we are off and running on what I believe will be an 8- to 10-year program to grow from 207 million passengers this year to over 30 million -- 300 million passengers by 2034. Currently, we're making a profit of approximately EUR 10 per passenger. I think it's reasonable to suppose that, that profit will rise from EUR 10 towards EUR 12 or EUR 14 profit per passenger over the next 10 years. There will be 1 or 2 curveballs in the middle of that. We are a cyclical industry. We have a strong balance sheet. We will have 0 debt in May of next year. And I think we are poised for very strong growth, particularly if the European economies continue to lag in growth, people will get more and more price sensitive and will switch to Ryanair from high fare competitors elsewhere. So I have never been more excited about, I think, the growth outlook for the next 4 or 5 years. I think we have a number of challenges in moving politicians to a competitiveness agenda. But within that, Ryanair is going to grow strongly and profitably, I think, for the next 4 years up to 2030. And with that, Neil, I want to hand over to you, anything you want to highlight in the P&L or on the balance sheet? Neil Sorahan: Yes. I'll maybe just focus again on a couple of things in the quarter and in the half. Firstly, as you already pointed out, costs put in an excellent performance, up just 1% on a per passenger basis. That was down to our strong fuel hedging, which very much helped offset double-digit increases in ATC and environmental costs. We're still guiding modest unit cost inflation for the full year. What's modest, it remains somewhere between 1% and 3% on a full year basis, probably a little bit higher than the 1% that we had in the first half in the second half of the year. We have extended our hedges into FY '27, as Michael said. We've also extended our OpEx hedging into next year at 1.15 compared to 1.11 on the euro-dollar. So we're locking in significant price savings next year, and that will go a long way to help offset a jump up in our environmental ETS next year somewhere from about EUR 1.1 billion this year to somewhere between EUR 1.4 billion and EUR 1.5 billion next year. Balance sheet, rock solid, BBB+ rated, 610 unencumbered aircraft and in a very strong position now to be debt-free by May of next year, which I think is a great place to be. Also, we're locking in euro savings on our MAX 10 CapEx moving forward with a 35% hedge in place where we've hedged 35% at a firm order, that's 150 aircraft at 1.24. Buyback moving along at a nice pace. We're pleased with the pace that the brokers are moving at. They managed it well through indexation. So we're just over 35% of the way through that, and that will run out to the back end of 2026. And then finally, the last thing I'll point to business as usual, but we've announced an interim dividend this morning of EUR 0.193, which similar to last year, will be paid at the end of February. And that's all I wanted to touch on, Michael. Michael O'Leary: Okay. Thanks, Neil. With that, Nadia, we'll open up to Q&A, please. Operator: [Operator Instructions] The first question goes to Harry Gowers of JPMorgan. Harry Gowers: First question just on the Q3 fares, maybe you could provide us with what you're currently tracking for the quarter? And if you've seen any changes strengthening or weakening around that number in the last few months? And then second question on the online travel agents, that clearly, the fare comparatives are normalizing into the Q3 versus last year. I was wondering if you think you're still getting like any actual realizable uplift or specific tailwind from those official partnerships? Or is this just like fully past us now and we're back to a more regular kind of pricing cycle, just fully dependent on supply/demand in any quarter? Michael O'Leary: Yes. Thanks, Harry. I mean I wouldn't want to split out where we think we are on Q3 fares because so much of it is dependent on the close-in bookings at Christmas, over the Christmas and New Year period. But October is strong, up on last year. November is a little bit weaker, slightly down on last year's fares and Christmas at the moment is booking strong ahead of last year on fares. I think all I want to -- I wouldn't want to go any further than give you the kind of -- we have moved from being hopeful to being now confident that average fares will recover the full 7-year fare decline from last year in this year's numbers. We're up 13% average fares in the first half of the year. We have tougher prior year comps in the second half of the year. So you won't see, I think, 7% fare increases in Q3 or in Q4. But I think rounded out for the full year, we're pretty confident now we will be up -- average shares will be up 7%. Maybe we might get to 8% if we have a strong Christmas. But again, we need to see how those close-in figures book. And I think that is what leads us with a reasonable degree of confidence to see a strong profit recovery this year, but we can't put a number on it yet because it's so heavily driven by Christmas and the New Year holiday bookings. The new aircraft from Boeing will gives us the capacity to add a few extras there over that Christmas-New Year period. That's why we've been able to bring the traffic up from 206 million to 207 million this morning. On the OTAs, the big impact on us on the OTA boycott last year was through the first half of the year when you lost the people who I kind of complacently thought would be price sensitive. Therefore, they'll book the holidays directly with us. They didn't. A lot of them moved to the tour operators last year to the Jet 2s and the easyJet holidays. They've come back to us in the first half of this year. You see that reflected. We have weak prior year comps and a strong H1. We see some of those kind of tour operators, easyJet, Holidays Jet 2 (sic) [ Jet2 Holidays ] talking about a bit more price sensitivity in their bookings through the first half of the year. And it's because that traffic -- the OTAs have moved that traffic back to us. They need our low fare access. And so -- but that's not a key feature into the second half of the year. The OTAs are a lot less impactful in Q3 and 4. And therefore, we didn't have the same decline in airfares in Q3 and 4 last year. We've got much -- we have a tougher prior year comp, which is why we think, again, the second half of the year, you won't see 7% fare increases. It will be a little bit less than that. But overall, in the round, we'll come out at fares up about 7% on the full year. Eddie, do you want to add anything to that on Q1, Q2 or OTAs? Edward Wilson: No, I mean like what we've said, there sort of covers it off about what has happened, like slightly less in terms of fares in November, but Christmas, we're happy with how it's booking. So nothing really to add there at all. And I think we are through that sort of tail end of the OTAs, and I don't think there's going to be any further uplift. I just think it's, as you say, much tougher for our competitors out there on the prior year comparable. Operator: The next question goes to James Hollins of Exane BNP Paribas. James Hollins: I'll start one for Neil, actually. Just on the ex-fuel unit cost performance was only up 2%. I think noticeable was the EUR 30 million Q2 decline year-on-year in marketing, distribution and other. I'm assuming that's all lower distribution costs -- sorry, lower disruption costs. Or am I missing something else within that particular line? And secondly, Michael, clearly, using this platform as ever to get your point across on EU, progress on overflights, et cetera. Maybe just give us an update on what this new transport minister might be able to achieve? And secondly, whether there's any update on the sort of comedy baggage regulation they're looking at? Michael O'Leary: Okay, Neil. You okay if we have -- Tracey come in after? Neil Sorahan: Yes, sure. On the marketing line, I think you're particularly referring to some of that's down to lower EU261, lots of disruptions, but keeping them below the 3 hours. Equally, we've got up to 60 million people a week coming through on social, which is keeping our marketing costs way down. A little -- some of it's a bit of timing. We will do a bit more marketing over the Christmas period. And then offsetting that somewhat would be higher input costs for the onboard spend, which is going particularly well from an ancillary perspective. Michael O'Leary: Okay. Thanks, Neil. And on its commissioner Tzitzikostas, who's the Transport Commissioner, has had a really impressive start. One of the most notable things is they finally moved on the infringement proceedings against Spain over the crazy Spanish bag fines that were levied only on the low-fares airlines in Spain, but not on the high-fare airlines. It's clearly illegal. It's in breach of EU Regulation 1008/2008, which guarantees the airlines' freedom to set prices free from government interference or regulation. He does want to reform ATC. But like I think a lot of commissioners, he's frustrated. They're all expressed frustration at how little comes back out of von der Leyen's office. There is a real dead hand of Germany incompetence at the top of the European Commission and either she should deliver reform and deliver reform and competitiveness or go, preferably be replaced with someone who can actually do something. I would like to say we should get an Irish politician there given it was Peter Sunderland, who originally deregulated air travel. But given the lack of action from the Irish politicians on the Dublin Airport [ mad ], Dublin Airport cap, I wouldn't be recommending any of our Irish politicians either. At the EU Parliament, as is it won't is -- we elect a bunch of clowns, and we should be not surprised in a circus that they come out with crazy ideas. One of which is now that everybody should have the right to bring 2 free bags onboard an aircraft. We have politely pointed out that there isn't room on board the aircraft for 2 free bags for 189 passengers. That does seem to be a detail that they've missed. We've also pointed out that actual bag, one of the greatest things here that limiting people to bringing one free bag on board, and that was the wheeling judgment, the ECJ judgment in 2014, we do allow half the passengers who are priority boarding to bring a second carry -- free carry-on bag. That's about as much capacity as the aircraft has. But what the European parliament now part of this is that the commission under Tzitzikostas is looking for a reform of EU261. There talk about bringing compensation up from 3-hour delays to 4-hour delays, which does make sense. The parliament then pushes back with some ridiculous suggestion like 2, 3 bags on board. What that would do is they create huge queues at Europe's airports as everybody starts struggling with 2 bags through airport security. A bit like you have in American airports where you take forever to get through security because they're all bringing 5 and 6 bags attached to their persons through the airport. It would also mean inevitable flight delays because bags that don't fit in the aircraft would have to be taken away at the gate and put in the hold of the aircraft. You have more aircraft missing their slots and you would just gum up the whole system. But of course, a bunch of lunatics elected to the European parliament wouldn't worry about the day-to-day details of how people move. They only work about 3 days a week anyway and wouldn't be all that sensitive at the best of times to efficiency. This is why in America innovates, China replicates and Europe f****** regulates. And why Draghi has pointed 14 months ago, we need to get more efficient in Europe. And the best starting point would be stop issuing new bulls*** regulations invented by idiots in the European Parliament and start making Europe more efficient. If you really want to deliver efficiency for consumers of air travel in Europe and competitiveness, abolish environmental taxes or at least bring them into line with CORSIA and fix air traffic control. The European part will be much better off waste spending its time reforming air traffic control or protecting overflights in a single market than they would designing new and hopelessly impractical and unimplementable regulations, allowing passengers to bring 2 free bags on board an aircraft where there isn't room for the bags and they don't fit. Operator: The next question goes to Jaime Rowbotham of Deutsche Bank. Jaime Rowbotham: Two from me, both on growth. The first one on fares. Obviously, great to see you're making back what you lost from the OTA issues. But on an underlying basis, the pricing is broadly flat. And that's, I think, the scenario you're implicitly guiding to for this winter when the comps normalize. So as we look ahead to next summer, you're growing in Poland, Italy, Ireland, you'll shrink in Spain, Germany, France. But overall, you'll grow seats at about 4%. It looks like the industry will do 3% to 4% again as well. That being the case, I was a bit surprised to hear you talking about modest fare increases coming through the system, especially as you hinted that Ryanair will likely be passing some of its fuel cost decline on to stimulate growth. So would it not pay for us to tread quite carefully when thinking about the direction of your pricing next summer? Second one, you've announced EUR 25 million of annual investment today to accelerate cadet and first officer recruitment for the next 3 years. You've also talked previously about setting up 1 or 2 in-house engine maintenance shops. Is there any update on that project? Have you chosen the sites? And are there any other non-aircraft investments for growth that we should have on our radar? Michael O'Leary: Thanks, Jaime. I'm going to ask Eddie to deal with the growth question. I might ask Tracey McCann to come in on -- Tracey will come in on the EUR 25 million, on the first officer and on the engine shops update. Eddie, growth in 2026. Edward Wilson: Yes. I mean if you look out into the summer of next year, I think, just close to 75% of our growth will be in Italy, Poland, Albania and U.K. I mean like we've -- if you look what's happened in Italy, we've opened 2 new -- we've got bases in Trapani. Tirana base will open. We've got additional aircraft, 3 additional aircraft going into Modlin, 3 additional aircraft going into Krakow. And then you see as we begin to -- like it's not good to say that we're not growing in Spain. We're not growing in regional Spain. I mean regional airports in Spain are underutilized by about 70%, but we continue to grow in Malaga and Alicante where we will have -- probably we'll have 20 aircraft in both of those bases next year, and that'll be pretty much maxed out on early morning slots. We continue to grow places like Madrid, so it is getting more patchy and Barcelona is full. But yes, the way this is playing out in terms of you look at our competitors and their sort of cost inflation, and that's going to drive fares up while the gap between us and our competitors widens on a unit cost basis, and that gives us the opportunity to take advantage of what we believe will be like fares at least rising to some extent, the bias is going to be towards that. And we continue to grow, as I say, 75% of it across Italy, U.K., Poland and Albania and then a smattering of one aircraft increases across a wide range of bases where we're continuing to get low-cost deals. But like I could have allocated those 29 aircraft 3x over based on the appetite that's out there for particularly the stability that Ryanair brings and the longevity into those markets. Michael O'Leary: And I would just add to that point. I mean if you look at the non ex-fuel unit cost inflation in our competitors, whether it's easyJet, Wizz, Lufthansa, Air France-KLM, they are really struggling to contain unit costs. And that, I think, puts pressure on the next year to get fares up to cover these unit costs. The legacy carriers are also facing a much bigger penalty in terms of the withdrawal of the free ETS allowances. It has a much bigger impact on Lufthansa, Air France and IAG. And I think the pressure on fares is going to be upwards for the next year or 2. We have a much better unit cost discipline, and I think our fares will trend up behind them despite the fact that we've already banked up to EUR 650 million in fuel cost savings next year. Tracey, do you want to touch on the first officer recruitment issue and the progress on engine shops? Tracey McCann: Yes. So attrition rates are probably at the lowest we've ever seen. So we probably slowed down our recruitment this year of cadets probably to about 500. We should be up at about 1,000. So given the long lead time for promotions to captain been about 4 to 5 years, we're commencing recruitment now for then peak years for the MAX 10 deliveries. So there'll be a carry cost of about EUR 25 million per annum up to 2030. Michael O'Leary: And shop progress? Tracey McCann: So just on the engine shops, we're close to selecting our first MRO shop. We will open 2. So that will allow us to do 200 engines in each shop. The selection period is ongoing. There's nothing in our CapEx for this year, but we will probably start paying something next year, but we're close to announcing something on that very shortly. Michael O'Leary: We're in advanced discussions with GE and CFM on spares packages, and we would hope to have announcements of those, if not, before Christmas, maybe early in the new year. Operator: The next question goes to Jarrod Castle of UBS. Jarrod Castle: I was quite interested to hear you say that you think the profit per pax could go as high as EUR 14 at least over the next few years. And you've given some commentary on pricing and costs. But just some color on what gives you that confidence, assuming we've got like a stable GDP environment. There's no downturn, I guess. And then you've obviously spoken about a number of countries, Germany, France and I saw some comments on the U.K. But it does look like you're still continuing to grow in the U.K., which I think is about 1/5 of your capacity. And if I'm not mistaken, you're going to grow in summer by the sounds of things. So why is it still attractive to you? And what are your thoughts on the upcoming budget on the '26? Michael O'Leary: Okay. I'll maybe ask Eddie do the second half of the question on U.K. growth this year. Remember, the APD increase, that doesn't come in until April of '26. So -- but it's coming. Just on profit per passenger. If you go back to the kind of the broad brushes or my favorite back of the envelope, the real driver, I think, of our industry in Europe for the next 4 or 5 years is capacity constraint. We've gone through 25, 30 years where there was new airlines being set up, low fares airlines, the legacies were setting up low fare subsidiaries, everybody had new aircraft deliveries. There is very little capacity growth across Europe this year, next year or for the next 3 or 4 years. Nobody has any significant aircraft orders with the possible exception of Ryanair. Wizz had some orders and they've -- they're desperately trying to defer those orders now, which means their profits implode because all their profits come from [ Mizigel ] or Ponzi like sale and leaseback profits being recognized in the P&L, but that's an aside. So I think the demand for air travel remains strong. Yes, there are economic challenges in countries like Germany, France and the U.K. where the economies are not doing well, particularly in the U.K. post-Brexit. But people are not willing to forgo the travel. The kids, midterm -- we've just come through the midterm school break last week, very strong traffic flows, very strong bookings at high yields. Easter, summer holidays, Christmas, we're seeing strong demand for travel. I think, if anything, strong demand for travel with -- in Ryanair because we have such a pricing advantage over every other airline in Europe. Wherever we allocate the capacity, we are filling strongly. And I think that was reflected in this morning's bookings even into the remainder of October, November, December or November, December, where forward bookings are about almost 1% ahead of where they were this time last year. And we see that continuing. So I was asked earlier this morning, one of the interviews, if we saved EUR 650 million on fuel next year, will we pass that on in the form of lower fares? I think -- and my answer was, I think we can, but I don't expect to have to because I don't see -- if you look at the kind of cost inflation or ex fuel unit cost inflation in Wizz, easyJet, Lufthansa, Air France-KLM, it's high single digit, low and mid-double digits in the case of Wizz. Those guys have no future unless they constrain capacity and get airfares up for the next year or 2. And I think we will be the beneficiaries of that with a much more disciplined unit cost control. And I keep go back to Slide 4 in our presentation. If you look at the comparable unit cost advantage we have over every other airline in Europe, I think there's a reasonable prospect that we will see modest fare increases over the next 2 or 3 years plus or minus any unforeseen events, but modest fare increases, mid-single digits. And in Ryanair's case, most of that flowing through to the bottom line. Now we will have labor cost inflation in the next couple of years. I think ATC will continue to be out badly controlled by government. But overall, we will be -- we're moving into a decade where we're going to start taking aircraft at 20% more seats that burn 20% less fuel per flight. We're looking at a much more operating efficiencies coming through. And I think that justifies a reasonably modest growth in profit per passenger from EUR 10 to EUR 12 to EUR 14, I think, over the next 5 years to 2030. But then I'm one of like hopeless optimist, which is why I'm employed in the airline industry. Eddie, U.K. growth impact of APD. Edward Wilson: Yes. I mean, notwithstanding the sort of background of continuous APD growth in the U.K. The way we look at in terms of route development is not just season by season, but there's a continuous carousel of airports that we do deals with. And like if that -- if you've got airports even in a tough market like that, that are willing to share the investment with you in terms of lower cost, well, then we're going to reward that with extra capacity. And we've got extra aircraft going into places like Newcastle, which has gone from 0 to 2 aircraft based and 3 aircraft based now. Birmingham has got an extra aircraft. Liverpool has got an extra aircraft, Birmingham, Manchester, Stanford. All these places have extra aircraft going in because they're willing. We're in there for the long term. We're lowering costs there and incentivized for additional traffic. So it doesn't always go coterminous with the market as you make those investments, and it's going to put even more pressure on [indiscernible]. Michael O'Leary: Neil, anything you want to add there on U.K. growth or impact of APD? Neil Sorahan: Not particularly. I think we're -- Eddie and yourself have covered that off fairly well. On the profit per pax, I suppose just to reiterate, it won't go in straight line. There will be years where we'll be up and years where we'll be slightly down. Michael O'Leary: Okay. Michal Kaczmarzyk here as well, who's the CEO of Buzz. I might just add, I guess, help us to just to give you maybe his insight into growth in Central Europe, Poland, in particular, the charter market in Buzz. Michal, anything you want to add on growth in those non-tax economies like Poland and Central Europe? Michal Kaczmarzyk: There are good taxes. True. I mean Poland and CEE are performing very well. Demand is strong. We have now 80 aircraft allocated in the region. The Poland is the biggest part of the market with 44, offering more or less 40 million seats with the most attractive destinations in CEE. We have very strong brand recognition there at Ryanair, but also supported by our local structure bus generating over [ 3,500 ] direct jobs in Central Eastern Europe, supporting another 20,000 airport handling and so on. We make a lot of significant investment in the region through our hangars facility, but also crew training centers. We completed recently the biggest crew training center in Central Eastern Europe with 3 -- sorry, 4 full motion simulators. It's located in Krakow. We'll be able to train over 300 crew per day. We developed also our Warsaw ops center, focusing now on covering Central Eastern Europe, but also serves as a backup for Dublin ops center. So there is a lot of capacity still we can allocate in Central and Eastern Europe. The only -- the constraint is the number of aircraft we can allocate there. And we are in the good shape to take a lot of market share in the next 2, 3 years. Michael O'Leary: And there was talk last year of with moving aircraft back from the desert and basing aircraft in Central and Eastern Europe. Are you seeing much of Wizz in those markets? And how is the -- what's the -- Albania, where we're opening a base in Tirana, which is currently a Wizz base. How is the Tirana expansion base going head-to-head with Wizz? Michal Kaczmarzyk: So aircraft allocation -- I mean the Wizz aircraft allocation from the desert to Central Eastern Europe, I would say it's too late. I mean after pre-COVID, we increased in Central Eastern like 40%. We took their capacity or even pass capacity from the region to the region. So now we are the biggest in Poland, the Baltics, Croatia, Slovakia. We have the local structure there where we are able to compete in terms of cost level. There is no cheaper airline than past now in the region. Also with the highest fleet utilization ratio in the industry, over 6 hectares per aircraft per day. So the new base launch next summer will be Tirana for us, with quite significant capacity of Wizz. But what I mentioned, we are absolutely not afraid of that because our local structure there guarantee us the lowest cost. Once we deliver the lowest cost, we are able to deliver the lowest fares there as well. Michael O'Leary: Thanks, Michal. Eddie, anything you want to add on growth there before we... Edward Wilson: I mean just touch on the point there, you talk about Wizz and what's happening out there, where their policy or their growth strategy is to go back to Central and Eastern Europe. And certainly, what we pick up from the airports is that those that are incentivizing us to grow is that we're there for the long term. And you can see even cancellations in [indiscernible] from Wizz before they've even started back there. So some of that has been replicated. And you hear a lot of noise, but not a lot of lot of action that even extends to places like Italy, where we're doing almost 1,200 frequencies a week and you've got less than 100 frequencies a week from Wizz. So -- but I think airports recognize Ryanair is in for the long term, do a deal with Ryanair, get the cost down and you have the traffic for the long term rather than looking at these other short-term deals that are available [indiscernible]. Operator: The next question goes to Stephen Furlong of Davy. Stephen Furlong: Just on Boeing, last week, they had the results, and I thought they were pretty vague on the certification. They just said 2026, maybe the deliberately were for the MAX 10. I mean a little bit more work on the 10 and the 7 and hardware and software modifications, although they did say it was pretty straightforward. So just might talk about that, what exactly they're telling you. And then you mentioned labor. Could you just remind us what's the timetable for CLAs? I think most of them are in 2027 and stuff that would be great, the contract labor agreements. Michael O'Leary: Yes. I mean I think it's one of this -- I give Boeing more credit. The new management team is doing much more credit. The old management team would give us all sorts of pie in the sky, to be here tomorrow, next week and then miss targets all over the place. The new guys are much more cautious. They don't want to make promises they can't deliver. And I think that's the sensible place for them to be in. But you look at what they have delivered, they've got FAA approval to go from rate 38 to rate 42 in October. They're now talking about going to rate 46 in March, April next year. That doesn't really affect us. I mean we'll have finished our -- the Gamechanger deliveries at the end of February. But at least we have all 29 aircraft in for summer 2026. There is a risk at the moment with the government shutdown that certification, they're pretty confident talking to us. And actually, we get this on the other side from talking to EASA, who are involved in. EASA are very impressed with the work that the Boeing of the management team and the work that they're doing. And we get a lot of very positive feedback from EASA. So I think they're right to be somewhat cautious to underpromise and overdeliver. But we have a reasonable headroom there. At the moment, they're talking about MAX 7 being certified by -- in Q2 next year, MAX 10 in Q3. That could slip to Q4 or to Q1 of 2027, and we would still get our 15 deliveries in the spring of 2027. Now clearly, we'd be one of the lead operators of the MAX 10. I wouldn't have any issue with that. The sooner we can get them, the better. So -- but they're telling us and have gone in writing that they will meet our delivery date, the first 15 delivery dates, the first contracted 15 delivery dates in the spring of '27, they will meet. That's what gave us the confidence in the treasury function to go out and start hedging the U.S. dollar on those firm deliveries. And we're looking for more opportunities to extend those hedging. So I think Boeing were right to be a little bit cautious in their public commentary, but all of the delivery on the ground in terms of quality of what they're delivering to us and the timeliness of what they're delivering to us now has been nothing but impressive for the last 3 or 4 months. Now they clearly don't need any screw up along the way. But in Stephanie Pope who, is sitting on top of the production line in Seattle, there's somebody who's there every day. You can pick up the phone and call her. She gets back to you. She's really is well on top of it, and I would be very supportive of the work she's been doing. Maybe I'll add over -- so timetable on CLA, Eddie, while most of our labor contracts run out to -- our rates -- come up for renewal in April '27. Edward Wilson: And there's a couple of labor contracts that will be up 2 or 3 on the pilot side and again, a similar number on the cabin crew side. But like a lot of what we're -- it's not always just about pay. I mean, if you look at the disruption that's happened against the background of ATC and Ryanair's ability allow its people to actually deliver sort of a stable working environment underpinned by the continuation of the plan for roster, which will be a key part of any discussions on the CLA. And we've seen also over the last number of years, one of the dividends of doing local labor contracts is that people now not only are in the right -- most people are in the right place where they want to be, and it's relatively easy in terms of how they're paid, the local bureaucracy administration and labs have made a huge investment with that in terms of -- it's so much easier now. It's easier than it's ever been in Ryanair's history for people in far-flown basis to get the smart things done, how do I get my time off, how do I get my payroll queries, and that's all done through sort of a platform called Ryanair Connect. So there's lots of things like pilots and cabin crew more than ever value given the disruption that are there -- the disruption that is driven by ATC to have a stable working environment. I mean like this August, for example, we had our lowest cancellation level ever, completely different from the previous season. A lot of that, again, is about recovering on the day. So we'll be talking with our union partners in terms of the renewal of agreements. We will try to do long-term stable agreement, but underpinned by superior working conditions that I think are increasingly becoming more valuable. So it's not all just about one. Michael O'Leary: Touch on the Spanish CLA? Edward Wilson: We just concluded the Spanish CLA for the cabin crew, which was one of the last ones post sort of unionization. There were some bumps in the road, but actually was signed there last week, now we ratified by the local labor authority, and that's for cabin crew. That's very welcome. That goes out to 2030 into that deal. And that sort of sets somewhat of a benchmark for where we're going to go with the new deals that are going to come up, particularly on the cabin crew side. Michael O'Leary: And Darrell, you want to add anything to that on the CLA side and Chief People Officer? Darrell? Okay. Maybe Darrell's not on the line. Look, as you rightly say, Stephen, the labor contracts run out to April '27. That will [indiscernible] kind of is timed to meet the deliveries of the MAX 10s. And there's no doubt we're going to get a productivity gain out of those MAX 10 aircraft, not so much from the extra seats, but from the fuel consumption on the engines, which is dramatic. We are willing, I think, to share some of that productivity upside with our people. I think they -- but Darrell and his team have started those kind of discussions around 2026 and 2027. We have, as Tracey has already said, record low attrition. I mean we have almost no pilots and no cabin crew attrition at the moment. People are happy where they are. They're being well paid. They're in the basis they want to be in. Clearly, the Gulf carriers, which would historically have been a kind of the valve that would have recruited a lot of our pilots they don't have any capacity growth either at the moment. So things have never been more stable. But I think we will be seeing productivity gains coming over the next couple of years, and we are certainly minded to do deals with -- as long as we can do sensible deals. Will we do unsensible deals? No, we won't. I mean we've taken strikes in Belgium in the last 12 months. We've taken an occasional strike in Spain. We're happy to take strikes where people don't want to be stupid. We'll take strikes and we will face them down. But I think there is some upside coming in the next couple of years. And certainly, we will want our people to be at the front end of that. And if we can conclude new pay deals in the next -- either from April '26 or for April '27. And if that results in a step-up in labor cost, it's something I think we'd be willing to fund and finance. So watch this space, and we would hope to make progress on that over the next 6, 9, 12 months. Operator: The next question goes to Alex Irving of Bernstein. Alexander Irving: Two from me, please. First on ancillaries. Really good to see that robust growth continuing on from Q1. What's driving that? Is it product innovation? Is it pricing decompressing 2 years into 1 as you reinstate the OTAs and flat unit ancillaries at this time of last year? And then related to that, what do you expect for unit ancillary sales over the coming years? Second question is on CapEx. You've previously spoken about peak CapEx of around EUR 3 billion in FY '30, '31. You talked about locking in some of the dollar weakness and some of those gains into your future CapEx budget. What are your latest expectations for peak CapEx? When and how much, please? Michael O'Leary: Thanks, Alex. So maybe I'll ask Tracey McCann to take the ancillaries question. And Neil, you might come in and do CapEx, our peak CapEx. Tracey, ancillary? Tracey McCann: Okay. The ancillary growth, 3%. A lot of that is driven what we said from dynamic pricing. So we're starting to get better pricing on seats, better pricing on bags. We also have our order to seat service, which is increasing our onboard spend. And so probably fall back a little bit, you're going to be faced with the same thing on the comparables in the second half of the year. So maybe not as strong as the first half and probably about 2% per annum, I would say, beyond this year. But again, a lot of it is driven by what the labs team are doing in-house in driving them increments we can get on pricing. Michael O'Leary: Okay. Neil, do you want to touch on CapEx? Neil Sorahan: Yes, Alex, there's not a lot to add at this stage. We're only 35% hedged on the firm, the 150 aircraft. We haven't done anything on the options yet. The CapEx that we've guided in the past doesn't include engine shops. So it's a little bit premature to start changing numbers at this point in time. I prefer to wait until the engine shops agreed and then come out and refresh the numbers at that point in time. Michael O'Leary: John Norton here, Head of Trading. John, do you want to add on -- sorry, go ahead, Neil. Neil Sorahan: No, that's pretty much it. Michael O'Leary: John, do you want to add anything on CapEx on the treasury or currencies? John Norton: Yes. Thanks, Michael. Yes, look, we've got a nice layer in place there on the CapEx [indiscernible] for the MAX. I mean when you look at it at the start of the year, where euro dollar levels were down at 1.02, 1.03 in January. And then when you also factor in when the contract was signed and it was at 1.08. We have that nice space in place now to take us forward. Now we'll just look for opportunities when we see them just where markets going forward to build on that. Operator: The next question goes to Dudley Shanley of Goodbody. Dudley Shanley: Two questions. The first one, Michael, you were on CNBC this morning. And I think if I'm listening to you correctly, you said the consumers seem to be a little bit more price sensitive at the moment. How are you seeing that coming through your business? Is that just a temporary thing? And then the second question was to do with capacity constraints. Just what are you watching on that kind of 3- to 5-year view that it will remain as constrained? I know some people have been talking about the likes of aircraft from people like Spirit and think that's been shifted over to Europe. What do you watch? Michael O'Leary: Thanks. I mean where do we see consumer price sensitivity at the moment, I think, is the fact that forward bookings without any price promotion at the moment are running close to 1% ahead of where they were this time last year. And this time last year, we were actually coming off the kind of OTA pricing down 7%, lower fares. At the moment, fares are up in the first half of the year, 13%. We think that will be a little less in the second half of the year. And yet we're -- pricing is coming -- running against us or forward bookings are running against us. If anything, we're kind of slightly closing off cheaper seats to try to restrain forward bookings because clearly, we want to keep as much capacity we can for the closer-in bookings, particularly as you run up against Christmas and the New Year. In markets where we are expanding capacity, regional Italy, very strong. A new thing we've identified recently in Italy is Alitalia -- seem to have a number of their aircraft fleet grounded, particularly in the domestic market as the shortest spares. And we are expanding -- seeing very strong loads. Okay, the prices are lower in domestic, Italy, domestic Spain, that kind of stuff, but strong growth. And I note there is clearly a bit of consumer price sensitivity there. I'm campaigning aggressively against Rachel Reeves putting up APD or doing any more damage to the U.K. economic growth. But in a kind of slightly bizarre screwed up way, the more she damages economic growth and confidence in the U.K., the more people will switch away from paying higher fares to BA and others on to Ryanair. So I think that all augurs well for our growth over the next couple of years. Capacity constraints, what do we look for? I mean the only thing you can really look for is Boeing and Airbus orders. And they are -- the most recent one was Turkish, which I think was kind of preannounced by Trump when he was sitting with Erdogan at some meeting in Ankara. And even Turkish, which has announced an order for, I think, 200 or 250 narrow-body 737s, but they have no engines. They're now complaining that they can't get a deal out of the engine manufacturers. I mean in our day, when we order aircraft, you're Boeing, you go sort out the engines. But we wouldn't buy, order an aircraft unless it has engines attached. The market has moved so aggressively in favor of the engine manufacturers. People are now kind of ordering aircraft but with no engines and then kind of being price takers when they go to do deals on aircraft. Really, I don't see anything -- I mean if some of those aircraft appear out of Spirit, I think the chance of those appearing in Europe are 0. Airlines in Asia or in the Middle East and would be much more aggressive and willing to pay much higher lease rates than airlines in Europe. I see no demand among Lufthansa, Air France-KLM, IAG for capacity growth. They're all playing the same game. They've consolidated. They want to control capacity. If any, they'll keep shaving capacity so they can get air fares up. Wizz has canceled or desperately trying to -- well, IndiGo, not Wizz are definitely trying to postpone those Airbus orders into the mid-2030s, which by the time you've added 5 or 6 or 10 years of escalation, those already expensive aircraft will be even more expensive. And all easyJet is doing is upgauging from an A319 to 321s at their fortress airports, Gatwick, Paris, Switzerland. That makes sense. It's a sensible thing to do. But as we track across Europe, as Michal has said in Central Europe, we don't see Wizz anywhere. In fact, as Eddie has mentioned, most of the big incentives we'll get -- growth incentives we're getting from airports are from Wizz customer airports who are shooting themselves that Wizz is going to go bust in the not-too-distant future. I think there's a reasonable prospect and are getting Ryanair to come in there and kind of, if you like, almost as the insurance policy against a Wizz collapse. Now I don't think Wizz will collapse. But I mean, as a competitor, we wouldn't pay any attention to them at all. I mean the idea that they're going to close one of their desert bases in Abu Dhabi, noteworthy that they haven't closed the one in Riyadh, and they're going to move that capacity back to Central and Eastern Europe, well, [ whoopty doo ]. We haven't seen them yet. I think they've expanded their definition of Central and Eastern Europe to the stands. Apparently, most of the stands are now in Central and Eastern Europe, if you go by the Wizz definition. Meanwhile, we're charging in on top of them in Albania. They were competing with us in Italy and in Austria where 2 or 3 years ago, they disappeared. So we have a reasonably benign kind of map across Europe where most airports want us to grow there. And increasingly, countries want us to or incentivizing us to grow by abolishing environmental taxes. And that is Sweden, Albania. I don't go through the list again. One of the areas where airports were growing fastest in next year would be in Bratislava, where we had a 3 aircraft base. An hour up the road, the Austrians have failed to abolish their stupid environmental tax, which was less than EUR 160 million a year. Vienna has put up its fees by 30% since COVID. And all of the airlines, including now Ryanair are taking aircraft out of Vienna and putting in Bratislava. We had already announced an increase in our Bratislava base in 3 to 5 aircraft next year. And then about 3 weeks later, Wizz announced they're going to open 2 or 3 aircraft based in Bratislava, which is wonderful. Because in order to be able -- the only thing we could do to respond to Wiz arrival in Bratislava is put up our airfares there. So they'd be somewhat competitive with Wizz who come in there with fares that are about 40%, 50% more expensive than Ryanair. And the outcome will be exactly the same as it was previously in Vienna or in Italy. Wizz will lose, we'll win and the people of Bratislava will be left with the lowest fare airline, Ryanair, delivering all of that growth. But in Slovakia, there's a new transport minister, a new government, they've abolished environmental taxes. They've cut ATC fees by 50%, and the airport is incentivizing growth. Meanwhile, Rachel Reeves is over here in the U.K., considering whether she further increases APD, taxes the rich and follows the Marxist-Leninis North Korean growth model, which consists of taxing the s*** out of everything that moves with the result that nothing [ broken ] moves in the end. But to the extent that the U.K. economy suffers, I think more and more English people we can take will start fleeing to Ryanair and away from high-fare airlines like easyJet and BA. Operator: The next question goes to Conor Dwyer of Citi. Conor Dwyer: First question is for you, Michael. You were talking about how ETS credit prices should come in line with CORSIA, which would obviously be quite material if that did happen. But how much of this is hope and how much you think this might actually change? Is there a political will for this? And then the second question for Neil, on the cost per pax. It was obviously up 1% in the first half of the year, and you're talking about a bit of acceleration to the back half of the year, I think. You've got quite a strong fuel hedge position for that. So I'm just wondering where are you expecting some nonfuel cost pressure in the back half of the year? Michael O'Leary: Thanks, Conor. I mean talking about moving ETS to CORSIA, somebody has to leave the campaign. We've been calling for this for about 2 years. We didn't have the support of the flag carriers in A4E, Lufthansa, IAG or Air France-KLM. But they're now much more badly impacted by the withdrawal of free ETSs because they haven't grown for the last 10 years, most of their traffic was covered by free allowed ETS allowances. As Europe unwinds those free ETS allowances, they're getting much more hit or the cost impact on them is much more severe. And lo and behold, they're all now campaigning for moving -- well, if we're not going to abolish ETSs altogether, at least move in line with CORSIA, it is utterly indefensible that Europe taxes the s*** out of Europeans traveling within Europe. And yet the Americans, the Gulf carriers, the Asian carriers, all land and take off in Europe. They account for 53% of European aviation CO2 emissions and yet pay nothing. So I think the fact that A4E is now unanimous on this, I mean, how much of it is -- I'm much more optimistic that we will see some movement on that. Now we still have the dead hand of Ursula von der Leyen to deal with. But ultimately, I think you can even embarrass an incompetent German into -- I can actually do something on competitiveness. The Draghi report is 14 months old. She's done absolutely nothing. And I think if we build ahead of steam there, there's a reasonable prospect that Europe through the fog of failure will ultimately want to do something other than spend hundreds of billions on defense, but to make its economy more efficient. And air travel is clearly one of the ways of doing that. It would be material. It would be result in a dramatic or a significant reduction in airfares. Remember, passengers are paying these ETSs. It would result in a significant reduction in airfares. But at least it would mean that everybody in Europe is paying the same fair share as the non-Europeans. -- whereas at the moment, the Europeans paying all of the taxes, the non-Europeans getting completely free ride and useless Europe in the middle of it or useless von der Leyen sitting in the middle of it, terrified of Trump or taxing the non-Europeans. And so I think it's a call whose time has come. I also believe, and again, I'm one of life's great optimist, that actually, we will embarrass her into doing something about air traffic control or at least defending and protecting the single market. She was the one who was singing most vociferously during the Brexit negotiations that the single market is sacrosanct. We will do everything to defend the single market unless, of course, a couple of French air traffic controllers want to go on strike. So I think ultimately -- and I am much more motivated. Commissioner Tzitzikostas is really a guy who wants to get things done. He wants to deliver change. I think he really does want to transform air travel in Europe. He's from Greece. Therefore, they're very sensitive to making air travel more efficient. And I am very hopeful that him, together with the unanimity out of the A4E airlines, we will see some movement in Europe on ETS in the next year or 2. Neil, unit cost per passenger? Neil Sorahan: Yes, sure. Conor, a couple of bits and pieces. Firstly, I would expect that air traffic control charges will go up again in January this year. The service is just so abysmal that they have to put it up again. I think you'll see some of that marketing spend. I talked about some timing in there. Some of that will catch up into Christmas and into the stimulation for the advertising ahead of the summer. We're starting to see the Boeing compensation unwind. So that will have an impact on the maintenance line where some of those maintenance credits went. And then with the heavy maintenance at the back end of the year. Tracey also talked about we're going to start recruiting up on the cadets. That will kick off probably in the January time frame. So we'll be ramping up on the cadet side, but we'll also be ramping up as we always do ahead of the summer of 2026. So that tends to be back-ended costs in there, which is why I'm kind of been keeping the 1% to 3% unit cost inflation. Operator: The next question goes to Savanthi Syth of Raymond James. Savanthi Syth: Just on the first one, another question on the unit cost. But given you have hedging in place for next year and clarity around the Boeing deliveries, I was wondering if you could provide any kind of early thoughts on how we should think about fiscal year '27 unit costs? And then maybe a second question, just on the debt side. Usually, airlines that even have kind of good balance sheets find some value in having debt and being involved in that side of the financial market. So kind of was curious is the 0 debt view just ahead of kind of -- you do have the MAX CapEx -- MAX 10 CapEx, engine shop, other opportunities. So is that kind of a temporary 0 debt view? Or do you have a different kind of philosophy on the debt side? Michael O'Leary: Yes. Thanks, Savi. I mean I think on the hedging, I mean, I'll ask Neil to come back in and correct me if I get something wrong here. It's too early yet. We haven't done the budgets for FY '27. So I wouldn't get into unit costs at this stage other than we banked EUR 650 million in fuel cost savings with the fuel hedging. So that's a good strong start. I think the 2 critical elements on the hedging is we've hedged 80% of FY '27 fuel at just under $67 a barrel. We've made good progress on the currency hedging on OpEx. I'll ask John to come in -- John Norton to come in on where are we on the OpEx hedging for FY '27? John Norton: Yes. So we reached 80% of FY '27 at a level of [ 150 ]. So... Michael O'Leary: Where were we in the prior year? John Norton: So [ 1.11 ] [indiscernible] Michael O'Leary: Okay. So we've hedged away OpEx and a little bit of saving as well. And then clearly, it's not material in FY '27, but we've started to hedge the fixed orders on the MAX 10. So the hedging is locked down. We have the 29 aircraft will be delivered by Boeing. And I think that's much more critical here into FY '27. We have certainty now that we'll be able to deliver the headline traffic growth. And that's what drives ultimately the airfares and what drives the ancillary revenues. On the debt side, we're in this kind of artificial period. We have this kind of 2-year interregnum from '25 to '27, where in reality, we don't have a lot of CapEx. We could -- and we have -- we're coming up to -- in May next year, we have the 1.2 million bond. I mean we raised that coming out of COVID at less than 1%. So the cost of refining that bond that currently would be somewhere close to or close to about 3%, which isn't -- it's not a lot of money, but we don't need it at the moment. And therefore, collectively as a Board, our view is we should demonstrate to the market that we can pay down these bonds. When we start getting into '26 or '27, I think we would reserve the right to start. We would probably go back to the bond market as we get into the heavy CapEx again on the MAX 10. But we do so coming off with a strong balance sheet, BBB+ rated and say, look, we paid out back $4 billion worth of bonds post-COVID. And so I like -- we like the sense of we're not trying to be 0 debt for some kind of bulls*** philosophical reasons. We would expect to be -- to raise debt as long as we can raise debt cheaply, but only when we move into a period of heavy CapEx, which is where we'll be in '28, '29, we only take 15 aircraft in '27, we get another 15 aircraft in '28, but then we move up towards closer to 50 aircraft in '29 and '30. And so I would be of the view, you will see us pay down the last bond in May. We will try to build up gross cash of somewhere between EUR 3 billion and EUR 4 billion out of that. Other than that, we'll return the surplus cash to shareholders in dividends and buybacks. But then as we get into the heavier CapEx in '27, '28, '29, I think you'll see us go back to the bond market. Like there's nothing here. We have no principles here in terms of being -- having debt or being debt-free. It's just because of this kind of slightly strange -- it's the first time in 30 years, we go through a kind of a 2-year period with very little aircraft CapEx, pay down the debt, and then we can always refi again in '28, '29 from our position of strength. I don't know if you want to add anything on that on the debt. Neil Sorahan: Yes, I'd agree with that, Michael. I mean it's very much down to a cost decision at the moment. The cheapest way to fund ourselves is out of our own cash resources. And that's why we've decided to repay that bond out of our own cash. We've got nearly EUR 1 billion in dry powder in the form of our undrawn revolving credit facility. And as we've done in the past, we'll be opportunistic when we go back to the bond market. We'll go back at the time of our choosing and not just because there's a bond maturing and we have to roll it over. And I think that's how we will lock in the lowest cost ultimately long term for the group. So as Michael said, it's not just we have to be debt free. It's just it's going to fall that way for a period of time, and then we'll be back in the markets again. Michael O'Leary: And again, I would draw the point, as you look forward in terms of unit cost going forward FY '27. You look at our competitor airlines across Europe, the so-called low-cost airlines, they have huge net debt on their balance sheet, aircraft leasing costs, financing costs. And those costs are rising into the -- for the next year or 2. We will have 0 financing costs. We own 650 aircraft completely unencumbered. And it is another point of difference between us and the competition. It's also one of the reasons why they need to get airfares up in the next year or 2 to as their financing costs are rising and they have a huge leasing obligations. And why I think our underlying airfares may well rise into '27 and '28, whereas our unit costs will be well under control. Operator: The next question goes to James Goodall of Redburn. James Goodall: I just got a couple of follow-ups. So firstly, just on the MAX 10 deliveries. Do you know how many deliveries to other airlines are in front of you in the queue? I mean it looks like various airlines like United, Alaska, they've been pushing back some MAX 10 deliveries from '26 to '27. So I'm just trying to gauge the risk profile to you if the program gets pushed back any further, which I guess seems lower now given the deferrals from those airlines, but I would love your thoughts there. And then secondly, just following up from your comments around forward bookings being up 1 point in Q3. Does that forward book load factor level differ between the peak and the shoulder periods in Q3? And I guess, what does the higher book load factor level mean for you in terms of pricing strategy in the late market? Michael O'Leary: Okay. Thanks, James. Eddie will do the forward bookings. Let me touch on the MAX 10s. I mean, yes, one of the reasons why we're growing increasingly confident we'll get our first 15 deliveries in '27 is we are not delaying our MAX 10 orders. United who were the lead customer, I think, has delayed them. One stage they were talking about canceling the MAX 10s. We offered to step in and we take any MAX 10s they wanted to cancel. But it has helped, I think, Boeing to catch up with their production. I understand there's about 2 airlines in front of us. I think WestJet is one, Alaska might be another who are still ahead of us in the queue. Their due deliveries in middle to late 2026. Not sure whether they'll get them or not around. I think there's a reasonable prospect that the lead customer is likely to get the first MAX 10 deliveries in probably Q3 or Q4 of '26. We have about 6 months of headroom there before we get our first aircraft. And I would be reasonably confident we will take them. I don't think we'll be the lead operator. I don't think we'll get the first MAX 10 aircraft, but we might be second or third in the queue. And to those -- to my mind, it made no sense for United or some of those others to postpone the MAX 10s because you postpone them into the late 20s or early 30s, you're just paying a couple of more years of escalation. I would rather take the aircraft as quickly as I can get them. We don't have escalate -- well, we have -- we built in our price -- the price is averaged over the lifetime of the deliveries between 2027 and 2034. I want those aircraft as soon as I can possibly get them. I would happily take an aircraft -- any aircraft that has 20% more seats and burns 20% less fuel, will be an economically much more efficient and an environmentally much more efficient aircraft to operate here in Europe. And I would take as many as I can get as soon as I can get them, which is why we stepped in when United stupidly announced that they wouldn't maybe take theirs. I said, well, we'll take anything that United wants to cancel. They finished up not canceling and just postponing. I think we're about third or fourth in the queue, but it will be a reasonably short queue. I think the first deliveries will take place in Q3 or Q4 of '26 and our first 15 are in the spring of '27. Eddie, do you want to talk about forward bookings through November, December, maybe into Q4? Edward Wilson: Yes. I mean in Q4, we're only about 10% booked, so very little for Q4, so very little visibility there. If you look forward to, say, November has required some price stimulation, but we're happy with load factors. If you look in December and January, I mean, we've learned as well from previous years in terms of trimming our schedules as well there, particularly as we get into the -- beyond the first 10 days of January and also doing some trimming around the early December as well. So look, we're about 76%, 77% booked for November. Like our bookings are ahead of where they're marginally ahead of where they've been for each of those months, both November -- like November, December and January, comfortable with what we're seeing, but November is the one that needed a little bit of needed price stimulation to get there. But looking, we don't have to dig too deep, but we're ahead. And so we're happy, but you do have limited visibility. And like really like with 10% of bookings for Q4, you have no real visibility whatsoever. Operator: The next question goes to Muneeba Kayani of Bank of America. Muneeba Kayani: I just wanted to follow up on your outlook for the fourth quarter. Why are you saying there's no Easter benefit because there is the earlier Easter and a couple of days will fall into the end of that. So just wanted to understand your thinking around kind of the base effects into the fourth quarter. And then just on EU ETS, what sort of increase should we be expecting in fiscal '27? Because it looks like hedging levels on that are just 11% right now and the prices have gone up. So how much of those fuel savings could be offset by the ETS costs going up? Michael O'Leary: Okay. I'll ask Thomas Fowler, who's the Director of Sustainability, maybe take the ETS question for you, Muneeba. Let me deal with the outlook. I mean, yes, Easter Sunday next year is on the 5th of April. So the first weekend of the school holidays will fall into the last weekend in March. But it's not significant. We will get a little bit of a bump. But I think at this point, we're better off just to say, look, there will be no Easter benefit in Q4. If we get a little bit in the last 2 days of March, great. But really, most of it will flow into April. It's really only when you get an Easter on the end of the 31st of March or 1st of April, you see the first -- as we did 2 years ago, the first half of Easter was in the prior year Q4. Almost all of the impact of Easter next year will be in Q1. There will be a couple of days in March. And if we get a little bit of a benefit out of that well and good, but there's certainly no point in going out now, we have 2 days of Easter in March next year, what can you do? We bug all visibility in Q4, and we won't have any until we get out to the Q3 numbers in February. And we -- that's all we're trying to communicate now, Muneeba. And now I'll turn to optimistic Tom for the ETS outlook for FY '27, and you won't touch on '28 yet, unless we [ hear ] from Ursula von der Leyen in between now and then. Thomas Fowler: I think Neil alluded at the call [indiscernible] outlook. We think the ETS and SAF costs go from EUR 1.1 billion this year to somewhere between EUR 1.4 billion and EUR 1.5 billion next year, depending on the outturn of where the pricing is. Obviously, it is higher. Prices are higher going into next year, and we have to unwind the final loss of the free allowances. So somewhere between EUR 1.4 billion, EUR 1.5 billion for FY '27. Neil Sorahan: Thomas, is it worth pointing out that's the last big step-up as well that we're going to have? Thomas Fowler: Well, the last step of velocity allowance is, obviously, fair pricing changes, Neil, yes, like we hopefully won't see step up at that level the following year until mandates increase on staff in 2030. We do see the mandates grow a bit in the U.K. literally to 2030. But obviously, given it's only -- it's a portion of our business, we don't get the full impact of that through the line. Michael O'Leary: And again, sorry, and it calls into question. If Europe is serious about being competitive, this bulls*** tax needs to be rolled back. We need to bring it in line with CORSIA. And it's one of the reasons this unwinding of the free ETSs while Lufthansa, Air France, IAG are now much more vocal about the need to have a fair and level playing field on environmental taxes in Europe. We can't just be taxing ourselves to debt in Europe and exempting the Americans, the Gulf, the Asians and everybody else. It's simply insane only the Europeans would sign something that stupid and self-defeating. And therefore, I think the more we can -- the more and louder we campaign, the more likely we are to see some progressive reforms and pushing back on this bulls***. Operator: The last question goes to Ruairi Cullinane of Research RBC Capital Markets. Ruairi Cullinane: Yes, first question, a follow-up on the previous one. So it sounds like you're not focusing lobbying efforts on sustainable aviation fuel mandates. Would you like to see any changes there to rules in the U.K. or EU? And then I wondered if you'd be willing to comment on whether the U.K. has diverged at all from the Q2 fare trends you've reported or 3Q booking trends? Michael O'Leary: Sorry, Ruairi. Just speak up, you're very faint there on the -- I got the first half with the SAF. What's the second question? Ruairi Cullinane: Yes, the second question on the U.K. Has the U.K. diverged at all from the Q2 fare trends you've reported or Q3 booking trends that you've seen across the group? Michael O'Leary: Okay. Look, SAF, I'm not a believer -- sorry, I'm a believer in SAF, but I mean, there is simply -- the volumes will not be there to meet the EU 6% mandate by 2030 or the U.K.'s insane 10% mandate. You have the oil majors at the moment going back from the production of SAFs under pressure in the White House. I think the -- I think I join and I support the call of all the A4E airlines in Europe. We need to move these mandates to the right -- we may get to 6% or 10% by 2035, but I think there's no prospect of getting there in 2030. And I would be surprised even if the oil majors don't produce the SAF, there's nothing we can do to supply it. These are just another example of European -- British and European lack of competitiveness. The environmental agenda, there's a war in Ukraine, Trump in the White House. There is no, I think -- what is the word, there is no significant where -- if anything, the whole environmental agenda is moving backwards. We need competitiveness in Europe. And if the Swedes who were the home of the original environmental tax and flight shaming and all, if they worked out that Greta was wrong and they're abolishing their environmental tax, then surely the rest of the dodos in Europe will do likewise. So I think there is, I think, very little prospect of those SAF mandates being met in 2030. I don't think as an industry, we should abandon SAF, but we do need a much more either Europe and European governments should use some of the environmental taxation, this astonishing the SAF or the ETS taxation to incentivize the production of SAF or move the SAF mandates to the right or further out into 2030. There's nothing we see divergent in the U.K. Sorry, I'll let that to Eddie. Eddie wants to answer that question. U.K., Q3, fares and... Edward Wilson: I mean, as I said, like in November, required price stimulation. And even though -- if you look at U.K. leisure, U.K. leisure for us is about 1/3 of all of our seats out of the U.K., like where we've got -- you do see some price pressure there. But just in November, a lot of capacity has gone in there in the market. I think it's causing a lot more pressure for our competitors. It's a very small part of it. If you look at the rest of the U.K., our city to city, our ethnic traffic to the U.K. and Ireland and all that, that's in line with the rest of the network. That's only a slight call out there in terms of U.K. leisure, I would say. And a lot of it would be focused in the region, a lot of capacity within post-COVID. Some of that went to our competitors' way in terms of holidays last year. I think they're feeling more of the pain, but we're getting to those factors. Ruairi Cullinane: But are you seeing any divergence in U.K. traffic in [ U3 ] compared to non-U.K. or EU traffic in... Edward Wilson: I mean the only call that I would have is some of the U.K. leisure in November. And it's a very small part of our business, and the rest of the U.K. is as robust as the rest of the network Europe. Michael O'Leary: Okay. Ruairi, does that answer the question? Ruairi Cullinane: Yes. Michael O'Leary: Good. Okay. Any other questions, Nadia? Operator: We currently have no questions. Michael O'Leary: Okay. Listen, folks, thank you very much. I think we've done, what, 1 hour and 25 minutes. We appreciate your time on the call. We have extensive roadshows on the road, Ireland, U.K., Europe, North America for the remainder of this week. If you'd like a meeting on a one-on-one, please contact us either through Jamie here, our Head of IR or through the Citi, Davy, Goodbody. Thanks to Citi, Davy and Goodbody for arranging and facilitating the roadshow, and we look forward to meeting you all at some stage over the remainder of this week. If anybody wants to come visit us in Dublin after that, please feel free. As long as you fly Ryanair, we'll be happy to meet you. And otherwise, I think we are reasonably cautiously optimistic on the outlook, if not for the next 12 months, but I think for the next 4 or 5 years, keep focusing on the fundamentals. Capacity is going to remain constrained in Europe. We are doing much better deals with airports across Europe. Governments select -- are increasingly reversing these environmental taxes. And therefore, I think there's a reasonable -- I'd be reasonably cautious that we're going to see controlled growth certainly to 250 million passengers by 2030, 300 million passengers by 2034. And there's a prospect plus or minus the occasional unforeseen event that profit -- net profit per passenger will over that period of time, although lumpily move from EUR 10 towards EUR 12 towards EUR 14 per passenger. And we hope you'll all join us for the ride and see where it goes over the next 4 or 5 years. Thank you for your time. Look forward to being here this week, and thank you very much. We'll wrap it up there, Nadia, please. Thank you. Operator: Thank you. This now concludes today's call. Thank you all for joining. You may now disconnect your lines.
Operator: Good day, and welcome to the Vertex Inc. Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I would now like to turn the conference over to Joe Crivelli, Vice President, Investor Relations. Thank you, and over to you. Joseph Crivelli: Hello, and thanks for joining us to discuss Vertex's third quarter results. David DeStefano, our President and CEO; and John Schwab, our CFO, are also with us today. During this call, we may make forward-looking statements about expected future results. Actual results may differ due to risks and uncertainties. These risks and uncertainties are described in our filings with the Securities and Exchange Commission. Our remarks today will also include references to non-GAAP metrics. A reconciliation of these metrics to GAAP is also provided in today's press release. This call is being recorded and will be available for replay on our Investor Relations website. I'll now turn the call over to David. David DeStefano: Welcome, everyone, and thank you for joining us. Our third quarter performance demonstrated continued momentum in core strategic areas while managing specific market and customer headwinds. The strength of our strategy was evident in our strong cloud revenue growth, the increased margin leverage driven by automation initiatives and strong cash flow performance. We also saw accelerating traction in e-invoicing and improved SAP activity. However, offsetting this was the persistence of lower-than-typical growth from existing customer entitlements as previously discussed in our second quarter earnings call. In addition, the bankruptcy of 3 large enterprise customers as well as several accelerated migrations to our new cloud platform impacted customer retention metrics. I will highlight the specifics of all of this and their impact on certain metrics in a moment. Our revenue results for the third quarter were in line with our guidance, while adjusted EBITDA exceeded expectations. Revenue was $192.1 million, up 12.7% year-over-year. Subscription revenue grew 12.7% and cloud revenue growth was 29.6%. Adjusted EBITDA was a record $43.5 million, exceeding the high end of our guidance by $2.5 million and representing an EBITDA margin of 22.6%. And free cash flow was very strong at $30.2 million in the third quarter. In addition, annual recurring revenue, or ARR, grew 12.4% to $648.2 million. Average annual revenue per customer increased 12.4% year-over-year to $133,000. Scaled customer count grew 14%. Gross revenue retention or GRR, remained at 95% in the third quarter within our targeted best-in-class range of 94% to 96% and net revenue retention or NRR, decreased to 107%, down 1 point from the second quarter. First and foremost, I want to provide more specific details into the items that impacted customer retention metrics. As we have discussed each quarter, we experienced moderate customer turnover at the very low end of our customer base and discontinuation of legacy product usage by customers who have migrated to our new cloud solutions. In Q3, we experienced an unusual impact in these areas. Certain enterprise customers, including Big Lots, Party City and JOANN Fabrics, canceled licenses due to bankruptcy. This impacted retention metrics by approximately $2 million. Additionally, we had 3 large customers who had previously migrated to our new cloud platform, complete their own internal legacy ERP migrations faster than previously anticipated, which enabled them to downsize that portion of their subscription fees with us. This impacted NRR by another $2-plus million. Beyond these anomalies, management was encouraged by the progress achieved across several of our ongoing growth initiatives. On e-invoicing, ecosio had a strong quarter and contributed revenue of $4.1 million. This is an increase of approximately 30% from their run rate in last year's third quarter when we acquired the company. We have landed over 100 customers since declaring general availability in late March, all fit nicely into our expected land and expand experience. Additionally, we are seeing success with our integrated product strategy, which includes both e-invoicing and value-added tax compliance in one platform with full end-to-end documentation and audit support. In the third quarter, we continue to see an influx of new customers driven by upcoming e-invoice mandates, including Belgium, France and Germany, which we expect to accelerate as those actual deadlines approach. Ongoing cloud migrations with ERP vendors, including our partners, SAP and Oracle remain solid with pipeline build improvements appearing. And the expense control initiatives we discussed last quarter are driving improving earnings leverage as demonstrated by our strong adjusted EBITDA and free cash flow results this quarter. This quarter's progress on our long-term growth initiatives validates we still have significant greenfield opportunity with enterprise customers that are currently using legacy homegrown or manual solutions for indirect tax compliance and are migrating to the cloud. We continue to believe we have approximately 3x opportunity with our existing installed base, which we will penetrate by expanding usage throughout their organizations or by cross-selling additional products, and we have major tailwinds in front of us from the upcoming e-invoicing mandates in major countries like Belgium, France and Germany. Demonstrating our confidence in Vertex's long-term growth opportunity, today, we announced that the Board of Directors has authorized the repurchase of up to $150 million of Vertex shares in the open market. Coupled with our progress on several growth areas, I'm excited with the number of AI initiatives the team advanced in the quarter. We are executing on 3 fronts to commercialize AI, which are focused on enabling new logo wins and wallet expansion with existing customers, driving enhanced customer retention through targeted ecosystem interoperability and participating in new segments ripe for disruption. We are seeing ongoing traction with our smart categorization offering. And last week at our annual customer conference, we highlighted several new agentic capabilities on our cloud platform. These are focused on workflow capabilities and data management. The customer conference was our largest yet with strong attendance from alliance and tech partners highlighting the energy around our customer segment and market opportunity. And the AI sessions were clearly the most oversubscribed sessions by attendees. Additionally, at Exchange, we shared some of the transformational work we are doing, including our pioneering of the first-ever agent-to-agent tax configuration capability for Microsoft Dynamics 365 finance and supply chain. This is another step forward in creating a differentiated experience for Microsoft customers, bringing enterprise innovation to the mid-market. In October, we also launched Kintsugi powered by Vertex, which enables SMBs to automate key compliance functions while providing real-time dashboards for jurisdictional liability and exposure tracking. Powered by the Vertex tax engine, it delivers the same trusted accuracy and global content that enterprises rely on. In an AI-native experience built for agility and scale, this is just the first of many such new products and new initiatives that we expect to launch in partnership with Kintsugi. Exchange was also a clear reminder of the stark difference in tax compliance precision requirements between the enterprise customer and the SMB segment where good enough is sufficient. These complex global multinational enterprises remain very cautious about how AI is being considered in their departments due to inherent limitations. Several points were clear from our discussions there. Enterprise customers know that our solutions operate in speed and on a scale they must have to support their business embedded in the workflow of the critical order-to-cash process. Our implementations are complex. It's not uncommon for Vertex to be connected to multiple instances of SAP, an instance of Oracle in another division, a legacy ERP solution in still another as well as multiple billing and CRM solutions. And we are providing tax answers across that architecture with no latency and enterprise-level accuracy. These enterprise customers cannot afford for a single customer to experience transaction delays as an AI engine spins through scenarios to deliver a tax answer. They rely on the accuracy Vertex provides in every transaction. Enterprise customers are audited constantly by taxing authorities and cannot afford any risk that a probabilistic AI-driven outcome subject to hallucinations delivers an inaccurate tax answer, and they need accountable traceability for tax positions they take in their compliance. In addition, we estimate that as many as 70% of the tax rules in our content database are not easily mined by AI-driven web scraping. In the United States, below the level of state and county, tax rules for municipalities and tax overlay districts are hard to curate, sometimes embedded in meeting minutes that are not easily sourced on the Internet. And in some districts, finding the latest tax rules requires a person-to-person phone call, and all of this requires human judgment and professional curation to codify into the tax content database. In addition, these tax rules are constantly changing at a historic pace, and this is likely to get worse with reduction in federal funding to states as a result of the recently approved tax legislation. I'll now highlight a few business wins. We saw improved momentum in the SAP ecosystem this quarter, driven by ECC to S/4HANA conversions. These transitions created meaningful opportunities for Vertex to expand our footprint with existing customers and win new logos. In the third quarter, we partnered with an existing specialty retail customer on a major ECC to S/4HANA transformation. As part of this initiative, the customer advanced their plan to standardize on Vertex, transitioning additional tax functions from a competitor to our cloud platform. This expansion resulted in mid-6 figure of new revenue and reinforces our role as a strategic partner in their modernization journey. Another long-standing customer in the manufacturing industry launched a company-wide transformation project this year, including a migration from ECC to S/4HANA. As part of their transformation, the customer added VAT calculation across its operating regions and added several SAP tools, resulting in mid-6 figures of new revenue for Vertex. This is an example of how our business grows during migration. In addition to receiving a significant like-for-like increase, many customers use this as an opportunity to license additional capabilities. An existing customer that is a leading North American energy services company expanded with Vertex to cover 2 companies it recently acquired. This customer, which is currently operating on a legacy Oracle ERP solution, selected our private cloud solution and will eventually migrate its entire infrastructure to the cloud as part of an Oracle Cloud transformation. This customer expansion drove low 6 figures of new revenue. While our AI-based smart categorization product is still in limited availability, we added a major grocery store chain to our customer base for this new product. The customer staff was struggling with the labor-intensive nature of tax categorization in its delivery business and is excited about the ability to automate this process. This cross-sell resulted in 6 figures of new revenue for Vertex. This gives you an idea of the magnitude of sales opportunities with this AI-driven application. At present, we are focusing on the retail industry, hence, the new business win. But over time, we will expand our capabilities to cover other industries. A leading aerospace and defense contractor recently selected Vertex as its preferred indirect tax solution for one of its consumer-facing subsidiaries, fully displacing a competitor across its global operations, including Brazil and India. This competitive win underscores the strength of Vertex' tax content coverage in complex jurisdictions and is expected to generate mid-6-figure annual revenue. In addition, a global pharmaceutical company selected Vertex as its first external indirect tax provider to support its S/4HANA transformation. This new logo win was driven by Vertex' proven global tax coverage, deep expertise in the pharmaceutical industry and ability to manage complex requirements. This new business win, which was brought to us by our partner, EY, will also drive mid-6 figures of new revenue for Vertex. During a cloud transformation initiative, a global marketing services company replaced an incumbent competitor with Vertex, citing concerns about scalability and infrastructure flexibility. The customer valued Vertex's agnostic deployment model, which aligned with the CIO's preference for private cloud and option the competitor did not support. This strategic win sourced through our partner, Grant Thornton, represents a 6-figure new business opportunity. Finally, during the quarter, we won an e-invoicing opportunity with a global real estate investment trust, which is preparing for upcoming mandates in Belgium, France and Germany. We will also cover Italy and Spain for this customer. Of note, this customer was driving mid-6 figures of revenue for Vertex prior to this new business win, e-invoicing will drive high 5 figures of new revenue. Before I turn the call to John, let me address my succession that we announced in October. I approached the Board of Directors in early 2025 and told them of my plan to retire after 26 years at Vertex. However, I did not set a specific time line as we wanted to make sure we had the right candidate in place. We launched a comprehensive search process led by renowned management recruiting firm, Spencer Stuart, and considered both internal and external candidates. Ultimately, we found an exceptional new CEO in Chris Young, who will officially join the company next week. Our search surfaced outstanding candidates from top companies around the world, but Chris stood out as the clear choice. His strategic vision, experience in our ecosystem through his prior role as Executive Vice President of Business Development at Microsoft and deep familiarity with global enterprises all point to his ability to drive growth and value creation. What truly sets Chris apart, however, is his commitment to fostering a positive performance-driven culture, grounded in respect for people, a quality that aligns closely with our values and leadership philosophy. In addition, Chris was at the vanguard of Microsoft's push into AI and helped shape Microsoft's investment agenda in artificial intelligence and other frontier technologies. His forward-thinking perspective in that regard will be extremely valuable to Vertex and our shareholders. As for me, I'm not going anywhere. I'm merely transitioning. I will stay on as Nonexecutive Chairperson of the Board, where I will bring all my energy in the months ahead to support Chris and his transition. John will now take you through the financials. John Schwab: Thanks, David, and good morning, everyone. I'll now review our third quarter financial results and provide guidance for the fourth quarter and full year of 2025. In the third quarter, revenue was $192.1 million, up 12.7% year-over-year. Our subscription revenue increased 12.7% to $164.8 million. Services revenue grew at 12.8% to $27.3 million, and our cloud revenue was $92 million in the third quarter, up 29.6% Annual recurring revenue, or ARR, was $648.2 million at quarter end, up 12.4% year-over-year. Our net revenue retention, or NRR, was 107% compared to 108% in the second quarter. This was impacted in the third quarter by factors David noted in his prepared remarks. Gross revenue retention or GRR, remained at 95% at quarter end within our targeted range of 94% to 96%. Our average annual revenue per customer or AARPC, was $133,484, up 12.4%. For the remainder of the income statement discussion, I will be referring to non-GAAP metrics. These non-GAAP metrics are reconciled to GAAP in this morning's earnings press release. Gross profit for the third quarter was $142 million, and gross margin was 73.9%. This compares with a gross profit of $126.2 million and a 74% gross margin in the same period last year. Gross margin on subscription software revenue was 81.4% compared to 80.5% in last year's third quarter and 83.2% in the second quarter of 2025. And gross margin on services revenue was 28.8% compared to 35% in last year's third quarter and 33.1% in the second quarter of 2025. The lower margin was due to investments in automation that are expected to drive higher margins into the future. Turning to operating expenses. In the third quarter, research and development expense was $16.8 million compared to $12.9 million last year. With capitalized software spend included, R&D spend was $40.8 million for the quarter, which represents 21.2% of revenue. Selling and marketing expense was $43.4 million or 22.6% of total revenues, an increase of $5 million and approximately 12.9% from the prior year period. And general and administrative expense was $38.4 million, up $2.6 million from last year. Adjusted EBITDA was $43.5 million, up 12.7% compared to 38.6% for the same period last year and exceeding our quarterly guidance. This represents an adjusted EBITDA margin of 22.6%. As a reminder, adjusted EBITDA margins are being impacted in 2025 by accelerated investments to support the 2 acquisitions we made in 2024 related to e-invoicing and artificial intelligence. On the former, we are investing in ecosio, which we acquired in August 2024 to accelerate country coverage and broaden our go-to-market infrastructure. This represents an investment of approximately $16 million to $20 million in 2025. On the latter, we're investing $10 million to $12 million this year to productize our smart categorization product and adopt AI technologies in other areas of the business. In the third quarter, operating cash flow was $62.5 million and free cash flow was $30.2 million. We ended the third quarter with over $313.5 million in unrestricted cash and equivalents and $300 million of unused availability under our line of credit. As David mentioned, the Board has authorized a share repurchase of up to $150 million. Now turning to guidance. Reflecting the factors mentioned earlier, including customer bankruptcies and faster-than-expected legacy platform migrations, we now expect fourth quarter revenues of $192 million to $196 million. And for the fourth quarter, we expect adjusted EBITDA of $40 million to $42 million, reflecting an adjusted EBITDA margin of 21.1% at the midpoint. For the full year of 2025, we now expect revenues of $745.7 million to $749.7 million, Cloud revenue growth of 28% and adjusted EBITDA of $159 million to $161 million, reflecting a margin of 21.4% at the midpoint. David will now make some closing comments before we open up for Q&A. David? David DeStefano: Thanks, John. I have been in this industry for 26 years. I have seen it go through countless economic, regulatory and technological cycles. The enterprise segment customer has remained very consistent in their approach to solving their needs for effective tax compliance due to the mission-critical nature of their role. They don't buy on hype. They seek proof. They are focused on mitigating risk and delivering accuracy. They make purchase decisions for the long term based on value. So while we have noted some very specific headwinds to short-term performance in the past 2 quarters, we remain confident that the fundamental drivers for our long-term growth are strong and growing and that Vertex will benefit from them with improved performance as we move into 2026 and beyond. My recent experience at our customer conference reinforced my belief in the strength of our alliance partner relationships as we continue to lean into our partner-first strategy. Our leadership position in the enterprise segment certainly requires continued investment given the pace of accelerating regulatory and technological changes. And in doing so, we are positioned to reward our investors as a result. It is this confidence that is the primary driver for our Board's authorization of the $150 million stock buyback program announced today. I'm thrilled to now have Chris Young join our team and work side-by-side with him in our respective roles to ensure the company realizes the full potential of our opportunities and deliver strong financial performance for years to come. With that, we will take your questions. Operator: [Operator Instructions] We have the first question from the line of Joshua Reilly from Needham. Joshua Reilly: I wanted to get your latest thoughts on how you expect the SAP ERP cycle to kind of play out from here. Clearly, there's a lot of companies that still need to migrate to S/4HANA to hit the 2027 deadline. It seems like that's a bit of a stretch. Curious, what's your thoughts in terms of the capacity out there to manage these migrations in the industry? And what are you hearing maybe that improved the deal flow a bit this quarter versus the last couple of quarters? David DeStefano: Yes, Josh, thanks for the question. I think industry-wise, I should say, I think the industry has been preparing for this for several years. So I know in talking to a number of our partners, they have a -- they've been ramping up staff in anticipation of sort of a back-end process for the migrations that are ahead. So that's what I know. I can't speak to any more in terms of the likelihood of any deviation in the deadline. SAP keeps reinforcing it. So I don't fundamentally see there's a reason changing. I think the -- we've talked about this. The pipeline has remained solid. It's been more the efficiency getting through the pipeline as deals occasionally at the customer level have been slow due to their own migrations, slowing down. I think we saw a little bit of the break in that in the quarter, and that's why we had -- we were able to highlight a number of SAP wins in the quarter primarily. Joshua Reilly: Got it. That's helpful. And then maybe a bit more color on -- was it 2 customers migrating to their own homegrown solutions? And is that a portion of their business with you migrating to the homegrown system or a full system -- and was that built into your prior guidance? Or did you find out about that after you put up your prior guidance? David DeStefano: Yes. No, this came out -- these are customers that didn't go to their homegrown system. They migrated to the Vertex next-generation cloud platform. As you know, any companies that are going through a cloud -- leading a cloud migration like we are, there's always a moment where you're paying 2 mortgages where you're paying mortgage on the new -- you've already relicensed with Vertex. You've gotten the uplift from them, and they're shutting down their old system. And it usually lags on for a short period of time. These were 2 companies that were extremely large customers of ours that had already migrated to our cloud at a significant price increase that also were able to shut down their system faster than we had built into our guidance because they made some internal progress on their systems that we were -- that they had not forecast when we had our direct engagement with them. So yes, we do factor that into our guidance as we look at our numbers going forward. But it's just these 2 happen to get things done faster than they had previously guided to us. Operator: We have the next question from the line of Chris Quintero from Morgan Stanley. Christopher Quintero: And David, let me say, I know you're still going to be around, but it's been a pleasure working with you, and I wish you all the best in this next part of your life here. Maybe on the guidance, I think this is the second time in a row you guys have cut the guide, which I can't remember the last time Vertex has done that. And so just at a high level, has the guidance philosophy changed at all? And how are these kind of cuts informing your assumptions that you're putting into the Q4 guidance here? John Schwab: Yes, Chris, thanks for the call. No, we have not done this before. You're right. In terms of our philosophy around guidance, this hasn't changed our guidance philosophy one bit. We continue to be thoughtful as we think through guidance. And again, as David had mentioned, there was a couple of things, obviously, this quarter that impacted us a little bit. Some of this BK and migration activity certainly had an impact. We certainly had an impact from some of the timing of deals that closed in the third and what we're expecting to see in the fourth quarter. And again, we continue to focus on that services strategy where we're trying to lead partner -- where we're trying to go partner first and sort of deemphasize that. And so there were the 3 kind of bigger contributors to what happened -- why the change for guidance in the fourth quarter. But there hasn't been a change in philosophy from our standpoint. Christopher Quintero: Got it. And then it seems like the entitlement growth has been kind of one of the main headwinds on your net retention rate and growth from expanding customers. So I'm curious, like are there any lessons in terms of like -- or anything we should keep in mind as it relates to kind of renewal cohorts as some of these customers have been renewing over the past few years? David DeStefano: Yes, Chris, I think it's a fundamental of trying to assess where our company -- our customers' growth rates are going to be as they grow through our revenue bands. Obviously, we don't have great visibility into each of our customers' forecast growth rate in terms of whether they're going to continue to just expand usage due to their own growth or not. And I think that's been the headwind we've tried to highlight pretty clearly in the data we've determined from -- when we spoke to you in Q2. And so it is something we're trying to see if we can get closer to understanding our customers actually growth guidance that they're giving to the market to see how that will flip to what we expect for revenue bands. But obviously, it's a little bit of a fine line of how much information we have there and how that actually will show up in our revenue bands based on their own revenue -- their customers' revenue timing. Unfortunately, it's sort of like 2 separate move from us. Operator: We have the next question from the line of Alex Sklar from Raymond James. Alexander Sklar: David, I'll echo my congratulations on a fantastic career at Vertex here. Switching gears to -- I want to -- you hired a new Head of Sales in Europe as well. Can you just talk about that process? What was behind the change in leadership in Europe? And then how are you thinking about kind of Europe as an opportunity heading into 2026 versus maybe a couple of quarters ago? David DeStefano: Yes. Thanks for the kind words. I'm anxious to partner with Chris Young in the future of Vertex. And certainly, in my transition, I expect to be as Nonexecutive Chairperson of the Board. I will be quite active in helping continue to pursue the strategy of this company. I think Europe, it's timing of just a leadership change. We're continuing to expand the complexity of operations that we have over there with the acquisition of ecosio, and as we push further into the whole e-invoicing marketplace, we had a very good quarter in terms of continued growth there by the ecosio team and our team in general. And just the overall complexity of the opportunity increasing, felt like we wanted somebody who had been there and done that at a high level. And so it's just an up-level opportunity there. We really appreciate the gentleman that led that operation for years, but it was a great opportunity with someone we had good relationship connection to bring in, and so we capitalized on it. Alexander Sklar: Okay. Great. And then I don't know if you or John want to take this one. But just as we think about the Q4 growth outlook relative to the kind of the medium-term growth outlook that you spoke to earlier this year, how much of the headwinds like the true-ups, the bankruptcies, the early kind of shutting off of on-prem feel kind of 1x from your standpoint versus anything different about the market you're operating in today in terms of just the pace of technology changes or the pace of that SAP transition or e-invoicing adoption kind of broadly? John Schwab: Yes. Maybe I'll start. I think that from an overall guidance in the midterm, I think the BK migration stuff, again, is stuff that we typically -- it was somewhat anomalous to the quarter. I don't think that that's something that's going to be a continual thing there. We have those types of things happen every quarter. What we saw though was just a real confluence of a number of real big ones happening in the quarter that really drove that. So I would say from that standpoint, I think that's -- that to me is somewhat anomalous. In terms of kind of other things, when we look at the -- when we look at sort of how the quarter plays out and we look at sort of what next year looks like. Keep in mind, as you comp us out to some of our prior year numbers that we did have a very large -- some very large true-ups in the fourth quarter of last year. And again, we're anticipating very little in the fourth quarter of this year. So it really -- it drives certain revenue growth next. It mutes a little bit of what the impact truly of this quarter is. David DeStefano: Right. I mean the actual growth rate for the quarter would be close to 13% if you took out those entitlements. And so I think that is notable. And I do think as you look forward in e-invoicing, I mean, obviously, we're just getting into the whole land-and-expand motion we've talked about that we think is really setting us up well as those France and Germany deadlines come on in 2026. That's really what we've been pointing for. And I think the timing of those adoptions are pretty much falling where we thought it will accelerate as we move into '26 pretty significantly. Operator: We have the next question from the line of Adam Hotchkiss from Goldman Sachs. Adam Hotchkiss: David, echoing my best wishes to you. It's been great working with you. I wanted to touch on the comments you made on your customer conference in AI. What was it that customers from your perspective were most interested in from an AI perspective? And where are they from exploratory to actually starting to put some of these things into practice? And I know the Smartcat call on the retail side was interesting. How quickly can you get into other verticals and just get up and running with more customers on that side? David DeStefano: Yes. Yes, I think the approach we're taking with the -- thanks for the questions and the comments, certainly. The approach we're taking with AI with the human in the loop is an essential part of what the enterprise market is expecting because of the requirements for traceability when they get into audits and they have to justify the positions they took on a tax position and understanding the logic that's actually inside of the decision-making is really essential to their processes. So the fact that we're keeping the human in the loop, number one is critical. I think some of the agent-to-agent work we're doing, we highlighted the encouragement that we're actually directly working with the systems that they run their businesses on. So I highlighted on this quarter, the -- and in Microsoft, the first-ever agent-to-agent interaction between our platform and the Microsoft Dynamics 365 finance and supply chain platform is a really encouraging thing for our customers because it lets them know behind the scenes, there will be certain things that will be going on to support their ongoing time-to-value requirements. So I think that was a really well-received component of what we're doing in the market with -- as opposed to just pushing out AI in terms of direct -- like a ChatGPT type or Copilot, but actually taking it to a next level, we're able to drive efficiency and effectiveness in the market. I think Smartcat as an offering is a really exciting one, and we started to see some of the green shoots we thought were available to us because of the challenges our customers face in categorization of products. And so now we're going to start to focus beyond retail. We have that product ready. We're now moving that into trying to generate more in the retail space while we also start to ingest more data. And we'll look at that basically on a quarter-to-quarter basis, to be honest, in terms of how much we can ingest and make it viable for our customer base. Certainly, there's a lot of interest across the customer base for us to do that. Adam Hotchkiss: Okay. Great. That's really helpful color. And then on investments in e-invoicing and AI, just curious how those are tracking. I know that EBITDA did come in a little bit better this quarter. Are you still expecting that margin inflection? And I know that Chris isn't on the call, but just maybe reiterate your confidence level and when and sort of the magnitude of that margin inflection would be helpful. John Schwab: Yes. Great question. We continue to be on track with the investments that we talked about, the ecosio investments of $4 million to $5 million per quarter and then the AI investments largely focused around some of the Smartcat activities that David just talked through. They are tracking very well. So we feel good about that. We feel good about the progress that we've seen to date. Again, the plan is to largely have a lot of that behind us as we get into the middle of next year. And I think that's -- we feel like everything is pointed towards that, and it continues to be pointed towards that. And we expect to start to see some of that leverage and some of that realization start to show itself up. We did have a good quarter this quarter from an overall margin perspective, and I think we are pleased with the results that came through that, but a lot of that has more to do with some of the leverage we're seeing throughout the rest of our business and just being thoughtful about spend as we entered the back half based on some of the conversations we had at the end of the second quarter. So again, I think we feel very good about the investment programs that are in place. We expect to continue them. We haven't had any significant changes in our plans in terms of timing or in terms of -- or level of spend. And so I think everything continues to move along there nicely. Operator: We have the next question from the line of Jake Roberge from William Blair. Jacob Roberge: And David, I'll echo my congrats. It's been great working with you over the past few years. Just on the e-invoicing solution, could you talk about how that product compares to some of your competitors out there just from a country coverage perspective? And as we start seeing some of these larger countries like Germany and France go online next year, do you feel like that product is ready for prime time? David DeStefano: Yes, sure. Thank you for the kind words. Yes, number one, France and Germany, priority 1, the whole strategy from day 1 was always to make sure wherever there was a greenfield, meaning there was no competitive -- no competitor had already solved for a given country. That was our priority one in terms of where we've been investing. So we're ready for France, Belgium and Germany to compete on those and very comfortable as those regulations are going into effect with Belgium here in 2 months and the other 2 as we move into the middle to back half of '26. So yes, I feel very comfortable there, number 1. Number 2, we continue to expand our coverage. As you know, when we made the acquisition, we didn't buy a company that had coverage everywhere. We've been focused on the primary economies and continue to expand our coverage around the primary economies where e-invoicing is of the greatest import to our customers. Primary economies, meaning where large economies where our customers are doing a lot of business. Hence, the recent go-to-market partnership we announced with Brinta to accelerate our coverage in some key LatAm geographies like Mexico and Brazil, where a lot of our global multinationals have revenue, and we want to make sure we had coverage to be competitive in those regions. So yes, that continues to be a steady part of our build-out as we go forward. And that's the investment cycle that John was just highlighting that's going to run through the middle of next year. Jacob Roberge: Okay. That's helpful. And then there's obviously been some moving pieces over the past few quarters. But just thinking a bit longer term, could you double-click into the competitive landscape? And if you've seen any changes to win rates or competitors making more noise that might have been showing up at the edges this year? David DeStefano: It's funny. I literally just made sure, like I always do before these calls to check with my head of sales here in the U.S., in particular, where we have a lot of competitors. And no change whatsoever in the competitive dynamics in terms of win rate. Our strategy to continue to focus on the influencers that impact the market, our tight relationships with the Big 4 and other large accounting firms and the investment we're making to deemphasize our services revenue, which does impact short-term revenue. We've noted that, is also paying off by securing the win rates that we've enjoyed in the past and we continue to see. And certainly, some of the investments we're now making in areas like AI and Microsoft, I actually think are going to improve our opportunities in some of the new segments. Operator: We have the next question from the line of Brett Huff from Stephens Inc. Brett Huff: Two for me. I know you guys have been doing a lot of work given the entitlement changes on digging in and making sure you had more visibility into kind of those entitlement changes. How should we think about those as they roll forward? We've gotten some questions on -- we know the entitlements have slowed a little bit. Is there a continued a couple of quarter sort of period that we have to get through? Is there anything kind of bolus or timing-wise that we need to pay attention to that this may last a little longer? Or how do you guys sort of frame that up? John Schwab: Yes. Thanks for the question, Brett. Yes, in terms of entitlements and how that plays out, I don't think there's really any time frame for which this is going to change. There's nothing out there that's going to make -- turn this into a quicker rebound or even change the rebound too much. So I think it's going to just take a little bit of time for that to play out. And in the normal course of business through the normal renewal process, we'll see that work out. We try to -- we do our best to get in front of some of this visibility and do our best to try to make sure that we have that built into our forecast. But I think as we talked about the last time, some of this stuff comes up soon only just before the renewal base takes place. Overall, generally, this has, I think, a little bit more to do just with overall economic activity that's going on at customers. And then, again, to a lesser degree, some of their ability to migrate other systems they're using into the Vertex platform. So as they're doing other upgrades and other things, they're continually bringing and moving additional systems and additional entities that they have work going through onto our software. And so some -- if that slows because of other activities that they're doing, sometimes that can take a little longer. But I don't think there's really anything out there that's really going to drive or change this dramatically. It's just the passage of time. And again, as we said, we saw a little bit of that happen back around COVID. And again, as we got a little bit a couple of quarters through that, we started to see that snap back as activity picked up again, and I'm anticipating we'll see the same here. Brett Huff: Great. And the second question around SAP. Thanks for the comments earlier, both prepared and in the answers to questions. Can you maybe just a little bit more unpack that? Any anecdotal kind of conversations, change in tone around SAP migrations? It sounds like they were a little bit better this quarter. What is kind of the anecdotal feedback that you've gotten? I'm sure you had a lot of conversations at your user conference. Can you give us any more insight into how those decisions are being made or delayed? David DeStefano: Yes. I think the exchange was a really good -- it was just -- Exchange at our customer conference, it was just 2 weeks ago, 1.5 weeks ago. And I would say that it was very supportive of what we would expect as we move into '26 between our conversations with the large accounting firms that are all there, the many accounting firms that are there, as well as SAP directly. I definitely think that the activity in '26 is going to accelerate as we look forward based on what customers are telling us and what influencers are seeing in their growing backlog that they're going to be processing. Operator: We have the next question from the line of Steve Enders from Citi. Steven Enders: David, congrats as well on prior statements on the call. I guess just to start, I want to ask or clarify, I think, a prior comment you made about seeing some -- there's some timing of deals that closed in the quarter that impacted things a bit. And I just want to get a little bit more clarity on if there were deal delays, maybe how that is manifesting in the pipeline or how you're kind of thinking about the future pipeline from here? David DeStefano: Yes. I appreciate the question and certainly the comments, Steve. The quarter closed largely at the back end of the -- Q3 largely closed at the back end, meaning September was a very large month. And I think that's a behavior where we expect to see again with good visibility. When we talk about pipeline in the quarter, it means stuff that's already through -- it's not caught up in that middle where like, oh, could they get delayed because of their whole ERP process slows down. When we talk about guidance -- John is thinking about guidance in the quarter, it's based on what he has visibility to that's already pretty far down the pipe of we've already been chosen. It's more about like legal getting through their process and the normal purchasing process, if you would, to close. And so I think the process is laid out pretty consistent for the quarter as we look forward to what we expect to be a normal quarter in Q4. It's our largest quarter, and we're typically headed to that way with December being the largest month, and I would expect no difference to that whatsoever. Steven Enders: Okay. And sorry, to clarify, there were deals that got pushed out or things that didn't close as you originally expecting here? David DeStefano: No, I think in Q3, we closed the deals we thought we were going to close. They closed later in the quarter than we expected for sure. That's why I said September was a very large month, which obviously cost us a little bit of revenue that would have normally been recognized in the earlier months of the quarter. And as we look forward to Q4, I think we're seeing the same setup where December is going to be a very large quarter, but the pipeline of activity in the -- is where we forecast to be and it is built into our thinking about guidance. Steven Enders: Got you. Okay. That's helpful. And just on ecosio, I appreciate the revenue contribution this quarter. But are you feeling like that is on track for this year now? Like did you kind of see the catch-up that you were expecting and I think on track for the -- was it a $16 million revenue number that you previously talked about? Is that still line of sight there? John Schwab: Yes, absolutely. We still have line of sight for that. I mean I think they've made some real good progress, and we've seen some nice upticks in the business activity over there as well as the momentum that's underlying the pipeline. And so we absolutely still have line of sight to that. And again, between the combination of that and then the continued investment we're making in that business, we're all in on e-invoicing. And so I think we expect to see those results come through as anticipated. David DeStefano: And Steve, I think that just jumps to the deadline of Belgium is coming, and that's -- I think these are decisions that are being made, and that's why we have that kind of visibility. And I think you're going to see the exact same thing play out as we move next year into the larger economies of France and Germany, where France goes live in September, and I would expect to see a real increase in activity as we get through Q1, not so much, but certainly Q2 and into Q3, you'll see a real uptick. And then the same thing as we think about Germany going live in January of '27 with back half of Q4, which is pretty much consistent with what we've been telegraphing based on our experience. Operator: We have the next question from the line of Andrew DeGasperi from BNP Paribas. Andrew DeGasperi: David, I'll add my own words as well. It's great working with you over the years and good luck in the Chairman role. Just wanted to -- over the last, I guess, Q&A, I'm just getting a message that between the e-invoicing opportunity, the SAP migrations, -- and then if you add kind of the easier comps relative to this year, I mean, is there any reason why your business shouldn't accelerate from a top line perspective next year? I know you don't give out guidance, just trying to get a better sense directionally where we're going. John Schwab: Yes. Andrew, I'll take that. I'll start with that. Again, as we think about next year, we don't give -- we're not giving guidance now. We'll do that when we have our call in February for next year. But we do anticipate certainly top line revenue growth next year. I think there's a lot of fundamental factors that are contributing, again, as David talked about, the invoicing activity continues to be strong. The SAP pipeline and the activity that's there are going to be big contributors to growth next year. And so absolutely, we anticipate revenue growth into next year -- significant revenue growth into next year because of those factors that are out there and that are still very prevalent in the business. Andrew DeGasperi: Great. And then maybe just one in terms of the -- I think you mentioned some comments earlier about some customers are paying 2 mortgages. when they do these transitions. Just wondering how much of that customer base is right now doing that? Because if you look at your cloud versus on-prem revenue, obviously, I guess the question I have is, could we see a much broader dislocation between those 2 as we look into next year? David DeStefano: No, not at all. No reason to think that these -- first of all, we always have good visibility, and we work hard to factor that into our guidance so that it doesn't come up as a surprise in terms of what happened in Q3. So no, number one, I don't think -- and we only see typically, we talk about 2% to 3% of our customer base migrating every year. And I've talked about -- there's an on-prem base that's never going to go away. Subscription revenue is going to be around for quite some time. We're already up to close to 57 or so percent of our business is cloud, and that's where it's growing. And I think we'll see a slower -- we'll continue -- the ones that haven't migrated are going to be the longest to take the time to migrate just given the nature of those businesses that we know haven't migrated. So no, I see absolutely no reason to think we're going to have that kind of a surprise that occurred. It's just these customers did their shutdown faster than normal, but I'm not worried about that actually at all. Operator: We have the next question from the line of Patrick Walravens from Citizens. Patrick Walravens: David, I think you first came to our conference in 2007. So it's been a pleasure working with you over the last 18 years. It's probably for Joe, but the prepared remarks didn't address the 2028 targets. So can we just address it head on? Are you reiterating the 2028 20% plus subscription growth and 30% plus cloud growth today? David DeStefano: Yes. I think the buyback is a signal by our Board for its confidence in the future of this company, 100%. And I certainly think we continue to be cloud first in everything we're doing. So I see no reason to fundamentally think that, that's going to shift away from the growth we expect in the future. And certainly, with what we're seeing in e-invoicing and -- what should pick up in '26 even more so from SAP as their deadline approaches, I don't see a reason to fundamentally shift anything we've said in our guidance. The numbers that you've seen in entitlements pull back, we saw this in COVID and then it snapped back nicely. I see, once again, just the fundamental nature of who the enterprise customer is. They're going to grow through bands, and we're naturally going to get those entitlements. And so no, I have no data to suggest a shift in what we're fundamentally what we've said. Patrick Walravens: Terrific. Terrific. And then can I just ask about the bankruptcies because I just looked 2 of them up quickly. And Party City and Big Lots, both of those were announced in December of '24. So how does that play out? Like, yes, how does that work? David DeStefano: So when companies file Chapter 11, sometimes they continue to be in business. They continue to operate for years. And as long as you're in business, you have to charge sales tax. So we've had customers in the past have gone bankrupt, and we continue to collect license revenue. It may be on a reduced rate because the revenue has gone down, but we continue to collect revenue from. These are ones that officially went away. And you don't know when that's going to end. We have no way of knowing that just because they file Chapter 11 doesn't mean we're necessarily going to see an immediate end of that license revenue. Operator: We have the next question from the line of Rob Oliver from Baird. Robert Oliver: David, first one for you is just one of the themes, I think, at the Analyst Day back in March was around tax not just as compliance, but as business enablement. And as part of that, you talked about not just the sort of the traditional enterprise channel, which has been a big focus of this call, but also some of the marketplaces like SAP Hybris and Salesforce Demandware. And obviously, Shopify is moving upmarket, and there hasn't been any comment on the call about this. So I really wanted to hear your view on where you guys are today relative to that opportunity where there really seems to be a burgeoning opportunity within the tax software market. And then I had a quick follow-up for John. David DeStefano: Yes, sure. I had Shopify on stage with me at my customer conference. really talking about the partnership and the work we're doing with them really working in lockstep as they continue to expand and they're rapidly succeeding upmarket. There's just a natural synergy between our 2 organizations. And so every quarter, I try to pick out a few wins that are notable. Coming out of Q2, there's a lot of questions about SAP pipeline. We had a really good quarter in SAP wins. So I thought I would just highlight a few of those on the call, but we continue to make progress across the entire base of our key technology ecosystem partners, number one. And number two, I see no reason that's not going to change. And in fact, -- you may have noticed we launched our Kintsugi powered by Vertex offering, which I think is just going to increase a new opportunity for us to generate growth in the future as we look at their ability to actually work at the lower end of the market, which is really highly suspect or highly appropriate for the type of solution that AI has -- that AI can deliver through Kintsugi. Robert Oliver: Great. That's helpful. And then, John, just I know -- it seems like the challenge now is more about entitlements true-ups than it is about the ERP opportunities. So just on that topic, with kind of 2 quarters in a row of the guidance coming down, maybe talk a little bit more about how you factored those expectations into your guide for Q4 and how we might get comfortable with the thought that that's not caught you guys by surprise, I think, a couple of quarters here. So how to think about that headed into '26? John Schwab: Yes. Thanks, Rob. Certainly, when we revised back in Q2, entitlements was a big part of the -- entitlements and true-ups were a big part of the story. And that certainly was something we took into consideration when we set that guidance. We continue to look at those, monitor those throughout this quarter. Again, a couple of other things that we pointed to this quarter that really impacted Q4 have less to do with the entitlements and the true-ups because I think we feel good about how we've captured that, but a little bit more had to do with -- around timing as well as some of the BK migration things that have moved along. Again, I feel like the BK migration, as I mentioned earlier, was somewhat anomalous and the timing of the quarter certainly is something that we're going to use and we'll continue to use as we think about our continuing -- our forecast for 2026 and then beyond as we manage through that. So that's what I would say, Rob, in terms of kind of how we're thinking about guidance. I don't think we've changed our -- we've not changed our philosophy in any way. So we'll continue to put our best foot forward and try to ensure that we are giving clear and accurate information out there. Operator: We have the next question from the line of Samad Samana from Jefferies. Samad Samana: Most of my questions have been answered. But if I just think about the bankruptcies, they were all in the like retail space. So that might be probably coincidence more than anything else. But John, can you just remind us where your biggest vertical concentrations are in terms of the book of business? And if you're at least within the retail sector taking a more conservative view given that that's where the bankruptcies were? And then I have one follow-up. John Schwab: Yes. Good question, Samad. Thank you. In terms of kind of where our big verticals are, certainly, manufacturing is our largest. Retail kind of comes in soon after. And so they're bigger focus. We certainly have taken a look at some of the rest of the customers within our vertical of retail to anticipate if anything is out there. But at this point, there's really nothing in there that caused us to pause or adjust our thinking in terms of kind of any exposures there. We feel like we're very well reserved, and we're in a good spot. Samad Samana: Understood. And then maybe just on the long-term targets, I know Pat asked the question, but I'll ask it a slightly different way. I mean with the management transition going on with the headwinds that the business has faced, if I think about the 4Q guidance kind of pointing to what looks like about like high single-digit growth, it seems like 20% is a very tough lift to get to by 2028. And so why not get rid of those targets and make it easier, especially as the management transition? And just help us think about what's the path to getting to 20%. John Schwab: Yes. I guess what I might start with, Samad, is again, I think we feel like all the overall demand drivers of the business that we've talked about, as David mentioned, are still there, and we feel good about those. There is some transition that's going on here, and we'll kind of -- we're going to certainly manage through that, as David has articulated over time. But I think at this point, we still feel like that the -- all the things that got us to those expectations back in the March time frame when we gave that are still in place and in play. And we expect to see some additional progress towards that as we think about '26 and then '27 certainly as well. And so in terms of kind of what we do with respect to longer-term guidance, I think we feel like it's a bit too early. And again, just given the demand that's in front of us, I don't know that it's the right time now to change anything. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Joe Crivelli for any closing remarks. Joseph Crivelli: Thanks, everybody, for joining us today. If you have any follow-up questions or if you'd like to schedule additional time with the team, please send me an e-mail at investors@vertexinc.com. Have a great rest of your day, and we look forward to speaking with you in the coming weeks. Operator: Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.
Operator: Good morning, and welcome, everyone, to the Information Services Group's Third Quarter 2025 Conference Call. This call is being recorded, and a replay will be available on ISG's website within 24 hours. Now, I'd like to turn the call over to Mr. Barry Holt for his opening remarks and introduction. Mr. Holt, please go ahead. Barry Holt: Thank you, operator. Hello, and good morning. My name is Barry Holt. I'm the Senior Communications Executive at ISG. I'd like to welcome everyone to ISG's Third Quarter Conference Call. I'm joined today by Michael Connors, Chairman and Chief Executive Officer; and Michael Sherrick, Executive Vice President and Chief Financial Officer. Before we begin, I'd like to read a forward-looking statement. It is important to note that this communication may contain forward-looking statements, which represent the current expectations and beliefs of the management of ISG concerning future events and their potential effects. These statements are not guarantees of future results, and are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated. For a more detailed listing of the risks and other factors that could affect future results, please refer to the forward-looking statement contained in our Form 8-K that was furnished this morning to the SEC, and the Risk Factors sections of our most recent Form 10-K and 10-Q filings. You should also read ISG's annual report on Form 10-K and any other relevant documents, including any amendments or supplements to these documents filed with the SEC. You'll be able to obtain free copies of any of the ISG SEC filings on either ISG's website at www.isg-one.com or the SEC's website at www.sec.gov. ISG undertakes no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. During this call, we will discuss certain non-GAAP financial measures, which ISG believes improves the comparability of the company's financial results between periods and provides for greater transparency of key measures used to evaluate the company's performance. The non-GAAP measures, which we will touch on today, include adjusted EBITDA, adjusted net earnings and the presentation of selected financial data on a constant currency basis. Non-GAAP measures are provided as additional information and should not be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. For the reconciliation of all non-GAAP measures presented to the most closely applicable GAAP measure, please refer to our current report on Form 8-K, which was filed this morning with the SEC. And now I'd like to turn the call over to Michael Connors, who will be followed by Michael Sherrick. Mike? Michael P. Connors: Thank you, Barry, and good morning, everyone. Today, we will review our outstanding Q3 results driven by strong AI demand, our view of the current market, and our outlook for Q4. ISG delivered an excellent third quarter, continuing our AI-powered momentum with clients and underscoring our solid operating fundamentals. Our powerful combination of strategic, operational and research capabilities allow ISG not just to comment on AI trends, but to shape them as we work with clients to achieve measurable business value from AI. This is the power of having both a technology research and an advisory model. Our Q3 revenues were $62 million, up 8%, excluding results from our previously divested automation unit. Growth was broad-based and led by our largest revenue region, the Americas, up 11%. We also saw a return to growth in Europe with revenues up 7% and continued global growth in our recurring revenues, which were up 9%. From a profitability standpoint, our adjusted EBITDA was up 19% to $8.4 million, and our adjusted EBITDA margin was up 200 basis points to 13.5%. Our profit growth was driven by our improved mix of higher-margin platforms, research and services revenues, combined with our disciplined operating approach. We also had another strong cash quarter, producing $11 million of cash from operations. Over the last 2 quarters, we delivered $23 million of cash, demonstrating the strong cash-generating power of our business. Recurring revenues continue to be an important component of our success, representing 45% of our overall revenue. In Q3, recurring revenues were $28 million, up 9%, led by double-digit growth in our platforms business, including GovernX, ISG Tango and our research business. Our AI-centered approach continues to drive exceptional growth and differentiation for ISG. AI offers so much promise, but also brings new complexity and challenges. Our clients are leaning heavily on us for the independent AI expertise they need to navigate a vast number of critical choices, from partners to pricing to governance. In the third quarter, our AI-related revenue was $20 million, 4 times what it was 1 year ago. Year-to-date we have supported 350 clients with AI-related advisory and research services. That's up more than 200% from the same period last year. We are seeing demand for AI strategy, data transformation and agentic AI adoption accelerate across multiple industries. Client interest in AI continues to rise. Our sold-out AI Impact Summit in London was the largest client event in ISG's history, demonstrating the market's appetite for practical AI insight. And we published our third annual state of the enterprise AI adoption report, which quickly became the most downloaded report we've ever produced. Together, these achievements highlight that ISG's AI strategy is not just resonating, it's scaling. We are expanding client relationships, broadening our AI offerings and strengthening our position as the AI-centered technology research and advisory firm. Within ISG, we are leveraging AI to improve the efficiency of client delivery. Most notably, our AI-powered ISG Tango sourcing platform continues to expand. More than $15 billion of total contract value now flows through the platform, and that's up more than 30% from Q2. As expected, ISG Tango is helping improve our margins and opening up the mid-market to us, increasing our total addressable market. In 2024, ISG began embedding AI into the core of our research and advisory services. The goal was not just to improve productivity, but to redefine how we deliver value. Now, nearly 2 years later, AI is the organizing principle for how enterprises operate and invest in technology. In this environment, ISG is well positioned to support our clients in building AI-enabled organizations that generate innovation and results. From a macro perspective, AI is driving the technology research and services market worldwide. We see growth continuing as clients invest in the infrastructure and data needed to power their AI ambitions. Our recent state of enterprise AI adoption report shows the number of AI use cases moving into full-scale deployment has doubled versus 1 year ago. The report also shows use cases that broaden beyond cost efficiency to focus even more on competitive advantage and growth. Now let me turn to our regions. The year-over-year comparisons I cite here exclude revenues of about $3.5 million from our divested automation unit in last year's third quarter. Our Americas region delivered another excellent quarter with revenues up 11% to $42 million, driven by double-digit growth in our research, software and GovernX businesses and in our consumer, health sciences and public sector industry verticals. Key client engagements during the third quarter include Lockheed Martin, Carnival Cruise Lines and Baxter International. During the quarter, ISG continued to expand its work with a large U.S.-based healthcare company, generating revenues of more than $1 million. We are currently helping the client negotiate new software, network and technology services contracts. We're also working with one of the world's top consumer products companies to help them create a next-generation AI-driven technology operating environment. This $1 million-plus engagement is expected to help the client realize cost savings of about 40% and should lead to future opportunities for ISG. Turning to Europe. This market returned to growth for the first time in 2 years since the start of the tech recession. Revenues were up 7% to $16 million, driven by double-digit growth in our advisory business and in our banking, financial services, consumer and health sciences industry verticals. Key client engagements in Europe in the third quarter included Fresenius, Diageo and Evonik, a German chemicals company. ISG is currently working on 2 of the largest technology transformations this year in Europe. First, ISG is partnering with a global leader in business travel services to advise them on $1 billion of spend on an enterprise-wide sourcing program. The program covers AI-driven finance, accounting, technology services and product development. We expect this engagement will open up even more doors to follow-on opportunities. Second, we are also working with a global leader in workforce services and solutions to support their $1.2 billion AI-powered initiative. We are helping the client transform their operations through agentic AI, leveraging new AI pricing models to drive down costs. Now turning to Asia Pacific. Our Q3 revenues of $4.2 million were down 15% compared with the prior year. We did see double-digit growth in our banking, energy and utilities industry verticals. We will need the public sector to reignite spending for this region. Key clients in the quarter included IEMO, Standard Chartered Asia and the Reserve Bank of Australia. ISG is working with a large Australian telecommunications provider to negotiate more than $1 billion of tech applications and infrastructure spend. We are helping the client achieve significant savings through the use of AIOps to manage its technology environment. Now a few comments about the market. As I mentioned earlier, AI is the propellant that is driving overall demand for technology services. In the near term, we are seeing modest improvement in the macroenvironment, with some lingering caution as companies take time to adapt to the new normal. We're seeing that play out, especially in the managed services sector, while demand for cloud computing services needed to support AI continues to soar. Growth is not the same in all geographies with the U.S. leading the way and Europe catching up. Looking ahead, we see an improving interest rate environment, stimulating further tech spending as we move through 2026, with AI remaining the dominant long-term growth driver for the industry. So with that, let me turn to guidance. For the fourth quarter, including the slower year-end holiday period, we are targeting revenues of between $60.5 million and $61.5 million and adjusted EBITDA to increase year-over-year by 15% to 20%, or between $7.5 million and $8.5 million, which will continue our year-over-year growth and margin expansion. Now let me turn the call over to Michael Sherrick, who will summarize our financial results. Michael? Michael Sherrick: Thank you, Mike, and good morning, everyone. As Mike stated earlier, our revenue comparison with the third quarter of 2024 excludes our divested automation unit, which contributed about $3.5 million a year ago. This provides a more accurate view of our go-forward business. Revenue for the third quarter was $62.4 million, up a strong 8% versus the prior year. For the quarter, currency had a $700,000 positive impact on revenue. Americas revenue was $42.2 million, up 11%. Europe revenue was $16 million, up 7% and Asia Pacific revenue was $4.2 million, down 15% from the prior year. Third quarter adjusted EBITDA was $8.4 million, up 19% from the year ago period and resulting in an EBITDA margin of 13.5%, which was up nearly 200 basis points year-on-year. For the quarter, ISG delivered operating income of $4.6 million, up 7% from the prior year's $4.3 million. Reported net income for the quarter was $3.1 million, or $0.06 per fully diluted share as compared with net income of $1.1 million, or $0.02 per fully diluted share in the prior year. Third quarter adjusted net income was $4.7 million, or $0.09 per fully diluted share compared with adjusted net income of $2.5 million, or $0.05 per fully diluted share in the prior year's third quarter. Our headcount as of September 30, 2025, was 1,316, essentially flat with Q2. For the quarter, consulting utilization was a solid 72%, in line with our average third quarter utilization. Year-to-date, utilization of 75% is in line with our long-term target. We ended the quarter with cash of $28.7 million, up $3.5 million from $25.2 million at the end of the second quarter. A key driver of the increase was strong operating cash flow. For the quarter, net cash provided by operations was $11.1 million, fueled by our robust operating results. During the quarter, we paid dividends of $2.4 million and repurchased $2.8 million of stock. Our next quarterly dividend will be paid December 19th to shareholders of record as of December 5th. Fully diluted shares outstanding for the quarter were 50.4 million, down 201,000 from year-end 2024. At quarter's end, we had approximately $8.2 million remaining on our share repurchase authorization. Our quarter end gross debt-to-EBITDA ratio was 1.95x, down from 2.4x at December 31, 2024, and just below our 2 to 2.5x range. At quarter's end, our debt was unchanged. And for the quarter, our average borrowing rate was 6.2%, down 110 basis points year-over-year. Overall, our balance sheet is solid and continues to improve, providing us with a strong foundation to both operate and invest in the business. Mike will now share concluding remarks before we go to Q&A. Mike? Michael P. Connors: Thank you, Michael. And, to summarize, ISG delivered another excellent quarter, continuing our AI-powered momentum. Our revenues of $62 million were led by another double-digit growth quarter in the Americas, a return to growth in Europe and continuing strength in recurring revenues. We grew our adjusted EBITDA by 19% and our margins by 200 basis points. And we had another very strong cash quarter, generating $11 million in cash from operations. Looking to the future, our AI-centered capabilities and relentless drive for operational excellence positions us well for continued year-over-year growth and margin expansion. As always, we are focused on creating shareholder value for the long-term, and we are steadfast in our mission to deliver operational excellence to our clients. So thank you very much for calling in this morning. And now let me turn the session over to the operator for your questions. Operator: [Operator Instructions] Your first question comes from the line of David Storms with Stonegate Capital. David Storms: Just wanted to start maybe with the EBITDA margin expansion. It was mentioned that you had a nice improvement in mix, which I'm assuming is the divestiture of the automation portion of the business and then also some nice efficiency in OpEx. How would you characterize the stickiness or stability of the efficiency improvement? Should we expect this margin to kind of continue? Michael P. Connors: Thanks, Dave. Yes, so look, our -- we've got a number of kind of margin expansion avenues. One is our own efficiencies using AI. And one of the best metrics of that is ISG Tango, which we are using for all of our sourcing transactions. It's now got about $15 billion going through it. But importantly, what it does is it accelerates time to value for the enterprises, and frankly, for the technology providers who may be bidding on that business with our enterprise client. So it creates efficiency. It creates speed, it creates productivity. And then, when we launched it just a little over 1 year, maybe almost 1.5 years ago, I think we said that it would be one of our drivers to expand margins. And the reason for that is that we can do it faster, more efficiently, and we can do it with a higher level of margin because of it. So that's one area. The second area is the mix of what we are actually able to provide with our clients and areas around our recurring revenue streams, which continue to expand. And of course, when you're able to build it once and sell it many times, it helps a lot. But importantly, all of the AI work that we are doing, it is premium work. Therefore, we have good pricing, if you will, power around the work that we're doing in AI. But it's only going to expand because it's still in the very early innings. So you couple both our internal efficiencies along with a mix that is in high demand at the client level and you add in the growth that we're getting in recurring, we're pretty confident we're going to be able to continue our expansion in our margins. I hope that helps, Dave. David Storms: No, that's very helpful. I appreciate that color. My second question here and kind of a follow-up to that, maybe dialing in a little more on Europe. It's great to see growth kind of returning to that market. I was hoping you could spend maybe a little more time talking about the pipeline you're seeing there? Are you -- do you feel like you're still working with customers that are maybe on the cutting-edge first movers? Or are you starting to get into maybe the meat and potatoes of that client base? Michael P. Connors: Again, good question, Dave. We are -- the pipeline is growing, and it's never been really a big issue as much on the pipeline as it has been on the speed and pace that the European clients are wanting to move. We saw that accelerate a bit, primarily in the cost optimization areas. The transformation areas are slower to adapt over in Europe. And frankly, in the U.S., it's a little slower on transformation than it is on optimization. But I think what you'll see is we're -- that our pipeline is strong, that we see a continued growth level for our European business. We're cautious because of the overall macroenvironment. But right now, there is an appetite that has increased in Europe, especially around optimization, using AI to assist. And if you heard a couple of the points I was making in the remarks, we are operating with 2 of probably the largest transformations going on in Europe by any enterprises right now. And both of them will generate very significant cost savings for those 2 businesses. And when you can start to see real dollars flow through, and in one case we think it will be around 40% savings, that's significant and material. But clients have to be able to be ready to move. These 2 large clients were ready. So that's what we're seeing in Europe, Dave. Operator: Your next question comes from the line of Marc Riddick with Sidoti. Marc Riddick: Maybe we could talk a little bit about -- in your prepared remarks, you made mention of some of the potential drivers. You also touched on the potential for interest rate cuts being a benefit. Maybe, I mean, obviously, it's pretty early, but are you beginning to see that already? And as far as loosening of purse strings, are you getting the sense that, that's still a large enterprise-driven issue? Or are we beginning to see some of the smaller movers tend to act on AI? Michael P. Connors: Yes. Good. Thank you. Look, I think, first of all, the -- to me, the interest rate environment, based on my discussions with a lot of operators and our clients, it's all about the sentiment. And I think that the interest rate environment loosening up gives some a little more strength to move forward with some of their work efforts that they're feeling a little more confident of. And because of that, then that frees up the opportunity to move a little faster on our part with our clients. So to me, the interest rates really add a level of sentiment and confidence that things are going to be a bit better. Yes, we hear a little more higher unemployment, some of these other things. But the reality is, with an interest rate environment that may change a little bit, that may open up things like housing in the United States next year. These things are all positive signs versus a negative sign. So from our perspective, it may free up additional spending. And I would add, Mark, I think the use cases that are being marketed or being stated out in the market that there is really a huge opportunity if you utilize AI at scale, that you can change your business model over time, that -- that's beginning to, I would say, kind of -- is beginning to get resonated with a number of clients. So you couple the 2 together, a little bit more confidence and a little bit more that you're now seeing that there's real returns that could happen. These are not just, in some cases, just kind of little projects, they're becoming much more scalable projects like the 2 that I mentioned in Europe. Marc Riddick: Great. Thanks for the color there. And then, you always -- you're sort of broad-based as far as your client exposure and industry vertical exposure. Are there any kind of callouts or standouts either during the third quarter or what you're seeing early in the fourth that you think are worth mentioning? Michael P. Connors: Yes. I'd say the hot industries, let me start with that maybe, Mark. When I say hot, I mean, the ones that are moving for different reasons, but it's consumer, health sciences, energy, utilities and the public sector. Those kind of 4 or 5 areas are moving each industry segment for different reasons. Consumer, in some cases, because of the tariffs, because that if you're a consumer and you start off with a 4% or 5% margin business and you slap tariffs on, it makes some of your products very unprofitable in a hurry. So what do I do about that? So we're working with a number of consumer companies because of that. Flip it to the other side where you have the energy industry, which is literally on fire, if I may say it that way. And because of that, they are looking for money to help grow their businesses. And so they look at areas around AI that can help them. So it varies a little bit by industry, but those 5 industries, in particular, I think, are quite strong as we go through the balance of this year and probably the turn of '26. Marc Riddick: Great. And then just last one for me, I guess, the balance sheet having improved as much as it has over the last few years, now just below 2 times. Maybe you could talk a little bit about maybe the potential for acquisition pipeline out there, maybe what the pipeline looks like, valuations are looking like and maybe if there are any areas or any things that you have your eye out on at the moment? Michael P. Connors: So good question, Mark. Yes, we are in the market. We continually have conversations. We're focused on everything around increasing our AI capabilities and our recurring revenue streams. And I would say at the end of the day, the market is still what we always believe, and that is you have to provide fair value for a great asset. So we'll continue to have these discussions, and we'll see where they evolve as we go into 2026. But we certainly have our targets in mind, and we'll see if we can do something in '26. Operator: Your next question comes from the line of Vincent Colicchio with Barrington Research. Vincent Colicchio: Nice quarter. I'm just -- I'd like to talk a little bit about the labor market. So your labor was flat. Is that by plan? Or is it getting increasingly difficult to hire people? Michael P. Connors: No, that's by plan. We've been using -- we eat our own dog food, as they say. We've been putting a lot of automation capabilities into our work efforts, and that has enabled us to, I would say, just have some surgical hires at the moment. So that was a -- that's a planned event. And we might have a few extra between now and the end of the year, but it should be in or around that number at the end of '26. Vincent Colicchio: And then, I don't recall your exposure to the federal market. Remind me of that? And are you being meaningfully impacted by the shutdown? Michael P. Connors: Yes. We have 0 federal business. Our focus in the U.S. is all on state, local and higher education. So we have no exposure at all to DOGE or any other kind of related federal issue. Vincent Colicchio: And then, on the government -- on the other side of the world, what's going on in the public sector in APAC? And just some color on when we might see that turn? Michael P. Connors: Yes. So the public sector outside the U.S., we do, do work in the federal area. So we do it in the U.K. We do it in Italy. We do it in Germany. We do it in Australia. And so, the European public sector business is actually quite good. Australia is still not come back. We anticipate it second quarter next year at the moment based on what we can see in terms of pipeline. But that particular region, I think, flips to growth once the public sector, which is a large piece of the spending, comes back, and we anticipate that being kind of roughly second quarter next year. Vincent Colicchio: And then last one for me. Are you seeing a meaningful traction with Tango in the mid-market? Michael P. Connors: Yes, very good question. So Tango, when we launched it, was intended to do 2 things. One was to help create -- kind of accelerating time to value for both our clients and for the ecosystem providers, which would make it more efficient, more productive, higher margin. So that's the one hand. On the other hand, it gave us an entry into the mid-market. And for us, we call the mid-market kind of $1 billion to $10 billion. So it's a bit of a spread. But it's a market that we never really -- in the U.S. never really went after. Now with Tango, it's been a great success. Over 25% of the platform is now mid-market clients running through there. That could not have been possible without that platform, we don't think. We use it as kind of our entry point in. So we expect the mid-market to be a growth driver for us over the next few years. And AI is helping that because AI clearly adds complexity and opportunity. But I would say most mid-market companies do not have the level of expertise internally to help execute on their AI initiatives, and that plays right into our strength. Operator: Your next question comes from the line of Joe Gomes with NOBLE Capital Markets. Joseph Gomes: So I just want to go back to the APAC for a second here, a follow-up on Vince's question. I think earlier in the year you were talking about, you expected to see some improvement there after some elections had gone through. And just trying to get a better handle on what is kind of pushing out a return to growth in that market, especially on the federal spending? Michael P. Connors: Yes. Look, the elections were over, I think it was May, June, so end of second quarter. We expected it may take a little time to gen up, but it's taking longer. We see the pipeline beginning to build, but the pace in which they are moving in the new regime is not quite at the pace we had expected early on. So, again, I don't want to overplay this one because it's really the difference between having about $1 million more of revenue in a quarter down there than anything. So on the scope of things, it's a small piece, but that is what will be necessary to turn that because the commercial side is not big enough to drive the growth without public. Joseph Gomes: Okay. Thanks for that. And then I understand there's very limited, I'll call it, if any at all, exposure to the federal government here. But are you seeing any secondary impacts from like the government shutdown on any of the areas, whether it would be state and local or the education market? Michael P. Connors: No, 0. In fact, I think our public sector was up in the U.S. almost 30% in the quarter, just to give you kind of a flavor and primarily because they are moving on -- they have a lot of -- they have a large older workforce. The technology is still pretty old. So using AI to assist them to move at more of an accelerated pace defined in the public sector as accelerated, has been a good thing. So nothing from the shutdown has impacted and it's reflected in our growth for the quarter of about 30%. Joseph Gomes: Okay. And then on the recurring revenues, I was just looking -- it looks like they were basically flat with what occurred in the second quarter, the same $28 million of revenue and about 45% of the overall. And just wondering, what do you think needs to happen to start seeing some of the faster growth on the recurring revenue side of the business? Michael P. Connors: Well, first, we think 9% is pretty good. So year-over-year is how we look at it mostly. So we were around [ $20 million ] -- Michael, $28 million, I think, for the quarter, and that was up 9%, Joe, from a year ago. So look, we feel very good, and we think that recurring revenue stream will -- we're probably sitting at about $100 million. And this year, we'll sit at about $110 million, I think, roughly when the year is out. That's just a quick estimate. And we expect that to be $120 million plus next year, to give you an indicator on where we're going. Joseph Gomes: Okay. Great. And just real quick, if I may, maybe can you give us a little update on the Martino acquisition and how that is progressing? Michael P. Connors: It's now almost fully integrated. It will be by the end of the year. We had a kickoff meeting the first week of September, taking our Italian business and theirs together, and we're very, very pleased with the leadership, Andreas Martino, who is the CEO now of our overall Italian business coming out of Martino. So that's pacing nicely. And we have some good, nice little recurring revenue stream there, and it's a nice little strategic add-on for us. So it's moving well. Operator: Your next question comes from the line of Gowshi Sri with Singular Research. Gowshihan Sriharan: Can you hear me? Michael P. Connors: Yes, sir. Gowshihan Sriharan: Finally, with so much boardroom focus on AI, are you sensing any increased effort from the traditional IT consultants or the hyperscalers to encroach on your advisory relationships? Michael P. Connors: I'm sorry, I didn't catch the last part, Gowshi? Gowshihan Sriharan: Are you sensing any increased competition from the traditional IT consultants or the hyperscalers on your advisory relationships? Michael P. Connors: No. From our standpoint, no. They are excellent relationship partners with us. I mean, most all of them, AWS and others, are clients of ours, but we do not run into them in a competitive standpoint for the work that we do. Gowshihan Sriharan: And in terms of AI business, how are the clients quantifying the ROI? And how much of that savings are you able to directly link back to a follow-on project? Michael P. Connors: Okay. Good question. I mean, I think a couple of things. I think most of the larger enterprises are prioritizing -- if I can say it this way, they're prioritizing profits a little bit over more aggressive growth. And because of that, they are looking at kind of how can they utilize AI and their delivery models to help with cost and risk. And in some cases they're focusing on data acquisition and engineering and governance of kind of the underlying systems that drive some of their business. So from our standpoint, I think we're seeing them wanting to try to scale and do it in a cost-effective way, utilizing a road map to start with, an AI road map, which we help them with and develop, and then begin to execute it at the pace that they're comfortable in doing so. So I think overall, optimization and using AI inside the large enterprises is still paramount. Of course, they want to use it to drive growth. But if they can get the cost from the -- if they can get the dollars from the optimization side, they either will take that to earnings per share or they move it over to their growth initiatives. And it's some combination of both depending on the industry, typically, on which they're operating in at the moment. Gowshihan Sriharan: Got you. And on the uncertainty around H-1B visa policies under the current administration, any impact of positive or negative on your competitive space or delays either from your side or on the client side? Michael Sherrick: Gowshi, it's Michael, and good question. Look, I think like anything, change in uncertainty creates opportunity for us, right? The changes that are taking place will no doubt require enterprises to rethink the staffing model and how they've negotiated with providers. And that just creates an opportunity for us for advisory, right? Obviously, we sit here with all the benchmarking and data to be able to share what can and can't be done from on-site versus offshore, et cetera. So I think it creates opportunity for us. It's still yet to be seen, because obviously, this is going to impact the incoming class, if you will, that's applied for this year, which wouldn't be until October that any of them would have landed in the U.S. But I think it can create opportunity for us as people have to rethink their models, and we'll be a part of that process. Operator: As I'm showing no further questions, I'll turn the call back to Mike Connors for his closing remarks. Michael P. Connors: Well, let me close by saying thank you to all our professionals worldwide for our continuing progress and for their collaboration and unwavering dedication to our clients and driving our long-term success. Our people have a passion for delivering the best advice and support and research to our clients as they continue their AI-powered transformations, and I could not be prouder of them. And thanks to all of you on the call for your continued support and confidence in our firm. Have a great rest of the day. Operator: This concludes today's teleconference. You may disconnect at any time.
Operator: Good morning. My name is Ludy, and I will be your conference operator today. At this time, I would like to welcome everyone to the Karyopharm Therapeutics Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] Please be advised that this call is being recorded at the company's request. I would now like to turn the call over to Brendan Strong, Senior Vice President, Investor Relations and Corporate Communications. Please go ahead. Brendan Strong: Good morning, and thank you all for joining us on today's conference call to discuss Karyopharm's third quarter 2025 financial results and recent company progress. We issued a press release this morning detailing our financial results for the third quarter of 2025. This release, along with a slide presentation that we will reference during our call today, is available on our website. For today's call, as seen on Slide 2, I'm joined by Richard, Reshma, Sohanya, and Lori, who will provide an update on our results for the third quarter of 2025 and discuss recent clinical developments. Before we begin our formal comments, I'll remind you that various remarks we will make today constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995, as outlined on Slide 3. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Form 10-Q or 10-K on file with the SEC and in other filings that we may make with the SEC in the future. Any forward-looking statements represent our views as of today only. While we may elect to update these forward-looking statements at some point in the future, we specifically disclaim any obligation to do so even if our views change. Therefore, you should not rely on these forward-looking statements as representing our views as of any later date. I'll now turn the call over to Richard. Please turn to Slide 4. Richard Paulson: Thank you, Brendan, and thank you all for joining us today for Karyopharm's Q3 2025 Earnings Call. As we turn to Slide 5, I'm pleased to share that this has been a very productive quarter for Karyopharm, one defined by meaningful clinical progress and strengthened financial flexibility that together set the stage for our next chapter of growth. In Q3, we completed enrollment in our Phase III SENTRY trial in frontline myelofibrosis, marking a pivotal moment for Karyopharm. SENTRY represents a significant opportunity to redefine the standard of care for patients with myelofibrosis through the combination of selinexor plus ruxolitinib as a potential all-oral treatment option. With top-line results expected in March, we believe this trial could establish a new paradigm for how myelofibrosis is treated and further validate the relevance of XPO1 inhibition in hematological malignancies. The power of XPO1 inhibition is multidimensional. It simultaneously targets multiple pathways that enable malignant cell growth and proliferation. Targeting these relevant pathways concurrently overcomes the limitations of targeted therapies, such as ruxolitinib, a JAK inhibitor that mostly delivers symptomatic benefits that many consider palliative. This unique and potentially foundational mechanism could establish XPO1 inhibition as a key mechanism in myelofibrosis with further potential across the broader MPN landscape. In October, we made significant progress in strengthening our financial foundation. Through comprehensive refinancing and capital restructuring, we secured approximately $100 million of financial flexibility and additional capital, extending our cash runway into the second quarter of 2026. Turning to our financial performance. Our profitable multi myeloma commercial organization provides a solid foundation on which to build. In the third quarter, we delivered total revenue of $44 million, an increase of 13% year-over-year, and U.S. net product revenue grew 8.5%, reaching $32 million. This growth reflects the continued strength of XPOVIO in multiple myeloma and the disciplined execution of our commercial and operational teams. Importantly, we delivered this level of growth while continuing to reduce expenses. As we look ahead, our recent financing enables us to continue with focus and conviction around 3 core priorities. First, advancing our late-stage clinical programs, SENTRY and EC-042, which we believe have the potential to be truly transformative for patients and the company. Second, driving continued growth across our XPOVIO franchise; and third, maintaining financial discipline as we execute on our strategy and position Karyopharm for sustained success. Taken together, these underscore the momentum and transformation underway at Karyopharm. We are executing with clarity and purpose as we advance our mission to pioneer innovative cancer therapies that can meaningfully improve the lives of patients and deliver long-term value for all our stakeholders. As our next major milestone is the top-line myelofibrosis data from SENTRY, we will focus much of today's discussion on the science supporting this program and the significant commercial opportunity ahead. Now I'd like to turn the call over to Reshma to review our science. Reshma Rangwala: Thank you, Richard. There is a substantial need to develop new treatment options for patients with myelofibrosis. As shown on Slide 7, this disease is heterogeneous and is defined by 4 hallmarks or defining features. These hallmarks include an enlarged spleen, abnormal blood cell production, bone marrow fibrosis, and constitutional symptoms. Furthermore, the median overall survival for intermediate to high-risk myelofibrosis patients is only 4 to 5 years. Lastly, JAK inhibitors are the only approved therapy for myelofibrosis. And while they may decrease symptom burden and lead to very modest spleen reduction, relevant JAK inhibitors, including ruxolitinib, the standard of care in frontline myelofibrosis, do not target all of the relevant pathways implicated in myelofibrosis, including NF-kappa beta, p53, and fibrosis-inducing pathways. As a result, treatment of frontline myelofibrosis patients with monotherapy JAK inhibitors do not adequately address the relevant drivers of pathogenesis in myelofibrosis. On Slide 8, our confidence in selinexor's potential in myelofibrosis is based upon a growing body of preclinical, nonclinical, translational and clinical efficacy and safety data sets. These data suggest XPO1 inhibition is a key mechanism that may facilitate potential synergy with ruxolitinib and other drugs relevant in myelofibrosis. This multi-targeted approach enables treatment of the underlying mechanisms that lead to myelofibrosis, and we believe may lead to meaningful efficacy across the key treatment drivers as well as a generally safe and manageable side effect profile. This is supported by our blinded safety data, which I will take you through in a few slides as well as our substantial safety database with selinexor, where approximately 30,000 patients have been treated in clinical trials and in the post-market setting. This underscores our confidence in the ongoing Phase III SENTRY trial. As seen on Slide 9, while JAK inhibitors directly inhibit the JAK-STAT pathways, multiple other pathways downstream of JAK-STAT support malignant clone proliferation and survival, bone marrow fibrosis, cytokine storms and proliferation of abnormal megakaryocytes. These pathways include NF-kappa beta, PI3-kinase, AKT/mTOR, and TGF-β, a multifaceted approach with dual XPO1 and JAK inhibition simultaneously target upstream and downstream effectors of the JAK-STAT pathway, ultimately enabling apoptosis or cell death of the malignant clones. Let's now focus on the key treatment drivers in myelofibrosis as seen on Slide 10, spleen reduction, symptom improvement and lower rates of Grade 3+ anemia. First, spleen volume reduction. As a reminder, note that only approximately 1/3 of patients achieved a spleen volume reduction of greater than 35% with ruxolitinib alone. In contrast, our Phase I data suggests that the combination could more than double the SVR35 rate at 79%. A substantial proportion of patients achieving an SVR35 is coupled with very encouraging durability, specifically a 100% duration of response as of the data cutoff. Second is symptom improvement. Data from this trial also showed an average 18.5-point improvement in absolute TSS at week 24, which suggests this combination could provide a meaningful improvement over the 11 to 14 points achieved by patients on ruxolitinib as observed in the Phase III MANIFEST-2 and TRANSFOR-1 trials. Third is lower rates of Grade 3+ anemia. The data that we presented in June at EHA from our Phase II 035 monotherapy trial showed lower rates of all grade and Grade 3+ anemia in myelofibrosis patients previously treated with JAK inhibitor therapies. Blinded safety data from the ongoing Phase III SENTRY study suggests a similar trend. Meaningful improvement of these treatment drivers requires disease modification or the elimination of the underlying mechanisms leading to development of an enlarged spleen constitutional symptoms and worsening cytopenias. Data observed from selinexor monotherapy studies in a pretreated myelofibrosis population as well as our Phase I combination data in JAK inhibitor-naive myelofibrosis suggest meaningful reductions in key cytokines that are critical to myelofibrosis pathogenesis, symptom development and anemia as well as improvements in bone marrow fibrosis, increases in erythroid progenitors and mutational burden. Turning to Slide 11. We are super excited that our Phase III SENTRY trial has completed enrollment with top line data expected in March 2026. The co-primary endpoints in SENTRY are SVR35 and absolute TSS, which are tested sequentially. As we have discussed before, it is important to reemphasize based upon learnings from other myelofibrosis trials that we believe we have optimized SENTRY for success. In alignment with the FDA, we changed the co-primary endpoint of TSS50 to absolute TSS and exclude the fatigue domain in the primary analysis of absolute TSS due to the ambiguity of patients' assessment of their fatigue. We are certainly not the first to exclude fatigue. In fact, both the pivotal trials that led to ruxolitinib and fedratinib approvals also excluded fatigue in their TSS50 analyses. Encouragingly, amongst approximately 350 patients enrolled in SENTRY, the mean baseline TSS, excluding fatigue is approximately 22.5. Note that the 21.9 that you will see in our ASH abstract today was preliminary data and before enrollment was completed. Our mean baseline of approximately 22.5 compares favorably to other comparable trials. Importantly, as you compare our number to other trials, please remember other Phase III trials may include fatigue in their baseline scores. How does the fatigue domain affect the score? Given that in the Phase III MANIFEST-2 trial, the average fatigue score at baseline was approximately 5 points. Our baseline score, if we included fatigue, would be approximately 5 points higher, which gives us confidence in the patient population that we have enrolled. Shifting back to our trial design, absolute TSS in the Phase III SENTRY trial will be analyzed using the mixed models repeated measure approach, or MMRM, which is viewed as a more sensitive and potentially more robust method by which to analyze absolute TSS. Now let's review the encouraging preliminary blinded aggregate safety data from this trial. As these are preliminary and blinded data, please keep in mind that this data may not be reflective of the trial's actual top line results. The data on Slide 12 are from the first 61 patients that enrolled in the Phase III portion of SENTRY that have now been followed for a median of over 12 months. These patients were included in the successfully passed futility analysis conducted in the beginning of the year. We have continued to track the safety events over time and took a snapshot of the blinded safety data from these 61 patients on July 1, 2025, which continue to look favorable. The most common TEAEs are provided for the first 61 patients randomized to the trial and include patients randomized to both the combination of selinexor plus ruxolitinib or ruxolitinib arms in a 2:1 ratio. Because these are blinded data, we do not know the rates by each arm. In an effort to improve comparability, we then took our analysis one step further. Knowing that the 61 patients were randomized 2:1, we used the historical data on ruxolitinib to extrapolate the preliminary safety data for the approximately 40 patients that received the combination, which is shown in the orange boxes in the middle of the slide. The number that I am most optimistic by is the extrapolated rate of Grade 3/4 anemia. At approximately 26%, the extrapolated rate of Grade 3/4 anemia for the combination is meaningfully lower than the 37% historically reported for ruxolitinib. Grade 3/4 thrombocytopenia rates are relatively similar, with 9% suggested for the combination treated patients compared with the approximately 6% reported for ruxolitinib alone. Finally, the extrapolated rate of treatment-emergent adverse events leading to discontinuation is only approximately 5% to 7% for the combination, lower than the 6% to 11% range that has been historically reported from ruxolitinib, which we view as an encouraging observation. We are very encouraged about these data and what it could mean for patients if we see something similar in the top-line results in the Phase III SENTRY trial. Specifically, it could suggest a combination therapy that has a safety profile similar, if not potentially better than standard of care ruxolitinib, given that both Grade 3 plus anemia and thrombocytopenia are similar, if not better, than ruxolitinib alone, could suggest decreased blood draws for the patient and reduced monitoring burdens for physicians and health care staff. As we await our Phase III data, it is informative to review a case study on Slide 13 that shows meaningful efficacy, overall tolerability, and the potential for disease modification. This patient is enrolled in the Phase I combination study of selinexor and ruxolitinib and has been on the study treatment for over 3.5 years. This 81-year-old female was diagnosed with myelofibrosis secondary to polycythemia vera. She initiated treatment with selinexor 60 milligrams in combination with ruxolitinib in March 2022. Her baseline spleen volume was 2,058 cubic centimeters for TSS without fatigue at baseline was 7, and variant allele frequency burden or VAF was 83%, meaning that 83% of her cells had a cancer-driving mutation. She achieved an SVR35 and TSS50 at week 24 and complete resolution of her symptoms by approximately week 52. Furthermore, her VAF levels decreased to 0, signifying eradication of the cancer-driving mutation. To this day, she still continues on therapy with minimal side effects, with more than 3.5 years on therapy. This patient exemplifies the potential a multi-pathway approach can deliver in a disease as complex as myelofibrosis. XPO1 inhibitors' unique ability to simultaneously target multiple relevant pathways suggest their foundational potential in all patients with MS as well as other myeloproliferative neoplasms. I will now turn the call to Sohanya. Sohanya Cheng: Thank you, Reshma. As shown on Slide 15, our commercial organization executed well this quarter within the highly competitive multiple myeloma market. XPOVIO net product revenue in Q3 grew 8.5% year-over-year to $32 million. Demand for XPOVIO was consistent year-over-year, with the community setting continuing to drive approximately 60% of total U.S. sales. XPOVIO is positioned in both the community and academic settings as a flexible therapy with a differentiated mechanism of action, oral convenient option, and increasingly used in the third line in patients before a T cell therapy or in patients who cannot access these complex therapies. Additionally, it is used in the fourth line plus setting once patients progress on a T cell therapy. Based on our results year-to-date, we are confident in our ability to deliver within our full year guidance range of $110 million to $120 million. Now turning to myelofibrosis outlined on Slide 17. We are excited to be working towards a potentially transformative commercial launch that we expect will redefine the way that frontline myelofibrosis patients are treated. Our conviction is driven by the high unmet need in myelofibrosis, combined with the fact that there has been no real innovation in the market beyond JAK inhibitors over the past 14 years. Ruxolitinib has been the standard of care for more than a decade and is being used in the vast majority of intermediate to high-risk patients, even though fewer than 35% of these patients achieve an SVR35. Physicians and patients want to see deep and durable reduction in spleen volume. And as Reshma discussed, the data from our Phase I trial highlights our potential in this area, with selinexor plus ruxolitinib helping more than twice as many patients achieving a spleen volume reduction of 35% or more. In addition, many patients experience constitutional symptoms and anemia, both of which negatively affect patient quality of life. And these are areas where we believe the selinexor plus ruxolitinib combination may make a meaningful difference. So, this presents us with a significant opportunity to improve upon the standard of care in combination with the market leader. Slide 18 provides an overview of our potential commercial opportunity. We have the opportunity to redefine the standard of care, expand the market, and lead with a new frontline combination therapy that may offer very differentiated results for patients. This isn't an incremental change in the treatment landscape. It is a potentially transformational change for patients. Here are some figures that help inform our view that selinexor's peak revenue opportunity could be up to approximately $1 billion annually in the U.S. If you look at the overall prevalent market, there are 20,000 patients living with myelofibrosis in the U.S., which represents a multibillion-dollar marketplace. As we look at the opportunity for patients that can benefit from selinexor plus ruxolitinib, there are approximately 4,000 newly diagnosed patients each year in the U.S. with intermediate to high-risk myelofibrosis that have a platelet count above 100,000. This is our target market. Most of these patients receive ruxolitinib today. 75% of U.S. physicians showed an intent to treat with combination therapy based on third-party market research. There is a clear appetite among physicians to evolve from a monotherapy to a combination treatment approach. Finally, the real-world duration of therapy for ruxolitinib is approximately 13 months. Our assumption is that the combination of selinexor plus ruxolitinib would be used for at least 13 months. Looking at all of this together, you will see that our peak revenue opportunity may approach $1 billion annually in the U.S. alone. As we prepare for potential commercialization, we have spent the past year speaking with leading KOLs at academic medical centers as well as community-based physicians and have received overwhelming support for the need to improve upon the current standard of care. Our position in the market, if approved, will be very clear and focused. If you're going to prescribe ruxolitinib to a patient with newly diagnosed myelofibrosis, prescribe selinexor plus ruxolitinib instead. Finally, our existing commercial capabilities are highly synergistic in myelofibrosis and prepare us for a rapid and successful launch, as shown on Slide 19. We have market access, a patient support hub, scientific and medical affairs, marketing, and a sales team with deep relationships with potential prescribers. In the academic setting, we already call on all the key institutions. In the community setting where a majority of newly diagnosed myelofibrosis patients are treated, there's approximately 80% overlap with our existing customer base. Pending positive data and subsequent regulatory approval, our commercial team will be ready to drive rapid and strong uptake as we bring this transformative therapy to patients. Now I'll turn the call over to Lori. Lori Macomber: Good morning, everyone, and thank you, Sohanya. Turning to our financials. Since we issued a press release earlier today with the full financial results, I will focus on the highlights and reviewing our guidance for 2025 on Slide 21. Total revenue for the third quarter of 2025 was $44 million, an increase of 13.4% compared to $38.8 million in the third quarter of 2024. U.S. XPOVIO net product revenue for the third quarter of 2025 was $32 million, an increase of 8.5% compared to $29.5 million in the third quarter of 2024. Gross to net provisions for XPOVIO were 27% in the third quarter, consistent with the second quarter of 2025 and down from 31% in the third quarter of 2024. We expect gross to net provisions to remain relatively consistent with the third quarter levels in the fourth quarter of 2025. License and other revenue was $12 million in the third quarter, up nearly 30% from third quarter of 2024, primarily driven by higher milestone revenue from our partner, Menarini. This included the final amount of revenue that we will record from Menarini related to the $15 million of annual R&D reimbursement. In the fourth quarter, our license and other revenue will primarily be royalty revenue since we do not expect to achieve any significant additional milestones in Q4 2025. Turning to expenses. We continue to be very disciplined in managing our operating expenses and prioritizing our pipeline investments, including additional cost reduction initiatives that we implemented in the third quarter. Research and development expenses for the third quarter of 2025 were $30.5 million, down 16% compared to $36.1 million in the third quarter of 2024. The decrease was primarily driven by lower clinical trial and related costs for selinexor in multiple myeloma, reflecting the reduced scope of our Phase III trial, as well as lower personnel and stock-based compensation expenses resulting from previously implemented cost reduction initiatives. Selling, general, and administrative expenses were $26.6 million for the quarter, down 4% compared to $27.6 million in the third quarter of 2024. The decrease was primarily attributable to the continued realization of our cost reduction initiatives. Taken together, our loss from operations improved by approximately 42% in the third quarter of 2025 compared to the third quarter of 2024. Interest expense was $11 million in the third quarter of 2025 compared to $11.4 million in the third quarter of 2024. Other expense was $7.4 million in the third quarter of 2025 compared to $3.8 million of other income in the third quarter 2024. This nonoperational item is primarily driven by reoccurring noncash fair value remeasurements of embedded derivatives and liability classified common stock warrants related to the refinancing transactions completed in the second quarter of 2024. We reported a net loss of $33.1 million or $3.82 per share on a GAAP basis. More than half of this loss is driven by below-the-line items, including interest expense, which is almost entirely noncash at this point and the $7.4 million of noncash mark-to-market adjustments that I just mentioned. Excluding these items, our underlying operating performance continues to show meaningful improvement. Finally, prior to the receipt of approximately $36 million of gross proceeds from the financing transactions that we announced in October, we ended the third quarter with $46.2 million in cash, cash equivalents, restricted cash and investments compared to $109.1 million as of December 31, 2024. On a pro forma basis, after deducting transaction-related expenses, we would have had approximately $78 million in cash. Importantly, from a cash perspective, our interest payments do not start again until June 2026, and our royalty payments do not begin again until the third quarter of 2026. Based on our current operating plans, our guidance for the full year 2025 is as follows: total revenue of $140 million to $155 million, consisting of U.S. XPOVIO net product revenue and license, royalty and milestone revenue expected to be earned from our partners, primarily Menarini and Antengene; U.S. XPOVIO net product revenue to be in the range of $110 million to $120 million. We are lowering our range of R&D and SG&A expenses to $235 million to $245 million, down from $240 million to $250 million. With the financing that we announced last month, we expect our existing liquidity, including the revenue we expect to generate from XPOVIO net product sales as well as revenue generated from our license agreements will be sufficient to fund our planned operations into the second quarter of 2026. I will now turn the call back to Richard for some final thoughts. Richard Paulson: Thank you, Lori. Before we close on Slide 23, I want to emphasize how far Karyopharm has come and where we're heading. This quarter reflects clear execution against our priorities and the progress we've made has positioned us to enter 2026 with confidence. With SENTRY enrollment complete, a strong commercial foundation and a reinforced balance sheet, we are focused squarely on what matters most, delivering 2 potentially transformative Phase III readouts that could reshape the future for patients with myelofibrosis and endometrial cancer. Our team's dedication, scientific rigor and focus on patients continue to drive everything we do. We believe the opportunities ahead are significant, and we are executing with purpose and discipline to realize them. Thank you for your continued support and confidence in Karyopharm. We look forward to updating you as we advance towards these important milestones. I would now like to ask the operator to open the call up to the Q&A portion of today's call. Operator? Operator: [Operator Instructions] Our first question comes from the line of Peter Lawson with Barclays. Peter Lawson: I guess first is just around the MF data that we're seeing March '26. If you could just kind of walk through what we should see if it's like SVR PFS and OS trends if that's going to be staged across other medical meetings in 2026. And then a follow-up question would just be around the size of the sales force. I know you've kind of talked about 80% overlap, but interested to see how many you would add or dedicate to MF and also the kind of the ex-U.S. strategy. Richard Paulson: Thanks, Peter. So maybe the first part, Peter, are you asking about when we plan to share the data post March? It wasn't quite clear the question in the first part. Peter Lawson: Just the level of detail we'd see in -- for MF, whether it's SVR, TSS, OS trends and then -- or if it's kind of spread across the year kind of thing. Richard Paulson: Sure. Yes, I'll turn to Reshma for that first part, and then I'll turn to Sohanya for the second part with regards to our commercial capabilities. Reshma Rangwala: Yes. Thanks, Peter. This is Reshma. So, the top line results, you're correct, expected more to 2026. I anticipate at this point, really just providing again sort of those top line details. So, you're correct, the primary endpoints of SVR35 at week 24, absolute TSS, potentially, right, some other secondary endpoints, including hemoglobin and/or disease modification. And then, of course, we'll touch upon safety. But we'll get granular as we get closer to that milestone. Sohanya Cheng: Peter, as far as the sales force, as you mentioned, very strong overlap, particularly in the community setting, of course, with our current organization. And in the academic setting, we already call on those accounts. So, we expect really minimal additions to our commercial structure. Our capabilities are already highly synergistic. As far as ex-U.S., we'll continue to work with our ex-U.S. partners to drive launches in each of the countries and additional royalty and milestone revenues globally. Operator: And your next question comes from the line of Ted Tenthoff with Piper Sandler. Edward Tenthoff: Congrats on all the progress both on the clinical side and financial side. Can you remind us, are there any milestones associated with data or warrants or things like that for the recent financial restructuring that could extend that capital beyond the second quarter? And are there any geographies where you don't currently have distributors in place for myelofibrosis? Richard Paulson: Thanks, Ted. Maybe on the first part, are you just asking about milestones from a financing perspective with regards to positive data? Or maybe just clarify that part of the question. Edward Tenthoff: Yes. So, milestones were there any warrants or anything like that, that could trigger to extend the June or the 2Q deadline. I was trying to remember back. Richard Paulson: From a pure warrant or financing perspective, no specific triggers with regards to positive MF data. Obviously, pending positive data, we think that will be a very, very strong inflection and value point for us. And on the second part with regards to our partnerships globally, no, we have well-established partners for selinexor globally. And as Sohanya mentioned, I think they're very excited and engaged and looking forward to positive data and moving forward with a registration strategy and commercialization strategy globally, which we would be able to do. With the exception, one market we still don't have partnered is Japan. That would be the only additional market we would look to partner with in the future moving forward. Operator: And your next question comes from the line of Colleen Kusy with Baird. Colleen Hanley: Congrats on all the progress. Hopeful for the baseline TSS number, 22.5%, I think you said, Reshma, quite a lot higher than what you had enrolled in the Phase I, I believe. And based on the data that you had at AACR in 2023, it actually looks like fairly similar response for TSS above and below 20, which could just be due to the small end, but just curious how you would expect that might impact the read-through from Phase I to the pivotal Phase III? And then I'll have a follow-up after. Reshma Rangwala: Yes. It's a great question, Colleen. I think we're very encouraged by how the baseline TSS is evolving. As you mentioned, 22.5%, approximately 22.5 in almost the full ITT. I think you're right. Sort of the Phase I, it's small. So, we're very encouraged by those numbers. Clearly, it suggests that absolute TSS as well as TSS50 can be achieved with the combination relative to historical ruxolitinib data. I think what we were trying to accomplish in the Phase III was to drive that baseline TSS without fatigue as high as possible. And so again, very encouraged with that 22.5%, especially as I compare it to other contemporary trials in which that 22.5 likely is higher than even those. So, it really suggests that we could see a potentially meaningful improvement for absolute TSS with our combination versus ruxolitinib alone. Colleen Hanley: That's super helpful. And then in that same AACR update, it looks like there was some variability in response for platelet count above and below 200,000, which again could just be driven by small end. But curious if you have the baseline platelet count and what your kind of thoughts are on the activity based on platelet count. Reshma Rangwala: Yes. We're seeing more than half of the patients with baseline platelet counts above 200 which again is what I would expect. There's nothing biological or mechanistic that would suggest that platelet count is a key variable that would impact the overall SVR35 rate or even the absolute PSS. So again, it's a number we're watching. It's a baseline characteristic that I think is very consistent with other Phase III trials. In general, that variable as well as all of the other variables are in line with what we would expect and again, very encouraged with how this patient population is enrolled and who they represent across the frontline myelofibrosis population. Operator: And your next question comes from the line of Maurice Raycroft with Jefferies. Maurice Raycroft: Congrats on the progress. So, ASH abstracts are coming out pretty soon. Just confirming, it sounds like your Phase III baseline data is going to be at ASH. Can you talk more about what's in the abstract and then what is going to be at the conference? Reshma Rangwala: Yes. Thanks for the question, Maurice. So, the ASH, so it's going to be an abstract only. We're not going to present an additional poster. So, any additional data in the full ITT is going to be presented with the top line results in March of 2026. So, when the data come out in about 20 minutes, really, what you're going to see is just the baseline characteristics amongst 320 patients. So, this is a subset. These were the available patients at the time of the data cutoff. And as I mentioned on my prepared remarks as well as with some of the questions today, just very encouraged with how that patient population has evolved and again, very consistent with what we would expect. Maurice Raycroft: And maybe as a follow-up, for the slightly lower treatment-emergent adverse events leading to discontinuation for the 61 patients in the blinded safety review. Can you comment on whether that rate is mostly in line with what you're seeing for the full study? I guess, any additional perspective there that you could share? Reshma Rangwala: Yes, great question. So, one of the things that I'm very encouraged by is that we've followed these 61 patients and taken a snapshot across their AE summary, including their treatment discontinuation rates as well as the specific AEs as well as a couple of Grade 3 plus AEs. And what I'm encouraged by, again, is that despite whether we look at a 7-month median follow-up or even a 12-month median follow-up, rates, including treatment-emergent discontinuation rates are remarkably stable, right? So, it really suggests that a majority of the events, including discontinuations potentially are occurring early, and we don't continue to see this accumulation as the patients are followed over time. Now what the top line results are going to show, we'll see at the top of the -- at the time that we report the top line results, but again, very encouraged by how the 61 patients are evolving. Operator: Your next question comes from the line of Brian Abrahams with RBC Capital Markets. Brian Abrahams: Congrats on all the progress. I wanted to drill down a little bit more on some of the market research findings, in particular, the high 75% intent to treat with the combo in frontline MF. I'm curious if you could talk a little bit more about sort of the types of patients that you're hearing physicians would try on a combo. Ruxolitinib initially, whether or not some of the payer feedback maybe you've been getting the early payer feedback has been aligned with what you're hearing from physicians in terms of the degree of frontline use. And then with the space expected to evolve and more targeted treatments like mccarls and more targeted JAKs, what impact do you think that might have on the way selinexor is ultimately positioned should it be successful in Phase III? Richard Paulson: Yes. Thanks, Brian. Maybe I'll start kind of with the second part of your question, and I'll turn it over to Sohanya to talk to. I think broadly, in myelofibrosis, as you know and as Sohanya talked about, there's been really no new innovation in the front line, only JAK inhibition in myelofibrosis. So, there's significant opportunity across the whole space to improve outcomes for patients and to bring new innovation to patients, which is exactly what we're focused on. We're bringing a novel MOA such as selinexor and XPO1 inhibition, which we think can have a really meaningful benefit to patients. And when we look across the space again, I think the data we've shown, as we've talked about, we've been working on myelofibrosis for over 7-plus years. Reshma talked about the breadth of our data and showing impact as a monotherapy and obviously, as a combination. And I think what we're excited about, obviously, is to work to deliver that positive Phase III trial and then to continue expanding in MPNs as well as with selinexor, with eltanexor, our novel second-generation XPO1 inhibitor and a whole suite of XPO1 inhibitors that we have, which we think may be able to have an impact across a broad range of MPNs. With regards to the CALR, we need to wait. We haven't seen any data in myelofibrosis. So again, I think there's a lot of opportunity for innovation and improvement. And what we're excited about again is in the very near-term to read out a potentially positive trial in a combination with such an impact for patients. And I'll let Sohanya talk to that because that's really what our market research indicates when we talk about the 75% intent to prescribe that combination therapy upfront for treatment-naive patients. Sohanya Cheng: Thanks, Richard. Just to kind of add a little bit more to that. The target patient in the market research would be the newly diagnosed intermediate to high-risk patient with greater than 100,000 platelets. And the market research kind of just a little bit of background was comprised of both community and academic physicians. The proportions were in line with what we've seen in real world, the majority community physicians that are treating newly diagnosed myelofibrosis patients. So, the value proposition for selinexor is very simple, clear and focused. If a prescriber is already prescribing or planning to prescribe rux alone for a newly diagnosed myelofibrosis patient upon approval, they will then just do a seli plus rux combination. So, we are not competing with ruxolitinib, which is the standard of care go-to treatment for our target patient population. We're simply an addition with ruxolitinib, the current market leader. As we look at the sort of payer environment, we don't anticipate any kind of pushback with the payers. And generally, as Richard pointed out, there really has been little innovation beyond the JAK inhibitors. So, there's a tremendous appetite to move these physicians from a monotherapy to a combination treatment approach. Operator: And our last question will come from Jonathan Chang with Leerink. Jonathan Chang: Just regarding the commercial potential launch in myelofibrosis, can you discuss any relevant learnings from the multi myeloma experience? Richard Paulson: Yes. I think broadly, Jonathan, the learnings from our multi myeloma experience really have been built in into the trial design, where in multi myeloma came to the marketplace, as you know, at a much higher dose at 80 milligrams twice weekly or 160 milligrams. And what we've learned over the past number of years is the importance and the ability to use selinexor at a lower dose. And we've obviously built that in with our trial now being at 60 milligrams once weekly. And we've also learned the importance of the dual antiemetics to use for the first couple of cycles as patients initiate therapy on XPO1 inhibition. We know that the nausea is transient and gets better over time. So, we've seen both those learnings over our multiple myeloma experience. We've built that in already to the design of the trial. And so, I think moving forward and what we've seen already and what Reshma has shared in the blinded safety data is really the benefit to patients, the benefit overall to the tolerability profile. And as we saw from the very low TAE discontinuations, the benefit for patients. And I think the case study Reshma talked to with the patient on the combination for over 3.5 years and so benefiting really talks to the outcomes for patients from those learnings we've built in. So, we feel very positive about the learnings we've built in and the potential to transform outcomes for myelofibrosis patients in the front line. Reshma Rangwala: Yes. I would add that the kind of biggest differentiating point between the 2 landscapes is the degree of competition. Myeloma, highly competitive with overlapping competitors across classes, very different situation in myelofibrosis, really little to no innovation beyond the JAK inhibitors. Also, I would say the myelofibrosis space is primed to be what the myeloma space was over a decade ago. Over a decade ago in myeloma, they were using monotherapies and then evolving to doublets. That is the level of transformation, I think we're about to see in myelofibrosis. The second point is given that we have established a commercial organization that has worked very closely with community physicians who will be the majority of prescribers for the newly diagnosed patients, there's a high degree of synergy, and we expect to launch rapidly with myelofibrosis. Operator: And that concludes today's question-and-answer session. I would like to turn it back to Richard Paulson for closing remarks. Richard Paulson: Thank you, operator, and thank you to everyone again for joining us on today's call. As you can tell, we are very excited about our prospects to redefine the current standard of care for the majority of frontline myelofibrosis patients. We look forward to sharing top line data with you in March and pending future regulatory approvals, our organization is well prepared to rapidly deliver on the commercial opportunity. Once again, thanks for joining today. Operator: Thank you. And ladies and gentlemen, this concludes today's conference call. Thank you all for joining. You may now disconnect.
Operator: Welcome to BioNTech's Third Quarter 2025 Earnings Call. I will now hand the call over to Doug Maffei, Vice President, Strategy and Investor Relations. Please go ahead. Douglas Maffei: Thank you, operator. Good morning and good afternoon, everybody, and thank you for joining BioNTech's Third Quarter 2025 Earnings Call. As a reminder, the slides we'll use during the call and the corresponding press release can be found in the Investors section of our website. On the next slide, you will see our forward-looking statement disclaimer. Additional information about these statements and other risks are described in our filings with the U.S. Securities and Exchange Commission, or SEC. Forward-looking statements on this call are subject to significant risks and uncertainties and speak only as of the date of this conference call. We undertake no obligation to update or revise any of these statements. On Slide 3, you can find the agenda for today's call. I'm joined by the following members of BioNTech's management team: Ugur Sahin, Chief Executive Officer and Co-Founder; Ozlem Tureci, Chief Medical Officer and Co-Founder; and Ramon Zapata, Chief Financial Officer. With this, I'll hand the call over to Ugur. Ugur Sahin: Thank you, Doug, and warm welcome to you all as you join us today. As BioNTech has grown, our vision has remained constant, namely translating science into survival. We are building a global immunotherapy powerhouse, a fully integrated biopharmaceutical company with the science, scale, capabilities and the aim to deliver multiple approved therapies and reach patients in need. Cancer remains a systems problem, heterogeneous across patients and variable within individual tumors. We believe the future lies in rationally designed combinations, pairing potent and precise mechanism of action that create biological synergies. To this aim, we have purpose built a diversified clinical pipeline spanning mRNA immunotherapies, next-generation immunomodulators, ADCs and other targeted agents that enable development of potent, personalized precision medicines and novel-novel combinations across solid tumors. Our goal is to address the full continuum of cancer from resected high-risk tumors in the adjuvant setting to advanced and metastatic disease to treatment-resistant and refractory cancer. Our strategy concentrates capital on 2 priority pan-tumor programs that are designed to anchor various combinations. One is Pumitamig, formerly BNT327, a PD-L1 VEGF-A bispecific that unites checkpoint inhibition with vascular normalization in 1 molecule. We believe Pumitamig is particularly suited as a next-generation IO backbone to combine with chemo ADC and other immunomodulators. The other is mRNA cancer immunotherapy that is designed to activate and educate the immune system with precision. Our mRNA cancer immunotherapies have advanced in randomized late-stage trials with focus on the adjuvant setting. Both approaches have disruptive potential and align with our vision. We believe these programs could establish new standards of care and improve survival outcomes. Together, these programs provide breadth, optionality and scalable registrational path across solid tumors. We are investing deliberately scaling clinical development, building manufacturing that ranges from personalized to large-scale production and preparing for commercialization in key markets to reach patients in need. Now turning to how our achievements in the quarter relate to our vision and strategy. We see Pumitamig as a potential standard of care across diverse tumor types, spanning settings already treated with checkpoint inhibitors and those where checkpoint inhibitors have not demonstrated benefit. With our partner, BMS, we are executing a broad registrational program. This quarter, we made significant progress in advancing Pumitamig, taking concrete steps towards our registrational plan. In Q3, we progressed enrollment in 2 global registrational trials in lung cancer and remain on track to initiate the TNBC Phase III this year. This keeps us aligned with our target of first potential launches before the end of the decade. Across the portfolio, more than a dozen signal-seeking studies progressed. Either with chemo backbones to expand into additional indications or at novel-novel combinations with BioNTech proprietory assets. Importantly, we advanced clinical mono agent profiling of potential combination partners, helping to derisk dose, schedule and safety assumptions for future registrational design. These steps, including Phase III recruitment momentum, initiation of new combination cohorts and deeper combination partner characterization are all about informing the next wave of our registrational trials planned with BMS from now onwards. Turning to our mRNA cancer immunotherapy platform. In October, we presented Phase II trial updates for BNT111, our fixed candidate in anti-PD-1 resistant refractory melanoma and for Autogene cevumeran, our fully personalized mRNA cancer immunotherapy in first-line treatment of metastatic melanoma. Our data reinforces our view that adjuvant settings, where tumor burden is low and immune control is most effective represents, where mRNA immunotherapy can deliver the most significant benefit to patients. Ozlem will share details on how this readout sharpening our development focus. This quarter, we hosted our second AI Day. It underscores that we are not only pioneers in new pharmaceutical technologies, but a fully integrated AI-tech bio company with AI tools that enable discovery and development of innovative medicines. We showcased AI-based approaches designed to convert complex dimensions of data diversity into personalized therapy development. We demonstrated 2 distinct strengths of our AI capabilities, addressing inter-patient heterogeneity and intra-tumor variability and driving precision and potency in our treatment approaches. With regard to our COVID-19 vaccine franchise, which is partnered with Pfizer, we successfully launched our variant adapted vaccine for the current season following regulatory approval. With these launches in major markets and with a strong balance sheet, over EUR 16 billion in total cash, equivalents and securities, we have the resources and the flexibility to fund the oncology transition, while maintaining a disciplined P&L. Simply put, we are transforming scientific advances into late-stage programs in our priority oncology program across indications. In parallel, we are building the capabilities and the financial strength to translate positive data rapidly into market opportunities and most importantly, into patient benefit. With that, I will hand over to Ozlem to discuss our clinical execution and near-term data readouts. Özlem Türeci: Thank you, Ugur. I'm glad to be speaking with everyone today. I'll start with a top line status of the programs that are heading our pipeline before moving to specifics. Firstly, with our PD-L1 VEGF-A bispecific antibody Pumitamig, we are executing a broad registrational program in partnership with Bristol-Myers Squibb. Second, for our mRNA cancer immunotherapies, we have recently provided 2 Phase II updates that support and inform our current development strategy. And third, for Trastuzumab-Pamirtecan or TPAM, our HER2-targeted ADC known previously as BNT323 that we developed with our partner, Duality, we continue to progress towards first BLA submission now planned for 2026, subject to regulatory feedback. We are evaluating TPAM as a monotherapy into a randomized Phase III trials, 1 in metastatic endometrial cancer and 1 in breast cancer. For both studies, we expect data in 2026. We have also initiated a signal-seeking trial evaluating the novel combination of TPAM with Pumitamig. For Pumitamig, let me recap the clinical development framework, our refined 3 wave plan that we are pursuing with our partner, BMS. Wave 1 aims to establish Pumitamig in 3 foundational first-line indications, small cell lung cancer, non-small cell lung cancer and triple-negative breast cancer through global registrational Phase III trials. Wave 2 and 3 aim to expand the opportunity of Pumetamic by amplifying its differentiation, and we do this in 2 dimensions: first, through signal-seeking studies in combination with standard of care across tumors that inform our indication strategy and prioritization; and second, through novel-novel combinations, notably with our ADCs that enhance efficacy. We have delivered tangible progress on all these 3 waves in Q3. Regarding Wave 1, in small cell lung cancer, the global Phase III is recruiting and the Phase III dose is locked based on the dose optimization data set with a safety profile consistent with known PD-L1 VEGF chemo experience. In non-small cell lung cancer, the Phase II part of the seamless Phase II/III trial achieved full enrollment and the Phase III portion is recruiting. In TNBC, we remain on track to initiate the global Phase III this year, targeting the PD-L1 low segment, where unmet need is highest. This slide shows additional studies. These are supportive studies for dose finding, setting refinement and regional programs that contribute to the body of evidence supporting our 3 foundational global Phase IIIs. Wave 2 serves as our expansion engine. We now have more than a dozen chemo-based signal-seeking studies across tumor types and lines of therapy. In Q3, we opened new cohorts and continue to mature data sets that will feed into our pivotal planning. This helps to ensure that the next registrational wave is evidence-led and prioritized by benefit risk profiles, patient population size, well-informed study design and commercial opportunity alongside other key factors in our decision matrix. Spearheading this next round of pivotal trials, we are initiating 2 trials in partnership with BMS with registrational intent for Pumitamig in combination with chemotherapy in first-line microsatellite stable colorectal cancer and first-line gastric cancer. Wave 3 elevates the potential of Pumitamig through novel-novel combinations to maximize its clinical impact, reinforce class differentiation and set up a multiyear pathway to sustain the value and the longevity of the drug into the new decade. Here, several combo cohorts of Pumitamig with our ADCs or other novel compounds are already enrolling and have gained momentum in Q3. Initial data over the next year will inform decision-making for our first pivotal combinational regimen. In parallel, we are continuing mono-agent profiling of potential combination partners to set clear baseline for dose safety and sequence. Taken together, Q3 was a quarter of strong clinical execution that strengthened our registrational core, widened our expansion engine and advanced the novel-novel combination rationale that we believe will further distinguish and elevate Pumitamig over time. Let me now highlight 2 Q3 focal points. First, our first-line small-cell lung cancer registrational program and why the recent updates are catalytic. And second, our advances in mono agent profiling for refining our combination strategy. Small cell lung cancer remains a challenging immunologically cold disease in which responses to immune checkpoint therapy tend to be short-lived, resulting in modest gains over chemotherapy alone and low long-term survival. Over the last 18 months, we have built a cohesive evidence base across multiple Phase II studies in first- and second-line small cell lung cancer initially in China and now globally, showing encouraging activity and a manageable safety profile. This quarter, at WCLC, we reported the first global data from our Phase II dose optimization study in untreated extensive-stage small cell lung cancer, evaluating 2 dose levels of Pumitamig plus chemotherapy. All patients irrespective of dose had disease control at 20 mg per kg we observed a confirmed objective response rate of 85% and a median progression-free survival of 6.3 months. 30 mg per kg yielded a confirmed objective response rate of 66% and a median PFS of 7 months. Median overall survival data were not yet mature. Safety remained consistent and manageable with low discontinuation and no new signals beyond those typically seen with chemo and PD-L1 VEGF agents. 2 points are worth emphasizing. First, dose clarity, which is a critical derisking step for any registrational program. The global dose optimization readout allowed us to lock the Phase III regimen at 20 mg per kg every 3 weeks. Second, consistent performance across regions. Earlier China data sets in first-line extensive stage small cell lung cancer showed robust activity and manageable safety. The global Q3 data are consistent with those findings, which further strengthens our confidence in Pumitamig's benefit across patient populations and practice patterns. Together, these results support our ongoing global Phase III ROSETTA LUNG-01 trial, which compares Pumitamig plus chemotherapy against atezolizumab plus chemotherapy in untreated small cell lung cancer. In parallel, in China, we continue with second-line randomized Phase III trial of Pumetamic plus chemo versus chemo alone. This quarter, we expanded our Pumetamic small cell lung cancer program to include novel-novel testing, and we launched signal-seeking studies of Pumetamic plus our B7H3 ADC, BNT324 in both first- and second-line small cell lung cancer. As Phase III readouts and Phase I/II ADC combination data sets mature, we will be increasingly well positioned to select and advance additional regimens designed to establish long-standing presence in small cell lung cancer. This brings me to our strategy for advancing combinations of Pumetamic with other novel agents, one of our key differentiation approaches. The cornerstone is establishing mono agent evidence of activity, durability and safety before we decide to pair with Pumetamic. For our B7H3 ADC, BNT324, our mono agent database has expanded significantly over the last 12 months. B7-H3's broad expression profile aligns well with Pumitamig's expand tumor opportunity. In small cell lung cancer, BNT324 as monotherapy achieved an objective response rate of 56% with deep tumor shrinkage across the waterfall, an unusually strong single-agent signal in this setting. In non-small cell lung cancer, activity was observed in both squamous and non-squamous disease, including an EGFR mutant subset with an objective response rate of 21%. In heavily pretreated metastatic castration-resistant prostate cancer, we observed meaningful tumor shrinkage with BNT324 and a durable radiographic progression-free survival with a manageable safety profile. Recently at ESMO, we reported data for our TROP2 ADC, BNT325 in second-line plus TNBC with an objective response rate around 35%, disease control rate of roughly 81% and median progression-free survival of about 5.5 months. Also in Q3 for our HER2 ADC T-PAM, we saw a substantial expansion of the monotherapy data base by the DYNASTY-Breast02 Phase III trial, our partner DualityBio conducts in China that met its primary endpoint of PFS improvement versus trastuzumab emtansine in pretreated patients with HER2-positive un-resectable or metastatic breast cancer. T-PAM is another promising combination partner with the potential to expand Pumitamig's therapeutic reach into the HER2-expressing tumor spectrum. Taken together, these data provide a clear monotherapy baseline and help us set the bar for add-on benefit from Pumitamig plus ADC combinations. Across these programs, the mechanistic rationale is consistent. VEGF-A blockade can normalize vasculature to improve ADC delivery, while PD-L1 inhibition can convert ADC-mediated cytotoxicity and antigen release into a broader durable immune response, aiming for deeper debulking plus immune control. These represent complementary mechanisms that single agents cannot engage simultaneously. So operationally, we made 2 key advances in Q3, continued mono-agent profiling to refine dose and sequence and codification of our add-on benefit threshold and expansion of Pumitamig plus ADC cohorts across prioritized settings. Of note, our go/no-go decision-making process is driven by a holistic evaluation that goes beyond efficacy signals and safety profiles. We strategically assess market opportunity, unmet needs, competitive dynamics and weigh other key factors to ensure every decision aligns with our mission to deliver transformative benefit for patients. Moving now to our second oncology cornerstone, mRNA cancer immunotherapy. iNeST is individually manufactured per patient to target personal neoantigens. The biology and our clinical experience point to greatest relevance in earlier disease settings, where lower tumor burden allow the immune system to consolidate control. Our ongoing randomized Phase II trials are designed to test that premise in a rigorous way. Off-the-shelf FixVac that includes BNT111 for melanoma, BNT113 for HPV16 positive head and neck cancer and BNT116 for non-small cell lung cancer targets shared antigens and is intended to pair with checkpoint inhibitors and increasingly our next-gen backbones. We continue to advance execution and evidence generation across multiple tumor settings, while keeping optionality around where and how FixVac is best positioned longer term. This quarter at WCLC, we presented results for BNT116 plus cemiplimab as consolidation treatment in unresectable Stage III non-small cell lung cancer. We also presented data at ESMO from 2 randomized Phase II trials in melanoma, 1 with BNT111 FixVac and the other for Autogene cevumeran iNeST. I will briefly walk you through the melanoma readouts and their implications. Starting with BNT111 FixVac in the high medical need population of patients who had relapsed or not responded to PD-1 treatment. The Phase II study evaluated BNT111 plus cemiplimab against a historical control objective response rate of 10% reported for anti-PD-1 treatment in this setting. The study included 2 calibrator monotherapy cohorts to characterize the safety of each agent and its activity on objective response rate. The objective of this design was signal characterization, not cross-arm efficacy claims. In the monotherapy cohorts on progression addition of the second agent was permitted. More than half of the patients in each arm opted for this addition, after a median duration of [ IVA ] monotherapy treatment of around 4 months. The study met its prespecified primary endpoint by rejecting the null hypothesis of an ORR of 10% with statistical significance. The ORR of the combination was 18%, including deep and durable responses. Notably, 2/3 of the responses were complete responses, supporting the depth of activity. Follow-up showed a positive impact on long-term survival. 37% of patients were still alive after 24 months, 21% were free of tumor progression. Safety was manageable, driven largely by expected mostly grade 1, 2 cytokine-related events consistent with the mRNA platform. BNT111 monotherapy also demonstrated objective responses and a consistent safety profile. Taken together, these results support that BNT111 is active in this difficult post-IO setting and provide us useful footing to guide setting selection and optimal combinations going forward. Turning to iNeST. The data presented at ESMO come from our randomized Phase II trial evaluating Autogene cevumeran in combination with pembrolizumab versus pembrolizumab alone in first-line metastatic advanced melanoma. As previously disclosed, the trial did not meet the primary endpoint of a statistically significant improvement in progression-free survival. That said, we observed a numerical trend favoring the combination and overall survival. In the combination arm, 12 months overall survival was 88% and 24 months overall survival was 74% compared to 71% and 63% in the pembrolizumab arm, respectively. Of note, crossover was allowed and patients randomized to pembrolizumab received the combination at progression. For the overall survival analysis, those patients remain in their originally assigned arm, which can dilute the observed treatment effect over time. We observed robust neoantigen-specific T-cell responses in the majority of evaluable patients with multi-epitope breadth and persistence of T-cell clones well beyond induction, indicating that the mRNA therapy is mediating the intended biological activity that we want to achieve. The translational readouts give us 3 actionable insights. First, T cell response breadth correlates with activity. Within the combination arm, patients who mounted a broader neoantigen-specific T-cell response experienced longer progression-free survival, supporting our ongoing efforts to maximize antigen breadth and to target early and low tumor burden disease with still proficient immune cell priming capacity. Second, immune cell PD-L1 matters. We saw a trend of improved overall survival for the combination in tumors, where immune cell PD-L1 was high, while tumor cell PD-L1 did not discriminate overall survival in this data set, supporting that low tumor cell PD-L1 should not exclude tumor types from vaccine PD-1 strategies. Third, signal in IO-insensitive biology. There was a trend of improved overall survival with the combination in tumor mutational burden low patients. Precisely the population that typically gains less from IO. This is consistent with the concept that the vaccine can supply immunogenic targets, when endogenous mutation load is limited and further encourages development in settings such as pancreatic cancer and MSS colorectal cancer with low tumor mutational burden and unresponsiveness to IO. Altogether, these mechanistic insights support our ongoing randomized Phase II trials, both the specific indications we have chosen, which is colorectal, pancreatic and bladder cancer as well as our focus on the adjuvant setting, where tumor burden and heterogeneity is lowest and T-cell proficiency is still high. Now looking ahead, what comes next? We will continue to generate and present new clinical data across our oncology pipeline, data that directly steer late-stage decisions. For Pumitamig, we will share early data from our TNBC program in December, including from our dose optimization cohorts, which are central to defining the Phase III regimen. From our ADC platform, we expect additional monotherapy updates from BNT324 in cervical cancer and platinum-resistant ovarian cancer, from BNT325 in TNBC and from BNT326 in HER2-null and low hormone receptor positive breast cancer. These studies explore indications defined dose and sequence guardrails and set the add-on benefit bar for Pumitamig's novel-novel combinations. For the randomized Phase II trial evaluating Autogene Cevumeran monotherapy treatment versus watchful waiting in adjuvant ctDNA-positive Stage II high-risk or Stage III colorectal cancer, we expect an interim update in early 2026. The efficacy evaluation of the primary endpoint of disease-free survival is projected for the end of 2026, when the data set will have reached the intended maturity. Then later this year, we plan to present data together with our partner, Onco C4 from the nonregistrational first part of the ongoing global Phase III trial evaluating our anti-CTLA-4 antibody, Gotisrobart versus chemotherapy as a second-line treatment for squamous non-small cell lung cancer. Overall, these upcoming data points advance the same theme. Evidence-led prioritization by establishing dose finding and mono ADC baselines to further refine Pumitamig registrational path and leverage randomized setting-specific readouts to position our mRNA immune therapies where they are most likely to succeed. With that, I will now turn the presentation over to our CFO, Ramon Zapata, for the financial update. Ramón Zapata-Gomez: Thank you, Ozlem, and a warm welcome to everyone who has joined today's call. I will begin by reviewing our financial results for the 3 months ended September 30, 2025. Note that all figures are in euros unless otherwise specified. The total revenues reported for the period were EUR 1.519 billion, an increase from the same quarter in 2024, which was EUR 1.245 billion. This increase was mainly driven by the recognition of USD 700 million as part of the BMS collaboration in the third quarter of 2025. For context, in total, we expect to receive USD 3.5 billion in upfront and noncontingent cash payments from BMS between 2025 and 2028. We expect to recognize this as revenue in increments annually over the development phase of Pumitamig. For the third quarter 2025, we reflected USD 700 million in our revenues. Moving to cost of sales. This amounted to approximately EUR 148 million for the third quarter of 2025 compared to approximately EUR 179 million for the same period last year, driven by lower inventory write-downs. Research and development expenses were approximately EUR 565 million for the third quarter of 2025, compared to approximately EUR 550 million for the same period last year. R&D expenses were mainly driven by the initiation of late-stage trials for our immunomodulators and ADC programs and partly offset by cost savings resulting from active portfolio management towards our priority programs. SG&A expenses amounted to approximately EUR 148 million in the third quarter of 2025 compared to EUR 150 million for the same period last year. The decrease was mainly driven by lower external costs, partially compensated by our ongoing commercial build-out. Our other operating results amounted to approximately negative EUR 705 million in the third quarter of 2025 compared to approximately negative EUR 355 million for the same period last year. Our other operating results for the third quarter of 2025 was primarily influenced by the settlement of a contractual dispute. For the third quarter of 2025, we reported a net loss of EUR 29 million compared to a net income of EUR 198 million for the comparative prior-year period. This was mainly driven by the effect of settlement disputes. Our basic and diluted loss per share for the third quarter of 2025 was EUR 0.12 compared to basic earnings per share of EUR 0.82 and diluted earnings per share of EUR 0.81 for the comparative prior-year period. At the end of the third quarter of 2025, our cash, cash equivalents and security investments totaled EUR 16.7 billion, including the USD 1.5 billion upfront payment received from BMS. Our strong financial position empowers continued investments in our late-stage priority programs and preparations for commercialization of our diversified oncology portfolio. Turning to the next slide. We are updating the company's financial guidance for the 2025 financial year. Our previously issued revenue guidance range for 2025 was $1.7 billion to $2.2 billion. And today, we are increasing it to $2.6 billion to $2.8 billion. This is mainly driven by the recognition of USD 700 million from our BMS collaboration. Further guidance considerations, such as those related to our COVID-19 vaccine business, including inventory write-downs from COVID-19 vaccine sales in Pfizer's territories as well as expected revenues from the pandemic preparedness contract with the German government and revenues from our service businesses remain unchanged. Turning to expenses. We are lowering our prior 2025 financial year R&D expense guidance by EUR 600 million to a new range of EUR 2 billion to EUR 2.2 billion. This updated guidance reflects our active portfolio management that has enabled significant R&D efficiencies. As part of that, we follow a rigorous go/no-go decision-making across all development stages as part of the prioritization efforts. This allows us to focus on the programs in our portfolio, which we believe represents the largest opportunities. Consistent with our commitment to disciplined and sustainable growth, we are also improving our full-year guidance for SG&A and capital expenditure for operating activities. We are reducing our full year SG&A expense guidance by $100 million to a range of $550 million to $650 million as a result of ongoing cost optimization initiatives. We are also reducing our full-year guidance for capital expenditures for operating activities to a range of $200 million to $250 million to better reflect our targeted investment in manufacturing. Aligned with our disclosures earlier in the year, we expect to report a loss for the 2025 financial year as we continue to invest in our transition to become a fully integrated commercial oncology company. As Ugur outlined, we continue to focus on executing our strategy around 2 pan-tumor product opportunities, Pumitamig and our mRNA cancer immunotherapies. We currently have multiple ongoing Phase II and III trials across these programs, reflecting our strategy to bring novel combinations to patients. We expect to generate additional meaningful data for these programs in the months ahead. As we advance, we will continue to maintain rigorous financial discipline and remain focused on achieving long-term sustainable growth. Before concluding, I would like to invite you to watch our annual Innovation Series R&D Day event on November 11. During the R&D Day, we plan to provide a deeper dive into our oncology strategy, including plans for Pumitamig and our mRNA immunotherapy candidate. Thank you for your ongoing support and interest as we continue to create value for cancer patients, society and shareholders. With that, we would like to open the floor for questions. Operator: [Operator Instructions] We will now take our first question. From the line of Tazeen Ahmad from Bank of America Securities. Tazeen Ahmad: I wanted to get a sense about how you're thinking about the market opportunity for MSS CRC and first-line gastric cancer. Can you just talk about how your product can be particularly differentiated from what's currently used? Douglas Maffei: Tazeen, thank you for the question. We lost your audio there a little bit. Could you just -- sorry, could you just repeat that question? I just want to make sure we get it correct. Tazeen Ahmad: I wanted to ask a question about the market opportunity for MSS CRC and for first-line gastric. I wanted to get a sense of how you think about the opportunity relative to the competition? Douglas Maffei: Thank you, Tazeen. We got it this time. So that was a question about how we think about the CRC first-line opportunity in gastric and how it compares to the competitive field. So Ozlem, would you like to take that question? Özlem Türeci: Yes, I can take that question. Both indications as CRC and gastric first-line are still high medical need indications. And we think that the combination of VEGF-A and PD-L1 blocking from a biology point of view, has a rationale for development and has the potential of improving the clinical benefit for these patient populations. Operator: We will now take the next question from the line of Terence Flynn from Morgan Stanley. Terence Flynn: I had 1 question and then 1 just clarification. So for BNT323, was just wondering, if you can share any more color on the delay in the BLA filing in terms of the gating factor here? And then on the new R&D guidance, just want to clarify that, that reflects the assumption of some of the BNT327 expenses by Bristol-Myers and that, that was the driver of the change here, if there's other prioritizations that fed into this? Douglas Maffei: Yes. Okay. Thank you, Terence. So 2 clarifications in there. So maybe if we do the R&D guidance first, and I'll direct that one to Ramon. And then Ozlem, I'll direct the BNT323 BLA progress question to you after that. Ramón Zapata-Gomez: Thank you for the question, Terence. I would say that the lower guidance on R&D is not about reducing spending on BNT327. We are updating this guidance to reflect the lower R&D expenses for the year. The reduction is mainly driven by the phasing of certain programs and a deliberate focus on our key strategic priorities, meaning BNT327 as you rightly mentioned. We demonstrate disciplined portfolio management, but I would say it's too early to say whether this represents a structural shift. Depending on the pace of our late-stage programs, including the expanded efforts on Pumitamig, R&D spending will remain at similar levels or increase again next year. I think what really matters is that we continue to allocate resources with focus and flexibility to maximize long-term value and support our key strategic priorities and programs. Douglas Maffei: And Ozlem, would you now like to take BNT323? Özlem Türeci: I can take the second question, Terence. The reason why we -- originally, we guided towards end of '25 for BNT323 BLA submission. This moves now into '26 because we have continued discussions and conversations with the FDA to further understand additional data needs and are generating this information. The plan is still to submit in '26. And in '26, we will also get for this program data from our ongoing breast cancer study. Operator: We will now take the next question from the line of Daina Graybosch from Leerink Partners. Daina Graybosch: Thank you for the question. I have a question on the overall strategy with Pumitamig of Establish and Elevate as 2 steps. And why you're taking that approach versus in some indications doing them simultaneously let's say, in multi-arm Phase III studies with ADC combos and Pumitamig on top of traditional standard-of-care chemo to leapfrog, particularly where you have some early data with the ADC in an indication and the competition is fierce. Douglas Maffei: Thank you, Daina, for that question. So that's a question about our strategy for Pumitamig and the various stages, the various steps to our strategy with Establish and Elevate. So I'll direct that question to Ozlem. Özlem Türeci: You are actually right. We have this 3-wave strategy, Establish, Expand, Elevate. And even though we call it 3 waves these are activities, which are going on in parallel. We have a certain focus on the chemo combination or combinations with standard-of-care because these studies can be simply started much faster, and we have a focus on speed to be really first to market in certain indications. However, there is data generation in combination studies ongoing in these indications with our ADCs, for example, and will come very soon also following this established waves. Operator: We will now take the next question from the line of Asad Haider from Goldman Sachs. Nick Jennings: This is Nick Jennings on for Asad and the Goldman team. Given that the BNT327 Phase III trial in triple-negative breast cancer is initiating this year, could you provide any insight as to what we can expect to see in the Phase II details coming up at SABCS. And is there any new information we can expect that provides additional confidence in the Phase III success? Douglas Maffei: Thank you, Nick, for that question. It's a good one. So just to recap that from Pumitamig the Phase III triple-negative breast cancer, which is initiating and Ozlem, the specific question is whether we can provide any additional details on the Phase II results that we'll be presenting SABCS. Özlem Türeci: So we will present some more efficacy data, safety data and also dose data. Operator: We will now take the next question from the line of Akash Tewari from Jefferies. Manoj Eradath: This is Manoj for Akash. Just 1 question. So we recently saw HARMONi-3 trial in first line and the CLC making some changes to look at primary PFS and OS statistical analysis separately for squamous and non-squamous populations. So considering these changes, do you still think ROSETTA-02 trial in BNT327 plus chemo is sufficiently powered for PFS and OS endpoints in the Phase III portion. Will there be any trial change, any trial-design changes based on these new information? Douglas Maffei: So it's a little hard to hear some of the details on that, but I heard you talking about HARMONi-3 and whether that may have any read-through or effect on the way that we're conducting our trials for Pumitamig. So I'll direct that question to Ozlem. Özlem Türeci: Yes, we are constantly with upcoming new data, reevaluating our statistical analysis plans for ongoing trials, and we'll also look into this specific trial. Operator: We will now take the next question from the line of Yaron Werber from TD Cowen. Yaron Werber: Great. And I had a quick follow-up for Ozlem on BNT323. Just that the need to generate more data to support filing, can you be -- maybe a little bit more explicit? Do you need to generate -- it sounds like you're going to have more data, as you noted, in breast cancer next year. And so is the thought to then file for breast cancer next year. And what was the feedback for endometrial cancer? And do you still plan to file for that? Or maybe just give us better clarity. Özlem Türeci: Yes, maybe I was misleading for the endometrial cancer discussions with FDA, have nothing to do with the ongoing breast cancer study. It's not about generating new data. It's about follow-up data and further analysis. So that pushes the time line a bit into '26, but does not change our submission strategy and our plans for BNT323 overall. Yaron Werber: Okay. And that's for breast cancer. And then what about endometrial cancer? What's the plan there? Özlem Türeci: No, no, no. Endometrial cancer is our first submission. This is what we said all along. Originally, it was planned for '25. We -- this is pushed out to '26 because, as I said, we are in discussions with -- it's in pre-BLA discussions with the FDA and providing further data breast cancer, the breast cancer study, Phase III study is ongoing, will readout later in 2026. Operator: We will now take the next question from the line of Mohit Bansal from Wells Fargo. Mohit Bansal: So again, a question on VEGF PD-1. One key comment we get from KOLs or experts is that with these bispecifics, it does look like that they are better VEGF inhibitors, but it doesn't look like that the PD-1 is -- the component is better. So I mean, how do you think about that? And in the context of these -- this bispecific showing an OS benefit in lung cancer trials, how important it is for PD-1 to be better at this point, given that -- we are seeing good PFS benefit, but OS is kind of on border line. So I would like to get your thoughts on that. Douglas Maffei: Thank you, Mohit. So a question generally around how much confidence we or others have in the bispecific class. And you mentioned that VEGF binding is maybe better, but PD-1, you're saying maybe not as good in bispecifics. And specifically, that OS benefit in lung. So direct that question to -- Ozlem? Ugur Sahin: I can start and Ozlem can take the second part. Is it okay, Ozlem. Özlem Türeci: Yes, sure, please. Go ahead. Ugur Sahin: Yes. Let's start with our confidence. Our confidence is increasing into this drug class. And the confidence is not based on better VEGF better PD-L1s, but what the antibody really does as a bispecific molecule and we are seeing now that this is getting more and more clinical data that this is not only called on PFS, but also have an impact in OS. And maybe, Ozlem, if you would like to add mechanistic understanding how that could also be helpful. Özlem Türeci: Yes. Mechanistically, in principle, our preclinical data, and that was also part of develop of -- preclinical development and selection process for this antibody shows that blocking of PD-1, PD-L1 pathway, as well as the VEGF-A blocking in the respective preclinical settings is robust and it's not inferior to what you would see with the individual antibodies. Having said that, we also think that the fact that we have a PD-L1, not a PD-1 arm here as an additional elements to the mode of action, namely targeting of this molecule into the tumor micro environment. And this, again, is a very good condition to amplify both on the PD-1, PD-L1 side, but also on the VEGF receptor signaling side all the effects on economical and non-economical effects of these 2 targets. So this is the preclinical piece and mode of action piece, but the clinical data has to -- to tell the truth from the data we have across tumor indications. This is not yet Phase III data. We are very confident that the activity has PFS effect in certain important indications and also duration of progression-free survival starts to look good. Operator: We will now take the next question from the line of [indiscernible] from BMO. Malcolm Hoffman: This is actually Malcolm Hoffman for Evan from BMO. Thinking about the guidance range for this quarter, could you quantify how much of this reflects the relatively stronger quarter for COVID versus just general updates for the BMS collaboration and U.K. government agreements. I know you mentioned most of this was tied to the collaboration, but I was curious, if there were any minor changes on the COVID front would be helpful to think about the relative contributions there. I appreciate it. Ramón Zapata-Gomez: Thank you, Malcolm. So let us talk a little bit about the revenues. And I will refer to your COVID-19 question, but I also think it would be helpful for the audience to understand that bit of the BMS revenue. So on COVID-19. So for COVID-19, we continue to see a stable position with a strong market share and stable pricing. U.S. vaccination rates are roughly 20%, which is in line with what we had anticipated. We have always assumed lower volumes versus last year. So overall, the business is performing within our expectations for the year. While the broader market remains uncertain, we continue to lean on our strengths like strong brand recognition, reliable supply and rapid variant adaptation, and we do expect to close the year in line with our outlook. Now if we talk about the BMS revenues, the updated revenue guidance mainly reflects the collaboration with BMS, as you rightly point out. And under this agreement, we will receive a total of USD 3.5 billion in upfront and on continuing cash payments between 2025 and 2028. While the timing of cash inflows and revenue recognition deferred revenues will be recognized in broadly equal amounts over the next 3 years, with the remaining balance recognized together with a final payment in 2028. This will provide a clear and predictable contribution over the next several years. Operator: We will now take the next question from the line of Joshua Chazaro from Evercore ISI. Mario Joshua Chazaro Cortes: This is Josh on for Cory Kasimov. On your and your partner's decision to push Pumitamig into gastric cancer, did you see compelling clinical data, not sure if this is presented or not? Or is this push into this new indication based off your understanding of the mechanism of action? Douglas Maffei: Thanks, Josh, for that question. So it was a question about Pumitamig and our announced decision to move into gastric cancer, what was that based on? Have we seen any data that we can speak to that support that decision. So Ugur, would you like to take that question? Ugur Sahin: Yes. We have emerging data for Pumitamig in gastric cancer and as an indication, which -- for which checkpoint blockade is approved. It's an indication that we have seen responses in combination with chemotherapy and an indication where we see based on the data that we've got in other GI indications. A clear room for improving over standard of care. Özlem Türeci: And also the mechanistic rationale that anti-angiogenic and PD-1 targeting approaches are validated approaches in gastric. Operator: We will now take the final question from the line of Jay Olson from Oppenheimer. Jay Olson: We're curious about your collaboration with Bristol-Myers Squibb. And can you talk about the governance structure and which party makes the decisions for new trials and who leads the new clinical trials when you initiate them? Douglas Maffei: Yes. Okay. Thank you, Jay. Thanks for that question. It's an interesting one about how our collaboration with BMS works mechanically. I can't say that word. So Ozlem, I'll pass that over to you, who makes decisions for [ Auriga ], who makes decisions on clinical development. Özlem Türeci: But it's a classical approach with multiple collaborative arms. We have a JSC in which we discussed all the indications so far or indicate all decisions that are made are based from interest of both partners, but both partners have the opportunity to do combination trials with their products. Yes, regardless whether the other partner is interested to join directly or not. So we have a lot of flexibility in this collaboration aiming really to do all kind of studies and to exploit the pipeline of the other partner as exhausted as possible. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.
Operator: Good day and thank you for joining us. Welcome to ECARX's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, today's conference call is being recorded. I would now like to turn the call over to your host for today's call, Rene Du, Head of Investor Relations at ECARX. Please proceed, Rene. Rene Du: Good morning and welcome to ECARX Third Quarter 2025 Earnings Conference Call. With me today from ECARX are our Chairman and Chief Executive Officer, Ziyu Shen; Chief Operating Officer, Peter Cirino; and Chief Financial Officer, Phil Zhou. Following their prepared remarks, they will all be available to answer your questions. Before we start, I would like to refer you to our forward-looking statements at the bottom of our earnings press release, which will also apply to this call. Further information on specific risk factors that could cause actual results to differ materially can be found in our filings with the SEC. In addition, this call will include discussions of certain non-GAAP financial measures. A reconciliation of the non-GAAP financial measures to the GAAP financial measures can also be found at the bottom of our earnings release. With that, I'd like to hand the call over to Ziyu. Please go ahead. Ziyu Shen: Thank you, Rene. Hello, everyone, and thank you for joining us today. Building on the strong momentum from the first half of year, quarter 3 delivered several significant milestones that demonstrate the continued progress we are making in laying a sustainable foundation for future growth. We successfully achieved EBITDA breakeven per our guidance in quarter 2 and recorded EBITDA of USD 8.3 million. Even more notably, we became net profitable for the first time achieving breakeven with net profit of USD 0.9 million. Our move to profitability was supported by a recovery in gross margin, enhanced R&D efficiency and ongoing optimization of operating expenses. This all reflected the strength and the effectiveness of our lean operating strategy. Revenue grew by 11% year-over-year and 41% quarter-over-quarter nudging USD 219.9 million. Gross profit was USD 47.6 million, up 39% year-over-year, lifting gross margin to 22%. This growth was fueled by the successful launch of multiple vehicle models incorporating our solutions and a recovery in average selling prices and by strong demand across our portfolio. Our Pikes computing platform built on the Qualcomm 8295 Snapdragon chipset is our latest solution to begin mass production and was a key contributor to our strong performance during the quarter as we began scaling up production. With a growing global project pipeline and expanding partnerships, we are on the trajectory to drive this strong momentum into next quarter and 2026 where we will maintain profitability in quarter 4 and achieve double-digit revenue growth in 2025 and beyond. Shipments reached in quarter 3 to approximately 667,000 units, up 51% year-over-year and 26% quarter-to-quarter and shipments of our Antora series reached a record high of 196,000 units. The increased deliveries of Antora series is a key driver of our success in achieving profitability in our future growth. We expect our vertical integration capabilities will further improve profitability as shipments of Antora family account for a larger percentage of total shipments. By the end of September, approximately 10 million vehicles on the road globally incorporated ECARX technology, a testament to our delivery at scale and the trust we have earned from automakers worldwide. The breadth of our global partnerships with automakers continues to amplify the unique value proposition we offer as a core technology provider. More vehicles integrated with our solutions are hitting the road and driving strong sales growth such as Geely's best selling models: the Xinyuan, Xinyao 8 and flagship [ Gas MI ]. We also continue to unlock new growth opportunities from existing partnerships. Building on the momentum from our initial project win last quarter with one of Chinese Top 5 automakers, we secured a second project. We will work with a local partner to integrate our solution into a new model expected to launch next year. Additionally, we secured a new project win with another Chinese automaker for its upcoming MPV model. Most importantly, we continue to make meaningful breakthroughs globally, securing a second project recently with a leading European automaker that will add another USD 400 million in lifetime revenue to our pipeline. This brings total contracted lifetime revenue from global automakers across Europe and Americas to over USD 2.5 billion. This win reflects growing trust in our solutions and is paving the way for deeper strategic collaboration going forward. Our technological leadership is in software-defined vehicle with the full stack capabilities of Cloudpeak and the integration of Google Automotive Service into Antora platforms provide significant value to global automakers allowing them to cut gas certification time by over 50% to just 8 months. These wins demonstrate the rapid capability and scalability of our core technologies across diversified platforms and geographies, allowing us to follow stronger partnerships and drive significant commercial value. This underscores how our flexible software-defined solutions and platform strategy effectively address the evolving needs of leading automakers worldwide. Furthermore, our capabilities to rapidly integrate Google Automotive Service combined with our intelligent manufacturing infrastructure provide us a powerful competitive advantage. These strengths enable us to both accelerate time to market and efficiently scale up on a global level. Our quarter 3 results clearly demonstrate the strength and momentum we are building through operational discipline, a robust project pipeline, a strengthened global presence and continued investments in technology and infrastructure. We have delivered on our commitment to achieving EBITDA breakeven and becoming profitable. Moreover, the raising up to USD 150 million in convertible notes last week reflects the strong confidence investors have in our strategy and execution as we enter new phase of growth. The offering involves a 0 coupon amortized installment structure and an initial conversion price set at a 15% premium to the reference share price at issuance. This additional capital will provide ample liquidity to fuel our international expansion, drive forward new product innovation and explore potential M&A opportunity globally. With this support and the solid foundation led with a profitable quarter 3, we are confident this momentum will carry into the fourth quarter. We are now focused on finishing the year strong and driving growth in 2026 and beyond. I will now pass the call over to Peter, who will go through the operating results of the quarter in more detail. Peter W. Cirino: Thank you, Ziyu. Good morning, everyone. In Q3 we made strong progress executing our strategic priorities by expanding our global footprint, deepening key partnerships, advancing technology leadership and mass producing new solutions. This disciplined execution is strengthening our foundation and positioning us for sustainable growth. During Q3, we shipped approximately 667,000 units bringing the cumulative number of vehicles equipped with ECARX technologies to approximately 10 million units, a significant milestone highlighting the growing size of our installed base and a direct reflection of the reliability of our solutions. To date, we proudly serve 18 OEMs across 28 brands worldwide. Our global expansion remains a core focus and in Q3 we engaged extensively with automakers around the world. We are increasingly receiving positive feedback and broader interest in our solutions from both new and existing partners. Following last quarter's first project win with a Top 5 Chinese automaker, we secured a second project for their next model. We will codevelop this with a local partner with an expected launch in early 2026. We also secured a project with another Chinese automaker for its upcoming MPV model. Internationally, we've also won a second project with a leading European automaker highlighting the growing trust in our intelligent cockpit solutions globally. Overall, with our deepening focus on global automakers, we have a growing pipeline of programs identified in Europe and the Americas, representing more than $2.5 billion in total lifetime revenue spanning almost all major carmakers in Europe and the Americas. We are excited about the future program wins, which will come from this substantial pipeline. As a core technology partner, our brand's market presence and ability to redefine in-vehicle user experience were validated by several vehicle launches this quarter. Following the successful global launch of the Volvo EX30 across more than 100 countries in 2023, Volvo has integrated the Antora 1000 Pro computing platform and Cloudpeak cross-domain software stack into their XC70 hybrid midsized luxury SUV, which launched in August. The Volvo XC70 is the first model to feature Volvo's SMA super hybrid architecture. We collaborate closely with them on every aspect of its design and development, including hardware, system architecture, operating systems, HMI, application ecosystem, functional safety, information security and quality control. Our Pikes computing platform and Cloudpeak cross-domain software stack are having a significant impact on the market. The next generation AI cockpit experience they deliver transforms cockpits from feature-centric to intelligent-centric environments. The Lincoln Code 10 EMP launch early in the quarter was the first model to integrate this advanced solution and set new industry benchmarks for AI-powered intelligent cockpits. Building on this, the platform was rapidly replicated in Lincoln Codes 07 and 08 EMP models further demonstrating its strong scalability and versatility. The Geely Galaxy M9 global launch further highlights how these integrated solutions are driving sales for our partners with orders exceeding 40,000 units within 24 hours of presales openings. Together, these pivotal vehicle launches exemplify how our solutions can accelerate time to market for automakers and redefine the intelligent cockpit experience. These platforms are fully compatible with Flyme Auto and Google Automotive Services ecosystems, highlighting our commitment to driving innovation and adaptability across multiple vehicle segments and markets worldwide. We continued to strengthen our technology leadership in Q3 as we executed on our R&D road map. The Antora 1000 Pro received Automotive SPICE 4.0 capability Level 3 certification, the highest rating under the standard, a testament to our relentless focus on R&D, quality control and process maturity. Certifications of this kind are prerequisites for collaborations with leading automakers and our growing portfolio validates the strength of our global R&D system and establishes a platform for us to support large-scale global mandates such as the ongoing project with Volkswagen Group providing solutions for their vehicles around the world. This certification platform will be pivotal in driving the next phase of our global expansion and meeting the increasingly strict compliance requirements of global automakers. We are making significant progress using our Cloudpeak software stack to deliver intelligent cockpit and in-vehicle AI at scale. This innovative software stack integrates AI agents, generative UIs and an AI operating system. These unique solutions offer drivers an intuitive and adaptive in-vehicle experience. Paired with Flyme Auto 2, they connect AI models to cross-domain vehicle functions transforming cockpits from feature-centric to intelligence-centric experience. This unique value proposition our software stack offers is driving interest and creating opportunities with European automakers. As we continue to advance our R&D road map, our IP portfolio is growing as well with 730 registered patents and 835 patent pending applications worldwide as of September 30. This expanding IP foundation reflects our commitment to fostering innovation, protecting our technology assets and maintaining a competitive edge across key technology domains. In summary, the operational and technological milestones achieved in Q3 highlight the disciplined execution and innovation leadership that underpin our growth trajectory. Through ongoing investments in R&D, expanding market presence and strategic partnerships; we are well positioned to capitalize on accelerating industry trends. Importantly, as Ziyu mentioned, this quarter marks a significant step forward in our journey towards sustainable profitability and we are confident this momentum will carry into Q4. With that, I will now turn the call over to Phil, who will review our financial results. Phil Zhou: Thank you, Peter, and hello, everyone. Through disciplined execution of our strategic initiatives, we achieved a remarkable financial progress this quarter reaching operating income and net profit breakeven for the very first time. This milestone marks a major step forward on our path towards long-term profitability. Total revenue for the quarter landed at USD 220 million, up 11% year-over-year. Sales of goods revenue was USD 182 million, an 11% year-over-year increase. The growth was primarily driven by a double-digit increase of customer demand partially offset by strategic price adjustments aligned with our product portfolio strategy. Our in-house development strategy continued to generate strong results. Antora, Venado and the Skyland platforms contributed 56% of total sales of goods revenue with combined revenue doubling from 2024 quarter 3. Meanwhile, our newest computing platform, Pikes, successfully entered mass production and accounted for 9% of total sales of goods revenue. Fueled by these solutions, quarter 3 average selling price improved by 9% compared to the previous quarter. Software license revenue decreased 92% year-over-year to USD 0.9 million. This decline resulted from reduced per vehicle software license revenue and lower intellectual property license revenue. In the same period last year, intellectual property license brought in USD 5.5 million revenue. Service revenue reached USD 37 million, up 68% year-over-year mainly driven by higher number and value of design and development service contracts as well as growth in overseas connectivity service revenue. Gross profit was USD 48 million, up 39% year-over-year with a gross margin percentage of 22%, representing a 4% improvement from the prior year period and 11% improvement from the previous quarter. The strong recovery reflected higher hardware margin from our product transformation and increased service revenue mix. Our commitment to OpEx optimization continued to deliver strong results. Operating expenses decreased by 42% year-over-year to USD 44 million driven by enhanced operational efficiency and a sharper focus on strategic R&D investments. As a result, operating income turned positive at USD 3 million and net profit at USD 0.9 million. Adjusted EBITDA reached USD 8 million, a significant improvement from loss of USD 32 million in the same period last year. This was primarily attributable to higher gross profit and a lower level of operating expenses. Moving on to our balance sheet. As of quarter end, we had USD 50 million cash and restricted cash. To further enhance our liquidity position, we remain focused on strengthening working capital management and improving profitability. In summary, our third quarter financial results mark a pivotal turning point for the company reflecting strong strategy execution, disciplined operations and a firm commitment to sustainable growth. As we move into the fourth quarter, we will continue this strong momentum and maintain solid execution to drive scalable and profitable growth on a consistent basis. That concludes our remarks today. Operator: [Operator Instructions] Our first question comes from the line of Wei Huang from Deutsche Bank. Huang Wei: Congratulations on a very strong 3Q results. My first question is regarding your guidance for 4Q. You have previously guided second half volume to around 1.4 million to 1.5 million units. Is that still the same? Phil Zhou: This is Phil. I'm happy to address your question. So your question is regarding our fourth quarter volume. Okay. So in quarter 3, as we just reported, we delivered 670,000 hardware units, a 51% year-over-year growth. This is phenomenal and we will keep strong momentum in Q4 for sure. And everybody knows that Q4 is the peak season and we see both volume and revenue will reach historical highs. We will execute to maintain penetration rate in our key customers and keep a strong growth rate. So this is the answer to your question regarding the volume. Huang Wei: Okay. My second question is looking ahead into 2026, there are concerns that the overall industry is going to be weaker due to weakening government policy support and some pull forward demand into the fourth quarter. Do you expect a much weaker first quarter next year? Do you have a guidance for us for volume, revenue and profitability for 2026? Phil Zhou: Yes. Q1 is normally the traditional low season within a year because the industry has a pattern. However, our disciplined execution of our product strategy like the rapid growth from our Antora families and the newly launched platform Pikes will carry on and will offset the low seasonality impact. And in quarter 3 and even in quarter 4, we will keep building enough backlog as much as possible and we will get ready for early delivery in Q1 to mitigate the so-called low seasonality. And we are also in 2026 financial planning season and according to our latest outlook projection, our customers' pipeline maybe also will further [indiscernible] growth in 2026. So what we need to do is just maintain our discipline, maintain our shares in those customers and focus on execution. Then we should be able to deliver relatively okay outlook in 2026 Q1. And meanwhile, as Peter just mentioned, we are expanding our global progress aggressively and we have lots of pipeline in our hands and we're also expanding our partnership with the global players. And now we are on track to realize the accelerated growth from those overseas business as well and software is one of the key, right? The software collaboration with the global customers, global OEMs is also one of our key growth drivers. So we will maintain the profitability momentum not only in Q4 this year, but kind of it will repeat in '26 and beyond. Huang Wei: And my last question is regarding the overseas OEM business win that you just brought up. So I think during the last quarter call, you talked about you have 4 overseas project wins that totaled $1 billion in lifetime value and in 3Q, this has jumped to $2.5 billion. Can you maybe give us an update on how many new projects that you have won during the third quarter? Peter W. Cirino: Yes. Mr. Huang, this is Peter Cirino. Maybe I'll take that question. I think as we reflect on our business, I think our fundamental belief as we look to grow ECARX into the European and the global marketplace was that we would be able to provide advanced technology solutions in the China market and then be in a unique position to scale those globally and work with all the European OEMs and bring that same industry-leading technology into the global marketplace. And I think we definitely see that fundamental belief coming to reality now. We've opened up a significant number of projects, as we mentioned, given the size of our pipeline with a number of different carmakers globally. Many of these carmakers in their high volume segments are starting to feel a lot of pressure as Chinese OEMs come to their domestic market and they're seeking new solutions that are industry-leading and very cost competitive. And I think ECARX is in a fantastic position to deliver those great solutions to those customers. So we mentioned another high volume win with a large European automaker that we secured this quarter. We have a very solid pipeline of both software and hardware -- software and full solution opportunities with both hardware and software in them. So I think our pipeline is definitely growing substantially and we'll be able to demonstrate I think significant wins as we go through 2026. Operator: Our next question comes from the line of Danlin Ren from CICC. Danlin Ren: This is Danlin Ren from CICC auto team speaking. Congratulations on your great results. And I have some follow-up questions for you. My first question is we are glad to see that we have won multiple orders from Geely Galaxy with sales ramping up quickly. Could you please elaborate on your production capacity planning and corresponding CapEx road map to support this growth? Peter W. Cirino: Danlin, thank you for the question. We are continuing to scale our smart factory in the Fuyang, Hangzhou area to support all of our business in China. We've established that facility and continue to ramp it up as we've progressed throughout this year and we expect that to continue to ramp next year. So our capacity is at about 1 million units, which has more than doubled since last year and we will continue to grow our China facility for our China business. Globally, we're working with a number of manufacturing partners to expand in South Asia, in South America and in Europe to continue to support our supply chain needs in the global market and we expect to continue to scale those businesses as our global business expands as well. Danlin Ren: My second question is regarding your product lines based on several platforms. Could you provide updates on your ASP and gross margin levels, respectively, for your number one, your Qualcomm platforms? Phil Zhou: Danlin, this is Phil. I'm happy to address your question regarding the ASP. Actually we launched several computing platform covering from entry level mainstream to high end market segment and the different solutions are addressing different market segment demand and we also manage the product mix selling according to customer demand. So basically the average selling price covers from RMB 2,000 to even RMB 4,000. That is RMB 2,000 to RMB 4,000 so that's the range. And from a hardware margin perspective, we are able to maintain something like a double digit 10% to 15%. That is our execution level. And I'd like to offer you more information like we always like to launch new platforms to the market to support customer demand. For example in quarter 3, we successfully launched our Pikes solution, which is Qualcomm 8295, and that is to support Galaxy M9 and Galaxy M10. And that also contributed to our ASP uplift in quarter 3 and that is a 9% improvement sequentially, as I mentioned earlier, and this momentum will continue and we have full confidence in our hardware margin mechanism. Danlin Ren: Very clear. And my last question is as the trend of integrating cockpit large models into vehicles continues to strengthen, could you share the company's strategic layout of R&D progress in this space? Peter W. Cirino: Yes, sure. Danlin, thank you for the question. So for sure, ECARX has a full stack solution to support AI integration into vehicles. We're continuing to deploy solutions in China for China such as our DeepSeek integration to support an AI experience inside the vehicle. Additionally, we are building out our ECARX AutoGPT as a framework to provide end-to-end solutions for LLMs inside of vehicles and that's been launched in the Geely M9 and other vehicles this quarter like the Lincoln Code vehicles I mentioned earlier. Additionally, we are continuing to work with our global partners on similar developments for the European market and the Americas. At CES this year, we're quite excited to present our next-generation solution with AI integrated into the vehicle cockpit domain as well. Operator: Our next question comes from the line of Elizabelle Pang from DBS. Huijun Pang: Okay. First of all, congratulations on the very strong third quarter results. A couple of questions from me around the gross margins. I understand we've discussed a little bit about the improvement in the gross margins earlier, but I would like to have more elaboration on that front. So firstly, we've seen that hardware margins have improved to 15%, which is up from 10% in the last quarter and also 9% last year. May I understand more information, the driving factors behind this hardware gross margin increase? Is this related to the mass production of the Pikes computing platform and do higher end Qualcomm products typically command higher margins? And following up, last question on this margin, would this margin be sustainable going into the fourth quarter and also next year? So this is my first question. Phil Zhou: To address your question regarding the margin performance in quarter 3. Yes, you are right. In the quarter, we executed pretty successfully in terms of the #1 portfolio selling. In quarter 3, we booked services revenue from many programs and which further pushed up our revenue mix from services and our margin as well and that is #1 strategy we implemented. The second thing is that we are able to manage our upstream supply chain cost pretty well. In the quarter, we managed to realize a decent cost down of our cost optimization through commercial negotiation and the VAV strategy as well and that is also beneficial for our gross margin improvement in hardware. And moving forward into Q4 and even in next year, I think the momentum will continue. And the strategy is working and we will further manage the hardware portfolio selling as well as the services software selling as well as the supply chain cost management. Huijun Pang: That's very clear. And may I just ask another follow-up question on the shipment. I'd like to understand more about the shipment mix specifically within ADAS. I would like to understand a little bit more how has the Skyland domain controller product sales performed in this quarter and in the recent quarter? And what is our outlook for the future ADAS domain controller shipment growth going forward? Phil Zhou: Peter, go ahead. Peter W. Cirino: Elizabelle, I was just going to say certainly the Skyland product has continued to grow. I think we're on a handful of vehicles in the Geely platform and continue to deploy to a few others as well. We also see a significant trend around fusion inside of the vehicle domain. So we're working very aggressively on deploying on our Antora platform as well as a next-generation platform as well a fusion solution that we'll bring into vehicles, which utilizes the capabilities that we've built with Skyland around ADAS as well as our cockpit solutions to provide a very cost-effective and advanced solution in vehicle to a number of different projects as we go forward. So I think we'll see that continue to develop as we go into next year and hopefully begin shipment in late '26, early '27. Operator: [Operator Instructions] Our next question comes from the line of Nora Min from UBS. Nora Min: This is Nora from UBS. I have 2 quick questions for Mr. Ziyu Shen. So my first question is among your current order intake, what percentage is from overseas and how fast do you expect this number to increase in the next several years? And the second question is do you intend to enter into new business initiatives such as humanoid robot, et cetera? And what is your latest progress on LiDAR product development? Ziyu Shen: Nora, this is Ziyu speaking. Thanks for the questions. The first one, overseas revenue, we are strongly moving forward right now. So we are targeting 2028, we have 30% revenue of the company from overseas outside China. And 2030, we have 50% revenue of the company from overseas outside China. We already had very solid pipeline. Also we announced within the last few quarters, we already had accumulated USD 2.5 billion total overseas revenue order we already had. So we are still running forward next quarter. We will keep updated to the market. That's the answer for your first question. The second one, our flash-based LiDAR is very going well. We are full speed R&D with our first customer OEM for robotics provider in the market. So we believe we'll be ready to the market next quarter 4 2026. That's what we are targeting now. So everything is going well. We're confident on that. Yes, that's the second answer to you, Nora. Operator: Our next question comes from the line of Derek Soderberg from Cantor Fitzgerald. Derek Soderberg: My other questions have been asked so just 1 question for me. We've seen technology companies, SoC, semiconductor companies become sort of a key negotiating tool for trade talks. Can you just update us on what's changing on that front and how you're positioning the company sort of in this newer geopolitical environment? Peter W. Cirino: Yes. Derek, this is Peter. Thanks for your question. As we look at our business as it continues to scale and grow, we're continuing, as we've talked about in many of these calls, to drive ECARX to be a global player in the automotive technology marketplace. We certainly see we've demonstrated with our products that we've launched on Volvo vehicles, the wins we've had with Volkswagen that we got to announce, the additional wins and potential programs in our pipeline that we have a clear ability to scale the technology globally, deliver very solid, mature, robust solutions into the market both on high volume vehicles as well as high technology applications. And I think we'll be continuing to grow the company in that direction. We announced earlier this year that we are launching a center in Singapore that will drive a lot of our global supply chain efforts. We'll house both in Singapore and throughout South Asia has a lot of our capabilities to deliver global solutions from those locations into OEMs in the European market and in the Americas. And I think we'll continue then to develop into a framework where we have a fantastic solution in China for China and high technology solutions that we're able to deliver to the global automakers in Europe and the Americas. So I think you'll see us continue to develop down that track. Operator: There are no further questions at this time. So I'll hand the call back to Ziyu Shen for closing remarks. Ziyu Shen: Okay. Thanks, operator. Thanks, everyone, to join today's earnings call. So we very appreciate that. Today is very important milestone for the company and for our team. So these earnings, our results very successful. We achieved the first time the breakeven and profitable in EBITDA level and free cash flow level in the company history. So we are so proud of the team because most of the tech company in automotive so they haven't started breakeven profitable, but ECARX is going well. The revenue is bigger and bigger and stronger. So also we are starting profitable and going forward, very health the financing situation. Also, we are full speed globalization. We have big volume and strong life cycle not only from China, but also for overseas in the future. Also, we already had a big win for the global OEMs. Also, we will full speed with other global OEMs soon. We believe and confidence our advantage will be very obvious and significant in the market. So thanks again and thank you, everybody. Thanks. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Speakers, please stand by.
Operator: Thank you for standing by, and welcome to the fubo Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I'd now like to turn the call over to Ameet Padte, SVP, FP&A, Corporate Development and Investor Relations. You may begin. Ameet Padte: Thank you for joining us to discuss fubo's Third Quarter 2025 results. With me today is David Gandler, Co-Founder and CEO of fubo; and John Janedis, CFO of fubo. Full details of our results and additional management commentary are available in our earnings release and letter to shareholders, which can be found on the Investor Relations section of our website at ir.fubo.tv. Before we begin, let me quickly review the format of today's call. David will start with some brief remarks on the quarter and our business, and John will cover the financials. Then we will turn the call over to the analysts for Q&A. I would like to remind everyone that the following discussion may contain forward-looking statements within the meaning of the federal securities laws, including, but not limited to, statements regarding our financial condition, anticipated financial performance, expected synergies and other benefits from our business combination, business strategy and plans, including our products and subscription packages, market, industry and consumer trends and expectations regarding growth and profitability. These forward-looking statements are subject to certain risks, uncertainties and assumptions. Actual results could differ materially from our current expectations, and we may not provide updates unless legally required. Potential factors that could cause actual results to differ materially from forward-looking statements are discussed in the earnings release we issued today, our letter to shareholders and in our SEC filings, all of which are available on our website at ir.fubo.tv. Except as otherwise noted, the results we are presenting today are on a continuing operations basis, excluding the historical results of our former gaming segment, which are accounted for as discontinued operations. Please note also these results reflect fubo's stand-alone operations prior to the recent completion of our business combination with the Walt Disney Company's Hulu+ Live TV. During the call, we may also refer to certain non-GAAP financial measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available in our Q3 2025 letter to shareholders, which is available on our website at ir.fubo.tv. With that, I will turn the call over to David. David Gandler: Thank you, Ameet, and good morning, everyone. This quarterly earnings call is unlike any other in our history, coming just days after completing our transformative combination with the Hulu + Live TV business, setting a new stage for what's ahead. The combination of fubo and Hulu + Live TV forms one of the largest live TV streaming services in America. Our combined nearly 6 million subscribers in North America make fubo the sixth largest pay TV company according to recent UBS Estimates. It's a defining moment for our team and our shareholders and the culmination of years of innovation and execution. Together with our strong stand-alone results, this combination underscores the enormous potential ahead, a consumer-first platform built on choice, value and profitable scale. Now looking at our third quarter stand-alone results, fubo ended the quarter with 1,630,000 paid subscribers in North America, our strongest third quarter performance to date and $369 million in total revenue alongside solid contributions from our international operations. We're also proud to report that we achieved meaningful improvements in both net loss and adjusted EBITDA with the third quarter representing our second consecutive quarter of positive adjusted EBITDA. Beneath those strong headline numbers, the health of our underlying metrics continues to improve. Trial starts increased and conversions from trial to paid meaningfully improved year-over-year, while churn declined nearly 50% versus last year. At the same time, we reduced marketing spend during a highly competitive sports quarter, reinforcing our path toward profitability and stronger margin expansion. These trends reflect growing consumer demand, higher engagement and the continued scalability of our model. Our mission remains clear: deliver must-have programming through a flexible value-forward experience. fubo continues to make watching live content easier and more valuable. The fubo channel store, similar in concept to Amazon Prime video channels, offers third-party premium services like RSNs, DAZN 1, Hallmark Movies Now and Paramount+ with SHOWTIME into one sports-first interface, removing friction and simplifying viewing. Our fubo Sports skinny service added lower-priced, high-value access to top sports content, including the majority of ESPN unlimited content and is driving record trial conversions. Together with the expansion of pay-per-view, which delivered double-digit sales growth in October compared to the prior month, these initiatives demonstrate fubo's ability to innovate, scale engagement and strengthen our live platform. We have built market-defining features, multiview, game highlights, game alert push notifications and catch up to live that increase engagement and make watching sports easier and more entertaining. These are the types of personalized capabilities we will continue to scale across our growing membership base. Fubo's recent results gives us much to be confident about, and we envision unprecedented opportunities at the combined company. We're expanding choice, not forcing one bundle. The combined company offers consumers a broad set of sports and entertainment-focused programming offerings from fubo and Hulu+ Live TV, respectively. Together, we give families flexible ways to rightsize their spend while broadening access to the best content. In the near term, we'll focus on programming efficiencies, ad tech uplift and marketing at scale, including through ESPN's ecosystem as well as deeper personalization. These are 4 major drivers to grow our subscriber base and achieve our profitability goals. In closing, we could not be more excited about fubo's future. We believe our third quarter stand-alone performance, coupled with the opportunities unlocked by our business combination with Disney's Hulu+ Live TV, solidly position fubo for future success. We want to thank our retail and institutional shareholders for your unwavering support and to our customers for your loyalty. We remain committed to building a consumer-first streaming service that delivers more live action, less friction and superior value. I will now turn the call over to John Janedis, CFO, to discuss our financial results in greater detail. John? John Jenadis: Thank you, David, and good morning, everyone. Our third quarter results reflect continued progress in both execution and profitability capped by a historic milestone, the completion of our business combination with Hulu + Live TV. We believe this transaction is a huge win for our company, shareholders and the market, and we could not be more excited about the opportunities ahead. Taking a look at the results for the quarter. In North America, we delivered total revenue of $368.6 million, down 2.3% year-over-year and reached 1.63 million paid subscribers, a 1.1% increase year-over-year and our highest ever third quarter subscriber count. In Rest of World, revenue was $8.6 million, and we ended the quarter with 342,000 paid subscribers. In North America, advertising revenue totaled $25 million, down 7% year-over-year, primarily reflecting the absence of certain ad insertable content and onetime benefits in the prior year period. That said, demand indicators remain constructive, including upfront commitments for the 2025, 2026 cycle, up over 36% versus last year, with nearly 1/3 of advertisers new to fubo. Non-video formats such as pause ads and branded activations grew over 150% year-over-year. These personalized and dynamic ad experiences are driving greater engagement and reinforce the stickiness of CTV formats beyond standard video ads. Net loss was $18.9 million or $0.06 per share compared to a loss of $54.7 million or $0.17 per share in the prior year period. Adjusted EPS improved to $0.02 compared to a loss of $0.08 in the prior year period. Adjusted EBITDA was positive $6.9 million, representing a year-over-year improvement of more than $34 million. This marks our second consecutive quarter of positive adjusted EBITDA, underscoring the strength of our cost discipline and the scalability of our model. I would also like to point out our continued improvement in expense efficiency with total operating expenses now approaching parity with revenue, our best ever third quarter performance. This reflects the benefits of disciplined content spending, optimization of marketing investments and ongoing focus on scalable growth. From a cash flow perspective, net cash used in operating activities was $6.5 million or a $9 million increase compared to Q3 2024, while free cash flow was negative $9.4 million, a decrease of $8.3 million compared to the prior year. Free cash flow improved sequentially versus Q2, but was lower year-over-year, driven primarily by working capital timing. We ended the quarter with a solid liquidity position and balance sheet flexibility, including over $280 million in cash. In summary, Q3 was another quarter of steady financial progress and operational execution. We've demonstrated consistent improvement in profitability metrics, disciplined cost management and continued engagement growth. With the Hulu+ Live TV combination now complete, we enter the next phase of our journey as a stronger scaled player in the pay-TV ecosystem, positioned to deliver sustainable profitability and long-term shareholder value. With that, I'll turn the call back to the operator for Q&A. Operator? Operator: [Operator Instructions] Your first question today comes from the line of David Joyce from Seaport Research Partners. David Joyce: First of all, congratulations on completing the combination early. I was wondering about the advertising side of the business. If you could delve in a little bit more into what the content that was removed to make the comparisons a little challenging. But going forward, you will have the new advertising relationship with Disney, where they're taking care of the ad sales but you get the revenue net of the ad sales commission. So is that across all of the subscriber base that they have the ownership of on Hulu Live? John Jenadis: David, this is John. Maybe I'll take the first part of that, and David will take the second. On the content portion of the question, just as a reminder, we dropped Univision effectively at the end of last year. So that had an impact is number one. Number two, we also had some residual Maximum Effort Channel revenue in there as well. And then third, unrelated, but there was also a political comp in there. And so if I were to kind of normalize for the 3 of those, I would say ad revenue would have been up modestly year-over-year for the quarter. David Gandler: Yes. And David, just to add to that, I think when you look at the results for the quarter, I think ads has been the only minor blemish on an otherwise outstanding quarter, but that's a high-class problem given our combination with Hulu Live. As we've stated, Disney will be taking over advertising sales, and we expect that as we collaborate and integrate our inventory into Disney's ecosystem and ad server, we should see pretty strong results relative to where we are today. So we're very excited about that. Operator: Your next question comes from the line of Patrick Sholl from Barrington Research. Patrick Sholl: Congrats on completing the transaction. I was wondering if you could -- now that the transaction has been completed, could you maybe discuss some of the differentiating factors on the -- basically the full services and why maintain both offerings in addition to the sports-focused package? David Gandler: Yes. This is David. I'll take that. So one is, I think this is one of the few cases of when companies combine that do not have any overlapping customers. Hulu Live does not overlap with fubo. They're similar, but quite different. We've been very focused on driving our sports identity branding and delivering capabilities for sports fans that I mentioned in my opening comments. Hulu has been more of a general entertainment bundle that has sports. And it's very important for us to continue to provide consumers with optionality and flexibility. And there's programming that we don't have on fubo today, obviously, top quality networks that are available at Hulu. So this only adds to the spectrum of offers that we provide consumers at different price points along the demand curve. So this is really part of our super aggregation strategy that we talked about as far back as 18 or 20 months ago. Patrick Sholl: Okay. And on the cost side, you had a pretty significant reduction in sales and marketing costs year-over-year. Is that partly a function just of kind of maintaining your target subscriber acquisition cost of about in that like 1x ARPU range and just with the sports product being kind of lower cost and just being mathematical from that? Or is there any specific things to call out in terms of subscriber retention or additions that you're able to find efficiencies on? David Gandler: Yes. Very good question. This is David. I'll take that. Look, I think that when you look at what we've been able to achieve this quarter, we had a 68% increase in net adds on a year-over-year basis while decreasing our marketing spend or sales and marketing line as a percentage of revenue by 21%. In part, that's due to the fact that we have many more offers in the market, everything from the fubo channel store to the skinny bundle to our Pro and Elite offers. And we've also begun to leverage AI, both on channel optimizations and creative testing. So all of these things have worked together, and we've stated many times that our goal is to be measured and disciplined, and we didn't see a reason to push any further given how expensive third quarter marketing is. And the last thing I'll say is that you're right, we have stated since 2020 that our goal is to maintain that SAC to ARPU of 1 to 1.5x. I'm very happy to say that this year, we've been well below the low end of that range. So we think we can become even more efficient, particularly as the structural shift in consumption continues to move in our direction. Operator: Your next question comes from the line of Alicia Reese from Wedbush. Alicia Reese: First, I was hoping we could dig a little deeper on the skinny bundle. The 20% sequential subscriber growth suggests that you've seen a nice uptick so far and the subscription ARPU suggests that the impact was pretty limited. Can you speak to at least qualitatively to the dynamics of the skinny bundle? Like are these new subscribers? And for those that converted from existing subscription tiers, do they primarily come from the base tier, mid-tier or premium tier? John Jenadis: Yes. Alicia, this is John. I'll maybe start with that one. Look, I'd say it's early days, clearly, but I'll share a couple of data points for you. Number one, look, we feel good about the $55.99 price point. At launch, the reach was about 1/3 of the country. Now it's north of 80% heading to full distribution by the end of the year. A couple of months in, we see virtually no cannibalization, and we think it's really expanding our addressable market. And I would just add a couple of metrics in the short term on retention and churn, it's early, but I'd say performing as expected, meaning better retention and lower churn relative to Pro and Elite. David Gandler: I was just going to add very quickly that we're seeing this type of success not only in skinny bundle, but this was a strong quarter across the board for all of our offers. But of course, the skinny bundle has really delivered on trial starts, conversion to paid, net churn at least in the early days of the package. Alicia Reese: Makes sense. And can you just discuss briefly how the Q3 marketing budget was allocated between promoting that heavy sports calendar and the skinny bundle? David Gandler: Yes. Look, I think we have a world-class marketing team and retention team. And I think we're very focused on ensuring that we scale profitably. And we obviously manage almost in real time the different packages to ensure that we're continuing to drive both top and bottom line. Operator: Your next question comes from the line of Laura Martin from Needham & Company. Laura Martin: David, now that you guys have closed the Hulu + Live deal, I'm wondering, they have 4 million subs, you guys have 1.5 million round numbers, 1.6 million. Don't they sort of -- are they sort of the dog and you guys the tail? I know you're running it, but I don't -- isn't the strategy sort of get eclipsed by theirs because they have so many more subs? And can you talk about just over the next 6 months, 9 months, how much is really you driving this company compared to fubo who -- or sorry, Hulu, which is so much larger? David Gandler: Yes, Laura, thank you. This is David. Good to hear your voice. Look, you and I have been going at this now for, I don't know, 5 years. I remember in the early -- my first meeting with you over COVID, I told you one day we would be contribution margin positive. And then 2 years later, I told you we would be gross margin positive. And I can tell you that I don't know about dogs and tails, but I can tell you that this is no longer a fairy tale. fubo will continue to drive significant growth. I can walk you through kind of areas in which that we believe that could be the case. One is you're seeing very strong net adds in a quarter that is typically very competitive. We've been able to add more products to market. We've had record churn -- net churn numbers, all positive. We removed Univision from the platform sometime in December. And just to kind of give you a little peek into Q4, we're seeing record Latino numbers, Univision, which is very positive. So I think actually fubo is going to be a very important growth engine for the company. There are a few areas in which I think we'll really sort of hope to take advantage of this new collaboration. One, I think, is quite obvious. ESPN's ecosystem of ESPN Radio, ESPN.com, flagship and other spokes that they have within that ESPN flywheel probably averages somewhere in the sort of 100 million monthly active users. This is a funnel that we have never leveraged before. So we think that there's probably significant untapped value for us to grow our sub base, again, profitably, which means it could have a very positive impact on our sales and marketing line. The second thing is an area where I think you've had a lot of questions on and maybe a little bit of frustration around advertising. I think that there's significant upside in our relationship with Disney. Once part of the Disney ecosystem, all of our football, basketball, baseball, soccer, all of that inventory will likely move over, hopefully sooner rather than later, but we're targeting sometime in the first quarter given some of the technical hurdles that we need to go through. We're transitioning our ad sales team over to Disney. So there's probably some pretty significant upside from where we are today relative to where we could be if you think about Disney Sports CPMs and their ability to just use their scale to fill our [indiscernible]. The third area, which I'm really very excited about, which is an area that we've significantly underperformed the market and probably a reason why the stock has underperformed is programming efficiencies. We have not been able to achieve what I would believe to be fair deals, and that's because everything is related to size-based [ MFNs. ] But as the sixth largest pay TV player, it doesn't really tell you much. I look at this as the second largest virtual MVPD player in the market, which means that those structural shifts, both from a consumption perspective as well as a monetization perspective are in our favor. And we think that we'll be able to grow that. And last but not least, an area that we really don't discuss a lot, which is the international piece. We've been really focused on our unified platform. As I like to say, timing is everything. That platform is almost ready to go. We'll be onboarding Molotov and migrating it onto the fubo platform. And Disney has 100-plus international subscribers in its D+ service. And I think that similar to the way Hulu Live has been embedded into Hulu and potentially into Disney+, we think that there's probably an opportunity for us to drive significant growth. Our ambitions have not changed. We want to be the world's largest live TV provider, and we're using streaming to make a smarter, cheaper and more profitable TV product. Laura Martin: Super helpful. You guys have always had a world-class tech stack. Do you find you're able to use any of the new generative AI capabilities to personalize the recommendation line or personalize what you're showing to different consumers? Are you using any of those capabilities to drive better product updates? David Gandler: Yes, of course. That's a great question. Look, I think what's interesting that people have not noticed or investors have not noticed about fubo is that we have removed a significant number of channels from the platform, yet ad inventory or ad [ availabilities, ] I should say, has grown year-over-year by about 30%. So what we're really focused on is recommending the appropriate programming for the appropriate user at the appropriate time. And so we've been using our AI capabilities to develop highlights for all of our sports moments and really put those in front of the consumers that find that content most impactful. One thing I will say as it relates to all of this is that I think when we started our -- I think during our testing the waters roadshow, Laura, you may remember this, but we had a long-term target, and we are basically almost there. So I think our target was roughly around $100 of revenue, ARPU back then. And then what we said was that our goal was to achieve 30% gross margins, which would then drive about 15% EBITDA margin. I'd like to say we're almost there. We are now somewhere in that north of roughly around 20% gross margin. This is a story that is just unfolding. Right now, we've got -- we need about 10 points to deliver on that 30% gross margin. And it's not much to believe. You're talking about 300 basis points of programming efficiencies, 200 to 300 basis points of advertising uplift, 100 or 200 basis points in G&A and technology. And then as you see, our efficiencies on the sales and marketing side have also been pretty impressive. So my view is that we're almost there, and this transaction will allow us to amplify all of the innovation and success and execution that we've put into this company. So I'm very excited about this. Our investors should be very excited about this, and I'm hoping Disney is excited about this as we are. Operator: Your next question comes from the line of Sebastiano Petti from JPMorgan. Sebastiano Petti: Congratulations on the deal. Just maybe if you could kind of help us think about now with the added scale that you have from the Live TV combination with Hulu, I mean, how are you thinking about rest of world? Is that still core to you over time? And if so, why? And as we're thinking about perhaps rest of world, I mean, are there synergies or maybe cross-bundling opportunities when you look at Disney's international streaming services? And then following up on that, I guess, maybe a quick one. Any benefit from the YouTube TV blackout of Disney from over the weekend? David Gandler: Yes. Thank you. This is David. Look, I'm very bullish on rest of the world. I have been. It's all about a timing question. Right now, as I just said, we are very focused on migrating Molotov onto the fubo platform. We'll look to partner with Disney internationally. I think this is going to create a tremendous amount of value for both companies. Disney+ will benefit from all the local programming that we're going to provide markets like France, there are probably 3 or 4 markets we'd like to start with in the next 18 to 24 months and then quickly move in to other markets because the platform has been built so efficiently. It is obviously core. I don't know why there's always a question around rest of world. I mean, you tell me, I think Reed Hastings used to talk about the fact that he wanted to be like YouTube because 80% of YouTube's revenue came from outside of the United States. We are no different. We think that we can be a global leader in the live TV streaming space. There are hundreds and hundreds of millions of people that still value live sports, live news, and we're going to focus on developing that strategy in the short term. And I think everyone on both sides is very excited about that. As it relates to YouTube TV and their -- I guess, their issues with Disney, that's not anything we can really talk about. What I can say is that just like last year, we see bumps all the time from people that are looking for programming. So there's not really much to say about that. The interesting thing is that while we have seen an influx of YouTube TV customers we're seeing all around improvements, as I just mentioned, including in Latino in terms of subscriber growth. So we haven't really marketed that. We're not attempting to take advantage of that. We'll let that play out as it will, and we're focused on our own business here. Operator: Your next question comes from the line of Clark Lampen from BTIG. William Lampen: John, maybe in light of the comments around LatAm customer strength to start 4Q, could we dial it back a little bit and maybe talk about early October reads across the entire spectrum? And then if we were to sort of focus a little bit more medium to long term, fill rates, programming efficiencies. David, I think you said that you haven't had fair deals thus far. Maybe update us on revenue and expense synergies, I guess, on a go-forward basis and how that might impact profit trajectory? At what point could we start to see sustainable sort of EBITDA and net earnings profitability? John Jenadis: Clark, on the first part of that question, was that specific to advertising? Or was that more broad? William Lampen: Correct me if I'm wrong, I guess, but the comment it sounded like it was on a subscriber basis. So is it -- if we're thinking about the subscriber trajectory of the business for 4Q, are you seeing the same strength with sort of core demos relative to LatAm? Or was there some bifurcation for one reason or another? John Jenadis: No. Actually -- so thanks for the question. Yes. So I'd say the strength we saw through the third quarter, meaning August, September has continued through October. And what I would say is that relative to plan, we're exceeding, I would say, on -- across all packaging. And so not just Latino, but also on Canada, skinny bundle, stand-alone RSNs and English. David Gandler: Yes. I would just add, look, the reason why we're continuing to formulate these different services and packages is because we want to reduce the cost of entry and at the same time, create attractive user economics. And you're starting to see that unfold this quarter. And as I mentioned, Latino, is really just a little seed is that we're seeing this across the board. So typically, our strongest quarters, as you guys know, is the back half of the year, third and fourth quarter, given the strength of the sports calendar. So we're, again, very excited about this. We're excited about our new relationship with Disney. I have to say the first few days have been extremely exciting. Everybody seems to be on the same page. We all know what we want, and it's going to be fubo's job to execute and drive shareholder value. John Jenadis: And then maybe on synergies. Look, when we announced the business combination in January, we highlighted content expense and advertising as really the key areas of synergies. David commented before about the ads team, they're already working with Disney in their offices as of this morning. So we are moving with urgency. So on the timing of that advertising synergy, I would say we'll see that in the short to midterm. On the content expense savings, remain very confident there as well. I think the opportunity is meaningful. And you're right, it's -- but it's not just fill rate for advertising. It's other factors as well. We think there's also CPM upside to name a couple. Operator: And that was our final question. This concludes today's conference call. We thank you for your participation, and you may now disconnect.
Operator: Good morning, and welcome to the IDEXX Laboratories Third Quarter 2025 Earnings Conference Call. As a reminder, today's conference is being recorded. Participating in the call this morning are Jay Mazelsky, President and Chief Executive Officer; Andrew Emerson, Chief Financial Officer; and John Ravis, Vice President, Investor Relations. IDEXX would like to preface the discussion today with a caution regarding forward-looking statements. Listeners are reminded that our discussion during the call will include forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those discussed today. Additional information regarding these risks and uncertainties is available under the forward-looking statements notice in our press release issued this morning as well as in our periodic filings with the Securities and Exchange Commission, which can be obtained from the SEC or by visiting the Investor Relations section of our website, idexx.com. During this call, we will be discussing certain financial measures not prepared in accordance with generally accepted accounting principles or GAAP. A reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures is provided in our earnings release, which may also be found by visiting the Investor Relations section of our website. In reviewing our third quarter 2025 results and updated 2025 guidance, please note all references to growth, organic growth and comparable growth refer to growth compared to the equivalent prior year period unless otherwise noted. [Operator Instructions] Today's prepared remarks will be posted to the Investor Relations section of our website after the earnings conference call concludes. I would now like to turn the call over to Andrew Emerson. Andrew Emerson: Good morning. I'm pleased to take you through our third quarter results and provide an updated outlook for our full year 2025 financial expectations. In terms of highlights in the quarter, IDEXX delivered strong financial results supported by outstanding commercial execution in our Companion Animal business with benefits from recently launched IDEXX innovations. Revenue increased 13% as reported and 12% organically, supported by over 10% organic growth in CAG Diagnostics recurring revenues, reflecting over 8% gains in the U.S. and double-digit growth in international regions. We achieved another quarter of strong premium instrument placements, including over 1,750 IDEXX InVue Dx analyzers, resulting in 71% organic growth of CAG instrument revenues. CAG Diagnostics recurring revenue growth in Q3 was negatively impacted by declines in U.S. same-store clinical visits of 1.2%, driven by ongoing macro and sector pressures. IDEXX' operating performance was excellent in the quarter with comparable operating margin gains of 120 basis points, supported by gross margin expansion which benefited from strong recurring revenue growth. High operating profit gains enabled earnings per share of $3.40 in the quarter resulting in EPS growth of 15% on a comparable basis. We're increasing our full year revenue outlook by $43 million at midpoint, with an updated range of $4.270 billion to $4.300 billion, an outlook for overall reported revenue growth of 9.6% to 10.3%. Our updated full year overall organic revenue growth outlook is for 8.8% to 9.5%, with organic CAG Diagnostics recurring revenue growth of 7.5% to 8.2%. These organic growth ranges represent approximately a 1% increase at midpoint to our previous guidance, supported by strong global execution in our CAG business. We're increasing our full year EPS outlook to $12.81 to $13.01 per share, up $0.33 per share at midpoint, reflecting 12% to 14% comparable EPS growth. We'll discuss our updated 2025 financial expectations later in my comments. Let's begin with a review of the third quarter results. Third quarter organic revenue growth of 12% was driven by 12% CAG revenue gains, 7% growth in our Water business and 14% gains in LPD. Strong CAG results were supported by CAG Diagnostics recurring revenue growth of 10% organically, including average global net price improvement of 4% to 4.5%, and benefits from CAG Diagnostic instrument revenues increasing 71% organically, aided by global placements of InVue Dx. U.S. organic CAG Diagnostics recurring revenues grew 8% in Q3, supported by solid volume gains and 4% benefit from net price realization. U.S. same-store clinical visits declined 1.2% in the quarter, reflecting an IDEXX U.S. CAG Diagnostics recurring revenue growth premium to U.S. clinical visits of approximately 950 basis points, highlighting outstanding performance by the IDEXX teams. Q3 benefited from aging pets with non-wellness visits declining only 30 basis points year-over-year while wellness visits declined 2.5%. Health services continued to expand in the quarter, including increased diagnostic frequency and utilization per clinical visit for both well and non-wellness visits as customers expand the use of diagnostics in their care protocols. International CAG Diagnostics recurring revenue grew 14% organically in Q3, including approximately a 1% benefit related to equivalent days. Revenue performance was driven by volume gains, including benefits of net new customers and same-store sales utilization. International regions have sustained strong growth on a days adjusted basis for the past 10 quarters, highlighting the significant global opportunity as we invest in global commercial capabilities and expansions. IDEXX innovation and commercial execution also delivered strong organic revenue gains across testing modalities globally in the third quarter. IDEXX VetLab consumable revenues increased 16% on an organic basis in the third quarter, reflecting double-digit growth in both the U.S. and international regions. Consumable revenue growth was supported by expansion of our premium instrument installed base and expanded testing utilization including benefits from recent product launches. InVue Dx utilization is tracking well to our reoccurring revenue estimates previously provided of $3,500 to $5,500 per analyzer, and we're excited for the upcoming launch of FNA starting with mast cell tumor detection. CAG instrument placements increased significantly in Q3 compared to prior year levels. Total premium placements reached 5,665 units, an increase of 37% year-over-year. The quality of placements remains excellent, reflected in 1,203 global new and competitive Catalyst placements, including 347 in North America. Globally, we placed 1,753 IDEXX InVue Dx instruments as we continue to meet customer demand for this highly innovative analyzer. Ongoing progress of placing instruments combined with high customer retention levels supported the 10% year-over-year growth in our premium instrument installed base in the quarter. IDEXX Global Reference Lab revenues increased 9% organically in Q3, up approximately 4% growth from the second quarter driven by solid volume growth across regions, including expanded same-store volume benefits and net new customer gains. IDEXX Cancer Dx continues to gain further traction in North America reaching nearly 5,000 customers through October. Global rapid assay revenues declined 5% organically in Q3. Rapid assay results continue to be impacted by customers shifting pancreatic lipase testing to our Catalyst instrument platform, which we estimate to be a 6% headwind in Q3 revenue growth. Veterinary software and diagnostic imaging organic revenues increased 11%, driven by recurring revenues which grew 10% during the quarter. Solid growth in veterinary software was supported by a strong double-digit growth of cloud-based PIMS installations and adoption of related reoccurring services. We also saw continued strong double-digit year-over-year growth of diagnostic imaging system placements in the quarter. Water revenues increased 7% organically in Q3 with strong growth in international regions and solid mid-single-digit growth in the U.S. Livestock, Poultry and Dairy revenues increased 14% organically in the quarter with double-digit gains across most regions. Turning to the P&L, strong revenue growth enabled 16% comparable operating profit gains. Gross profit increased 15% in the quarter as reported and 13% on a comparable basis. Gross margins were 61.8%, up approximately 80 basis points on a comparable basis. These gains reflect benefits from strong reoccurring revenue growth and IDEXX VetLab consumables and Reference Lab volumes along with operational productivity and pricing benefits, which offset inflationary cost pressures. Reported gross margin gains were moderated by 10 basis points of foreign exchange impacts net of hedge positions. On a reported basis, operating expenses increased 12% year-over-year as we advance investments in our global commercial and innovation capabilities. Q3 earnings per share was $3.40 per share, including benefit of $14 million or $0.17 per share related to share-based compensation activity. Income tax includes a $0.09 negative impact related to accelerating tax deductions for previously incurred research expenses allowed under the new U.S. tax legislation, which benefits cash taxes while increasing our effective tax rate in the period. Foreign exchange added $1.9 million to operating profit and $0.02 to EPS in Q3, net of hedge effects, reflecting a comparable EPS increase of 15%. Free cash flow was $371 million in Q3 and $964 million on a trailing 12-month basis with a net income to free cash flow conversion rate of 94%. For the full year, we're updating our outlook for free cash flow conversion to 95% to 100% of net income. This increase includes a 10% cash tax benefit primarily related to $105 million of acceleration of tax deductions for previously incurred research expenses allowed under recent U.S. tax legislation and a refined outlook for our full year capital spending of approximately $140 million. Our balance sheet remains in a strong position. We finished the period with leverage ratios of 0.7x gross and 0.5x net of cash. We continue to deploy capital towards share repurchases, allocating $242 million during the third quarter and contributing to $985 million on a year-to-date basis, supporting a 2.7% year-over-year reduction in diluted shares outstanding through Q3. Turning to our full year 2025. As noted, we're increasing our outlook for overall revenue to $4.270 billion to $4.300 billion. At midpoint, this reflects approximately $43 million of operational improvement, building on strong third quarter performance, including CAG Diagnostics' recurring revenue expansion and increased InVue Dx revenue expectations. Our updated revenue growth outlook is for 9.6% to 10.3% growth as reported, including a 0.8% full year growth benefit and 2% growth benefit in Q4 from foreign exchange at the rates outlined in our press release. As a sensitivity, a 1% strengthening of the U.S. dollar would reduce revenue by approximately $4 million and EPS by $0.01 for the remainder of the year. The updated overall organic revenue growth outlook of 8.8% to 9.5% reflects an estimated organic growth range of 7.5% to 8.2% for CAG Diagnostics recurring revenue, including a consistent 4% to 4.5% benefit from global net price realization. At midpoint, during Q4, we're assuming U.S. clinical visits continue to decline at levels moderately better than the year-to-date average. We are again increasing our expectations for our InVue Dx placements, which we now expect to be approximately 6,000 during 2025, with instrument revenues of over $65 million as we continue to see strong demand from this exciting new platform. In terms of key financial metrics, we're increasing our reported operating margin outlook to 31.6% to 31.8% in 2025, reflecting an increased expectation for 80 to 100 basis points of full year comparable operating margin improvement net of 180 basis point operating margin benefit related to the discrete litigation expense impacts and updated foreign exchange effects. As noted previously, IDEXX remains well positioned to navigate the ongoing changes in the trade landscape with a largely U.S.-based manufacturing footprint. We remain focused on continuous supply to customers while actively managing cost impacts, which will continue to play out into 2026. Our updated full year earnings per share outlook is $12.81 to $13.01 per share, an increase of $0.33 per share at midpoint. Our EPS outlook incorporates increased projections for operational improvement of $0.22 at midpoint compared to our prior guide. We've also incorporated lower effective tax rate benefits, including $0.09 of share-based compensation activity compared to the prior outlook, partially offset by other tax impacts including the noted acceleration of research expense deductions under the new U.S. tax legislation. Updated estimates for interest expense, average share count reduction and foreign exchange impacts have also been incorporated, with additional details available in the tables in our press release and earnings snapshot. That concludes our financial review. I'll now turn the call over to Jay for his comments. Jay Mazelsky: Thank you, Andrew, and good morning. IDEXX delivered very strong financial performance in the third quarter while advancing our strategic priorities globally. Our proven model of high-touch commercial engagement, combined with differentiated testing and workflow innovations continue to drive adoption of IDEXX's world-class diagnostic and software solutions. These capabilities directly support our customers' mission to deliver the highest standards of care enabled through greater diagnostic frequency and utilization in everyday practice. Diagnostics remains the fastest-growing revenue stream within veterinary clinics, a durable trend reflecting the central role testing plays in determining patient health status and guiding treatment decisions. Our financial results in the quarter were underpinned by accelerating gains in CAG Diagnostics recurring revenues across major regions. Growth in recurring revenues reflects multiple execution drivers, including double-digit growth of our premium installed base, instrument installed base, sustained strong new customer gains, solid net price realization and continued momentum in cloud-based software adoption. Importantly, these results were supported by continued momentum in our innovation playbook, highlighted by strong placements of InVue Dx, growing adoption of Cancer Dx, and benefits from the expanding Catalyst menu, including early uptake of Catalyst Cortisol. IDEXX solutions anchored by our integrated software-enabled multi-modality approach are well positioned to help clinics enhance efficiency, expand diagnostics reach, and deliver exceptional patient care. Building on the groundbreaking innovations we launched in 2025, and as highlighted at our August Investor Day, we will further expand our Cancer Dx franchise in 2026 with the addition of mast cell tumor and another high-impact cancer biomarker to the panel. We also plan to bring Cancer Dx panel to international markets starting in Q1 2026, extending its reach and accelerating our global leadership in veterinary cancer diagnostics. Our commercial organization again delivered outstanding performance in Q3. Across geographies, our teams drove very strong instrument placements with a high quality of placements supporting outstanding year-on-year growth of economic value placements, a key measure of future recurring revenue gains. Retention of our CAG Diagnostics recurring revenue remained in the high 90s, reflecting the enduring loyalty and trust that veterinarians place in IDEXX. This loyalty is not simply the result of world-class products. It reflects the strength of our customer engagement and support model where IDEXX representatives serve as true partners in helping practices improve medical outcomes and business performance. In the U.S., growth was fueled by strong volume gains, including benefits from adoption of new innovations alongside sustained strong new and competitive Catalyst placements. Our teams are effectively engaging practices, whether start-ups outfitting their practice for the first time or established clinics seeking to upgrade and expand capabilities. Accelerated growth in the important diagnostics frequency metric as well as utilization per clinical visit is a critical driver of success, enhancing patient care while creating durable growth for both clinics and IDEXX. We are also benefiting from corporate account relationship extensions and expansions. These relationships represent significant multiyear growth opportunities as practices transition volume into IDEXX's ecosystem of diagnostic software and services. Importantly, these partnerships are increasingly structured to elevate care at the practice level, to greater diagnostics frequency, utilization, workflow optimization and expanded menu adoption. Internationally, we delivered double-digit installed base growth for the 11th consecutive quarter with the step-up in the growth of CAG Diagnostics recurring revenue growth across major regions. Our commercial strategies are globally tailored to regional dynamics supported by strong Reference Laboratory networks and backed by an innovation approach that ensures high product market fit, such as with ProCyte One and SNAP Leishmania. Expanding diagnostic frequency in international regions continues to be a key growth lever, elevating the standard of care and expanding the sector opportunity. We remain committed to investing in our commercial footprint where the customer readiness and growth potential are strongest. We are on track with plans to expand in 3 international countries by the start of 2026, while also enhancing our U.S. commercial footprint. These are high-return investments, reducing the number of customers per account manager, supporting more frequent engagement, strengthening loyalty and driving adoption of IDEXX solutions. The commercial organization's ability to consistently deliver growth across varied geographies and macroeconomic conditions demonstrates the durability of our model. Practices continue to prioritize diagnostics and software because they are foundational to their mission, and IDEXX is their partner of choice. Turning to our innovation update, let me begin with Catalyst Cortisol, the newest addition to our Catalyst platform. Launched in North America in late July and at the end of the third quarter internationally, Catalyst Cortisol is already seeing strong momentum with over 1/4 of Catalyst customers in North America adopting test within the first 3 months of launch. This is among the fastest adoptions for Catalyst menu expansion, underscoring both the clinical need and the level of customer anticipation. Catalyst Cortisol enables veterinarians to rapidly measure cortisol levels at the point of care, supporting diagnosis and monitoring of adrenal conditions such as Cushing's syndrome and Addison's disease. These conditions are often complex and require real-time insights to guide treatment decisions. With Catalyst Cortisol, veterinarians can deliver highly accurate results during the patient visit, avoiding delays, reducing callbacks and increasing confidence in treatment planning. The addition of Cortisol was the most frequently requested Catalyst menu expansion from customers, a clear signal of its importance to clinical practice. The rapid uptake we've seen validates the power of listening closely to our customers, and then delivering innovation that directly addresses their highest priority needs from both a testing accuracy standpoint in workflow friendly way. This is also a great example of our Technology for Life strategy. By continually expanding the Catalyst menu, we increase both the medical and economic value of the installed base. With nearly 77,000 Catalyst instruments and practices globally, each new menu expansion represents a lever for increased utilization, improved care and long-term recurring revenue. Alongside Catalyst Pancreatic Lipase, which has already achieved adoption across over 50% of the available installed base and Catalyst SmartQC, which is simplifying quality control workflows, Catalyst Cortisol is strengthening Catalyst position as the most versatile, value-creating chemistry, immunoassay and electrolyte platform in veterinary medicine. Moving to InVue Dx. By the end of Q3, we have placed over 4,400 InVue Dx analyzers globally year-to-date, exceeding our expectations in reinforcing the momentum that began with preorders last year. This represents one of the most successful product rollouts in IDEXX' history. This strong start gives us confidence to once again raise our full year outlook to approximately 6,000 placements. Customer feedback has been overwhelmingly positive, with veterinarians consistently highlighting workflow transformation, diagnostic confidence and powerful clinical insight as the most meaningful benefits. The slide-free cytology workflow reduces technicians' time improves consistency and delivers results while the patients are still under practice. At the same time, AI models, now trained on more than 60 million cellular images, provide reliable, high-quality insights that elevate standards of care. Frequent software updates, as often as every other week, continuously expand these capabilities, enhancing accuracy and ensuring clinicians always benefit from the latest advancements. A great example of this is a recent update that reduced time to result of an ear cytology to approximately 8 minutes. Utilization for ear cytology or blood morphology has been robust and well-aligned with our expectations. Both of these broad-use categories have great use cases in everyday practice, serving as high-frequency diagnostics to support patient care across a wide range of conditions. Their adoption underscores the value of InVue Dx in addressing routine, repeatable testing needs to drive workflow efficiency and strengthen clinical confidence. Importantly, success in these initial categories provide a strong foundation for the platform, creating natural momentum as we expand the menu into additional high-value areas, such as oncology with the addition of fine needle aspirate, which remains on track for rollout later this year. Importantly, InVue Dx not only driving placements in consumables, but also strengthening customer loyalty and long-term contractual relationships. Many practices adopting InVue are expanding their broader IDEXX commitments with some extending agreements ahead of schedule to secure access to this transformative platform. Turning to Cancer Dx. Momentum remains strong with nearly 5,000 practices to date adopting these tests within just a few quarters of launch. Utilization is tracking well with expectations and we continue to be encouraged by competitive customer adoption, now over 17% of customers. This reflects growing awareness and underscores Cancer Dx' importance as a new standard in veterinary oncology. While the majority of samples are still being used to aid in the diagnosis of canine lymphoma, the number of practices incorporating the test into wellness protocols is nearing parity, enabling early detection and improved patient outcomes. The clinical need for oncology screening is clear. Cancer remains one of the leading causes of death among dogs, and early detection is critical to improving outcomes. Cancer Dx provides veterinarians with a cost-effective, highly sensitive tool that integrates seamlessly into a standard wellness visit. Looking ahead, our Cancer Dx road map is ambitious as we expand internationally and have mast cell tumor detection in one additional cancer next year. With canine lymphoma and mast cell tumor detection, the Cancer Dx platform will address over 1/3 of all canine cancer cases. Mast cell tumors are top of mind with pet parents because they can often feel the lumps and bumps while petting or cuddling with their dog, and early detection can significantly improve the clinical outcome for an affected dog. The upcoming availability of FNA for lumps and bumps on InVue Dx will allow for cytology results during the patient visit, helping to provide clarity to a concern to pet parent. We have a couple of important highlights in our software business, specifically related to the broad-based adoption of our cloud-based products, reflecting the strength of IDEXX's vertical SaaS model purpose built for animal health. Veterinarians across all stages of their careers recognize the workflow efficiencies and ease of use that our solutions provide, enabling them to spend more time delivering care and less time on administrative tasks. Our cloud-native PIMS platforms delivered double-digit installed base growth again this quarter, surpassing a milestone, now with over 10,000 locations, and strong adoption among both independent practices and enterprise customers with multi-location groups. Customers are choosing IDEXX for our growing vertical SaaS platform where integrated modules create seamless workflows for clinicians and connectivity with diagnostics and increasingly for pet parents to Vello. Vello our client engagement platform continued to expand in Q3, with active clinics growing over 20% sequentially and over half of PIMS bookings in the quarter included a Vello subscription. Clinics using Vello report higher appointment adherence, increased diagnostics compliance and greater client satisfaction, all of which translated to higher visit volumes and revenue growth. The integration of Vello with our diagnostics and PIMS ecosystem further amplifies its value, making it an increasingly important part of IDEXX's long-term growth engine. As we conclude, I want to extend my deep gratitude to our 11,000 IDEXX employees worldwide. Your commitment to innovation, customer partnership and operational excellence is what enables us to deliver results like these. Q3 was another quarter where innovation and commercial execution came together to drive strong financial performance and advanced veterinary care. As diagnostics sit at the center of the veterinary system of care, IDEXX will remain at the forefront of advancing standards, unlocking practice productivity and driving sustainable growth. Now please open the line for Q&A. Operator: [Operator Instructions] Our first question comes from Erin Wright with Morgan Stanley. Erin Wilson Wright: Great. I want to unpack a little bit the strength of consumables in the quarter and what's sustainable -- what's sustainable here. For instance, how much of the strength is actually InVue consumables, lipase or just the new contracting terms when you do place an InVue? For instance, you used to give us this metric back when you launched Catalyst Dx, that you used to say, with every Dx upgrade, it translated into a considerable amount of consumables uplift. I guess, do you have that metric when you're placing kind of InVue's, you're establishing and recontracting with new IDEXX 360 relationships? And presumably, this is an all InVue consumables contribution? I just want to unpack that. Jay Mazelsky: Erin, yes, the growth in the VetLab consumables piece is very broad-based. So there's obviously the large installed base growth of 10%, and you can go back many quarters, and we continue to grow that very aggressively. And the quality of these placements is very high. We track economic value across the board; what we're seeing is high-quality placements competitive and greenfield is something we disclose both for chemistry and hematology, so you get a sense of that. Also the Technology for Life, the specialty tests, we've now had 3 within a period of a year. Those are -- those contribute. There's Pancreatic Lipase and SmartQC and now Cortisol. So these are tests that veterinarians prefer to do at the point of care, and that's clearly benefiting us. And I'd say -- by the way, it's, at an enterprise level, we're doing more testing in those areas. So this isn't a case of substituting from the reference lab to point of care. With respect to the InVue, I'd say that it's early stages. Obviously, it's all drop-through because it didn't exist before at the point of care and it's proceeding well to plan. And so that's an add, and as our installed base grows, we expect that, that will contribute greater amounts on a go-forward basis. But just to summarize, it's very broad-based growth across our point-of-care business. Erin Wilson Wright: Okay. And then are we still on track with FNA and the launch? And what are you seeing from some of the pilot programs with FNA so far? And do you think there's this backlog of customers kind of waiting for FNA that should support another leg of growth here for InVue? Jay Mazelsky: Yes, we are on track. What InVue customers tell us is that they -- there's very few customers that are just looking at one of the testing use cases, ear cytology or blood morphology or FNA testing for mast cell. They really are looking at as a broad portfolio tests that they would use. And obviously different mixes depending upon the practice and their preferences. So we expect that most of the customers, I can't say 100%, but the vast, vast majority of customers who purchase InVue for ear cytology and blood morphology will also use it for FNA testing. So we're very excited by that. Operator: The next question is from Michael Ryskin with Bank of America. [Operator Instructions] Michael Ryskin: Can you guys hear me? Jay Mazelsky: Yes. Michael Ryskin: Yes. I want to follow up on some of your comments on end market business trending a little better. You guys continue to put up really impressive numbers. Can you hear me? Jay Mazelsky: Yes. Got you, Mike. Michael Ryskin: Okay. Sorry. Just had some audio problems. You've put up really good numbers despite the end market weakness. I was just wondering if you could parse out a little bit, you talked a lot about InVue and the strength of that rollout there, whether you're seeing sort of the ability to leverage that for the rest of the business, the uplift you're seeing in consumables that will add consumables in the Reference Lab. Just sort of -- I don't know if I would call it a cross-selling opportunity, but just the ability to bring that into the vet clinic office, if that's leading to a stronger IDEXX premium and just ability to really drive the performance despite the continued softer macro? And I've got a follow-up. Andrew Emerson: Thanks, Mike. This is Andrew. Maybe I'll just touch on your initial question on the sector, and then Jay may have a point of view on the portfolio side here. But ultimately, I think what we did see was the non-wellness visits were closer to flat in Q3. We did see some benefits from the pet population that was 5 years and older related to the clinical visits themselves. And then, as we've been highlighting, I think, with those adult dogs and cats transitioning to more seniors, we also see higher quality of the visits where we see expanded diagnostic frequency and utilization benefits with that as well. So that was one of the key drivers. What I would say is on the wellness side, we continue to see pressures from a macro perspective. We know there's still challenges out there just related to the consumers and the macro trends. Wellness visits did continue to decline, more about 2.5% overall within the quarter. So fairly consistent pressure on the more elective and wellness characteristics of that. We'll continue to monitor this sector. But to your point, I do think that as we think about the broader portfolio, there's really an opportunity to continue to play that out. We see Reference Labs tend to be a little bit more weighted to wellness visits, same with rapid assay. And so we do see a bit of a benefit in the IDEXX VetLab consumables, but I think there's an opportunity for us to continue to see benefits from the aging patients over time. Jay Mazelsky: Yes, Mike, with respect to your question around InVue and its broader impact, we've always had, when we come out with a new instrument, it's a big deal. There are a direct economic benefits and there are indirect benefits. Obviously, the direct, you're placing an instrument that that's capital revenue and over time you build an installed base and the flywheel for recurring revenue. But most of these instruments get placed in some sort of marketing program, like IDEXX 360. And so the customer can satisfy volume commitments and is very often inspired to do more of their overall testing volume, including Reference Labs and rapid assay and our SaaS software solutions through us. And so those are the indirect benefits. And most of our -- about 2/3 of the InVue placements to date have come out of North America, 1/3 internationally. So we're excited. It does have some leverage impact, and we'll see more direct benefits, as I indicated earlier from just the recurring revenue stream of InVue. Michael Ryskin: Okay. And if I could squeeze in a follow-up, you talked about investments a couple of times in the prepared remarks. Could you expand on that a little bit, between incremental R&D on future platforms and maybe to continue to work on Multi-Q Dx, I don't know how much you'll be able to talk about that, or the commercial sales force. Just wondering the strength that you've had in the top line this year, how you're flowing that through the model and just sort of what are your relative priorities for investment from that strength? Jay Mazelsky: Yes. I'll cover the investment piece and if Andrew would like to cover how we're thinking about the mix within the P&L., I'll hand it to him. From an investment standpoint, the way we think about it, there's commercial opportunity and sector development. We know that takes investments in reach and frequency of our sales organization. And so we're on track for the first of the year. They have 3 international and a modest increment in the U.S. We know these are good investments. These tend to be more of a short-return type of thing with a high confidence level because we have a playbook and a template in terms of how we think about it, and they fit well into our territories. And within 3 or 4 quarters, are trained and onboarded and very productive sales professionals. The ongoing R&D investments, these tend to be multiyear in horizon across the board. There's biomarker investment, obviously, that can be leveraged both reference labs and point of care, new instruments, InVue and Multi-Q Dx, those are ongoing and tend to be 4, 5 years. And then, obviously, the software piece is a critical part of our strategy, and we're investing heavily both in cloud-based PIM systems and Vello and the other software applications. Andrew Emerson: Yes. Maybe just, Mike, in Q3 in particular, we highlighted 12% year-over-year growth in our operating expenses. So one of the things that we do always look at is how we're performing from an overall company perspective and making the right investments to continue to drive future growth. Again, if I take a step back and think about our longer-term growth algorithm, we constantly want to reinvest back into the business while still continuing to deliver solid operating margin gains over time here. And I think Q3 was a good example of our ability to do that. With higher top line growth, we were able to both contribute an operating margin gain benefit, but also invest heavily back into the business. And I think it's a really disciplined resource allocation approach to think about that mix across innovation and commercial and other support areas that Jay was highlighting that we want to make sure we get right. Operator: The next question is from Jon Block with Stifel. Jonathan Block: Maybe I'll just also start with InVue. The '25 placement guidance, I think I've got my math right, implies roughly 1,500 systems for 4Q '25. So still solid, and I know you raised the full year, but that would be down sequentially. You flipped from an order number to a placement number. So I guess the question here is, are you caught up with the orders when we think about where you are with InVue? And then just even any high-level thoughts on, I believe I've got it right, the initial 20,000 over 5 years. You're running well ahead in year 1 in totality. Any thoughts on the longer-term goals that you guys had put out? And then I'll ask a follow-up. Andrew Emerson: Thanks, Jon, this is Andrew. So from an InVue perspective on the longer-term goal, we certainly are still focused on the 20,000 over 5 years. We haven't updated that. We're off to a strong start here and we're targeting 6,000 placements by the end of 2025, which is really our first year of launch ultimately. So we feel good about that 6,000 placement trajectory here, and that's well above our initial guide of 4,500 where we started the year. We've seen really strong demand for the platform itself. And I think we're going to continue to build on the impact that can have with FNA, starting with mast cell tumor detection as a great example of the extensibility of the platform overall. So nothing I would call out specifically. To your point, I think the math or the implied placement math that suggests 1,500 to 1,600 placements in Q4, and that's certainly still a very solid trajectory here, and we feel good about the trajectory that we're on for the platform overall. Jonathan Block: Fair enough. And maybe I'll go to a different topic. I actually thought one of the most impressive metrics for the quarter was the international CAG Diagnostic recurring revenue growth of almost 14%. I think it's the highest growth rate since coming out of or emerging out of COVID. And arguably, it doesn't really reflect much of InVue, no Cancer Dx. I think it's before the additional sales reps really take hold in the field. So it's always more limited visibility in the international markets. I know you've spoken to the increased double-digit in the installed base for 11 consecutive quarters. But there's got to be more than that even as traction. So any color you can provide there? And is this sort of the right run rate in the international markets, especially because you'll have those incoming tailwinds of innovation and sales reps going forward? Jay Mazelsky: Yes. So we're -- there's a couple of dimensions, I think, to think about from just an international opportunity standpoint. One is it's just more embryonic in terms of the use of diagnostics. And we have a tried and true approach from the standpoint of just developing the sector. And what we have found is it's very translatable to the international market. So obviously, the quantity of your sales professionals has a quality all its own. So being able to increase the sales organization. So it's important, and we've been doing that now for 4 or 5 years. But the other thing that I would just point out is the maturity of working within the system takes some time. So it's not just about the account manager or the VDC, it's about the full commercial ecosystem of the professional service and the field service representative and the inside sales then and all those working in a synchronized fashion. The other pieces that we've invested in internationally is the Reference Lab network and really building out a network that enables next-day performance. We've invested in software localizations like VetConnect PLUS, all of those pieces come together. In terms -- we just think there's an outstanding opportunity in the international geographies. We guided from a -- at Investor Day that the international opportunity is a couple of hundred basis points, I think, faster than the U.S. We feel good about that. We think that offers a pretty long-term horizon opportunity year-on-year that we can develop. Andrew Emerson: Really great results in Q3. I would highlight that we did call out there's about 100 basis points of benefit related to equivalent days on the international business. So very significant results overall regardless, but we did see some modest days benefit in the quarter. Operator: [Operator Instructions] The next question is from Chris Schott with JPMorgan. Christopher Schott: Just a couple for me. Maybe just coming back on the aging pet commentary. It sounds like you're starting to see this supporting visits in the U.S. I guess is it fair to think about this point this now being a tailwind for the business as we look out to 2026 and beyond and start thinking about [ positive ] at least clinical visit growth or could this remain kind of bumpy in the near term? And just my follow-up was just on the international business and the discussion. Can you also elaborate on visit trends there? I guess we see a similar dynamic to the U.S. where the clinical visits are starting to pick up and wellness is still under some pressure, or is it more balanced in the international markets? Jay Mazelsky: Yes. I'll cover your second question first. We don't have as good visibility into clinical visits internationally just because we don't have the installed base of PIM systems, which allows us to access what is otherwise a very fragmented installed base of software. Our perspective, our market research suggests that it's largely stabilized from some of the choppiness we've seen over the last couple of years. So I think it's a stable environment, and we're clearly being able to execute against an environment that we think over time will improve. From the standpoint of the aging pets, the non-wellness visit essentially flat, we did see that adult dogs coming for more non-wellness visits. Some of that is likely pandemic dogs, designer breeds that are more heavily medicalized, larger breeds, larger dogs that get sicker earlier in their life spans, in terms of how that sustains quarter-to-quarter remains to be same. This is just a data point. I think what we could say with a good degree of confidence is that these pets, as they age from the pandemic and the large step-up that we've seen, will come into the practice more for sick care and that, from a clinical visit trend standpoint, it will be very positive. Operator: The next question is from Daniel Clark with Leerink Partners. Daniel Christopher Clark: I also wanted to ask on international, maybe in a little bit of a different way. On a days adjusted basis, CAG recurring grew at least 13% in the quarter. As you mentioned on the call, your kind of growth potential is 13% to 16%. So like what gets us up to the 15%, 16% range? Is it just continued sales rollout? Or what else should we be thinking about here? Jay Mazelsky: Yes. It's really all the pieces that I mentioned. We're going to continue to invest in sales force expansions over time. That's really a function of time and distance and maturity of the sales organization. We're very disciplined about that. We want to make sure the market is ready. There's a product market fit dimension that we evaluate expansions and growth. For example, ProCyte One, that was -- the hematology analyzer, really designed at the inception for our international hematology first markets in terms of cost and footprint. It's super important just to Reference Lab network. So we continue to build out our Reference Labs on a global basis, both from a European geography, but also within various markets in Asia Pacific, we know that, that's super important, and then making sure that the customer support or customer experience proceeds is ahead of the investment in commercial. We want to make sure that customers who may not know IDEXX and the first exposure to IDEXX, they get not just solutions that perform at a very high level, but the support organization is there in-country, supporting them when they have all challenges. We think all those things combined give us a lot of confidence that the 13% to 16% growth rate is achievable. Daniel Christopher Clark: Just had a quick follow-up on visits. Last third quarter, you talked about 1% to 1.5% growth benefit to visits from launch of a different company's pain medicine. Was there any impact on headline visit numbers in the quarter as you've lapped that launch? Andrew Emerson: Yes, Dan, I think just in terms of the metric that you're quoting, I think that was from the prior year. We had highlighted that we have seen some effect on clinical visits and the inverse impact on diagnostic frequency. Really what we're just trying to call out is the change in the metrics themselves and not necessarily an impact on our IDEXX business directly. And so there's nothing I'd call out or highlight as part of the change or impact that we saw here in Q3 related to that at this point. And again, I think we're in at least a clean view from both the sector metrics and what we've highlighted for the interim performance that we've had in IDEXX. Operator: The next question is from Brandon Vazquez with William Blair. Brandon Vazquez: Congrats on a nice quarter. I'll just ask 1 here because we're coming up on time. But you highlighted the ability to get into some competitive accounts with Cancer Dx. Just curious, given on the Reference Lab side, given there's a lot of contracts there, what's your ability to maybe use that as a foot in the door and start taking share, even more share, within that market? So just talk a little bit about what that commercial process can look like and how long that might take given you're kind of opening new doors there? Jay Mazelsky: Yes. Brandon, our reference portfolio is very broad and differentiated. Clearly, that's a point that Cancer Dx test is a point of differentiation and having approximately 17% of test submissions coming from competitive Reference Lab customers, I think, is something that is gratifying both from these pets getting a better standard of care. And also that gives us an opportunity to put our best foot forward and reintroduce, in some cases, the IDEXX and the IDEXX Reference Lab to these customers. So it's an important piece, but I think it's just a piece. Operator: The next question is from Andrea Alfonso with UBS. Andrea Zayco Narvaez Alfonso: I just have a question on Cancer Dx. You noted the 5,000 ordering practice. I guess just with respect to adoption in terms of the screening panel, are you able to frame at all sort of how that sort of thinking in terms of just general cutoff points as far as age and frequency, where there's sort of agreeing on a sweet spot? And obviously, wellness visits, you continue to lag, so how is the company engaging that as far as initiating those talking points? Jay Mazelsky: Sure. There's 2 separate use cases for Cancer Dx. One is an aid in diagnosis. So these are typically dogs that come in, they have clinical symptoms consistent with lymphoma, and veterinarians are using this as a test. At this point, they represent the majority, but just bare majority of tests. And then the screening test that is more wellness screening, and that we think it makes sense for dogs that are 7 years or older, as well as breeds that may have a higher incidence of cancer. So we believe that over time, what we're going to see is we're going to see the test used it will flip. It will be more as a screening test, but also aid in diagnosis for sick patients, but that will be the minority of cases. The other thing that I would point out is, as the panel expands, so if you think about lymphoma, plus mast cell tumor detection, that represents over 1/3 of cancer cases in dogs. It becomes a much more compelling value proposition as part of a wellness screening. And we've also indicated that there will be a third cancer screen in 2026. So at that point, we think this -- it's sufficient in terms of menu comprehensiveness to really be seen by customers as an attractive screening test. Operator: The next question is from Keith Devas with Jefferies. Keith Devas: Maybe just higher level, just thinking about the thoughts on the pace of innovation you guys have done a lot, obviously, in the last year. There's more coming next year. How do you guys know you're not doing too much too soon or too much that the market can or can't absorb it, macro environment is only slightly improving maybe from your standpoint? And maybe the second follow-up is, do you think the planned reinvestment plans that you have from this year and into next year is enough? And how you might course correct if things are a little bit better than anticipated? Jay Mazelsky: Yes. We're -- we think the innovation agenda portfolio is aggressive, but aggressive from an intentional standpoint, that it represents a set of portfolio solutions, whether it's assays or new instruments or software that our customers are hungry for. Clearly, our commercial organization has a very large footprint, and they're subject matter experts and they're able to digest these testing solutions and bring them to customers in ways that allow testing growth. So the opportunities abound. Ours is a sector development business model, and innovation is a key driver behind being able to develop the sector. And so with that, we'll now conclude the Q&A portion of the call. Thank you for your participation and engagement this morning. It's once again my pleasure to share IDEXX executed against our organic growth strategy while delivering strong financial results in the third quarter. And so with that, we'll conclude the call. Thank you. Operator: This concludes today's call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for joining us today. My name is Tyler. I will be your conference operator for this session. Welcome to Grab's Third Quarter 2025 Earnings Results Call. [Operator Instructions] I will now turn it over to Douglas Eu to start the call. Douglas Eu: Good day, everyone, and welcome to Grab's Third Quarter Earnings Call. I'm Douglas Eu, Director, Investor Relations and Strategic Finance at Grab. And joining me today are Anthony Tan, Chief Executive Officer; Alex Hungate, President and Chief Operating Officer; and Peter Oey, Chief Financial Officer. During this call, we will be making forward-looking statements about future events including our future business and financial performance. These statements are based on our current beliefs and expectations. Actual results could differ materially due to a number of risks and uncertainties as described on this earnings call, in the earnings release, and in our Form 20-F and other filings with the SEC. We do not undertake any duty to update any forward-looking statements. We will also be discussing non-IFRS financial measures on this call. These measures supplement, but do not replace IFRS financial measures. Please refer to the earnings materials for a reconciliation of non-IFRS to IFRS financial measures. For more information, please refer to our earnings press release, remarks and supplemental presentation available on our IR website. And with that, I will turn the call over to Anthony to deliver his opening remarks before we open it up for questions. Ping Yeow Tan: Thank you so much, Doug. Really appreciate everyone being here with us. This quarter marks another vital step forward in our journey, not just in our financial performance, but in how we are building a more resilient tech-driven platform for the long term. Our growth was a key standout this quarter, accelerating to new records as product-led innovations drove nearly a 6 million year-over-year increase in monthly transacting users to 48 million. This fueled a 24% year-on-year increase in on-demand GMV or 20% on a constant currency basis. At the same time, we continue to maintain cost discipline and leverage our ecosystem scale to drive profitable growth. Group adjusted EBITDA rose 51% year-on-year to a new record of $136 million, marking our 15th consecutive quarter of sequential profitability improvement. Our adjusted free cash flow also improved by $185 million year-on-year to $283 million on a trailing 12-month basis. Now these achievements are the direct result of our consistent focus on improving accessibility, affordability and reliability. This has enabled us to continue growing earnings for our driver and merchant partners, while expanding our marketplace, bringing new users on the platform and deepening engagement and loyalty among our user base. As we head into the final stretch of 2025, we expect to exit the year on a high note. We remain on track for our financial services loan portfolio to exceed $1 billion and for full year on-demand GMV growth to accelerate from 2024 levels. As a result, both our Mobility and Delivery segments are well on track to exit the year at record GMV levels. With our teams executing with focus and AI unlocking new growth and efficiency frontiers at unprecedented speed, we are confident in our ability to drive sustainable long-term value for our users, partners and shareholders. With that, I'll now open the call for questions. Operator? Operator: [Operator Instructions] And your first question comes from the line of Pang Vitt with Goldman Sachs. Pang Vittayaamnuaykoon: Two questions for me. Number one, on the competitive landscape. Can you help us discuss some of the latest that you've seen on the competitive landscape, especially in Indonesia? You delivered a strong 24% year-on-year in your on-demand service overall. Wondering whether there's any color you can share for what is the growth you have achieved in Indonesia? And what have led to your strong outperformance versus peers? That's question number one. Question number two, can you discuss further on your latest update in guidance? What have led you to increase the guidance? And can you help us break down estimate by segment? Alexander Charles Hungate: Alex here. Let me take your first question, and Peter will take the second question. On Indonesia, it's a key market for us. Our business continues to perform strongly there. It remains a very competitive market. But what we're seeing is that the product-led growth strategy that we've been talking about for the last few quarters is driving an increase in MTUs for both deliveries and mobility, particularly the affordability, strategy is bringing in a lot of GrabBike and GrabCar Saver users at the lower end of the pricing ladder. And at the top end, Indonesia still has a lot of wealthy customers, and we've launched GrabExecutive there for mobility, and there's a lot of domestic tourism and business travel, which is helping drive our high-value rides and our priority food delivery services. We're also growing GrabMart, which is helping to drive those elevated levels of the delivery at GMV growth that we're seeing. So overall, it's a reflection of microcosm of what we're doing across the group. I would say you can't see these in the numbers, but I can tell you that there's strong growth in Indonesia, and a strong sequential margin improvement as well. So we're very comfortable with what we're doing in terms of the market position and our penetration of the overall opportunity in Indonesia, which remains huge and something we continue to be excited about as we invest in that country. Peter Oey: Pang, on your guidance question. Look, you've seen our numbers from Q1 to Q3, how we've been performing. And we're continuing to have that consecutive quarter-on-quarter growth in our EBITDA guidance, and part of that is the top line growth that you're seeing in the business that Alex just talked about. You've got that nice momentum in our deliveries business, growing at 26% clip. You've got our mobility business also growing at 20%. So -- and let's not forget also our financial service is growing at 40% revenue and our loan book continues to hit all-time high. So you've got nice momentum just overall from the top line side. But also at the same time, we continue to be very disciplined on our cost structure. You see our regional corporate costs increasing only 8% on a year-over-year basis. But what's more important now that we're seeing about 150 basis points improvement in operating leverage as a percentage of revenue of our regional corporate costs. And that gets critical as we continue to make sure that we're spending in the right areas. So we expect the strong top line growth to continue into the quarter where fourth quarter is usually our strongest quarter, and we're on track to make sure that we deliver all the things that Alex mentioned about affordability, reliability, accessibility. And so with that, we are more confident in raising our EBITDA guidance to the $490 million and $500 million for the full year 2025. I do want to caveat that as we enter into Q1, which is around the corner for us, it's one of our more softer season, which is really very traditional for us. So -- but we do expect to maintain that profitable growth going into 2026. Operator: Your next question comes from the line of Alicia Yap with Citigroup. Alicis a Yap: Congratulations on the solid set of results. Two questions. First, could you elaborate a little bit on your MTU growth? Have you seen any major differentiations in terms of the user profile you added this quarter compared to last few quarters. For example, is that more female this quarter, any more of the younger generations or any like the second or the lower-tier cities that contributed to the bigger additions of the new user this quarter? So any metrics that you could share would be helpful. And then second question is, given the successful conversions of the product-led innovations to drive the order growth and also the higher frequency per user as well as your explorations into the GrabMart and also the grocery business, so following few quarters of the accelerated GMV growth for your delivery business, how should we be thinking about the growth rate for the fourth quarter this year and also into 2026? Should the growth rate be normalizing around maybe mid- to high teens or would that be possible to stay above the 20% growth for 2026? And then if you are able to grow faster than the high teens or even 20% mark, would that mean your margins expansion will be more gradual or even potentially see margin flattish or declining for next year? Alexander Charles Hungate: Thanks, Alicia, for those questions. Let me take those 2. So MTU growth, as you saw, on-demand MTUs grew 14% year-on-year. In fact, DTUs grew even faster. So our daily transaction are growing faster than our monthly transactions. So we are succeeding in our goal of being part of the daily lives of Southeast Asian. On demand transactions, the actual transactions grew 27%. So you can clearly see that increase in frequency effect as well. And this is very much part of our strategy for driving the flywheel of increased demand, increased supply, improved quality of services and driving further demand after that. In terms of the demographics, Saver deliveries obviously have been instrumental in acquiring new users, growing frequency as well over the past few quarters. So almost 1/3 of our deliveries MTUs, joining the platform, the new MTUs are coming through Saver deliveries. So that's an important driver of the flywheel again this quarter. It's similar for transport, where we see GrabBike Saver and GrabCar Saver also bringing in a lot of MTUs. At the same time, as I mentioned earlier, when I was answering Pang's question, the high-value services are also growing fast. So high-value rides grew 66% year-on-year. And then priority delivery is also growing fast. So we're seeing growth at both ends of the pricing ladder, which is healthy. But the critical thing is that we're also being successful in cross-selling and retaining these new users to build long-term value -- long-term customer value. So what you can see overall, if you look at the GMV per MTU, so despite the strong growth in MTUs, the GMV spend per MTU grew 7% year-on-year. So I think that shows that your affordability strategy is both bringing in new customers, but also with our cross-sell is allowing us to deepen the value for each of those customers. So this growth effect is distributed both across big and small cities, you asked about that. But I would say that it skews to younger customers for the Saver products. But it does show that our product-led flywheel for deliveries and mobility is spinning faster and faster. And then your next question about growth rates going forward. We still feel that the -- our MTU penetration of Southeast Asia is low, when you consider the size of the population and the growing spending power. So when you look at what's driving these elevated growth levels in the last three quarters where we've managed to accelerate quarter after quarter, you can see that there are three elements, which I feel are all sustainable going forward. One is the product-led viral growth. Without increasing consumer incentives, we're able with group orders and family accounts to bring in new users, so the ecosystem is self-generating and bringing in new users on its own. We've also got this very strong GU base, GrabUnlimited is the biggest subscription program, paid subscription program in Southeast Asia. The users grew again 14% year-on-year to another all-time high. So they now represent over 20% of our delivery MTU base. This is also a sustainable driver of future growth. And then we have this adjacent GrabMart opportunity where now we have this functionality called GrabMore where a food user can just add on a grocery order to the food delivery that they're about to receive, proving to be very popular, and that will allow us to penetrate more and more of our large food base so that we can keep GrabMart growing. It's already growing at 1.5x the size of food, but we think there's potential to increase that penetration. In terms of the margin impact, we will be disciplined in driving sustainable growth, but also focusing on the absolute EBITDA growth. If you look at the margins this quarter, in fact, they've improved both for mobilities and for deliveries. As we've said in prior quarters, sometimes we'll launch new products and we'll promote those new products, and that will mean margins dip down. But overall, you can see that the margins this quarter have recovered to the average levels for the year. So there's no change in our margin outlook that we stated for the longer term. We still expect to get deliverers to 4% plus and mobility to 9% plus. So we believe we can do this while not sacrificing growth. As you heard earlier, we expect fourth quarter on-demand GMV to grow sequentially from the third quarter. So we will exit 2025 at record GMV levels and make a healthy entry into 2026. And we do expect margins for deliveries to continue to grow from these levels into next year even while we invest into new product initiatives and the grocery growth where we're seeing stronger and stronger traction. Operator: Your next question comes from the line of Navin Killa with UBS. Navin Killa: I had a couple of questions. One is with regards to your balance sheet. Obviously, strong cash balance, you raised the CBs earlier this year, and the business continues to be free cash flow positive. So how should we think about the use of this cash going into the next 12 to 18 months? And then secondly, in the context of some of the growth conversations that we have had, just wanted to understand how you are seeing the macro environment. And I mean, if you were to split this growth for this year between, let's say, macro market share gains and the impact of some of these initiatives that you've launched around new products, how would you qualitatively think of these three factors driving the growth? Peter Oey: Navin, it's Peter here. Let me kick it off with your first question around capital allocation, and I'll ask Anthony to chime in around the macro -- your question about macro. On the capital allocation framework, no change in terms of how we're thinking about it. And we've always been -- our focus as always on three pillars. The first 1 is around investing for organic growth. And you're seeing that in the business, the profitability of our business and the growth that you're seeing, and some of that came from also some product adjacencies and tuck-ins that we've done as part of that profitable growth that you're seeing. But the organic growth has been really critical. One way that we've been deploying the balance sheet is on our loan book. If you look at the loan dispersal for Q3, for an example, we hit roughly $3.5 billion on an annualized basis on that dispersal. So Q3 alone was up roughly about 56% on a year-over-year. And that's a majority of that is on our balance sheet itself. So it's a great use of capital for us. It yields a higher rate of return. Actually, it returns above our average cost of capital for us, and we'll continue to use that balance sheet as we recycle those loans. That's just one example in terms of organic. We're also obviously deploying some of those capital in terms of investing in terms of new products that we're earmarking for 2026. On the second pillar is around what we call very highly selective M&A, which are more opportunistic and those are a lot more where it's more speculative also. But those have a very high bar, as you know, and we've always talked about this. But where we have been investing in some of the longer-term bet that we're looking at for things such as autonomous vehicles. And we've deployed some of those capital in making in those critical investments that we're leaning into. You've seen the announcement that we made with WeRide for an example, May Mobility as part of our strategic pillar in terms of making sure that we are the pioneer and we're leaning in, in terms of autonomous vehicles deployment here in Southeast Asia. But overall, as a framework that M&A is a very high bar for us, and we want to make sure that the synergies that we can extract is of a greater value. And then third, where there's excess capital, Navin, we'll obviously look at returning it to our shareholders. So those remain critical. Those three things that we believe in the recent capital raise that it will give us strategic flexibility in the interest of our investors. We'll continue to look at and explore those longer-term growth that Alex mentioned and how do we create the best value for our shareholders. But we are always, always prudent in terms of how we are managing our capital and our balance sheet. So hopefully, that answers the question. Anthony, on the macro? Ping Yeow Tan: Thanks, Peter. And thanks, Navin, for a really good question, especially on the macro environment. So look, in Southeast Asia, there's been a lot of positive focus recently. As many of you are aware, Malaysia hosted the ASEAN Summit earlier this week, and President Trump visited a region to finalize trade negotiations with several of the Southeast Asian countries. I want to call out was the peace agreement between Thailand and Cambodia. These have been two very significant and positive events for the region, and we are seeing signs of tourism recovery in Thailand as the country heads into its seasonally strongest quarter of the year. Now to, Navin, your second part of your question, are we seeing weakness in consumption? The short answer is no. Our platform is proving to be highly resilient. We're not seeing a broad-based slowdown. In fact, our motto is built for this exact environment point to two key reasons. One, our strategy is countercyclical. The uncertainty in many ways actually accelerates our flywheel. We are seeing a healthy increase in partners coming into our gig platform to find income. And that, of course, improves supply. This also enables us to reduce wait times and enhance reliability and most importantly, it lowers prices for our users, which our users really appreciate. This increases our affordability and grows the overall user base, as you saw in our numbers, which is our key strength. Also, our focus on affordability is paying off. So this isn't new. Our focus on affordability, which we began in 2023, with products like Saver delivery, Saver transport, that was explicitly designed for this purpose. These services are now essential for users, enabling them to manage their wallets effectively. So this makes us a must-have service not a nice to have, which protects us from a pullback in discretionary spending. Look, but the reality is we may not be immune to macro trends, but our strategy is designed to be resilient and even opportunistic in this landscape. So we continue to reinforce this by partnering with governments as well. For instance, in Indonesia, we've been running what we call the Kota Masa Depan, which is a future cities program in partnership with the Ministry of Micro, Small, and Medium Enterprises, where we have worked to support small businesses and digital upscaling across nearly 20 cities. And in Vietnam, our AV launch is really to design to drive better NPS and also lower partners costs. These on-site projects, they strengthen our ecosystem and create a more sustainable, profitable business for the long term. So we are confident in our strategy and our outlook. Operator: Your next question comes from the line of Venugopal Garre with Bernstein. Venugopal Garre: Two questions for me. First question is more something that you discussed earlier in the call about the GrabMart business, the grocery business, which is outpacing the growth of full delivery. I wanted to really understand in terms of regions that are driving that growth for you, especially geographic regions and more importantly, I want to understand what are those big initiatives that you would need to incrementally take to make this a much, much larger segment? The reason I'm asking this is because grocery on an absolute basis is perhaps still relatively smaller in terms of penetration compared to the overall TAM that is there in the region. So newer models like with commerce, any thoughts around -- any change in landscape around the models that you might use to really scale up this business? That's the first question. The second one is more of a follow-up on the investment side of question that was discussed. I wanted to understand the investments that you have done in the autonomous tech company. This is largely to secure tech, or is it more in the nature of financial investment? And more importantly, could you also outline the current progress with respect to the rollout on autonomous. Alexander Charles Hungate: Thanks, Venu. This is Alex. Let me take the first question. I think Anthony will take the question about AVs. So you're right. Our deliveries -- our groceries business, GrabMart, is relatively small compared to the rest of deliveries. It's only about 10% of deliveries GMV today. So it's very small compared to the TAM that you correctly identified is out there. We are seeing GrabMart grow across all markets. And one of the drivers for that is the rollout of GrabMore, this capability that allows customers to add groceries to their food orders for the same delivery cost, proving to be very, very powerful for cross-sell into groceries. So GrabMart continues to outperform, growing 1.5x faster than food delivery segment. And we've also seen that the users of both food and mart demonstrate order frequencies that are 1.8x higher than food-only users. So we know that it's a great driver of stickiness and loyalty and long-term value. In terms of the various business models, we are experimenting about -- with some of the newer business models that would open up more TAM for us. So in Malaysia, where we have Jaya, we are experimenting with quick commerce around certain Jaya stores where we can really sweat the inventory and store assets. So without increasing our fixed cost, we're able to drive up the volume of orders quite significantly. Even though the experiments there are primarily grocery focused, but we have seen a nice step-up in demand when quick delivery is an option for customers. So I think there's something to build on there, and we've started to experiment in 1 or 2 other countries as well like Indonesia, where we work very closely with certain partners. So yes, I think watch this space, very early days for us. Grocery focus, but we are definitely exploring new models which can help us unlock future large TAM. Now Anthony, on AVs. Ping Yeow Tan: Yes. Thank you, Venugopal. Let me talk about the plans and our strategy regards to AVs. Now our recent AV investments are all very deliberate. It's part of our long-term strategy to lead the adoption of AV and remote driving across Southeast Asia and to secure the technology supply chain through strategic partnerships. While AVs are already a reality in parts of the world, we expect a longer ramp-up to mainstream adoption in Southeast Asia for a few reasons. One, Southeast Asia is still behind in the cost curve. Labor costs in Southeast Asia are significantly lower compared to the U.S. with Singapore being an exception. Now we believe, therefore, it will require considerable time for the unit economics to reach parity with human drivers. Second, the crossover point will occur when AVs become safer and even cheaper than alternative options before we see a huge transformation in the way current transportation is served. Now as the largest mobility platform in Southeast Asia, AVs and remote driving are something we must lean into. We'll continuously learn about the technical optimization of AV performance on our platform. We'll also maintain a hybrid fleet approach for the foreseeable future and intend to collaborate very closely with regulators across Southeast Asia. Now one of our top priorities as part of this I would say, essential part of this strategy is to work alongside regulators to upscale our driver partners as part of this shift. Our focus is to find the new jobs that will be required as we shift towards a hybrid transport world. We see new kinds of jobs emerging. For example, drivers could be remote safety drivers, data labelers, they could change LiDARs, cameras and so forth. So as we lean into AVs and remote driving with several partnerships already under our belt and more underway, we remain very excited about the longer-term opportunity to build capabilities to operate a word-class hybrid human and autonomous fleet to deliver the best experiences for our customers. Operator: Your next question comes from the line of Wei Fang with Mizuho Securities. Wei Fang: I have 1 quick one on the Financial Services segment. We've seen very strong growth there, right, but with sizable bad loan provisions, of course. I was just wondering if management can talk about what you have learned about the newly acquired customers in recent quarters? And how you are fine tuning your risk provisions going forward? That's it. Alexander Charles Hungate: Thanks, Wei. Let me take that one. You're right. We are accelerating our financial services growth, and we are reaffirming our goal to exceed a $1 billion loan book after excluding credit loss provisions by the end of 2025. You can see in this quarter, there's been an acceleration of loan dispersals. So we're now at a $3.5 billion run rate on an annualized basis, growing 56% year-on-year, so very strong underlying growth. We do see, as you mentioned in your question, an increase in the expected credit losses coming out of the models that we run to make sure that we're providing well for the future growth. It's a natural consequence of that growth. It's an upfront provisioning that occurs in the lending -- accounting of lending. And it's obviously offset against the revenue generation from those loans over their lifetime. So you should expect with this kind of accelerated growth that the ECLs will run through the P&L and sit on the balance sheet as you're seeing in the current quarter. What I would say though is if you look at the underlying performance of the Financial Services business, without taking those provisions into account, then our Financial Services segment adjusted EBITDA improved actually quarter-on-quarter and year-on-year by about $4 million quarter-on-quarter and $17 million year-on-year. That's an important measure for you all to see because it underlies that if we -- if we don't need to pull down all of those provisions, it underlies how we're getting operating leverage out of the growth of the business. You asked what we were learning from the customers. We are, in many ways, a data science company. So we are learning every single second of every single day from how our models ingest all of the different data points that we can generate through our ecosystem. Unlike banks, we can access a lot of unconventional markers of likelihood to repay that allow us to underwrite segments of the population in Southeast Asia that currently cannot access credit. These are often known as underbanked, unbanked. So a lot of what we do is about financial inclusion, bringing people into the market, allowing them to actually establish a credit record. About 1/3 of our customers could not access data because they weren't on a credit bureau -- could not access credit because they weren't on a credit bureau prior to borrowing from Grab and our financial subsidiaries. This is very important to us and very much aligned with our mission. The repayment record actually from those customers is very pleasing. They know that when they repay us, they start to establish a credit record and they start to, therefore, become included in the financial and economic prosperity of Southeast Asia. So we're very pleased to learn more about those customers and to bring them into the financial services domain for the first time. So the credit models -- every time we launch a new product, the credit models obviously take time to be established. But what you're seeing this quarter is that across the banks and GFIN where you're starting to see that we've got credit models maturing. We've got new models being launched all the time. We're increasing the cycle speed with which our data science improves these models. So that's why going into this fourth quarter, if you run the numbers, we're predicting an acceleration of the loan book size. And we also are indicating that, that acceleration will continue into 2026. Operator: Your next question comes from the line of Mark Mahaney with Evercore ISI. Mark Stephen Mahaney: Two questions, please. One, on the consumer incentives. Just talk about how we should think about where those will hold going forward. There's been a little bit of volatility, some leverage one quarter, deleverage another quarter. Is it -- are you running them at a level that you think is sustainable going forward? Or do you think we should expect to see leverage against those in the future? And then second, just talk about advertising intensity or what I mean by that is advertising revenue, the ramp that you're seeing. Just a little more color on where that is now? How much -- any new pockets of strength in there and how to think about growth for that particular segment over the next year or 2? Alexander Charles Hungate: Mark, Alex here. Let me take that. On consumer incentives, you can see it's come down a little bit this quarter. We think that we can keep it at around this level going forward because we're getting a lot of boost from the viral product rollouts that we've been doing. And so we find that the incentive level doesn't have to be as high despite the fact we're accelerating growth for both deliveries and the mobility also staying relatively high and transaction volumes in mobility going up to 30%. That's all been achieved with a reduction in incentives quarter-on-quarter. But I would say for -- in terms of modeling, you can assume that the incentives stay at around this level on the consumer side. In fact, this quarter, we've had to actually boost the driver incentives slightly because the growth in demand was so high. We needed to make sure that we can maintain the fulfillment quality and reliability of our services. So you can see that in contrast, there's a slight increase in driver incentives. So going to the core question, these incentives can go up and down a little bit quarter-to-quarter. But in terms of modeling steady state, I'd say we're about the right levels where we are today. The ads piece. The bigger we get, the more interesting we get for advertisers, whether those be the merchants on the platform or FMCG customers who want to advertise across the platform as well. I think for the food side, we see continued penetration of advertising. So we expect that to continue to move up gradually into next year. We've got total -- the total number of quarterly active advertisers joining our self-serve platform actually increased 15% year-on-year. So we're continuing to see new advertisers coming on to the platform, which is great. Many of them coming in through our self-serve capabilities. And then the average spend of the active advertisers on that self-serve platform grew 41%. So once people try the platform, they see it, it works very well for them in terms of ROAS, and they start to increase their spend. So these are both lead indicators of what we expect, which is a continued increase in the penetration of our deliveries GMV with ads. As we grow the GrabMart business, which we've talked about a lot on this call, we expect to be able to attract more and more FMCG advertisers. And there, if you look at some of the models in other parts of the world, you can see the penetration of advertising for grocery -- online grocery businesses is actually even higher than online food businesses. So that's something that as the scale increases, we should be able to improve as well. So we're very bullish about the advertising part of our business. In fact, I would say it's a key driver of margin growth in the longer run. Operator: Your next question comes from the line of Divya Gangahar with Morgan Stanley. Divya Kothiyal: I had two questions. One is actually a continuation of what you just said, Alex, on the advertising being a driver for deliveries. So my question is on deliveries margins path to 4%, could you talk about how different are the margins across countries just qualitatively and the role of some of these countries lifting up the overall portfolio margins. In the past, we've thought that Indonesia has been a drag, but looking at the competitive dynamics there, the margins for delivery seem to be relatively healthy in Indonesia at least for our competitor. So trying to understand how we look at that path to 4% from an advertising country-wise perspective as well as GrabMart and how dilutive that is to margins? So that's my first question. And my second question is on financial services. Now that we're closer to the breakeven year for fintech, could you maybe just share the framework and the milestones we need to hit over the next 6 months to be able to meet the target? And what do you see as the key risks? Also, if you can talk about some typical use cases that you're seeing for this loan book expansion, especially on the digital bank side, that would be helpful. Alexander Charles Hungate: Thanks, Divya. Yes. In general, the Mart business has a lower margin than the food deliveries at this point. But of course, that's a lot because of the speed of growth. And also because the dynamic with the FMCG advertisers is such that we get more valuable to them, the larger we are. So although we have a lot of interest from efficacy advertisers, I think we're relatively small compared to some other venues still in terms of commerce in general. And therefore, it's important that we continue this growth. And I think that's where you start to see improved margin on the GrabMart side. In terms of Indonesia, I can confirm Indonesia continues to grow strongly again for us. Our deliveries business in Indonesia grew in the high teens in this year-on-year for this past quarter. So although the margin is stable, we're actually able to generate a lot of growth from that situation. And like I was just saying, we feel that it's important to get larger in order to really realize the full opportunity from the Mart business. In other markets, for example, Malaysia, we've already reached our steady state margin target of around 4%, and that's where we're starting to experiment with some of these other models around instant commerce, as I mentioned earlier because there we can generate a lot more growth from entering into these adjacent markets based on the asset configuration that we have with Jaya Grocer doing very, very well in Malaysia, for example. So there are some differences across markets. You're absolutely right. But we're adopting a portfolio approach. So we're making sure we achieve our margin targets not just across different countries, but also across the verticals so that we can produce this kind of high growth but also maintain our margin progression towards those long-term targets that we've shared with you over the past quarters and years. Moving to Financial Services. Yes, we're coming now towards our breakeven year. I can confirm that we are reiterating that we will breakeven overall as a segment in the second half. So it's a combination of banks and GFIN and that the banks will breakeven in the fourth quarter. The milestones really relate to loan disposal growth, which, as you can see, is accelerating now through this annualized run rate of $3.5 billion in this current quarter. We started to see that the credit models are maturing nicely. We now have flexi loan products available for consumers in all 3 of the bank markets. We've just launched also a flexi loan product through our non-bank financial company in the Philippines, just in this last quarter. So we are able also to serve personal loan needs in other parts of the region beyond where we have those three banks using GFIN as the vehicle. We can share expertise about the credit modeling across those countries, which has proven to be very, very successful. As I said, we are really a data science company. So the way in which those models advance is super important to us. You can see that EBITDA can fluctuate as the ECLs flow through the P&L and into the balance sheet. So I think the key thing to watch there is that the segment adjusted EBITDA excluding the credit loss provisions is continuing to improve. So that gives us line of sight and confidence that we're going to hit those breakeven targets. So the key thing for you to watch is the loan dispersal growth. We are seeing operating leverage on the cost base, too. So we're confident that we can continue to manage the cost very tightly going into 2026. In terms of use cases, I think the last part of your question was asking about the different use cases. We are serving on the SME side, we're serving merchants that are on the Grab ecosystem. So we have tremendous line of sight of their cash flows. And therefore, the credit models have a unique advantage relative to a conventional bank that wouldn't have line of sight of those cash flows. So small businesses will be a big focus for us. The unbanked and underbanked as I mentioned, particularly gig workers were able to finance them very, very accurately. And you can see that -- well, I think we've said that the risk-adjusted returns from our lending activities are actually comfortably above our cost of capital, and they remain above that. And even as we grow at these rates, in fact, the returns improved slightly quarter-on-quarter. So we are continuing to grow very rapidly, but at the same time within the risk appetite that we've set for ourselves because of the performance of these credit models. I hope that helps in terms of some scenarios where we can provide unique capabilities to help the progress of Southeast Asia by bringing the -- bringing more and more people into the financial inclusion sphere. Operator: And your final question comes from the line of Jiong Shao with Barclays. Jiong Shao: Congrats on a very strong set of results. So first question is really the follow-up on the previous one on the food margins. I think in the last quarter, you talked about Q4 delivery margins should be up sequentially from Q3. I want to confirm that's still the case, but more importantly, looking into 2026, just want to get a better understanding on the sort of the pace of the margin expansion for the food business. And what are some of the factors may kind of make it faster or slower in terms of expanding the margins for the delivery business for '26. And my second question is around another way to monetize the delivery business. I think a couple of quarters ago, you may have talked about some of your thoughts around in-store kind of newer monetization, I recall you might have mentioned something to stop at these trials in '26. I was just wondering if there's any update around that? What may be the sort of the modality around that type of in-store monetization? Ping Yeow Tan: Jiong, let me take the food margin question that you asked about. The way we approached deliveries is a portfolio play. And Alex kind of alluded also earlier when he answered the question to Divya. So as you know, the portfolio of delivery product is quite broad and quite wide competitive to, say, to our mobility business. So if you look at it, we have the food business, and we have the Mart which is a composite of the grocery business, but also there are some other parts of the non-grocery that we also serve there. We also have other forms of food products that we have, things like group orders. We have also dine out those omni commerce product features that we've also deployed in the marketplace. So it's a real broad portfolio. So the way we think about it is the margins that you'll see in our overall deliveries is better to look at it as an overall deliveries business. It continues to be optimized. Now there will be times from quarter-to-quarter where we will invest and lean in into -- in adopting a product or when there's a product launch, and you've seen that in the previous quarters. But overall, food margin as our core business today continues to see improvement overall, which is exactly what we want to see because it's the most mature is about all deliveries, portfolio of products today. Where we are starting to invest also and also scale is in the area of grocery delivery or Mart deliveries that we've spoken a lot about is still underpenetrated. It's 10% from our overall deliveries business. We also have other products that we're pushing. If you look at our -- the cross-selling that we're doing also across our different footprint and Mart products, also it continues to increase. And we want to see more adoption of those other products that we've introduced from the beginning of this year. So as a strategy overall, it's a portfolio play. You'll see that we'll -- as a mixture of portfolio, those margins will be pretty much on an upward trajectory, but the mix between those margins will change quite a fair bit because again, the way that we're just on strategy in terms of scaling our deliveries business, that growth that you're seeing is a combination of those factors that you see on our portfolio play. At the same time, also as the countries in each of our countries also continue to execute, you'll see also the margin profile of those countries also looks somewhat a little bit also from our portfolio, different from country to country as we put on the gas on certain things, and we pull back on certain things also at the same time. So -- but overall, the trajectory is moving up in the right direction. It's a portfolio that you'll see and the monetization that comes with that also becomes really critical. And that's where Mark asked the question or Divya on advertising also is really important because the advertising piece is a wrapper that goes around our deliveries play, which is really critical. And we're bringing in more and more advertisers on the platform itself. So I hope that gives you a bit of a clarity. We don't do any in-store. We don't have any in-store in terms of offline retail or anything upside except for the Jaya portfolio that we have in the supermarket business. We do have certain gray stores that we use today, which is really important. But in terms of how we work with the offline retailers, especially is in the area of making sure we're bringing in more traffic to our food merchants. So the dine out that we do today brings today the -- all the ingredients for a user to transact from an online Grab app to an offline experience, whether it's through the in-store dining that we serve today, where they're also the reservation system that we're using now on the Grab app also that omni-commerce play becomes really important in terms of monetization, but also making sure our merchants are also continuing to increase their earnings and traffic at the same time. Operator: That concludes today's question-and-answer session. I will now turn the call back to Peter for closing remarks. Peter Oey: Well, thanks very much, everyone, for dialing into the call. We always appreciate your time. Anthony, Alex and I would like to express all our appreciation to -- especially through our driver community, all our merchant partners, and also to our users and shareholders for their continued trust on all of us here in Grab. I also want to thank you to all the Grab team for a great quarter. Thank you all. And we're looking forward to closing the year stronger than ever. We'll be on the road together with the IR team, Ken, Doug and I, we'll do our usual hitting the road, bringing the pavements. So we'll be attending various IR conferences across Europe, the U.S. and Hong Kong and Singapore over the next coming weeks. So if you wish to meet up, please just reach out to the IR team. We would love to see you in person. Until then, we'll speak at the next quarter earnings. Thanks, everyone. Operator: This concludes Grab's Third Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect.
Operator: Ladies and gentlemen, thank you for standing by. My name is Colby, and I'll be your conference operator today. At this time, I would like to welcome you to the EverQuote Q3 2025 Earnings Call. [Operator Instructions] I'll now turn the call over to Brinlea Johnson. Brinlea Johnson: Thank you. Good afternoon, and welcome to EverQuote's third quarter 2025 earnings call. We'll be discussing the results announced in our press release issued today after the market close. With me on the call this afternoon are Jayme Mendal, EverQuote's Chief Executive Officer; and Joseph Sanborn, EverQuote's Chief Financial Officer. During the call, we will make statements related to our business that may be considered forward-looking statements under federal securities laws, including statements concerning our financial guidance for the fourth quarter of 2025. Forward-looking statements may be identified with words and phrases such as expect, believe, intend, anticipate, plan, may, upcoming and similar words and phrases. These statements reflect our views only as of today and should not be considered our views as of any subsequent date. We specifically disclaim any obligation to update or revise these forward-looking statements, except as required by law. Forward-looking statements are subject to a variety of risks and uncertainties that could cause the actual results to differ materially from our expectations. For discussion of those risks and uncertainties, please refer to our SEC filings, including our annual report on Form 10-K and our quarterly reports on Form 10-Q on file with the Securities and Exchange Commission and available on the Investor Relations section of our website. Finally, during the course of today's call, we will refer to certain non-GAAP financial measures, which we believe are helpful to investors. A reconciliation of GAAP to non-GAAP measures was included in the press release we issued after the close of market today, which is available on the Investor Relations section of our website. And with that, I'll turn it over to Jayme. Jayme Mendal: Thank you, Brinlea, and thank you all for joining us today. We achieved record top and bottom line performance in Q3. Our team continues to help carriers and agents drive profitable policy growth amidst a healthy underwriting environment. We're making steady progress toward our vision of becoming the #1 growth partner to P&C insurance providers by delivering: one, better performing referrals; two, bigger traffic scale; and three, a broader suite of products and services. As we innovate new products, release features and further embed AI into our marketplace, we are fast evolving from a lead gen vendor to a growth solutions partner for our customers. We continue to partner more closely with carriers and differentiate our marketplace through Smart Campaigns, our AI bidding product. In Q3, we launched Smart Campaigns 3.0, which leverages our latest model to deliver better performance than our 2.0 version. For example, a customer who recently migrated from 2.0 to 3.0 saw a 7% improvement in ad spend efficiency, an early indication that the new model is materially improved. When customers adopt Smart Campaigns and experience these types of performance improvements, they often shift more budget to EverQuote. As we secure more budget, we also gain more data and as a consequence of our AI-driven systems can further improve campaign performance. As evidence of this flywheel working, in Q3, we were notified by a major national carrier that we have become their #1 customer acquisition partner in our channel for the first time. Turning to our local agent customers. We continue making progress in our evolution from a lead vendor to a one-stop growth partner as we roll out and gain adoption of additional products and services to help agents grow. As of October, over 35% of our local agent customers are using more than one of EverQuote's 4 agent products, which demonstrates broadening adoption, but also ample room for continued growth through product expansion within our existing customer base. Our consumer acquisition teams continued executing well in Q3 despite elevated competitive pressure in the insurance advertising landscape. In Q4, we have begun to ramp investments in scaling new traffic channels and programs to support future growth. Since our IPO in 2018, EverQuote has committed to growing 20% and expanding adjusted EBITDA margin by 100 to 150 basis points per year on average. Over the 6-year period through 2024, we delivered as promised with a 21% revenue CAGR and an average of over 200 basis points of margin improvement per year. As we approach the end of the year, we have confidence that we will deliver once again in 2025. And now we have set our sights on reaching $1 billion of annual revenue in the next 2 to 3 years while transforming into a multiproduct, AI-powered profitable growth solutions provider for carriers and agents. Consistent with our track record of saying what we will do and doing what we say, we look forward to updating you on our progress as we drive full steam ahead into 2026. I'll now turn the call over to Joseph to discuss our financial results. Joseph Sanborn: Thank you, Jayme, and thank you all for joining. Today, I will be discussing our financial results for the third quarter of 2025 as well as our guidance for the fourth quarter of this year. We delivered record results in the third quarter, achieving new quarterly highs for revenue, variable marketing dollars of VMD, adjusted EBITDA and net income. In addition, we continue to enhance our operating performance and drove expanding levels of profitability as reflected by our record adjusted EBITDA margin. Total revenues in the third quarter grew 20% year-over-year to a record $173.9 million. Revenue growth was primarily driven by stronger enterprise carrier spend, which was up over 27% from the comparable period last year. Revenue from our auto insurance vertical increased to $157.6 million in Q3, up over 21% year-over-year. Revenue from our home and renters insurance vertical increased to $16.3 million in Q3, up 15% year-over-year. VMD increased to a record $50.1 million in the third quarter, up 14% from the prior year period. Variable Marketing Margin, or VMM, was 28.8% for the quarter. Turning to operating expenses and the bottom line. As we scale and drive top line growth, we continue to expand operating leverage in our business through disciplined expense management and by utilizing AI and other technology investments to deliver incremental efficiency. In the third quarter, we grew net income to a record $18.9 million, up from $11.6 million in the prior year period. Q3 adjusted EBITDA increased to a record $25.1 million, representing a 33% increase year-over-year and significantly outpacing the strong revenue growth we achieved during the same period. Adjusted EBITDA margin expanded to 14.4%. Cash operating expenses, which excludes advertising spend and certain noncash and other onetime charges, were $25.1 million in Q3. As expected, this was up from the previous quarter by approximately $1.5 million for planned investments in our AI and technology capabilities, but effectively flat on a year-over-year basis. We reported operating cash flow of $19.8 million for the third quarter. To note, temporary timing differences in working capital impacted our cash conversion from adjusted EBITDA compared to prior quarters. During the quarter, we repurchased 900,000 shares of our Class A common stock for $21 million from Link Ventures, which is an entity affiliated with funds advised by David Blunden, EverQuote's Chairman and Co-Founder. We believe this was an accretive use of capital, which enabled us to efficiently execute a portion of our recently announced $50 million share buyback program. This transaction approach reduced shares outstanding by 2% in a manner that did not adversely impact liquidity in EverQuote's public float. This repurchase reiterates our confidence in EverQuote's ability to generate long-term sustainable growth and free cash flow while maintaining a strong balance sheet. We ended the period with no debt and cash and cash equivalents of $146 million. We continue to operate in a favorable environment where carriers are broadly enjoying healthy underwriting margins and consumer shopping activity remains elevated. We expect these conditions to persist for the foreseeable future. Of note, approximately 80% of our top 25 historical carrier partners were below peak quarterly spend in our marketplace in Q3, reflecting ample room for additional growth. Now turning to guidance for the fourth quarter of 2025. We expect revenue to be between $174 million and $180 million, representing 20% year-over-year growth at the midpoint. We expect VMD to be between $46 million and $48 million, representing 7% year-over-year growth at the midpoint. And we expect adjusted EBITDA to be between $21 million and $23 million, representing 16% year-over-year growth at the midpoint. As we continue to deliver better-than-expected revenue, we are taking the opportunity to invest in existing and new traffic lines in Q4. While these traffic investments will further build our competitive differentiation and better position EverQuote for long-term growth, they are expected to put some pressure on VMM and VMD in the period, which in turn impacts Q4 adjusted EBITDA and associated margin. Based on the midpoint of our guidance for Q4, we're expecting full year 2025 annual growth in revenues of approximately 35% and annual growth in adjusted EBITDA of over 55%, reflecting our strong operating leverage. It is also worth noting that the midpoint of our Q4 revenue guide in combination with Q3 results implies top line growth of 20% for the second half of 2025 compared to prior record revenues in the second half of 2024. In summary, our performance year-to-date reflects our steadfast commitment to strong execution and a clear strategy. As we look ahead to 2026 and beyond, we remain focused on our goal of creating a $1 billion revenue business by being a leading growth partner for P&C insurance and delivering on our long-term target of achieving average annual revenue growth of 20% with 20% adjusted EBITDA margins, a Rule of 40 company. We believe that our clear strategy and the strength of our team and operating model will position EverQuote to deliver continued growth and expanding profitability. Jayme and I will now take your questions. Operator: [Operator Instructions] Your first question comes from the line of Maria Ripps. Maria Ripps: Congrats on the strong quarter here. Just first, just thinking about the sort of broader industry backdrop. As you pointed out, carrier profitability has been strong and some investors have been asking whether, sort of, carriers are approaching peak margins. Can you please share your view on the sustainability of current profitability levels and what that means for customer acquisition spend? Jayme Mendal: Sure. Thanks, Maria. So yes, carrier underwriting is back to like a very healthy and steady state level. Acquisition spend tends to lag the profitability a bit. And so, we still see quite a bit of room to go in terms of the advertising spend keeping pace with the profitability trends. We still got -- at least we've got one major carrier, national carrier that's in the process of reactivating in Q4. We still got 80% of our top 25 partners below their historical high watermark of spend and still certain state carrier combinations that are kind of working their way through. So the good news is these soft market cycles tend to last 5-plus years, and we think we're in the very early stages of it. So we do see some opportunity for continued strengthening as the balance of the carriers catch up in terms of their advertising spend with respect to where their underwriting profitability is now. Maria Ripps: Got it. That's very helpful. And then you've talked about sort of elevated investments in AI capabilities, technologies of data assets here in the second half of the year. To the extent you can talk about this, what are some sort of key platform features or innovations that investors should expect in 2026? Jayme Mendal: Yes. So some of our most significant investment has been in our Smart Campaigns product. That's our machine learning-based carrier bidding product. We've been getting broader adoption of that product over the course of the last year or 2, and we've been investing in improving model accuracy and adding features to those models. And all the results that we've seen so far as customers adopt Smart Campaigns and then as we upgrade to newer versions is that they drive meaningful performance in carrier improvement -- and sorry, carrier -- meaningful improvement in carrier performance. So as that happens, the net effect is the carrier will allocate more budget in our direction relative to alternatives and it helps kind of propel this flywheel of better performance, better pricing, more traffic, more data, and that helps us drive more performance. So that's the area we've been most focused on. We do expect to extend some of the AI bidding products to local agents as we turn the corner into next year, and that's an area we've been focused on. I've also spoken a bit about conversational voice. We have managed to introduce AI voice into our call workflows, and that's achieving good levels of performance. And that's really beginning to allow us to interact more with customers through sort of AI modalities, which we expect to extend from that voice modality down funnel and into others over time. Operator: Your next question comes from the line of Zach Cummins with B. Riley Securities. Zach Cummins: Congrats on the strong performance here in Q3. Jayme or Joseph, both of you could probably comment on this. But can you give me a little more insight into kind of the incremental investments that you're making into new channels in Q4? Is there any way to break out kind of the anticipated impact that you're seeing to VMM in Q4 as a result of these channels? Just trying to get a sense of what's the best way to think about VMM over the next couple of quarters. Jayme Mendal: Sure. Why don't I start and then I'll let Joseph expand on it. So the channels, there's a handful of channels that we have -- most of which we have been active in, in the past, but have subsided through the hard market and now we're in the process of rebuilding. These are some of the -- characterize them as higher funnel channels. So that could be social, video, display, connected TV, things like that. And typically, when you launch new campaigns in these channels, it takes a while to kind of get the right creative, the right bidding strategy in place. And for that period of time, when you're just the early stages of optimizing those campaigns, they tend to run at lower, in some cases, even negative margin. And so that's kind of how it flows through into the financials. The other sort of category that we're focused on is AI search. Historically, we've not done much SEO traffic here at EverQuote for better or worse. Today, I'd say that it's kind of a positive thing because we haven't been -- there's been nothing to sort of disrupt as the organic search results have changed. And so we view the AI search as kind of a clean sheet for us, and we're making some investments in beginning to build out our presence in those platforms. Joseph Sanborn: With regards to -- so just turning to the numbers on VMM. If you look at the midpoint of our guide, it's sort of close to 27% on VMM margin. We were closer to 28.8% in Q3, comparable in Q2. So when I think about the impact in the quarter, it's probably a couple of hundred basis points of investment you're doing in new traffic channels on the VMM line. So just to give you a context. And I get is how we think about VMM, in general, we still think it's going to be in the high 20s over time. It will fluctuate quarter-to-quarter based on what's going on in the broader market. I think it's important to call out, when you think about VMM margin, 2 factors. One is, it reflects the advertising environment we do not control. We do not control what the advertising environment broadly. What we do control is how we apply our models and our technology to be efficient in going after that advertising dollar. Zach, you and I have talked about this in the past, but just for context, if you look at our VMM margin being in the high 20s, go back to 2023 when our business was much smaller. The VMM margin in auto was in the high 20s, and we're $250 million, $275 million business. The fact we're 2.5x bigger now in scale, and we're having the same margin speaks to, yes, there is certainly a more competitive advertising environment and more folks going after it, but our bidding technology is working. We're getting more efficient, and that's driving results. So we'll continue to make those investments this quarter, and you'll see those benefits as we progress into 2026 and beyond. Zach Cummins: Understood. And just my one follow-up question is just the broader appetite that you're seeing from your carrier partners to ramp up budgets? I thought it was interesting to hear that 80% of your top 25 still isn't at peak spend. So just curious what you're hearing from some of these partners and how they're thinking about deploying budgets as we move into 2026. Joseph Sanborn: Sure. So maybe I'll start with where we are now in Q4. So typically, we have a seasonally down Q4, if you go on the average of seasonality for the past 7 years. Typically, Q3 to Q4 is down sort of 4%, 5% dip. We're actually showing that we're actually expecting a quarter that's up at the midpoint, actually up in the full range of our guidance. So I think that reflects that we see carriers seeing really healthy underwriting margins that we've been talking about throughout this year. As we progress through the year, some of the uncertainty has been replaced by greater certainty, whether it be the impact of tariffs on underwriting costs, whether it be the cat environment. As we've gone further into the year, they're feeling stronger, and we're seeing that result in what we're seeing today, which is them define the normal seasonal pattern and really engaging to continued customer acquisition. As you look to next year, as Jayme touched on, the backdrop remains very strong for carriers. We see an environment where the health will continue on the underwriting margins for everything we're seeing and hearing from our carrier partners. As Jayme mentioned, often the health of the carriers, it becomes before you actually see the spend pick up as fully. So I think there's continued growth you'll see from carriers into next year. And you match that on the consumer side, where we have consumers continuing to shop for alternatives. And that's a really good combination for us. Operator: Your next question comes from the line of Jason Kreyer with Craig-Hallum. Jason Kreyer: So we're hearing a lot more from carriers that are pursuing kind of strategies that would have rebating to consumers. So I'm just curious what your take is on that, if there's any impact, if that kind of takes away from budget that historically could go into performance marketing or if that has any impact on what you guys could potentially absorb from carriers? Jayme Mendal: We've been -- we have not heard anything about that in our sort of interactions with carriers. I think it's a representative of the broader underwriting environment, which, again, is quite healthy, meaning the carriers are quite profitable. And so, rebates are one way they can sort of approach that depending on what problem they're trying to solve. But I would say the overarching problem that most carriers right now are trying to solve is growth. And that's all they talk to us about, and that's reflected in how they're kind of leaning into the marketplace broadly right now. Jason Kreyer: Appreciate it. And then so last year, as we got into this time of the year, we saw somewhat of a budget flush from carriers. You had pointed out the attractive profitability metrics. Is that predicated on guide? Or I'm just curious what you are assuming in the balance of Q4 here, what's baked into the guide? Joseph Sanborn: Yes. So for the guide for Q4 is obviously assuming carriers define the normal seasonal pattern being down from Q3 to Q4. So that what the underlying basis for that is the carriers are seeing sort of pulling forward investment into this quarter. I won't use the term you used. I'll say they were pulling forward growth investment into Q4 customer acquisition from -- and I think that's clearly happening, and that's reflected in our guide. Jason Kreyer: And Joseph, that like year-end budget flush doesn't -- isn't really having much of an impact to VMM, like that's not a component of the sequential pressure? Joseph Sanborn: So I guess when you look -- when you look at the VMB line, all other things equal, Q4 -- if you have an environment where you're defying the seasonal pattern on revenues being higher than the norm, that can put some pressure on advertising costs, particularly in Q4 on some traffic here as we have broader competition from retail and holidays. So there can be some impact in VMM in this quarter from that. But I'd say that's relative to what we described earlier, that's more modest than our investments in the new traffic channels. I think theoretically, it has some impact in Q4. But I guess when I still come back to the carriers and their budgets for the period, I think we go into this saying they feel very bullish and they're reflecting that. I think relative to last year at this time, I think they're coming into this quarter seeing with a greater sense of clarity on how the year is progressing. They're quite healthy. As they progress through the year, the uncertainty they may have seen, whether it's from tariffs affecting underwriting costs or uncertainty over the cat environment, those uncertainties have been replaced by clarity. As they've gotten those, they're able to lean in early in Q4, and we're reflecting that in our guide. Operator: Your next question comes from Ralph Schackart with William Blair. Ralph Schackart: On the call today, Jayme, you talked quite a bit about transforming the model from lead generation vendor to a multiproduct provider, which obviously would be a pretty important strategic shift. Just any more color you can provide without disclosing exact products for competitive reasons. But just conceptually, just trying to figure out where you're focused on product innovation. And then can you maybe sort of talk about the evolution of this change in the model? And would you be, I guess, sort of moving away from a transactional model or sort of like entertaining new revenue model in the future? Any help on that would be great. Jayme Mendal: Yes. Thanks. Yes. So I mean, we have strong large relationships with all the big carriers and thousands of local agents. And those relationships have been built and are predicated predominantly on the sort of referral, right, the click or the lead that we're selling to the carrier or the agent. And our sense is that the carriers and the agents, we can deliver them a lot more value by wrapping sort of value-add technology, data services around that core referral product. So in the case of a carrier, the example we've talked about is giving them bidding services through Smart Campaigns, is AI-enabled bidding solution. There are other services that -- on the carrier side, will not mention at this time. On the agent side, again, the vision is to really evolve to become their one-stop shop for all things growth. So agents spend money on leads to generate growth, but there are a lot of other things that they spend money on, whether it's telephony services or calls or digital services. And we've now built out a much more robust product suite that allows us to solve for the vast majority of agents' needs as it relates to growing their local agency. So the idea is build these deeper relationships, which add a lot more value. They're built on mutual trust, more data sharing and they're built on top of some of our distinct advantages in the data that we have and the technology that we're able to build around that data just to ultimately deliver more performance for the agent, for the carrier and also allow them to consolidate to have fewer vendors to deal with. So that's like the thrust of the strategy. As it relates to the commercial model, Ralph, I think over time, the answer is yes. And we started doing this with the local agents, like we do have, albeit relatively modest relative to the scale of EverQuote, but we do have a nice chunk of recurring subscription revenue that is building with the local agents as we execute on this strategy. And so, I do think there's opportunities to begin to think about evolving the commercial model over time. But the most important thing to us right now is to get the products right, to get them adopted, to prove the value and then we build from there. Operator: Your next question comes from the line of Mayank Tandon, Needham & Company. Mayank Tandon: Congrats, Jayme and Joseph on the quarter. Jayme, I wanted to touch on the $1 billion revenue target. Is that an organic target? Or would you also factor in M&A to get to that level? Because when I think about what Joseph said, the 20% growth model, then that would get you close to $1 billion in actually 2, 2.5 years. So just curious on sort of what are the underlying drivers behind that target and whether it's organic or does it include potential M&A? Jayme Mendal: Yes. So we have a plan to achieve that goal organically. And I'll let Joseph expand on how we think about M&A in this context. But when I talk about our path to $1 billion, it's an organic path, and we've got the road map. On the distribution side, it's really about just executing the playbook, which is improving the performance for carriers and agents through use of our AI products like Smart Campaigns in order to get more budget and more favorable pricing. We can take that budget, that pricing and push it downstream back into traffic to increase our traffic share. But at the same time, we're going to be expanding into more traffic channels, as we've talked about earlier already. So accessing more traffic and winning more of it. And then we've got a lot of room to continue growing in our non-auto verticals, specifically in home and as we start to consider other P&C verticals that might make sense under that umbrella. So that's more or less the ingredients of the path to $1 billion, and we think we can get there organically in the time frame that I suggested. Joseph Sanborn: Let me look at the math, I think you kind of got there is -- [ Mike ] just for those who weren't doing the math quickly, here you know that implies it took 3 years to be sort of mid- to high teens would be the growth rate. If it took 2 years, it'd be sort of low 20s in terms of business revenue growth rate. So I think that gives you a sense of how we frame it, like we feel bullish on our ability to get here through organic means. Do we see an opportunity to potentially supplement that through M&A? Yes, we see that opportunity as well. In our minds, M&A comes back to the same criteria we've discussed previously with folks is we view it as accelerating our strategy to win in P&C being the #1 growth partner to carriers and agents in this vertical. And we think there could be opportunities to do that. We do by no means see those as necessary to achieve that $1 billion goal. Mayank Tandon: Got it. That's super helpful. And then also just turning to margins. I think Joseph, you said 100 to 150 bps is the target model. I know that's not guidance. But just as I think about that, is that going to come from eventually maybe a little bit of an improvement in B&M when some of these maybe advertising pressures abate? Or would it be more heavily weighted towards operating leverage in the model? Joseph Sanborn: So I think when I look at EBITDA, I just give some context, right? So 2023, we had none, right? 2024, we went to 11.6%. I think we brought a lot of operating leverage into the model and really focused where we were spending on our investments in technology, the things that give us greater leverage. If you look at 2025 and the midpoint of our guide implies we're actually going to gain over 200 basis points at the midpoint from 2024, sort of 13.6% whatever. So I think you're seeing us at a pretty significant clip over the past few years. As we look to next year, we always say 100 to 150 basis points on average. I'd probably say we're targeting towards the lower end of that for next year as we think about EBITDA. But I also would say that our EBITDA, we view it as continue to be high cash converting. So that EBITDA will be a very high cash conversion into operating cash flow in the period, just subject to normal working capital. And then in terms of margins, I would say we still sort of -- we continue to see VMM in the high 20s. I think it's important to give some context on this, which is, it is a market where there's things we control and there's things we don't control. We don't control the broad advertising environment where we buy advertising. So if there's more demand in that market or less demand in that market that can impact advertising costs in the period. What we do control is the investments we make in our bidding technology and how we use that technology to more efficiently acquire traffic and drive that to our carriers and agents. And so when I think about the business, I'd say we still think high 20s. It will fluctuate quarter-to-quarter based on various things going on in the market and also the investments we're making. But again, on the operating expense -- and then on the operating expense side, we certainly will see a step-up from Q4 to Q1 as we customarily do. And we'll continue to be making investments in our technology areas around AI and other areas, our data assets that we think will build. We're playing investments to win. We're not just trying to do this to drive 20% growth and get to the EBITDA margin overnight. We are going to do it in a way that's setting us up to really succeed in this market long term and really be the premier growth partner to carriers and agents in the long term. Operator: Your next question comes from Jed Kelly with Oppenheimer. Jed Kelly: Just on investing in some of the newer traffic channels, how much of this is at your discretion doing this versus some of your competitors that are probably also operating at low 20% margins. And I imagine they're doing this to drive more traffic to carriers to get more budget. So can you just talk about how much of your discrepancy versus potentially responding to competitors? Jayme Mendal: We -- it's entirely in our discretion, right? I mean we are making like investments that are very much consistent with our long-term strategy. And we think these are investments that will help us achieve that $1 billion goal, grow at 20%, get to that 20% adjusted EBITDA margin over time. So this is all very consistent with our long-term strategy. We don't -- we have -- I mean, we don't pay super close attention to how our competitors' margins or ad costs are moving around over time, right? Like we have our financial plan, and we've got a pretty good track record of achieving that plan. I can appreciate that others may choose to make certain trade-offs at various points in time. But we've had a pretty consistent track record just kind of executing our plan and staying heads down. And getting into these channels will be important for us to achieve that plan because the demand from the carriers and agents is definitely there right now. And we've got to be able to continue growing volume to meet that demand. Jed Kelly: And then just as a follow-up, how should we view your OpEx and sort of your longer-term goals as a percentage of VMM, I guess, because one could argue your VMM is actually your true revenue, right? So how should we look at that? Joseph Sanborn: Yes. I guess, yes, I appreciate you made that comment before. I continue to look like EBITDA margins in a traditional sense relative to revenues, adjusted EBITDA margins. And so they were 11.6% in '24. At the midpoint of our guide puts some mid 13.5% this quarter, so a couple of hundred basis improvement from last year. And we'll add another 100 basis points as our target for next year. And we'll continue to that 100 to 150 basis points every year and thereafter. So I think that's how we think about it. And of course, as VMD scales, of course, our -- the thing we are doing is some dollars will go to the bottom line to drive incremental adjusted EBITDA and some dollars in a given quarter will go to investment. Those investments be it principally in technology areas and particularly around AI and leveraging our data assets to help us build a longer term -- to position us for longer-term growth and competitive differentiation. And that remains our strategy, and that's how we're approaching it. And that means OpEx, you'll see those investments as we build through next year. But just as we've done this year, we've managed very carefully in terms of as we add incremental investments, you've seen us -- we said at the start of this year, they would add 100, 150 basis points in adjusted EBITDA. We added actually 200 basis points. If you look at the midpoint of our guide that is achieved. And so I think we're very good at saying what we're going to do and then execute against that and then delivering those results. Operator: Your next question comes from the line of Cory Carpenter with JPMorgan. Cory Carpenter: I had 2 financial questions. Just on the traffic investments, how long do you expect those to impact VMM margins? And do you ultimately expect them to run at parity with your other channels? That's the first question. And the second question, a lot of talk around the 20% growth target. Maybe just ask directly, is that something you think is achievable next year given the tougher comp? Jayme Mendal: Yes. So I'll take the first one. I mean the investments, typically, when we're ramping up a new channel or a new traffic program, it's 1 to 2 quarters where we're launching, we're optimizing and we're scaling. At which point, I do think that we would -- these channels would kind of blend in at comparable -- at VMM levels to our existing traffic portfolio. So we don't view this as a long term -- these channels as weighing down VMM in the long term. But there's a bit of a start-up cost that you incur when we start launching into some of the new channels. Joseph Sanborn: And then in terms of our -- how we think about top line growth, there's some context, right? As we look at -- obviously, as you point out, we've had some tougher comps relatively speaking is given the very strong growth we've had '24 into '25 as auto recovery has progressed. What we mentioned in our prepared remarks is in the second half of '25, we've had 20% year-on-year growth relative to the second half of '24, which was a record prior to this year -- second half of this year. So I think you're seeing us continuing to do well as the levels start to normalize. And then we talked about our 2- to 3-year goal of getting to $1 billion in revenue. So I'm not going to tell you on this call if we're going to get exactly 20% next year or not. But I think as we look at it, we feel very good about averaging 20% over time and importantly, getting to that $1 billion goal in 2 to 3 years, top line growth organically. Operator: Our final question comes from Mitch Rubin with Raymond James. Mitchell Rubin: This is Mitch on behalf of Greg Peters. So I was wondering if you could provide us with an update on the progress of California with carrier participation and how much impact a full panel of carriers would be? Jayme Mendal: Yes. So California has been sort of steadily kind of ramping carrier by carrier, segment by segment. And so it's -- there is meaningful spend in the state now. I think it's like a top 3 to 5 state in Q3. Of course, it is the largest state. So it's still just -- it's not quite proportional to its potential scale yet. So we view California as having still some room to grow. It's a little hard to dimensionalize that, but we think there could be still some meaningful upside left in California as we progress into next year. And we would hope to get California back to kind of a steady-state environment sometime in 2026. Mitchell Rubin: Great. So my follow-up is you guys have done a great job of managing on advertisement costs. Where is there any room for improvement? Where is most of the incremental leverage going to come from investments in technology? Joseph Sanborn: So I think the way we look at the business on is we're always looking to drive efficiency in the business, right? How do we simplify, how do we be more efficient in the business. And as we've talked about in some of our prior calls, and I think it's been one thing that's been ingrained in us as a management team is how do we think about how we spend our dollars in a way that we're getting the right return for shareholders. It's having gone through the period we did. It's sort of a silver lining in that period. So that has continued. And we're continuing to see ways that we bring more efficiency in the business. So for example, this year, headcount is up roughly 10% if I look into Q3 where we landed, but operating costs are basically the same. That reflects we are driving efficiency. We're changing the composition of the team. We're also using technology to make the team more efficient and get more productivity through the team. As we look ahead to next year, we're not seeing a lot of significant increase in headcount, but we are seeing continued investment in AI areas and including technologies that help the team leverage AI more efficiently. And so that's where I think you'll continue to see us doing that. And that will be driving, I think, a lot of leverage for us and efficiency going forward. Jayme Mendal: Yes. Just to give maybe a couple of examples, right? Like where our AI bidding technology has really allowed us to do a lot more with our traffic operations teams where we've effectively automated a huge amount of work that used to be manual. Now we've turned that and through Smart Campaigns out to our carriers and our carrier-facing teams now have to do a lot less manual campaign management on behalf of carriers. So all of our bidding automation has been a huge unlock in terms of efficiency. Within our engineering organization, we've got broad adoption now of Copilots for engineering. In some cases, we have teams that are writing code like they're just inferencing code as the primary way of writing code. So we're getting some real benefit in our engineering organization. What else? We've talked about our voice agents, right. So our call center operations, we've now begun to introduce voice agents into that to reduce some of the reliance on human call center operators. So it's really at every sort of within every function of the business, we are finding ways to drive efficiency. And we are, in fact, going function by function to sort of systematically identify activities that can be automated using GenAI or just good old-fashioned software. And that is a process that will continue all through next year. Mitchell Rubin: I appreciate the color. Congratulations on the great path. Jayme Mendal: Go ahead, operator. Operator: And with no further questions in queue, I'd like to turn the conference back over to management for closing remarks. Thank you. Jayme Mendal: Thank you. And thank you all for joining. The state of the business is strong. It's getting stronger as we continue to produce record performance quarter after quarter. We are accelerating right now our innovation of new products, features, traffic data, AI capabilities. And as we do, we're transforming from a lead gen vendor to a growth solutions partner for our customers. We are very energized to continue growing towards our $1 billion revenue goal as we build EverQuote into the lean growth partner for P&C insurance providers. Thanks all for joining today. Operator: This concludes today's conference call. You may now disconnect.